Jeremy Corbyn's corporation tax plan will harm jobs and wages, respected thinktank says

Posted On: 
10th May 2017

Jeremy Corbyn’s plan to raise corporation tax will depress the economy, kill jobs and cut wages, an independent economic thinktank has said.

Labour leader Jeremy Corbyn on the campaign trail
PA Images

The highly respected Institute for Fiscal Studies said hiking the main rate of corporation tax to 26% would raise substantial sums in the short term but would have negative consequences later on.

The Labour leader today spelled out his plan to increase the amount larger businesses pay by the end of the parliament if he is elected Prime Minister on 8 June.

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It would be a full reversal of the Conservative plan to cut the rate to 17% by 2020. Labour would also increase the rate slightly to 21% for firms with annual profits below £300,000.

In a new briefing the IFS said putting up rates will “raise a substantial sum” – up to £19bn in 2021/22 – but only if investment in the UK does not reduce as a result.

It added: “Increasing rates will raise less revenue in the medium to long run because firms would respond by investing less in the UK.

“This in turn would depress economic activity and lead to fewer jobs and lower wages. There is a very high degree of uncertainty about how large these effects are but estimates suggest that they may be substantial.

“The potential size of these effects is an indication of why the OECD and others judge corporation tax to have a particularly damaging effect on economic growth.”

The 26% rate would remain the lowest corporation tax level in the G7 – but would leave the UK less competitive than some other EU countries such as Sweden and Denmark, the IFS added.

Helen Miller, the associate director of the IFS, said: “Cuts to corporation tax have been one of the largest and most expensive policy changes since 2010.

“They have bought the UK a more competitive tax rate and are likely to boost economic activity in the medium to long run…

“Were rates to be increased, the benefits of additional revenue would need to be weighed against any long run effects on growth.

“We should always remember that all taxes are paid by people and that workers can feel the effect of corporation tax indirectly though lower wages."

Officially launching Labour’s election campaign yesterday, Mr Corbyn targeted businesses as he laid out his radical vision for the UK if he makes it to No 10.

"There will be a reckoning for those who thought they could get away with asset stripping our industry, crashing our economy through their greed and ripping off workers and consumers,” he said.