Simon English: Rather than raise corporation tax, Corbyn could make it pay to be good
An idea for Jeremy Corbyn: the Labour leader wants to ratchet up corporation tax — a move which he imagines will produce the billions he requires to chuck at student grants, free school meals and all other manner of goodies.
If he’d won the last general election, he’d planned for the tax to rise from 19% to 26% by the end of the decade, reversing Conservative cuts.
That spooked business last time, a bit, but they didn’t think he had the slightest chance of winning.
Now he seems to, there is already evidence to suggest that money is leaving the country, just in fear of what he might do if he could.
So how about this: he instead cuts corporation tax, but structures the amount paid per company on the basis of its behaviour.
He could cut it to 15% and agree with the company how much money that will save them. Then, at the end of the year, the organisation has to show what it did with that cash.
If it invested it or spent it on staff pay rises, they get to keep the 15% rate. If they spent it on share buybacks and a new executive suite the rate rockets to 30%.
So Corbyn either gets large corporations behaving in public-spirited ways. Or he gets a jump in tax revenue.
Economists — who are never wrong — tell me that this idea just wouldn’t work. An administrative nightmare, for one thing.
And they already get allowances for investment in Enterprise Zones, Green Technology and the like.
Third, the corporate accountants would simply use the scheme as an excuse to funnel spending to good-sounding causes that they would have done anyway.
Economists call this a “deadweight loss”. We’d be creating economic inefficiency as businesses scrambled to put money in places that will keep their tax bill down, rather than somewhere they actually think it would have the greatest benefit. Moreover, we’d be complicating an already complex tax system, which doesn’t really do anything but create work for accountants. Here’s a new policy, drive a loophole horse and cart through it, we’d be saying.
I’m not willing to give up so easily and welcome suggestions as to how my plan w
