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.

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