Liz Truss’s bid to “go for growth” by slashing taxes on big business profits has failed in the past and will fail again, a leading think tank is warning.
The plan to scrap a hike in corporation tax ignores the harsh lessons of recent history – when investment stagnated despite ultra-low rates – and is not even favoured by business leaders, the Institute for Public Policy Research (IPPR) is arguing.
Instead, it calls for a strategy stretching beyond tax to boost investment and productivity by tackling chronic problems in housing, energy, transport, skills and childcare.
“Slashing corporation tax is just a continuation of a failed race to the bottom that hasn’t delivered for the UK economy,” said George Dibb, head of the Centre for Economic Justice at the IPPR.
“Tax cuts are not a magic bullet to increase investment and growth – in fact, despite having some of the lowest levels of corporate taxation, business investment in the UK is the lowest in the G7.
“If the government were serious about boosting investment, it would be listening to businesses who want a serious economic strategy to support growth, boost innovation, and increase our low productivity.”
Friday’s mini-budget is expected to fulfil Ms Truss’s campaign pledge to axe the corporation tax hike, as one of a clutch of policies that will benefit the better off.
The levy is due to rise from 19p to 25p next April, after former chancellor Rishi Sunak reversed years of Tory economic faith by accepting the low rate was failing to fire up business investment.
The analysis by the IPPR has found that – even with the 19p rate, by far the lowest of the G7 leading economies – the UK fell behind its rivals in the investment race.
In 2019, it slipped behind Italy and Canada to have the lowest private sector investment in the G7 as a proportion of gross domestic product (GDP), the left-leaning think tank said.
The following year, the UK ranked a miserable 28th out of a 31-strong group of developed countries which are members of the Organisation for Economic Co-operation and Development.
Mr Dibb added: “We’re not just falling behind the largest economies either, the UK is consistently in the worst performers in the OECD club of 38 developed economies.”
He criticised a belief that a government “can cut tax and deregulate its way to growth, which has failed before” – contrasting it with Joe Biden’s “whole-government” approach.
A “chop-and-change” approach – which had seen government adopt five strategies in just eight years – was also confusing businesses and undermining UK economic credibility, Mr Dibb said.
The mini-budget is also expected to see taxes cut in a string of “investment zones”, where businesses may also be able to ignore some environmental regulations.
But a near-identical policy pursued by George Osborne after 2010 – when they were called “enterprise zones” – also failed to spur growth in economically left behind areas.