Based on this information, the £19.4 billion figure does seem reasonable. However, the increase in revenue would be dependent on the behaviour of companies not changing in the face of such a marked rate increase. Previous academic studies have shown how both individuals and organisations change their financial behaviour when relevant taxes are introduced, abolished or altered.
These changes in behaviour can take two main forms. Changes in tax planning could push companies to minimise their taxable profits in the UK. While changes in strategy and investment could make companies invest less in the UK, which would affect economic growth – and tax returns through corporation tax.
This means that the amount raised through corporation tax can be unpredictable and shows no immediate association with the underlying rate of tax. There is evidence of this in UK corporation tax receipts over recent years. While the main rate of corporation tax has continually decreased since it was introduced in its current form in 1973, the receipts generated have remained generally buoyant.
No tax exists in a bubble. Even if a company does not take any steps to counteract the change in tax rate and pays an increased amount of corporation tax, this will reduce its post-tax profits which will affect either its customers (in the form of increased prices), employees (through decreased wages), or shareholders (through decreases in dividends). Decreases in consumer spending, wages and dividends are then likely to result in decreases in tax receipts from excise duties, VAT, income tax and national insurance.