§ Mr. David ShawTo ask the Chancellor of the Exchequer what is his estimate of the cost of abolishing mainstream corporation tax in 1989–90 and 1990–91, and of maintaining the rate of corporation tax at the rate of advanced corporation tax.
§ Mr. Norman Lamont[holding answer 23 January 1989]: The revenue cost of reducing the main rate of corporation tax to 25 per cent. would depend on the level of taxable profits earned in future years and on companies' behavioural response to the change. The rate of 792W corporation tax applicable to company incomes in the year from 1 April 1988 was set at 35 per cent. in the 1988 Finance Act. Had the rate been set at 25 per cent. and taking the level of income in the year as given, it is estimated that receipts would be about £4¼ billion lower in 1989–90 and £6½ billion lower in 1990–91. The revenue cost of abolishing mainstream corporation tax so that tax would be charged only on company distributions by way of advance corporation tax would be considerably more than this.