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Think-tank calls to halt UK Corporation Tax cuts

Last updated on Wednesday, October 18, 2017

Written by Alex Cadman

The OECD – the Organisation for Economic Co-operation and Development – is urging Chancellor of the Exchequer Philip Hammond to halt plans of cutting Corporation Tax, in order to generate funding to tackle the UK’s productivity crisis.

The OECD is a leading global think tank, based in Paris, that forecasts growth for wealthy countries including the UK. It warns that cutting UK Corporation Tax from the current rate of 19% to 17% by 2020 will be detrimental to the nation’s productivity.

Cutting Corporation Tax is a Conservative Party effort letting citizens and the rest of the world know that the UK is open for business. Lower rates of Corporation Tax encourages entrepreneurship and the setup of small businesses and is beneficial for the millions of contractors and freelancers in the UK who operate via limited companies.

As the government will be cutting the tax-free dividend allowance from £5,000 down to £2,000 in April 2018, a lower Corporation Tax rate would cushion the blow for most limited company contractors and business owners in the UK.

The OECD claims, however, that lowering Corporation Tax will cost the Treasury £4 billion, arguing that the money would be better directed at infrastructure and the nation’s dwindling productivity. It also called for a revival of plans to increase self-employed National Insurance contributions, which was previously scrapped, however the Treasury was quick to dismiss this.

Productivity is measured by the output per hour of UK workers and shows the UK’s ability to create wealth. In the first three months of 2017 the statistic fell by 0.5%, knocking it to around the level preceding the 2007-2008 financial crisis. Furthermore, in the April to June period, hourly output fell a further 0.1% - causing the UK to lag behind the US, France and Germany in terms of productivity.

The president of the Federation for Small Businesses, Mike Cherry, blames the UK’s inconsistent productivity growth on “chronic underinvestment, exacerbated by current unprecedented uncertainty and reflected in sluggish wage growth.”

The evidence is there – productivity is struggling and wage growth is below inflation. However, Philip Hammond claims to be on the case, as the Treasury previously announced a £23 billion fund for infrastructure, research and housing as well as a reform of technical education.

The OECD believes this fund will help improve the nation’s infrastructure and build a better economy for everyone. This includes finding a solution to boost productivity for everyone, including the millions of contractors and freelancers in the UK that make up 15% of the entire workforce.

If you are concerned how imminent tax changes will affect you, speak to a member of our specialist team at Churchill Knight & Associates Ltd who can help you understand the implications.

Contact us on 01707 871622.

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