The government's strategy of maintaining high corporate tax rates to consolidate public finances has drawn criticism from business leaders who warn it stifles private sector investment. Without robust investment, productivity gains will remain stagnant. Recent figures indicate that business investment in the UK remains sluggish compared to international competitors. A low central bank policy rate has done little to unleash capital spending when firms face persistent uncertainty.
A reduction in the main rate of Corporation Tax from 25% to 19% is advocated by some as the most effective catalyst. Proponents argue this would not only provide an immediate demand-side boost through increased capital expenditure but also enhance long-run aggregate supply by modernizing the nation's capital stock. Others argue that direct public investment in transport and digital infrastructure, or targeted tax credits for research and development (R&D), would yield more reliable long-term productivity gains while directly supporting employment in the short run.
Extract H claims that proponents argue a reduction in Corporation Tax 'would not only provide an immediate demand-side boost through increased capital expenditure but also enhance long-run aggregate supply'.
Using the data and your economic knowledge, assess the view that a reduction in Corporation Tax is the best way to improve the performance of the UK economy in both the short run and the long run.
245 exam-style questions on AQA A Level Economics 2.5 Fiscal policy and supply-side policies, covering 2.5.1 Fiscal policy and 2.5.2 Supply-side policies. Each one has a worked solution and a mark scheme showing where the marks go.