George Osborne - twat status confirmed (5)

On Andrew Marr's show on the BBC he came out with this:

"Well*, first of all the corporation tax rate, that's the tax rate that businesses pay, is one of the most uncompetitive in the world, at 28p. And we live in a globalised economy where these businesses can either invest in Britain or they can go to China, or they can go to Ireland, just across the Irish Sea, where there is a 12½% rate. So having a low corporation tax rate is extremely important in the modern economy if we're going to attract jobs to this country."

Wrong, on so many levels...

1. The three main taxes on business/productive activity in the UK are VAT (£77.4 bn), corporation tax (£44.5 bn) and Employer's National Insurance (about £34 bn).

2. The UK's headline corporation tax rate is pretty "competitive", when compared to G8 countries, India, China, Australia and Switerland. Figures taken from KPMG’s Corporate and Indirect Tax Rate Survey 2007 and rounded to nearest per cent:


But, as I have explained before, corporation tax is not so important - it slows down the rate at which a business can grow, but doesn't impact on the economy as much (a good pre-tax decision is usually a good post-tax decision) or put people out of business (if your profits are low, you don't have to pay very much). Sure, it would be nice if the UK were 'internationally competitive', but let's get our own house in order first, remembering that 80% of our economy is purely domestic, only about 10% is imports and 10% exports.

3. VAT is the biggest/worst tax on productive activity - whether it is borne by producer or consumer is a pointless debate, seeing as most of us are both producers and consumers - it puts up prices to consumers, it reduces the gross income of producers and it makes low-margin businesses unviable. Further, corporation tax is only charged on a small slice of a business' turnover - the net profit, as against VAT (or 'General Sales Tax') which is levied on the entire turnover. So it is far more important to look at VAT/GST rates. Here, the UK is pretty "uncompetitive" compared to the same sample of countries:


So can't we look to reduce VAT first, once we've left the EU**, please George, and stop yapping on about corporation tax?

4. As to Employer's National Insurance, this is bollocks entirely of our own making of course - the post-war Labour Government thought is was a fine scam to sell a new tax as insurance. If you want full employment, wouldn't it be a good idea to get rid of a tax that makes wages more expensive, and hence reduces equilibrium employment levels?

5. As to the Laffer Curve, if you scrapped VAT and Employer's National Insurance, the 'cost' would be nowhere near £111 bn - initially, if prices and wages remain constant, profits would soar by £111 bn and so corporation tax receipts would increase by £33 bn. And of course businesses would expand to fill the new opportunities that are now profitable that were unprofitable before, employment would increase, welfare costs would fall, goods in the shops would be cheaper. I would be surprised if the long run 'cost' of scrapping these two taxes would be more than half current receipts, say £55 bn. And if you can't find £55 bn of waste in the public sector (i.e. one or two million totally superfluous jobs), you are probably the sort of person who would struggle to find a bass drum in a telephone booth.

* I hate it when politicians start a reply with "Well..." it is so irritating, they all do it. All the time.

** Can you spot the logical error in that exhortation?