“The last time we cut corporation tax we attracted more revenue into the exchequer because more companies wanted to base themselves in Britain, more companies wanted to invest in our country…”
That was the claim from Liz Truss in her first ever Prime Minister’s Questions.
Corporation tax is a tax businesses in the UK pay on their profits. Ms Truss’ claim today came in response to criticism from Labour that she intends to cancel a planned increase in corporation tax that had been slated for next year.
It’s true that the total amount of money the government took in from corporation tax rose after the government cut the headline rate from 20 to 19 per cent in 2017.
But is the cut to the headline rate the cause of this extra cash, as Ms Truss seems to suggest?
The independent Institute for Fiscal Studies (IFS) says otherwise: “Corporation tax revenue has increased since 2010 even while the headline rate has been cut. But that does not mean that rate reductions have increased revenue.”
Stuart Adam of the IFS explained to FactCheck that there were other factors in play.
One is what economists call “base broadening” – the government made a series of changes that meant more businesses were taxed and more of their profits were in scope of corporation tax.
Another factor is that during the 2010s, the economy was emerging from the 2008 financial crisis. So, even if the headline rate hadn’t been cut, we’d still expect the government to take in more corporation tax revenue simply because businesses were doing better and making more taxable profits.
And it’s worth saying that while the headline rate of corporation tax was cut, other types of corporation tax saw rates increase over the period the prime minister’s referring to. So again, it’s hardly surprising that corporation tax revenues rose.
Liz Truss suggested that corporation tax revenues rose because the government had cut the headline rate, which it did in 2017. But, according to the Institute for Fiscal Studies, other factors explain the increase in revenues over that time.
Downing Street was contacted for comment.