This report, authored by Andrew O'Brien (Director of External Affairs for Social Enterprise UK), argues that the Government should break the norm of cutting business taxation at a time of economic crisis and instead embark on an ambitious programme of structural reform to UK plc in the wake of coronavirus.
A decade ago, the UK suffered its biggest recession since the Second World War. In response, the UK government steadily cut business taxes in order to stimulate investment. Ten years later, it is clear that this programme of business tax cuts has not delivered results. Growth has been sluggish, investment has been low, and productivity has experienced the biggest slowdown since the late-Nineteenth Century. This report argues that we need a new approach which looks at the structure of business.
Analysing the impact of business tax cuts since 2010, there is no clear link between cutting taxes and increasing business investment. Business investment as a percentage of GDP was actually lower in 2017 than it had been in 2000. In only one year between 2011-2018 was the cost of corporation tax cuts matched by a similar increase in business investment. There was no multiplier effect on business tax cuts from business investment.
To stimulate a fast recovery from COVID-19, the Government should embark on an ambitious programme of structural reform to business to improve its culture and encourage long-term investment. These reforms would spread best practice from high performing parts of our economy, such as the social enterprise sector, across the whole economy.
Policy recommendations:
- A new “Contract with Britain”, with businesses and the state prioritising investment over the next three years to help the economy to bounce back quickly;
- A new “British Business Renewal Act” to reform company law and spread best practice across all UK businesses to raise standards and performance;
- A new British Business Tax Roadmap so that businesses are encouraged to invest and generate positive social and environmental impact;
- Showcasing British Business through a new National Awards Evening to give businesses, particularly SMEs, a positive platform and creating a better culture;
- Using social value in procurement to drive higher performance from British businesses and shape markets.
