There have been a large number of changes to corporation tax since 2010. We calculate that, taken together, policy changes announced between 2010 and Budget 2016 (including those that are due to come into place before the end of the parliament) have cost £10.8 billion a year in 2015–16 terms.26 In previous work, cited at the end of footnote 26, we calculated that the cost of measures announced by the coalition government (2010– 15) only was £7.9 billion. The majority of the revenue cost is due to cuts to the corporation tax rate. The coalition government reduced both the main corporation tax rate (from 28% in 2010) and the small profits rate (from 21% in 2010) to 20% in 2015–16. In 2013, it also introduced a new lower 10% rate for the income derived from patents (the Patent Box).
The current government plans to reduce the main corporation tax rate even further to 17% by 2020–21. Corporation tax rates across the developed world have declined substantially since the 1970s as countries have attempted to remain competitive locations for mobile activities and profits. The desire to attract and retain mobile activity has been important in the UK, which, since 2010, has cut rates further and faster than other countries, such that the rate is now the lowest in the G20.27 Alongside rate cuts, there have been a large number of other corporation tax changes since 2010, including moves that raise revenues by broadening the tax base and by preventing avoidance opportunities.
The mix of policy changes is such that some companies will gain more than others. Broadly, highly profitable and mobile firms will see the most benefit from lower rates, although some will be affected by anti-avoidance measures, such as a new restriction on interest deductions.28 Those businesses with high levels of investment or losses and multinationals with high levels of debt in the UK will benefit the least. A permanent decline in onshore corporate tax revenues would mark a break with the previous trend, highlighted above, under which the effect of lower rates was offset by a larger, more profitable corporate sector (and, to a smaller extent, a broader tax base). It is possible that corporate revenues will be higher than currently forecast either because corporate rate cuts boost corporate activity by more or because anti-avoidance measures are more successful at raising revenues than is currently predicted. However, in the longer run, there is also likely to be continued competitive pressure on corporate taxes.