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Wednesday, 16 April 2014

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Planned tax reductions could increase economy

More than half the cost of George Osborne's cuts to corporation tax could eventually be clawed back by the Treasury as a result of the extra jobs, growth and investment that they stimulate, the chancellor is claiming.

A HM Revenue and Customs (HMRC) study, published alongside the Autumn Statement, will suggest that over the next 20 years the planned reductions in the tax on company profits will increase the size of the economy by between 0.6 per cent and 0.8 per cent.

The increase is the equivalent of £10 billion to £12 billion at today's prices or around £400 to £500 per UK household.

At the same time, the study will say, business investment will increase by between 2.5 per cent and 4.5 per cent of GDP - equal to £3.5 billion to £6 billion at current prices.

The study was carried out after Mr Osborne ordered HMRC to undertake a more "dynamic" system of modelling the economy to take account of the broader effects of different rates of tax following the Budget last March.

In 2010, Mr Osborne published the Government's corporate tax "road map" setting out its plans to cut the rate from 28 per cent to 20 per cent over the lifetime of the current Parliament.

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