Tory business tax cuts threaten public services and poorest

David Cameron is expected to make a speech today following up on his “go for growth” comments to Andrew Marr yesterday. But the policies leaked to the Times, Mail and Express will cost at least £3.9 billion and would require additional cuts to public spending to avoid increasing the deficit.

The Mail today gleefully reports that “Cameron pledges to slash business taxes within days of a Tory election victory”:

“[A Conservative Government] would reduce the headline rate of corporation tax from 28p to 25p, and the small companies rate from 22p to 20p.

“However, it is understood that Shadow Chancellor George Osborne wants to go further still. The Tory Budget would also exempt new businesses from National Insurance contributions for one year on their first ten employees.”

According to this Treasury document, which shows the cost of a 1 penny change in corporation tax (Table 5), the Tory proposals would cost £3.9 billion in 2010-11 and £4.8 billion in 2011-12 as our working shows. This does not include the cost of the National Insurance proposal.

As Benedict Brogan points out on his Telegraph blog:

To pay for it he presumably won’t borrow, so taxes will have to be increased, presumably on consumption. If Mr Cameron is going for growth, then over the next six months he will be asked to tell us just how he plans to do that.

Increasing consumption taxes would mean a rise in VAT, an “intently regressive” move which would fall disproportionately on the poorest as Left Foot Forward has previously shown. The alternative is further public spending cuts. As Adam Lent at Touchstone asks:

“Is this really credible? A Budget that reduces the deficit through spending cuts and reduces taxes and is a “go for growth” Budget (the phrase usually associated with a more Keynesian investment approach).  A triangulation too far?”

13 Responses to “Tory business tax cuts threaten public services and poorest”

  1. Will Straw

    £5 billion cost of Tory business tax cut policy – will poorest or public services face the cost? //bit.ly/5bvd3X

  2. Tracey Cheetham

    RT @leftfootfwd: Tory business tax cuts threaten public services and poorest //bit.ly/5bvd3X

  3. Labour 4 a 4th Term

    RT @tchee: RT @leftfootfwd: Tory business tax cuts threaten public services and poorest //bit.ly/5bvd3X

  4. Michael Lewis

    RT @tchee: RT @leftfootfwd: Tory business tax cuts threaten public services and poorest //bit.ly/5bvd3X

  5. Mags

    RT @wdjstraw: £5 billion cost of Tory business tax cut policy – will poorest or public services face the cost? //bit.ly/5bvd3X

  6. Tim Worstall

    Hmm….looks like the Tories are taking another policy from those bastions of social democracy, the Nordics. Higher taxation on consumption and lower on business and production.

    Would be interesting to see you explain why Sweden (just as an example) has its tax policy so grievously wrong by your standards.

  7. brightonhovelabour

    RT @leftfootfwd: Tory business tax cuts threaten public services and poorest //bit.ly/5bvd3X

  8. SSP Campsie

    RT @leftfootfwd Tory business tax cuts threaten public services and poorest //bit.ly/5bvd3X

  9. Martin Johnston

    RT @leftfootfwd: Tory business tax cuts threaten public services and poorest //bit.ly/5bvd3X

  10. Henry

    In 1979, the Tories increased VAT…after spending the election campaign denying they would & complaining about ‘Labour Lies’.

  11. Roger

    The way in which these tax cuts can be funded will indeed not be more reductions in public spending – in fact I rather doubt whether the Tories will be able to fully implement even the cuts they have already promised – but huge increases in indirect taxes of the order of a 20% or higher basic VAT rate and the end of zero rating on food books etc.

    A deliberately engineered crash of the pound (as created in the early 80s and early 90s) will also make imports much more expensive and thus greatly boost the VAT yield.

    This would only be ‘Scandinavian’ if we started off from the relatively much greater level of income equality Sweden etc have – as we don’t it will just mean the poor disproportionately paying the costs of the recession.

  12. Bob

    Depressing. Of course, many big corporations already avoid paying corporation tax through the various tax havens and loopholes. Somehow doubt Cameron intends to do anything about that, either.

  13. Politics Summary: Tuesday, November 24th | Left Foot Forward

    […] over plans to tackle Britain’s budget deficit” at a CBI conference. Cameron announced £5 billion of business tax cuts to be “paid for by scrapping complex reliefs and allowance”. The Mirror reports that […]

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