Friday, 14 November 2014

Rising corporate profits shows folly of corporation tax cuts

Andrew Fisher says there's more evidence to slay Osborne's deficit cutting credentials

ONS figures out on Friday 14th showed that UK corporate profits are "at the higher end of the quarterly range experienced during the last five years", hitting an average 11.8% return.

However, the data is skewed a little by a dramatic drop in the profits of companies operating on the UK Continental Shelf  - that is companies operating in the North Sea oil and gas sector - whose profits dropped from historic levels of around 35% to just 16.9% in the last 3 months.

The service sector which dominates, accounting for three-quarters of the UK economy, saw big gains: with its best quarter returns since 2003 and having had its best year since 1998.

But bizarrely, corporation tax receipts are down 14% since the crash.

So why are corporation tax receipts not buoying up HM Revenue & Customs (HMRC) and helping close the deficit?

There are three obvious reasons:
  1. George Osborne has slashed corporation tax from 28% in 2010 to just 21% today, with a further reduction to 20% to come next year - reducing tax revenues from the evidently booming corporate sector
  2. The Tories have been lax on tax avoidance. As one Cabinet Minister said, it's "a compliment" for the UK to be described as a tax haven, and added: "That is exactly what we are trying to do". 
  3. HMRC has sacked tens of thousands of staff - the ones who collect several times their own salaries in taxes - in a false economy to satisfy Mr Osborne's daft austerity job cut targets. And HMRC management seems more concerned with witch-hunting its staff members' union than collecting tax.
If these corporate profits were being properly collected, and if Osborne hadn't given them a cash bonanza by slashing tax rates, then maybe the deficit would be closing instead of rising again this year?

Memo to Osborne: austerity at HMRC and corporation tax cuts won't help close the deficit ...

No comments: