From Tim Knox, The Centre for Policy Studies:
"According to HMRC, a one percentage point increase in corporation tax will raise around £2.4 billion. So, Labour seems to have calculated that an increase in corporation tax rate by seven percentage points to 26 per cent would yield £19.4 billion compared to the government’s planned cut to 17 per cent (there is a small adjustment because small businesses would see receipts go up more slowly).
But this calculation is problematic. Not least it overlooks the fact that a cut in the corporation tax rate from 28 per cent in 2010-11 to 19 per cent has been associated with an increase in onshore corporation tax receipts of 44 per cent since 2011-12. Counter intuitive maybe, but undeniable. Perhaps the recent cuts in corporation tax have meant that more companies have chosen to invest in the UK, have employed more people (the UK is enjoying record employment rates) and have also encouraged more individuals to set up their own companies so that they can enjoy a lower rate of tax. In other words, over the last six years, companies and people have changed the way they behave so that they benefit from the lower rate of tax to such an extent that tax receipts have actually gone up. And yet Labour seems to believe that doing the exact opposite will increase tax receipts even more.
Similarly, Labour has claimed that increasing income tax rates for the top 5 per cent of earners could raise up to £6.4 billion a year. If you ask the question of whether higher earners already pay their fair share of income tax, the answer you get will depend on who you ask. But what cannot be argued is that, since 2010, the rich are now paying a much greater proportion of income tax, while basic rate taxpayers have seen their income tax contributions fall significantly from nearly half of all income tax receipts to just over a third.
For again we see that, if the government tries to take too much, then people act rationally in their own self-interest. Here, the trend in payments from the top 1 per cent of taxpayers is illustrative. When George Osborne cut the additional rate of tax for those earning above £150,000 from 50p to 45p in 2013-14, receipts from additional rate taxpayers went up by £8 billion in that financial year. A proportion of this was due to the deferral of income. Yet the increase in receipts was maintained in the following financial year, suggesting a lasting benefit to the exchequer from competitive tax rates. Despite the cut in rate from 50p to 45p, the yield has increased: top rate taxpayers have gone from paying under 23 per cent in 2010-11 of total income tax receipts to 28 per cent in 2014-15.
And remember that the highest earners are the geese that lay the golden eggs. Forcing them to pay more might be popular and therefore politically tempting, but it is economically crazy. Many geese will either fly off to more attractive countries or just stop laying the golden egg
Finally, Labour claims that its suggested tax on financial transactions would bring in £5.6 billion a year. That well-known Conservative, Sadiq Khan, the Labour mayor of London, has previously criticised these plans, arguing that the tax could lead to companies going to other parts of the world where this is no such tax. Financial institutions, which contributed £71.4bn, or 11.5 per cent of total government tax receipts in 2015-16, have also warned that market participants may take their business elsewhere instead of paying the levy, saying that the tax would stall market activity, slow economic growth and lead to higher costs being passed onto investors. Does Labour really not understand that its proposals would risk driving these businesses away?
Labour’s attempt to justify its tax proposals, Funding Britain’s Future, published alongside its manifesto, reads as if it has decided what it wants to do; and then to play with the calculations so that it appears affordable. The problem is that it simply ignores how companies and individuals would react to its proposed changes. In the real world, not a place which Labour appears keen to inhabit, that can only be dismissed as dangerously naive."