Generally speaking, the more you tax something, the less of it you get. The Government's plans to raise Corporation Tax and end relief on new plant and machinery will result in less business investment - and steep costs for households.

By my estimations, Treasury's current plans to raise the corporate income tax rate to 25% and end a temporary 130% 'super-deduction' for new investment in qualifying plant and machinery would lower UK investment by nearly 8%, and reduce the size of the UK economy by more than 2%, compared to making the current rules permanent.

Perhaps more importantly, because the economic costs of corporate taxation are ultimately borne both by shareholders and workers, raising the rate to 25% would permanently lower average household wages by £2,500. This calculation is based on extensive analysis of the relationship between corporate taxes and wages, and primarily reflects the fact that a smaller UK productive capital stock would mean less plant and equipment per worker, and therefore lower productivity and lower wages. In addition, a higher domestic corporate tax rate raises the value of firms' outside options in lower-tax, lower-cost jurisdictions, which would degrade workers' bargaining power.