Corporation tax: could we have raised more?

Published: 2nd Jun 2017

In brief

Claim

Labour are planning to raise corporation tax to a rate that’s lower than it was in 2010.

Conclusion

That’s correct.

 

Under Margaret Thatcher the corporation rate was 52%. It fell to 34% while she was Prime Minister.

 

That’s correct.

 

Corporation tax rates have gone down since 2010 but the amount raised by this tax has increased to £56 billion, the highest ever recorded.

 

It’s correct that the rate has fallen, but the actual amount raised in 2016/17 was £50 billion. The tricky question is how these two things are related. The government’s own estimates suggest it might have collected more without having made changes to corporation tax, even though these estimates are quite uncertain.

Claim 1 of 3

“One of the major areas he [Jeremy Corbyn] is looking at raising tax is corporation tax. Now corporation tax has come down over the years in rate terms, in terms of the actual rate, and as it’s come down what’s happened is the amount collected has gone up. It’s now £56 billion, the highest level ever.”

David Davis, 1 June 2017

“Under Margaret Thatcher corporation tax in this country was 52% and the lowest she ever got it to in the last years of her reign as Prime Minister was 34%. This government in 2010 has taken it from 28% to 19% and says that it will go down to 17%. Our proposal is to take it back up to 26%, half of where it was under Margaret Thatcher and still 2 points lower than it was in 2010 when this government came into office.

Barry Gardiner, 1 June 2017

Labour has committed to raising the main rate of corporation tax to 26% if they win the election. At the moment it is at 19% and it's set to fall to 17% in April 2020.

It’s correct that the rate of corporation tax has fallen since 2010. In 2010 the standard rate of corporation tax was set at 28%. This was reduced by the Coalition and Conservative governments several times, ending up at 19% in April 2017. Its 2017 election manifesto promises to reduce corporation tax to 17% by 2020, in line with recent plans.

Rates are only half the picture when it comes to how much we pay in tax. Cuts to corporation tax rates have been partly offset by measures to lower capital allowances or to reduce tax avoidance.

It’s also correct that corporation tax revenues have increased since 2010, although Mr Davis got the figure wrong. Last year in 2016/17 the UK government raised £50 billion from corporation tax, a cash increase of about £5 billion compared to the same time the year before.

The amount collected by the government hasn’t risen simply because the rate has fallen. Successive policy costings done under the Coalition and Conservative governments suggest it would have collected more in corporation tax if it hadn’t lowered the rates (even though such estimates are quite uncertain). You’d expect the cash value of corporation tax receipts to rise each year as the economy grew, all else being equal.

As Mr Davis said, the cash value now is the highest recorded since 1980.

It’s more useful to look at what has happened to this amount as a percentage of the UK’s overall economic output. Initially, as a share of our GDP, the revenue from all forms of corporation tax (including things like Bank Surcharge, which aren’t included in the £50 billion figure above) increased from 2009/10 to 2011/12. It then fell for two years and levelled out for two more. Last year the share started to increase again.

When Margaret Thatcher came to power in 1979 the standard rate of corporation tax was set at 52%. It was reduced over the next few years and the last time it was changed while she was Prime Minister was in 1990 when it was cut to 34%.

The small companies rate of corporation tax also fell while Margaret Thatcher was Prime Minister.

This factcheck is part of a roundup of BBC Question Time. Read the roundup.


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