Lower rates brings in more revenue

I was pleased to see the Cato Institute yesterday wade into the debate about how to get more tax revenue from business. They have studied the OECD figures for tax raised 1980-2020. These show that in the 1980s the leading 22 countries of the world charged an average Corporation Tax rate of 46.2%, and collected 2.4% of GDP from this. In the last decade they chargeD an average rate of 26.7% which yielded 2.9% of GDP. It’s more evidence of the case I have been making that cutting rates can often produce more revenue. The Treasury accept the principle of the Laffer effect, but think the optimum rate for revenue is far higher than it is in practice.


  1. Mark B
    April 17, 2021

    Good morning.

    Why not offer a new business rate for companies with a turnover of say, £500 million ? Put it at around 5% and see who wishes to decamp from other tax havens to come and set up their business here. I think we might be pleasantly surprised.

    1. Lifelogic
      April 17, 2021

      Much to be said for tax caps for businesses and indeed individuals. Lots of people living overseas who might have to pay £1 million + were they to return to the UK plus 40% of their assets on death too. A tax cap of say 150k PA and abolition of IHT would get many back to the UK and investing and job creating there too.

    2. MiC
      April 17, 2021

      I wonder how much extra business the UK will have to attract, simply to get back to where it was in GDP before the the brexit mess?

      Will it ever, indeed?

      1. Peter2
        April 17, 2021

        Better to look at GDP per head.
        Turnover is just vanity.

  2. Lifelogic
    April 17, 2021

    Well of course lower taxes generate more growth and investment (and thus a larger tax base) this as they leave the money with the people who invest it well and take it away from governments and bureaucrats who largely piss it down the drain on themselves or say HS2, counterproductive wars, idiotic wars on CO2 plant food, billions on test and trace …

  3. agricola
    April 17, 2021

    We have done this to death, but nobody is listening. In retail, discounting is generally designed to increase turnover and income. If it didn’t work it would not be used, but what have the Treasury and those in it ever sold.

    1. Alan Jutson
      April 17, 2021

      Exactly, although we do seem to be getting more and more Ministers and MP’s “involved” in receipt of government contracts, subsidies, aid of some sort, and a whole range of expenses.
      Few venture into the world of industry and commerce themselves, and put their own money at risk, but most think they can give those who do, lots of advice !
      Hence the reason why so much taxpayers money goes down the drain, fails to materialise, or fails to perform as promised.

    2. glen cullen
      April 17, 2021

      Fully agree, no one is listening – this government, like every one before, only looks at the short term revenue tax collection during its term in office and not revamping taxation for the needs of the UK

  4. Sea_Warrior
    April 17, 2021

    I favvour low rates of Corporation Tax – primarily because government wastes so much of the money it extracts from us. But low CT rates also enable more business projects to pass their investment appraisal.

  5. Oldwulf
    April 17, 2021

    So….. maybe the Chancellor should year by year, reduce the rate of Corporation Tax …. and when the tax-take no longer increases … he should stop ?

    Whether that will find the optimum rate, who knows.

    1. Alan Jutson
      April 17, 2021

      Far too simple and sensible for this to be ever tried out by politicians.

      They love complexity, confusion, complication, because then it is more difficult to measure success or failure.

      1. Fred.H
        April 17, 2021

        and keeping the armies of bean-counters occupied.

  6. DOM
    April 17, 2021

    Why should business be asked to pay more tax? Why can’t the State sector be forced to spend less? Why can’t the State reform its practices in the way the private sector does with one aim, efficiency of operations?

    On so many issues the parasitic left, their unions and their allies have dictated the framework of debate and on this one they have owned the Tory party especially Thatcherites who now fall silent about reform of State and public sector that have become political power bases in their own right rather than bodies that deliver services to the public

    In the UK both parties in England are now pure bred left because this cosy arrangement benefits both of these morally bankrupt parties. Of course we have to pick up the cost of the Socialist status quo and yes, this is Socialism in both form and texture.

    It is my belief that in the next decade or so access to State services will be used as a weapon of social control and your innate freedoms, whatever is left of them, will be rationed by the State and depend on the say so of the State. This is the consequence of voting for two parties that now believe in the same vision, a world in which the dependents become enriched and everyone else, enslaved

    The Tory party’s deceit is clever. Most think they are competent. They are not competent. They use sovereign debt to conceal their incompetence. If the cost of that debt was debited each month from your account people would never vote Labour and Tory again

    Vote Labour, get Tory. Vote Tory, get Labour. All adds up to the same thing, authoritarianism and the destruction of voice, freedoms, identity and liberty

    I for one will not be hollowed out by the Labour-Tory progressive agenda

  7. Everhopeful
    April 17, 2021

    Why should they aspire to get more tax from businesses?
    We are crippled by taxes already.
    What does tax money give us?
    A police force? A health service? Decent roads? A legal system? An army?
    No, no, no, no, and no!!
    Leave us alone.

    1. glen cullen
      April 17, 2021

      but tax money gets us HS2, re-decorating the Palace of Westminister and a vast number of Qangos

      1. Fred.H
        April 17, 2021

        and 650 MPs, and costs of 1000 in the other place.

  8. acorn
    April 17, 2021

    The New Palgrave Dictionary of Economics reports that estimates of revenue-maximizing tax rates have varied widely, with a mid-range of around 70%. A 2012 poll of leading economists found none agreed that reducing the US federal income tax rate would result in higher annual tax revenue within five years. According to a 2012 study, the U.S. marginal top [tax] rate is far from the top of the Laffer curve. (WIKI)

  9. Andy
    April 17, 2021

    You raise more tax by making life easier for business to do business. Pointless paperwork and unnecessary barriers to trade make business harder and more expensive. And this is exactly what Tory Brexit has done.

