Labour and corporation tax

[DisneyMillie]

I'm a totally floating voter especially this time around and I have no idea who to vote for. I historically voted Tory but switched to labour last general election. Now I'm just confused - labour have totally put me off with their increased corporation tax plans. How is this not madness given we're leaving the EU don't we need to make the country attractive to make companies stay?

I'd be more than happy with an increased income tax (even though it would negatively impact us) as I very much believe in funding public services.

What's your opinion on this policy?

Germany charges companies 30-33% tax on profits ( corporate income tax, trade tax & solidarity surcharge) compared to the UK's current rate of 19%. Which one has the better economy and industry?

Companies understandably make decisions to allow them to reduce their tax burden (to pay as little as possible) because that is half the battle in being profitable

So tax avoidance makes companies profitable? As they only pay tax on profit, how does this work?

It works as if they make for example £100 profit and are taxed 15% they declare a profit of £85 net profit to distribute in dividends.

If they are taxed 30% they can only declare £70 profit to distribute in dividends.

Therefore they are more profitable (on a net basis) in a low tax environment.

Taxation isn't the only reason that companies locate themselves where they do, and even where taxation does encourage companies to relocate, it may not necessarily be of much value to the wider economy. Just because a company is located in a country for tax purposes says very little about where they will invest and create jobs, because that will depend on a multitude of factors such as availability of skilled workers and other resources, and market access.

For example, Ireland is now a worldwide hub for aircraft leasing and finance - this is the main reason behind the recent astonishing economic growth figures. But that doesn't mean aircraft are built or serviced in Ireland.

Tbh focussing on Labour's plans for corporation tax is a bit odd given that they are not going to win the election. If your concern is a wider one - what policies will encourage investment in the UK? - then you need to look more widely at what's on offer. Corporation tax is only a very small part of what makes companies invest where they do. If, post brexit, the UK has a lack of skilled workers and restricted market access to the large trading bloc on its doorstep, those are going to be a far more important factors especially for manufacturing industry investment.

The proposal seems to be to increase corporation tax from where it is now, but keep it below the rates in other european countries.

What worries me is that it seems to be earmarked to pay for an awful lot of stuff, and I'm not sure it could ever stretch to that.

It's only "worrying" if you think Labour has a chance of enacting this policy, which it clearly doesn't, since it would have to be elected first. And no one - except perhaps a few deranged corbynistas - thinks that there is the remotest chance of a Labour win.

Tbh I think the only question anyone needs to ask themselves at this election is whether they are happy with Tory landslide or not. If you are - vote Tory. If not - vote for someone else.

In practice, even large differences in corporation tax do not influence company behaviour that much - factors such as market access, availability of labour and infrastructure are far more important. If this weren't the case, every European company which could get away with it would be headquarterd in Ireland.

You're spot on OP. It is a very short sighted "policy".

In practice, even large differences in corporation tax do not influence company behaviour that much - factors such as market access, availability of labour and infrastructure are far more important.

Agree that it is the overall package that influences a company as to where to operate. But the plans Labour have to tax business and high paid employees coupled with Brexit, means that the UK becomes a very unattractive place to do business especially if you work in the tax generating sector of finance - Macron/Merkel must be rubbing their hands with glee - no brainer to move abroad now if tax rates are going to be punitive (which they'd have to be, to pay for everything in the manifesto that's now leaked).

Once CT goes up, behaviour does change as illustrated earlier - if a company decides to stay in the UK then it can make staff redundant to reduce costs and/or put up prices to increase revenue to offset the tax increase.

None of this is good news for anyone. We need business in order to grow our economy and create jobs for people.

To those questioning why it really matters to me - I completely agree that I think labour won't win and therefore it's a slight irrelevance but I will still vote based on policies so it's important to me - I won't just vote 'not tory' unless I agree with what a party is standing for.

Im just not sure I agree with any of them at the moment

mistigri, I agree that corporation tax isn't the only factor in a company's decision about where to invest, but we are also planning to leave the single market, so it hardly seems like the right time.

Also, loads of companies have their European HQ in Ireland.

I would be happy to see corporation tax more tightly enforced and loopholes closed, without increasing the rate.

Corbyn is also mumbling about increasing National Insurance contributions which would make hiring staff more expensive too. I am all for believing in the value of Britain as a place for business but all of this at once seems a bit mad.

There are definitely other factors that influence company decisions but, given that Brexit is going to be a massive source of destabilisation and worry for companies, what else can GB offer right now to still be attractive?

You can't simply isolate corporation tax from other policies.

If you reduce corporation tax, you reduce the tax take from companies already in the UK. So the benefit of reducing tax depends on the extent to which you can attract new companies, and the extent to which they declare taxable profits. And attracting companies to invest in the UK will depend on the outcome of brexit.

What else can GB offer right now? A commitment to remain in the single market? It would stop the flight from the city and manufacturers (like my employer) might halt plans to move some production to the EU.