Sunak reverses tax cuts for business

The only’ element missing from the UK treasury’s swoony video about chancellor Rishi Sunak was Westlife s You Raise Me Up as the soundtrack. The budget will elevate corporate tax more than his public image; the headline rate will leap six percentage points to 25% in 2023.This was the main fiscal measure in a budget that started the clock on decades of struggle to cover the £400bn-plus cost of coping with coronavirus. Corporate tax is ultimately paid by investors, customers and employees. But it remains a telling proxy for a government’s attitude to business. In reversing George Osborne’s cuts, Sunak warned companies, many of them rescued by state support, to expect no more favours.

A double take was merited by the scale of the increase and the chancellor’s decision to take it in one slug. By the end of this parliament the rise would account for 60% of all fresh tax-raising measures, says Chris Sanger of EY. Even as Osborne slashed the headline rate from 28% to 19%, he limited the cost to government by widening the tax base. The proportionate contribution to tax revenue remained high compared with those of some developed economies. Sunak’s City raid will push it higher still.

The two-year 130% “super deduction” against tax for business investment is a necessity dressed up as a giveaway. Without it, many businesses would have deferred investment until 2023. That would have choked off growth spending when the UK needs it most.

A projected one-off benefit of £25bn compares with the eventual annual extra cost of £17bn from higher corporate tax. The rise will fall heaviest on investors in large, generally profitable companies with a domestic focus.

Sunak justifiably shunted the coronavirus-bailout bill to people who can afford, but unless other finance ministers do the same it will displace investment. “Dishy Rishi”.