    We now learn that Tory Brexit is even worse for the City than ‘project fear’ predicted. The damage is long lasting and deep. There are no benefits. Still at least Tory Brexit is wonderful for our chemicals industry and our musicians and the fashion industry and au pairs and food producers and fishermen. Oh.

    I am sure there are some sleazy lobbyists somewhere who will benefit from Tory Brexit. It is just all of your grandchildren who will lose out. Still, someone on a yacht somewhere off the coast of a Caribbean tax haven is grateful for your vote.

    I sympathise with you all greatly for having been so badly misled for years. But it is now time for you all to apologise for the huge damage you have done.

  10. a-tracy
    April 17, 2021

    How many British companies have registered tax bases in Southern Ireland to enjoy their 12.5% corporation tax? How much British taxation do we lose because of this? Why has your government allowed this imbalance on the Island of Ireland? Why does Northern Ireland have to pay it’s contribution of 2% of their gdp to NATO but Southern Ireland don’t? Why have you not put in trade protections against the EU as they have us and this government and parliament accepted? Why are we just making all the concessions but allowing free flowing goods, it’s not wonder Scotland want a piece of this cake, because we allow Southern Ireland and the EU to have their cake and eat it at the moment and the Scots seem to think they can carry on as though part of the UK like Southern Ireland does and Varadka stitched us up. I quite appreciate Andy, Grey and MiC (Martin in Cardiff) Telling us all the restrictions we now have, I believe they should be more widely reported in the press.

  11. a-tracy
    April 17, 2021

    By the way John you are correct their is a tipping point on tax rates, a point where like British GPs who maxed out their pension pots won’t continue to work, reduce hours and retire early rather than have to great a chunk taken, why would you think a hard working entrepreneur would be different to a GP/Consultant.

    It is time that our political class have their pensions frozen and paid out at what was agreed, but then only the same pensions savings vessels and pot sizes that the rest are allowed and the same taxation on those pots be applied evenly. Carry on ignoring this whilst protecting public sector worker pensions and there will be big trouble in ten years time. If you think the waspi women are annoyed wait till the men having to wait another 2 years ++ for their pensions and finding out its so poor retire.

  12. glen cullen
    April 17, 2021

    I’d welcome a debate on the merits of Nigel Lawson’s view of replacing all business taxes with a tax on a threshold of company turnover

    Stop tinkering with the current system, scrape VAT, business rates, corporation tax, company NI, company Climate levy etc etc and replace the lot with a single turnover tax (which would encapsulate online and international companies based on their UK turnover)

    Its fair and would reduce the average tax paid by companies as every company pays

    1. a-tracy
      April 18, 2021

      I don’t believe this will work glen, to take the turnover of say a bakery and compare it to a large company who use contract companies to fulfil the product or service they supply would be taxed twice. I don’t understand how this helps, some companies are high turnover with on a couple of staff others are high turnover with a hundred staff. If tax is on the difference between what you turnover and what you sell well we already have that with VAT, to level this up just exclude the exemptions and make it the same for everyone.

  13. Nig l
    April 17, 2021

    So if I am a politician desperate to grab any tax going even if inefficiently because politically it gives me cover, hammering big business a big vote winner, I say to the Chancellor come up with a Laffer curve percentage that allows me to do that, by magic they achieve it.

    By magic they came up with all the negatives on Brexit. Like that they have come up with bolleaux again.

  14. nota#
    April 17, 2021

    Good morning Sir John I saw you tweeted this yesterday, Thank you.

    Time and time again Government’s seek to punish their electorate by exorbitant over bearing misconstrued taxes that do nothing more than complicate life, hold people back and drain wealth from Society. Tax continually gets used as a weapon to bend the minds not to advance society. Its as if when the Government cant win an argument it tries to impose it by hitting people in their pockets.

    Seemingly off topic, but illustrating the point. The MSM is today reporting that the Home Secretary is seeking to have constant access to every ones conversation and data so as Government appointed authority can ‘keep us safe’. Without it she states our children ‘could’ be the subjects of grooming etc. In the mean while, by doing so it would keep the same channels open to foreign adversary’s to garner everything they need to bolster their own regimes. As this a carte blanch open door policy, the conclusion there would be no oversite, legal or otherwise on the collectors. Authorities just having that very thought you get to question – who is the enemy of the people in the UK

  15. jon livesey
    April 17, 2021

    Considering what rates bring in maximum revenue is perfectly fine, but it mostly involves existing, profitable businesses. In order to continue to thrive, the UK also has to attract new businesses in the form of start-ups and even new industries and technologies.

    A start-up rally does not care very much what your corporate tax rate is, because it is going to spend its first five years trying to break into an existing market, or creating a brand-new market, and in either case it won’t make much profit.

    That even goes for new industries. There are plenty of examples of new industries – canals, railways, wireless, aviation and all the way to the Internet – where a small number of companies made profits, but most new companies eventually failed or got rescued, and their main benefit to the economy was the newly created infrastructure they left behind them. In all those cases the essential to to encourage the creation of new companies, and taxes on profits are mostly irrelevant.

    Let’s see the new freedom of Brexit used for the creation of new industries by making the founding of new companies less regulated and less bureaucratic – the way the EU has been able to victimize the fishing industry is a clear sign that the parasites and pencil-pushers had far too much power to begin with. The EU is stuck with its parasitic regulation, but we can gt rid of at least some of it.

  16. a-tracy
    April 18, 2021

    Look at some of the most successful companies in the UK, take a quite new company like The Hut Group, didn’t he get the growth and expansion he needed by offshoring his company so he didn’t pay UK vat on lower volume sales. Look at Amazon and Google are they so massive because they don’t ground their earnings in the Country they earn them in.

Comments are closed.