'Corporation tax should be cut to 20% in 2012 Budget', says think-tank

The main rate of corporation tax should be cut to 20 per cent to boost business and economic growth, according to a report published by the Centre of Policy Studies (CPS).

The report, titled "How to cut Corporation Tax" by tax lawyer David Martin, urges Chancellor George Osborne to cut the tax rate in this year's Budget.

Although the main rate of corporation tax has fallen gradually from 52 per cent in 1982 to 26 per cent in 2011, the halving of the tax rate has in fact resulted in an increase in revenue generated for the Treasury.

Corporation tax remains an important source of revenue for the Treasury, which estimates that this year will yield revenues equivalent to 2.8 per cent of GDP, or around £43.2 billion.

The CPS is now calling for a further reduction on corporation tax to 20 per cent. Whilst the report acknowledges that a further drop in rates would theoretically create a fall in revenue for the Treasury by £4 billion, it estimates that the cost could easily be offset by enhanced growth.

The report says that a decrease in corporation tax: "would boost business confidence, encourage new investment by businesses (as it would improve net returns) and would send a strong signal that the Coalition is taking the supply-side measures necessary to restore growth."

Corporation tax was cut from 28 per cent to 26 per cent in the last financial year, with smaller companies charged at a lower rate of 20 per cent with other exceptions. However, the report also argues that the system is complicated and that the changes would also represent 'a major simplification of the tax system'.

Tim Knox, Director of the Centre for Policy Studies, comments: "Anyone who has complained recently about 'high rewards for failure' should be equally vehement about high penalties for success. This tax penalises the most successful businesses in Britain."

According to the report, struggling households cannot be expected to lead a rescue of the economy and the Government's attention should be turned towards profitable businesses which, Knox called, 'the only source of a viable economic economy'.