What NOT to do with a corporate surplus

Yesterday I issued a blogpost asking why the Government wants to cut corporation taxes when businesses are sitting on historically large financial surpluses that they are not investing in equipment or people, or even paying out as increased dividends to shareholders.

I wonder sometimes if people actually read what I say. One comment on the blog gave me the standard reasons for cutting corporation tax:

"Cutting the rate of corporation tax reduces the pre-tax rate of return required and so more projects will generate a sufficiently high return to justify investment. Hence more capital investment, higher productivity, higher wages, more output...."

 Here is the quotation from the Bank of England's May inflation report again:

Private domestic demand growth could be boosted if more of the historically large corporate financial surpluses were spent on capital investment or transferred to households in the form of higher wages or dividend payments

In other words, businesses are not investing the money they ALREADY HAVE. Why on earth would giving them more money make them any more likely to invest?

I want to know why businesses are not investing their financial surpluses in equipment and people. I want to know why they are not paying out their financial surpluses as higher dividends - which would greatly help the savers of the UK, whose returns on investment are currently dreadful.  To me it looks like a massive decline in business confidence.  Businesses are battening down the hatches and waiting for better times.

What is the government going to do about the slump in consumer demand that is making it difficult for businesses to sell their existing products and services - and therefore unreasonable for them to expand?

Comments

  1. More cash out there in an inflation environment would further degrade the value of their assets?

    ReplyDelete

Post a Comment

Popular posts from this blog

The Amazing Conversion of Sir James Dyson

Calculus for journalists

Game theory in Brexitland