A recipe for growth

Think tank: Adam Smith Institute

Author(s): Dr Tyler Goodspeed

July 24, 2022

This report from UK think tank the Adam Smith Institute looks at the economic effects of corporate tax reform in the UK.

This report argues that reversing the corporation tax hike and replacing the super-deduction would have significant positive impacts on growth, investment and wages. In 2023, the UK’s corporate income tax rate is scheduled to rise from 19% to 25%, and a temporary provision allowing businesses to deduct 130% of the cost of new investment in qualifying plant and machinery will expire; Compared to making the 19% rate and 130% deduction permanent, if enacted these changes will lower business investment by 7.6%, output by 2.3%, and average household wages by £2,500; If instead businesses were instead allowed to continue to deduct 100% of the cost of new investment in equipment, then relative to current law it would raise business investment by approximately 5% and real output by 1.3%, while extending 100% cost recovery to all asset types would raise investment by almost 10% and GDP by 3%; Over 10 years, macroeconomic feedback could offset 34% of the static budgetary cost of corporate tax reform, and 72% over the longer term.