PolicyLens

Methodology note

Cut corporation tax to 15%: calculation note

Assumptions behind the Cut corporation tax to 15% scenario. Implementation detail is incomplete, so uncertainty is explicit.

View main policy page: Cut corporation tax to 15%

Central fiscal result

+£45.0bn - Net fiscal impact in 2029-30

Low case: +£25.0bn. High case: +£70.0bn. Positive numbers are fiscal costs or borrowing pressure. Negative numbers are Exchequer savings or receipts.

Scenario and baseline

  • Main corporation tax falls from 25% to 20%, then 15%.
  • Minimum profit threshold rises to £100,000.
  • Full target cost is shown in 2029-30.
  • No windfall or sector levy is added.

Affected population

  • Affected units are companies with taxable profits.
  • DBT business counts set the firm-base context.
  • Large profitable firms receive the biggest absolute gains.
  • Small profitable companies gain from the threshold.

Gross impact

  • A 10-point main-rate cut is scaled from HMRC ready-reckoners.
  • Threshold rise adds a separate small-company cost.
  • Central year-three cost is £45bn.
  • Investment response reduces the low case, not central.

Fiscal build-up, central case

  • Main-rate revenue loss: +£36.0bn
  • £100,000 threshold cost: +£10.0bn
  • Profit-shifting and investment offset: -£1.0bn
  • Administration: +£0.0bn

Central net impact: +£45.0bn in 2029-30.

Behaviour and pass-through

  • Low case assumes stronger investment and profit-booking response.
  • Central case assumes most mechanical revenue loss remains.
  • High case assumes threshold planning and weaker receipts.
  • Benefits to wages are treated as indirect and unscored.

Phasing

  • 2026-27: +£3.0bn. Preparation or partial implementation.
  • 2027-28: +£25.0bn. Main scenario year.
  • 2028-29: +£32.0bn. Behaviour and pass-through develop.
  • 2029-30: +£45.0bn. Steady-state uncertainty persists.

Main source groups

  • Devereux, Griffith and Klemm, "Corporate income tax reforms and international tax competition" (Economic Policy, 2002): Corporate tax reforms can affect location, reported profits and investment incentives; supports a possible investment upside, but also a large direct revenue cost.
  • Department for Business and Trade, "Business population estimates 2025" (2025): The UK had about 5.7 million private-sector businesses in 2025, mostly small firms; sets affected firm context.
  • Office for Budget Responsibility, "Economic and fiscal outlook: business rates receipts" (2026): Business rates receipts are forecast at about £34bn in 2025-26; anchors rates relief scenarios.
  • HM Revenue and Customs, "Direct effects of illustrative tax changes" (2026): Used to support the baseline, affected-population sizing or behavioural assumptions in the illustrative scenario.
  • Institute for Fiscal Studies, "Reform UK manifesto response" (2024): Used to define the pledge wording, policy scope and implementation scenario being modelled.
  • Djankov, Ganser, McLiesh, Ramalho and Shleifer, "The Effect of Corporate Taxes on Investment and Entrepreneurship" (American Economic Journal: Macroeconomics, 2010): Higher effective corporate tax rates are associated with lower investment, FDI and entrepreneurship across countries; supports some supply-side effect, but not enough to assume self-financing.
  • Reform UK, "Our Policies" (2026): Used to define the pledge wording, policy scope and implementation scenario being modelled.