Osborne’s policies are no April Fool

George Osborne's corporation tax policy - lauded today by Conservative Home - would lead to cuts in crucial investment allowances. And a 20% rate would cost £4.3bn.

Conservative Home are today setting out “ten good reasons why we can support the Conservatives with enthusiasm.” Top of the list is George Osborne, prompting Labour List editor, Alex Smith, to tweet, “Wow, April 1st already.” But the justification – lowering corporation tax – is not something to laugh at.

Tim Montgomerie writes:

“George Osborne will use his first budget to cut the headline rates of corporation tax by abolishing allowances. As part of his ambition to make Britain an international headquarters for business and to “improve Britain’s international rankings for tax competitiveness and business regulation” he wants to continue to cut corporation tax in budget-after-budget. Tory Treasurer Michael Spencer has spoken of a corporation tax rate of 20% by the end of a first Parliament.”

The ‘Tax ready reckoner and tax reliefs‘ guide (Table 5) which accompanies the pre-Budget report sets out that the proposed 3 pence cut in corporation tax and 2 pence cut in the small companies rate would cost £3.2 billion in 2011-12 and £3.7 billion in 2012-13. To pay for it, Osborne proposes (p. 8-9) abolishing the £50,000 annual investment allowance; reducing general plant and machinery capital allowances to 12.5 per cent; and reducing long life plant and machinery capital allowances to 6 per cent. With business investment continuing to fall off a cliff, it is not surprising that the manufacturers’ lobby group, EEF, say:

“the importance of capital allowances cannot be underestimated.”

Cutting corporation tax by a further 5 per cent, as Spicer suggest, would cost an additional £4.3 billion on cautious estimates (i.e. if the projected 2012-13 loss was the same in subsequent years). As Left Foot Forward has shown, Spicer’s company would benefit to the tune of £22.5 million. Spicer did not set out which public services he would propose cutting to pay for this ambition.

George Osborne may be a joke but his policies, sadly, are not.

18 Responses to “Osborne’s policies are no April Fool”

  1. The Parallax Brief

    There are several arguments in favour of cutting corporation tax: Foremost of which is that businesses create jobs, and if we could attract more to the UK, or reduce the tax burden on those already here to the extent that they would have more cash with which to expand, that would mean more jobs. But the concept of somehow clawing that back from smaller businesses through hacking away at their investment allowances seems completely wrongheaded.

  2. Henry

    This sounds familiar; the Tories are proposing to punish manufacturing spo as to help their banker & Big Biz friends.

  3. Anon E Mouse

    Henry – Considering Gordon Brown was the man who deregulated the banks, Lord Sainsbury is a Labour peer and Rover was allowed to go bankrupt under this Labour government I think your comment is infantile and not thought through.

    Any chance we can have some pro Labour comments and less silly anti Tory ones?

    We are about to go into an election and despite how totally inept this current government is any floating voters would be put off by your ill judged remarks.

  4. Mr. Sensible

    Anon E Mouse, Labour deregulated the banks?

    Consider:
    1 Under a Tory government, Meadowhall came in to being on the sight of a former steelworks; that’s where our manufacturing went.
    2 Before the economic situation, Cameron et al were calling for less, not more, regulation.

    Could the government have regulated the banks more? Yes.

    But, it’s a bit rich of the Tories to say that.

    Oh and, is this not the same Conservative Home blog that was clutching at straws to find 100 reasons why Bo Jo was good for London?

    I think I could only find 1 or 2 that were actually of any use to Londoners!

  5. Thomas Byrne

    Does Left Foot Forward not consider a reduction on tax for -all- businesses better than giving tax breaks to specific groups?

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