Corporation tax: rates down, receipts up

Published: 23rd Jun 2017

In brief

Claim

Corporation tax revenues have increased since the government reduced the tax rate.

Conclusion

These are both correct. Official forecasts say that receipts could well have been higher if the rates hadn’t been cut.

“And the corporation tax yield has gone shooting up since the Government reduced the rates of corporation tax”

David Lidington, 22 June 2017

Corporation tax receipts have been increasing and the main rate has been falling in the last few years. But receipts could well have been higher if the rates hadn’t been cut.

As we’ve pointed out before, successive policy costings from the Office for Budget Responsibility since 2010 have suggested that the government would have collected more in tax if it hadn’t lowered the rates. According to the Institute for Fiscal Studies: “Cuts to corporation tax rates announced between 2010 and 2016 are estimated to reduce revenues by at least £16.5 billion a year in the short to medium run.”

These are the best figures we have, but they’re also far from certain. Receipts depend on how big profits are, and these are hard to estimate. Cutting rates can also be beneficial to economic growth in the longer term, which in turn can mean bigger future receipts than would otherwise have happened.

So why have receipts been going up in spite of rates going down? The IFS points to several factors. Profits have been growing, so there’s been more to tax. Policy measures have also led to increased income, for example through changes to reduce tax avoidance.

The most recent “shooting up” of tax receipts last year was due in particular to the growth in companies’ profits and the introduction of a Bank Surcharge, according to HM Revenue and Customs.

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


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