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Will Boris Johnson’s corporation tax reversal free up £6bn for NHS?

<span>Photograph: Anadolu Agency via Getty Images</span>
Photograph: Anadolu Agency via Getty Images

Claim

Boris Johnson said that postponing a planned cut in corporation tax from 19% to 17% would allow £6bn investment in the NHS.

Background

Johnson announced the plan at the CBI, saying a majority Conservative government would still support companies by “reducing the burden” of taxes on them, offering a package of measures worth £1bn.

The plan included a business rates cut alongside a fundamental review of the regime, which taxes firms based on the buildings they use. Employers’ national insurance contributions would be cut, worth up to £1,000 per business for more than half a million firms. Tax relief on buying and leasing new business premises would rise by 1% and tax relief on research spending by the same amount.

Reality

The Conservatives had already cut corporation tax since 2010 from 28% to 19% – one of the lowest levels in the OECD. Andrea Leadsom, the business secretary, said on the Today programme that these cuts had increased the taxes taken by the Treasury by 45%.

Johnson earmarking £6bn for the NHS – saying it was paid for by stopping a cut in corporation taxes – could undermine this claim, by implying that cutting the rate further would reduce the overall take. Estimates from HM Revenue and Customs in January also suggested the two-percentage-point cut would cost about £6.2bn – billions more than first thought.

Corporation tax receipts have risen since the financial crisis, but it is not clear that the rise is connected to the falling rate – because the economy’s recovery more generally could also be responsible for firms’ profits growing. About £60bn a year is raised, but the Institute for Fiscal Studies thinktank says about £13bn a year was lost by cutting the headline rate.

Business investment in Britain has tended to lag behind other major economies, despite the cuts. Since the 2016 Brexit vote, investment has been the weakest since the 2008 financial crisis, largely due to uncertainty over the future trade relationship with the EU.

The business rate system is widely viewed as broken. Retailers in particular have lobbied hard for cuts, saying the tax is among reasons for shop closures and job losses on the high street. They say the system gives online retailers an unfair advantage as they have fewer buildings to pay the tax on.

However, councils have grown more reliant on business rates as a result of cuts to central government funding. Business rate cuts could present additional challenges.

The Conservatives are also constrained by their own budgeting rules to offer £1bn in tax cuts. Sajid Javid has promised to balance day-to-day government spending with tax income. But as the party increases spending elsewhere, the tax cut for firms will probably mean one of three things: tax rises or spending cuts elsewhere, or higher borrowing.

Verdict

Johnson’s claim that reducing the corporation tax rate would reduce the overall take is in line with IFS and HMRC analysis, and his proposals should free up more money for the NHS as he promises. But his statement also sharply contradicts previous longstanding Conservative arguments that cutting corporation tax has increased the Treasury’s overall tax take.