The claim
“I tell you, the answer, David, is not to do what you say in your manifesto. You’re planning to cut corporation tax for banks…”
Gordon Brown, Leaders’ debate, 29 April 2010
The background
At least twice the prime minister accused David Cameron of adopting “the same old Tory policies” by planning to cut corporation tax by 3p for the banks during the final Leaders’ debate.
And every time the Conservative leader side-stepped the question eventually saying: “You keep saying cutting corporation tax for banks. I want to cut corporation tax for small firms, for every firm, whatever they do, to try and help them keep more of their profits, to reinvest, to expand, to take people on.”
So who’s right? Is Gordon correct when he says it’s the same old Tory party or is Cameron champion of the little man trying to build up his business?
The analysis
The Conservative party manifesto says they “cut the headline rate of corporation tax to 25p and the small companies’ rate to 20p”.
Their policy on business adds a little more flesh to that saying: “We will cut the main rate from 28p to 25p and the small companies’ rate from 22p to 20p, funded by reducing complex reliefs.”
According to HM Revenue and Customs “the main rate of Corporation Tax applies when profits (including ring fence profits) are at a rate exceeding £1,500,000, or where there is no claim to another rate, or where another rate does not apply.”
So that seems pretty clear cut then – banks would indeed benefit from a 3p cut to corporation tax so long as they turned a profit of at least £1.5m.
Given that most banks do return profits exceeding this figure – for example, Barclays today reported a £1.82bn profit for the first quarter of 2010 and Lloyds recently reported a profit of £3.9bn for 2009 – this proposed tax cut would indeed apply to banks.
When we asked the Tories today for a response they told us that “David Cameron has already announced that a Conservative Government will introduce a levy on banks.”
The verdict
No wonder David Cameron didn’t want to answer the question. The reality is most banks do return a profit of £1.5m but it’ s not just banks that would benefit from this tax cut but any other company turning the same profit.
So Brown is essentially right though he did imply it was a specific tax cut just for the financial industry.
However, when Cameron did eventually given in and respond to the repeated questioning, he steered his response to the small business rate, which they’re also cutting, but ignored the fact that they’re cutting rates for big businesses by more.
Footnote:
It also seems worth noting a small discrepancy in this section of the Tory manifesto. They said they would reduce the corporation tax for small companies from 22p to 20p yet, according to HM Revenue and Customs, the rate for small companies is only 21p.
The 2010 Budget shows that the current corporation tax rate for small companies’ is 21 per cent, which is the same as 21p to the pound.
The 2009 pre-budget report announced that a rise in the small companies’ rate to 22 per cent would be deferred until 2011/12.
