Adam Afriyie: To ask the Chancellor of the Exchequer what estimate he has made of the amount of foreign direct investment generated since 2010 as a direct result of the lower rate of corporation tax.
David Gauke (The Financial Secretary to the Treasury): Since 2010, the Government has cut the main rate of corporation tax from 28% to 21%. It will fall further next year, to 20%, giving the UK the joint lowest rate of corporation tax in the G20. The Small Profits Rate has also been cut to 20%.
These cuts are a central part of the Government’s long-term economic plan. They are intended to make the UK more competitive, supporting business investment and job creation.
Government modeling suggests that the corporation tax cuts introduced in this parliament will:
increase business investment by between 2.5% and 4.5% (£3.6bn to £6bn in today’s prices) in the long term
increase GDP by between 0.6% and 0.8% (£9.6bn to £12.2bn in today’s prices) in the long term
Foreign direct investment decisions are influenced by a range of factors including skills, market access, and infrastructure. Consequently, it is difficult to isolate the exact impact of the corporation tax cuts from reform in other areas. But recently published data on inward investment has been very encouraging.
In their 2013/2014 Inward Investment Report, UKTI said ONS data showed the value of FDI stock increased from £725.6 billion in 2010, to £936.5 billion in 2012.
UKTI also reported that the UK attracted more inward investment projects last year than in any year since records began in the 1980s. UKTI recorded 1,773 projects, creating 66,390 new jobs.
This is supported by analysis from Ernst and Young, who use their own independent database to assess inward investment. Ernst and Young’s Annual Attractiveness Survey, published in June, showed the number of inward investment projects in the UK had risen by 15% in the past year, against the background of a European market that grew by just 4%.
As noted above, it is difficult to isolate the impact of tax policy on these trends, and UKTI does not have estimates of how much of the new investment has been a direct result of the lower rate of corporation tax. But it is clear that the corporation tax reforms have changed perceptions of the UK competitiveness. For the past two years, the UK has ranked highest in the KPMG survey on international tax competitiveness, ahead of countries including the US, the Netherlands and Switzerland.