Threat to Irish FDI as UK urged to cut its corporation tax to zero
The UK should consider scrapping corporation tax over time to massively boost the country's attractiveness to global business, a British think tank has said.
It comes as Ireland's competitiveness watchdog warned that while our 12.5pc corporate tax rate remains competitive, we're under pressure internationally.
Here, the National Competitiveness Council warned that Ireland needs to "respond in a forthright and confident fashion" to the challenges posed by Brexit.
The London-based Adam Smith Institute said corporation tax in the UK should be abolished as part of a reboot of the country's tax system in the wake of the Brexit vote.
It said the move could be phased in, with an initial cut to 12.5pc, to bring the country in line with Ireland, then chop it further to 6.25pc and ultimately zero. Such a move would put Ireland under pressure in terms of foreign direct investment. But whether Whitehall would follow up on the call remains to be seen, although the institute is regarded as having helped influence Conservative Party thinking in the past.
New UK Chancellor Philip Hammond has so far not committed to plans announced by his predecessor, George Osborne, to cut Britain's corporation tax rate to below 15pc.
The Adam Smith Institute said there is a "false belief" that corporation tax is paid by companies.
"It is paid by the employees of companies, by their customers, and by their shareholders," the Institute said, in a note from its president, Madsen Pirie.
"Without corporation tax, businesses would have more money to distribute to shareholders in dividends, to increase the pay of their employees, and to keep prices keen for their customers. "Although the government would forego the amount it receives in corporation tax, it would receive more income tax from the higher dividends to shareholders and from the increased wages to employees, and more VAT from the extra spending power the lower prices put into the pockets on customers."
The Institute said abolishing corporation tax would "make the UK a very attractive location for world businesses, and drive a real boost to economic growth".
Mr Hammond has pledged to do whatever is required to restore confidence in the British economy.
He said the vote to leave the EU had "rattled confidence" and he will take "whatever measures" needed to shore up the British economy.