“£100bn has been given away in tax cuts”
That was the claim from John McDonnell this morning.
The shadow chancellor said “over £85bn” of that came from cuts to corporation tax, with the rest from changes to capital gains, inheritance and top-rate income taxes. That, he says “has benefited corporations and the wealthy”.
But the “£100bn” figure is misleading. It fails to account for the tax rises the government has levied on businesses and top earners.
Where’s the £100bn from?
The £100bn figure comes from a Labour report called “In the pockets of the many.”
The first thing to note is that not all of these supposed government giveaways have happened yet: they’re based on stats for the period 2010-11 (when the Conservatives took office) to 2023-24 (the furthest ahead official forecasts go).
Labour say they reached the total by combining £86bn cuts to corporation tax, £5.5bn cuts to capital gains tax, £5.6bn in inheritance tax giveaways, and £1.2bn from cuts to income tax for top earners.
They’ve used numbers from the Office for Budget Responsibility’s (OBR) Policy Measures Database, although the watchdog confirmed to FactCheck that they were not responsible for the analysis.
The net corporation tax giveaway is nothing like £86bn
The problem is that this “£100bn” that Mr McDonnell says has been given away in tax cuts to “corporations and the wealthy” doesn’t account for the fact that those same businesses and individuals have also been subject to tax rises since 2010.
Let’s take corporation tax, which according to Labour’s calculations, makes up £86bn of the £100bn “giveaway”.
The headline rate of corporation tax has been cut from 26 per cent to 19 per cent since 2010 (which Labour would reverse if in power — as FactCheck reported yesterday).
Returning to the OBR Policy Measures Database, if we include all the changes that the Conservatives have introduced under the category “on-shore CT [corporation tax]” — so the tax giveaways and the tax rises — we calculate the net giveaway to businesses is £7.2bn.
That’s substantially less than the gross figure of £86bn that Labour were quoting.
As the independent Institute for Fiscal Studies (IFS) pointed out yesterday: “While the government has reduced the headline rate of corporation tax, at the same time it has increased corporation tax in other ways, including reducing capital allowances for investment, introducing the bank surcharge, restricting companies’ ability to offset past losses against future profits, and a raft of anti-avoidance measures.”
Top earners are paying more than they would have done without government reforms
It’s a similar picture when we look at the top rate of income tax. Labour have focused on “£1.2 bn from cuts to income tax for the very wealthiest.” They’re referring to a 2012 policy to reduce the top rate of tax to 45p.
But as the IFS found last week, overall, top earners are paying more: “The share of income tax provided by the top 1 per cent of taxpayers has increased from 24 per cent in 2007-08, just before the financial crisis, to 30 per cent now.”
And “unlike the increases in previous decades, this has not been driven by a rising income share at the top. Rather, it reflects policy reforms: there have been income tax rises for high-income individuals,” including “the additional rate of income tax above £150,000” and “the withdrawal of the personal allowance above £100,000.”
Does this method even tell us much?
As the IFS explained to FactCheck, the methodology Labour have chosen is not especially reliable — even if they had used net, rather than gross, figures.
For one thing, the OBR Policy Measures Database is not updated to reflect new estimates of what each policy announcement will cost (which can often change as policymakers and economists get a better idea of how businesses and individuals will actually respond to a change).
More broadly, aggregating figures over a 13-year period, and including future projections, like this is pretty unconventional for statisticians. The IFS recommend we use annual numbers instead.
We should also say that framing the alleged “giveaways” as benefiting “corporations and the wealthy” wrongly gives the impression that businesses and high earners are one-in-the-same.
In fact, as the IFS have documented in the past: “Like all taxes, corporation tax rises are always borne ultimately by households, through lower wages for workers, higher prices for consumers or lower returns for shareholders.” The report goes on to highlight evidence that “a significant share of the burden of corporation tax tends to get shifted to workers.”
It’s not the first time politicians have used a gross figure when a net figure would have been more appropriate. Boris Johnson was rapped by the head of the UK Statistics Authority during the 2016 referendum for his now-infamous battle bus that claimed we were sending £350m a week to the EU — a figure that ignored the rebate and other funds we get back in return.
FactCheck contacted the Labour party. They showed us their report but declined to offer further comment.
John McDonnell says “£100bn has been given away in tax cuts” that have “benefitted corporations and the wealthy.”
He’s referring to Labour research on the combined effect of cuts to corporation, inheritance, capital gains and top-rate income taxes over the period 2010-11 to 2023-24.
This figure is misleading because it fails to take account of the tax rises that have hit businesses and top earners in that time.
For example, Labour say £86bn of the £100bn total comes from corporation tax cuts. But using what we understand Labour’s methodology to be, the net giveaway to businesses is substantially less: around £7bn.
Similarly, research from the Institute for Fiscal Studies published last week found that top earners are now paying more of the national tax bill as a direct result of government policies since 2010.