Small companies pay most corporation tax as Britain fuels new race to the bottom

New research from Oxford University details how the G7, and Britain in particular, have been engaged in a 30-year race to the bottom on corporation tax with large companies getting away with paying less than small. The findings come as George Osborne plans to cut Britain’s corporation tax by a further four percentage points from 28% to 24%.

Examining the findings, the Financial Times reports that:

“Very large companies pay lower rates of corporation tax than smaller businesses, according to research by Oxford University that will fuel debate about whether big business pays enough tax.

The research from the Oxford University Centre for Business Taxation outlines that:

“In only in two industries – textiles and wood, paper and publishing – do larger companies have a higher [Effective Tax Rate] than all other companies. In all other sectors, larger companies have a lower average ETR. The difference is most extreme for the agriculture and manufacturing of motor vehicles sectors – where the largest 100 companies have a negative average ETR, largely due to large negative tax in a few companies. The mining sector still stands out with the largest tax payments for both the largest and the smaller companies.”

The report also finds that:

• The UK has the lowest corporation tax rate in the G7.

• For over 25 years the UK’s corporation tax rate has been well below the G7 average.

• UK corporation tax revenues have been more volatile than corporation tax revenues of G7 countries as well as UK GDP and personal income tax revenues.

• Revenue in the G7 from corporation tax has stayed roughly at 3% of GDP while it has gradually fallen from a peak of 4.5% in the mid-1980s.

• The UK has tended to recover more revenue from corporation tax than other G7 countries but in recent years this has been due to tax reforms which encouraged small companies to pay personal income as corporation profit rather than as salaries.

A startling graph from the report – reproduced in today’s Financial Times and above – outlines the race to the bottom in detail. The fall has occured while VAT has risen over a similar period from 10% to 20%. The Oxford University report outlines that:

“in the June 2010 Budget, the government announced gradual corporation tax rate cuts to 24 percent over the next four years, which might further fuel downward competition.”

http://twitter.com/duncanweldon/status/42888478740070401 Duncan Weldon

RT @leftfootfwd: Small companies pay most corporation tax as Britain fuels new race to the bottom reports @wdjstraw http://bit.ly/fn1IcB
http://twitter.com/bitfuzzy/status/42888668830113793 Deb

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http://twitter.com/iannellin/status/42889082598195200 Nicola Iannelli

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http://twitter.com/scott_redding/status/42889276693811200 Scott Redding

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http://twitter.com/bantshirtsuk/status/42889564276273152 Ban T-shirts UK

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http://twitter.com/myinfamy/status/42890514533588992 Daniel Pitt

Small companies pay most corporation tax as Britain fuels new race to the bottom http://bit.ly/fn1IcB
http://twitter.com/sust_change/status/42892670837858304 Sustainable Change

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http://twitter.com/oldmankelv/status/42893082777227264 Kelvin John Edge

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http://twitter.com/cosmiclandmine/status/42893804369489920 cosmiclandmine

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Mark Stevo

Isn’t the size point simply due to their propensity to have a greater degree of debt financing and the complexities of foreign tax treatment?
http://twitter.com/kcrayner/status/42895817736073216 Kaisie Rayner

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http://www.order-order.com Guido Fawkes

And you want them to pay more, don’t you Will?
Malcolm S

I don’t see any benefit in decreases the tax rates on massive businesses. By this report these companies don’t pay their share of tax. I think it is time we decreased tax rates for small businesses and increased them for larger ones. Big business can pay tiny corporation tax due to their ability to legally tax avoid. Small businesses can’t afford this. Why don’t we increase the tax on which big business can’t escape from and decrease it for the small ones. Our income tax system is based on this principle, so business tax should be too. I happen to no very little about tax so this might already be the case. However if it is, it’s not bloody working!
Ash

According to another of today’s posts, “HSBC paid just £236 million in UK corporation tax last year – despite doubling its profits to £11.8billion.”

If that’s representative of what big businesses are getting away with, surely the question of whether the corporation tax is 28% or 24% is a matter of more-or-less complete indifference both to such businesses and to the government? What difference does it make to HSBC, or to us, if they pay (say) £200 million rather than £236 million in corporation tax? What does it matter if other countries’ corporation tax rate is half ours, or double ours, if that rate bears almost no relation to the amount of tax companies actually pay?

The real issue is surely not whether HSBC should paying slightly more or less than 2.1% of its profits (= £236 million as a percentage of £11 billion) to the government in the form of corporation tax, but how they are getting away with paying an effective tax rate that is of the wrong order of magnitude altogether. On the face of it, it wouldn’t matter if corporation tax were 12%, so long as we were actually able to collect that proportion of these companies’ profits.
Robin Thorpe

The worst thing about this race to the bottom with corporation tax is that corporation tax does not lead to greater prosperity [http://socialisteconomicbulletin.blogspot.com/2011/01/corporation-tax-cuts-dont-lead-to_23.html].
I suppose at least we should admire Osborne’s temerity to have an ideology in a political class that is generally more populist than idealist; it’s just a shame he’s rather ill-informed.

I personally would rather see a rise in corporation tax; I would like to see this rise ring-fenced for spending on higher education. My argument for this is that corporations benefit hugely from having a highly educated workforce, far more than most individuals do. I would also like to see smaller companies pay less tax; I would add though that the size of the companies turnover not the size of the their workforce should be the key indicator for determining if a business is small, medium or large.

Perhaps if these large companies truly value corporate social responsiblity they should pay their taxes!
http://twitter.com/frankspring/status/42961768200404992 Frank Spring

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http://twitter.com/brokenofbritain/status/43016221897129984 Broken OfBritain

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http://twitter.com/press_not_sorry/status/43016620578308096 Press Not Sorry

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http://twitter.com/clive365/status/43016799004004352 Clive Harrison

Small companies pay most corporation tax as Britain fuels new race to the bottom http://bit.ly/eOjkCP
http://twitter.com/clive365/status/43016799004004352 Clive Harrison

Small companies pay most corporation tax as Britain fuels new race to the bottom http://bit.ly/eOjkCP
http://twitter.com/crixtechnoir/status/43016828687101952 Toffee TechNoir

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http://twitter.com/nickbloke/status/43041316900306944 Nick H.

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http://twitter.com/zakkery/status/43095711000178688 zakkery

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http://www.leftfootforward.org/2011/03/look-left-04-03-11/ Look Left – Winning here?! Lib Dems humiliated in Barnsley | Left Foot Forward

[...] research from Oxford University, which details how Britain, along with the rest of the G7, has been engaged in a 30-year race to the bottom on [...]
http://twitter.com/scott_eff/status/52665683397459968 Scott Macdonald

This "race to the bottom" wrt corporation tax is scary. And, likely Tories dare not reverse it due to FUD. http://is.gd/abpX9Q
http://www.leftfootforward.org/2011/06/the-madness-of-more-of-the-same/ The madness of more of the same | Left Foot Forward

[...] has halved the corporate tax rate since 1979 and has had lower corporate tax rates than the G7 average since 1983. The OECD countries with the lowest corporate tax rates and among [...]
http://www.leftfootforward.org/2011/07/right-wing-economic-prescription-of-even-more-of-the-same-ignores-the-evidence/ The Right’s prescription of more of the same ignores the evidence | Left Foot Forward

[...] paying far lower rates than small businesses. Our corporate taxes are already extremely competitive and there is no evidence that cutting them from their current low base will create the jobs or [...]