News & Events Blogs Government must ask itself: what are we getting for our tax cuts? Yesterday, The Guardian picked up on changes by HMRC which mean that corporation tax cuts will cost billions more than previously suggested. The UK already had one of the lowest levels of corporation tax in the world before the Coalition Government took office, but by the end of the decade this level will have fallen to just 17%. Businesses will have a lower rate of tax than on workers, where the basic rate is currently 20%. This story follows on last year’s Budget, where Social Enterprise UK highlighted the £9bn in business tax cuts which the Chancellor announced by further reductions in corporation tax, business rates and increases in the Annual Investment Allowance. This is nine times the amount that the government promised it would put into adult social care. The House of Commons Library says that by the end of the decade, Corporation Tax cuts will be almost £15bn a year. This is equivalent to building London’s new Elizabeth Line every year. In short, UK PLC has received tens of billions of tax cuts with a view to boosting our economic performance. But what have we got for it? Suffering households, with incomes being squeezed at a level not seen since the 19th century Abysmal productivity performance, with the Bank of England saying that productivity in the UK has not been this low since the 1760s. Continued inequality with the top 10% owning 44% of the UK’s wealth 500,000 more working people in poverty since 2013. Employment may be higher, but that is about the only silver lining. Many people are nervous that the HS2 railway, which is estimated to cost £52bn, is a potential ‘White Elephant’. But you could argue that the government’s business tax cuts are an actual White Elephant, the costs of which we will live with for years to come. Just imagine how many childrens centres, police officers or nurses these tax cuts could have paid for. The fact is that businesses have taken the tax cuts which government have given them and they have pocketed them. The UK corporate cashpile is estimated to be around £700bn. This is almost as large as the UK government’s annual budget. The proportion of national income which has gone to shareholders has increased by over 28% since 1990. Tax cuts just don’t cut it anymore. So, what do we do instead? Firstly, we must change the rules for business, so that they are incentivised to put social and environmental need at the heart of their activity. This will ensure that businesses put the profits that they generate into creating positive social and environmental outcomes, not just writing bigger cheques for their owners. Social enterprise models already show this can work and should be the natural way of doing business across the UK. Secondly, we need to change the tax system so that businesses are rewarded for their social and environmental impact. Only businesses which can demonstrate a positive track record, such as social enterprise, should be given tax cuts, not just any old business. In fact, those businesses which cannot demonstrate their positive impact should not receive support or should pay higher taxes. This would stop the state from subsidising businesses which are creating costs (e.g. higher welfare bills). It would also further incentivise businesses to invest in their communities, their staff and society. Finally, we must move away from the rhetoric of “backing business” as if it was an unadulterated good thing. Businesses are not beneficent entities trying to create a better society. They are profit driven organisations which are seeking to enrich their owners. Lazy thinking about “backing business” has led to tens of billions being wasted on tax cuts which have achieved very little in practice. We need a much more sceptical approach, recognising that changes to regulation and tax policy can have positive social outcomes, but that we need to set clear rules and direction for the private sector. Rewards should only be given to those businesses which meet the needs of society. Whatever happens next, let’s hope that the government learns the lesson that tax cuts are not a short cut to prosperity. We need serious reform to the way that we do business if we want real economic success.