£32bn hit for big business as tax cut is cancelled

There was a sting in the tail for British businesses as large corporations were told to stump up for extra spending on the coronavirus fightback and the NhS.

rishi Sunak won praise for a £12bn package of measures to shield the economy from the pandemic, including £7bn of support for small firms, the self-employed and the vulnerable, and an extra £5bn for the NhS.

But big business was hit when the Chancellor confirmed that a planned cut to corporation tax would be scrapped – handing firms a £32bn bill over the next five years.

Changes to two tax reliefs will raise a further £11bn, taking the bill to £43bn.

Critics said firms were only provided with piecemeal tax cuts in return for funding the biggest fiscal loosening since Norman Lamont’s budget in 1992. Cancelling the reduction in corporation tax from 19pc to 17pc – in line with the Conservatives’ election manifesto vow – will raise £7.5bn per year by 2024-25.

The lifetime cap on entrepreneurship relief, which allows company founders to pay 10pc capital gains when they sell their firm, instead of 20pc, was cut from £10m to £1m, raising £1.8bn that year.

Tax relief on red diesel – a fuel used in machinery and off-road vehicles – was also axed for sectors other than rail, home heating and agriculture, raising £1.6bn a year by the middle of the decade.

But Sunak’s Budget allayed some concerns about the impact of coronavirus on demand and businesses’ cash flow.

To help prevent businesses toppling, the 39-year-old announced a one-year rates holiday for small businesses and a £1bn Government-backed loan scheme.

This will support businesses hit by short-term cash flow problems. There will also be £2.2bn provided for grants for the country’s 700,000 smallest businesses to meet ongoing costs.

The Government will also cover the cost of statutory sick pay for 14 days for those off work because of the virus, at a cost of £2bn.

The measures come on top of an £18bn spending, unrelated to the virus, injected into the economy in the next 12 months. The CBI director-general Dame Carolyn Fairbairn said the response ‘will help ensure firms can weather the storm’, while the Federation of Small Businesses said the Budget showed a ‘real commitment to supporting small businesses’.

Critics said the wider tax regime for business offered only ‘piecemeal’ handouts in return for the £43bn tax grab. There was £1bn in tax relief when they invest in buildings, and a further £1bn of relief for firms putting money into research and development.

A further £1bn ‘jobs tax’ cut was handed to small businesses via a boost to the employment allowance from £3,000 to £4,000.

Nikhil Oza, at accountancy group UhY hacker Young, said the corporation tax hike was a ‘missed opportunity to attract investment following Brexit’.

he added: ‘It could end up costing the exchequer more than it raises.’

The Institute of Directors’ chief economist Tej Parikh said: ‘[The Budget] might have done more to spur investment, which will be crucial to speed up the recovery.’

Business groups hailed the Chancellor’s focus on investment in infrastructure, research and development.

Public spending on research and development will increase to £22bn per year by 2025, the Chancellor said.