Tories understand economics - sort of...

On Radio 4 this morning (about 7.10 am), it was said that the Tories plan to reduce the tax on lottery tickets (which appears to be about 40p per ticket) and increase the tax on Camelot's profits instead. They reckoned that this would boost tax receipts.

They appear to have realised that a turnover tax has far more damaging effects on business than a tax on net profits, as I explained here.

Camelot's net income appears to be about 5p per ticket (see previous link, makes about 1.5p in corporation tax). If they scrapped the 40p ticket tax, Camelot's net income would be 45p per ticket, on which corporation tax would be 13.5p. If they increased corporation tax to (say) 80%, the take would be 36p per ticket, a shortfall of 5.5p.

However, Camelot are in the business of maximising their own profits (regardless of the corporation tax rate - a higher pre-tax is always a higher post-tax). If their marginal extra income from selling one extra ticket went up from 5p to 45p, then they'd spend a lot more on advertising and so on. Assuming that they can increase turnover by 25%, and that their costs are fixed/negligible (and the cost of the infrastructure is a sunk cost anyway), this would increase their profits by a factor of ten (compared to what they are now), so their corporation tax payments (at 80% of pre-tax profits) would increase to slightly more than what they are currently paying in ticket tax and corporation tax.

So it would be a very interesting experiment, to say the least.