U.K. Lawmakers Pose Fresh Questions Over Tax Cuts For Businesses

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By Ben Stupples

U.K. lawmakers have renewed criticisms of the government’s planned reductions in the top corporate tax rate, adding to the scrutiny over Britain’s public finances as it prepares to leave the European Union.

At a June 26 parliamentary event, former Labour Party leader Ed Miliband and former former Universities and Science Minister, David Willets questioned the U.K. government’s plan to cut the highest corporate tax rate from the existing to 17 percent in 2020 from the current 19 percent level.

“We’ve got to have a debate around corporation tax,” Miliband said at the seminar, organized by the All-Party Parliamentary Group on Responsible Tax, focusing on the impact of Brexit on the U.K.’s tax policy. “In a way, I think we need to engage businesses in this debate about what are the important things for them going forward, and is going to a 17 percent rate right, or what’s important?”

Willets, a former Conservative Party member who has sat in parliament’s upper chamber since 2015, similarly said it wasn’t “necessary” for the U.K. to reduce its corporate tax rate further. Yet he doubted, conversely, whether the top corporate rate could increase beyond the existing level.

“I would be wary of raising it beyond 20 percent,” he said. “In a post-Brexit environment, where you’ve got internationally mobile companies saying, ‘Why the hell should we stay in Britain?’ I really don’t think Brexit gives us the opportunity of substantial increases in company taxes.”

Brexit and Tax Focus

The comments come amid a growing focus on the U.K.’s public finances ahead of Brexit. The U.K. is set to leave the EU next March, with a 20-month transition period to follow that stage.

Last week, Prime Minister Theresa May signaled in a June 18 speech that some taxpayers will have to “contribute a bit more” to fund increasing spending for the country’s National Health Service.

Some funding will also come from a Brexit “dividend,” the 350 million pounds ($462 million) a week that Britain will no longer have to pay into the EU budget as a result of leaving the bloc, May added.

That stance has faced criticism, though, due to economic forecasts that show Brexit weakening the U.K.’s finances, leading to questions over how the government may plug the gap.

“Extra spending can’t be funded by the Brexit dividend,” Paul Johnson, director of the London-based think-tank Institute for Fiscal Studies, said in a June 17 tweet. “There is no Brexit dividend.”

2008 Financial Crisis

The U.K.’s top corporate tax rate began to decline under former Prime Minister Gordon Brown’s Labour government following the 2008 financial crisis, falling from 30 percent to 28 percent by 2010.

In the coalition government between the U.K.’s Conservative and Liberal Democrat parties over the following five years, then-Chancellor George Osborne accelerated the corporate tax cuts, with the government committed to keeping the lowest rate across Group of 20 countries.

In December 2016, the U.K. government legislated to cut the top corporate tax rate to 17 percent.

Labour, the U.K.’s opposition party, has repeatedly said it would seek to reverse these reductions.

“Our new settlement with business will ask large corporations to pay a little more while still keeping corporation tax among the lowest of the major developed economies,” says the party’s manifesto for last year’s general election. Miliband stepped down as the Labour Party’s leader in 2015.

“We want a more progressive system,” Labour party lawmaker Annaliese Dodds, a shadow Treasury minister, said at the seminar. “We’re already committed” to reducing the corporation tax cuts.

To contact the reporter on this story: Ben Stupples in London at bstupples@bloombergtax.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bloombergtax.com

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