Ed Miliband: UK Labour Party would raise corporation tax
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Ed Miliband: UK Labour Party would raise corporation tax

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Ed Miliband, leader of the UK opposition Labour Party, has said he would reduce the tax burden on small businesses at the expense of big corporations by raising the corporate tax rate if elected.

Specifically, Miliband would reverse the planned percentage point reduction from 21% to 20%, set to come in during 2015.

“We need a competitive tax regime for large businesses but my priority is different,” said Miliband. “We have to support our small businesses, vibrant, dynamic businesses that will create wealth in Britain.”

John Cridland, director general of the Confederation of British Industry (CBI) said the policy of reducing corporation tax was “one of the coalition’s greatest achievements, sending a clear signal internationally that the UK is open for business”.

“We need a tax system that works for all firms, large and small. Reducing business rates for small companies is a good thing to do, but I wouldn’t do it by increasing taxes on investment, on research, on job creation, which is what will happen if you put up corporation tax,” Cridland told BBC Radio 4.

But given that corporation tax is levied on companies small and large, the framed objective of the policy seems skewed.

“It’s being framed as: We’re helping small companies and that’s a more important choice than helping large companies. Actually, all companies pay corporation tax and small companies and large companies work together,” said Cridland.

Catherine McKinnell, Shadow Exchequer Secretary to the Treasury, told International Tax Review in an interview in June that she was not convinced the coalition government’s policy of reducing the corporate tax rate was proving to be beneficial for the UK.

“Corporation tax rates have been on a downward trajectory for some time, but it’s critical that we closely monitor what impact the current reduction – at an annual cost of £5.6 billion ($8.5 billion) to the Exchequer – has on the economy and jobs,” said McKinnell. “We need to see the evidence that these cuts actually result in economic growth – in businesses investing, expanding and, absolutely critically, taking on additional staff, rather than just continuing to stockpile cash because they don’t have the confidence to invest.”

Others, including Robert Gaut, partner at Fried, Frank, Harris, Shriver & Jacobson, have questioned whether a sharp cut would be a more stimulatory measure than what he calls the “salami slicing approach” of shaving a percentage point off the rate each year.

McKinnell also talked about the UK’s core conflict of championing the open for business agenda while also claiming to lead international efforts to clamp down on tax evasion and aggressive avoidance which erodes national tax bases.

“Clearly the message risks becoming muddled when the government issues statements about the UK leading international action against aggressive tax avoidance, while at the same time declaring to a separate audience that multinational corporations can reduce their tax liabilities if they base themselves there,” she said.

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