Hunt refuses to ditch rise in corporation tax despite business pleas
JEREMY Hunt has ruled out scrapping a large increase in corporation tax from next month despite mounting fears it will hurt the UK’s competitiveness.
It comes amid fresh criticism from business leaders that repeated tax raids are jeopardising investment in Britain.
The Treasury is set to push ahead with plans to raise the corporation tax rate to 25 per cent on April 1 from its current level of 19 per cent as the Chancellor continues his efforts to bring the country’s finances under control in the aftermath of Liz Truss’s disastrous ‘ miniBudget’ last year.
There was speculation Mr Hunt could soften some of his proposals after recent data showed the UK economy was in better shape than initially predicted.
The Government’s financial health was also boosted by an unexpected budget surplus in January because of higher than expected tax receipts.
But despite this, Treasury officials have played down suggestions that the brighter economic picture will lead to a change in direction.
They added that, while some measures could be affordable, such as extending the freeze on fuel duty and the household energy bill support package, others such as a corporation tax cut and public sector pay rises were not. ‘It will be steady as you go,’ a source said. ‘Very little has changed this month compared to November.’
Mr Hunt’s decision to plough on with the planned rise in corporation tax has drawn the ire of several business leaders.
In a letter to the Treasury, inventor and entrepreneur Sir James Dyson blasted the Government for piling ‘ tax upon tax on to British companies’ and warned that higher levies could have ‘unintended consequences’ for the economy.
‘Is it any wonder that the economy is teetering on recession, or that companies like AstraZeneca are deciding to take their investment elsewhere?’ he said. In a response to the billionaire, Mr Hunt wrote that the corporation tax rise ‘will go ahead’ but the UK would still be ‘internationally competitive and supportive of growth’.
The Chancellor also highlighted that 70 per cent of firms would not see their corporation tax increase due to the ‘small profits rate’, which means companies making £50,000 or less in profit would still pay the old rate of 19 per cent.
Meanwhile, executives from several top wind farm firms have also written to the Chancellor to warn that plans to impose a windfall tax on electricity generators, brought in to stop them from making excessive profits after energy prices spiked following the war in Ukraine, could put billions of pounds of investment at risk.
‘ Rising costs, regulatory uncertainty, and increased international competition are having an impact on our ability to attract investment here,’ they said. ‘The UK cannot rest on its past laurels but must power on in the race.’
It came as Shell’s chief executive warned that the UK was becoming a less attractive destination for energy investments. Wael Sawan said the Government’s ad-hoc interventions in the market, as well as planning delays and uncertainty over industry subsidies were all making it more difficult for the oil giant to achieve its target of investing £25billion in the UK by the end of the decade.
He recommended that the Government ‘take a page from some of the things that the US have done recently’. Mr Sawan highlighted its Inflation Reduction Act, which provides £307billion in subsidies to help green energy developments there.
He said that in terms of attractiveness the US was ‘ahead significantly’ of both Britain and Europe and that he would ‘think twice’ about injecting more cash into the UK oil industry.
Plans to go ahead with the corporation tax rise have also drawn criticism from Tory MPs including former prime minister Boris Johnson, who last week called on his successor Rishi Sunak to cut the levy to ‘Irish levels or lower’. Ireland’s corporation tax rate is 12.5 per cent.
Meanwhile, the Conservative Growth Group, a collection of MPs allied with Miss Truss, are piling pressure on Mr Hunt to cancel the planned rise.
‘Take investment elsewhere’
ALL those Tory pledges to embrace the freedoms given to us by Brexit and transform Britain into the next Silicon Valley appear to be crashing to Earth with a deafening thud.
Even though the City is the second largest financial centre in the world, we are in grave danger of losing the battle to keep the best and the brightest companies listed on the London Stock Exchange.
Last week, the Exchange received a body blow when Japan’s huge investment fund SoftBank announced it was planning to float its £33 billion Cambridge-based microchip company Arm not in London, but New York.
No matter that Arm is the jewel of Britain’s high-tech sector, or that ministers including Rishi Sunak had spent a huge amount of time wooing SoftBank’s multi-billionaire boss Masayoshi Son in an effort to persuade him to give London a share of the action.
Arm was proof that we are world beaters at developing high-tech. It was sold to SoftBank in 2016, and the Japanese firm now thinks it will command a higher valuation in New York. It cites regulatory obstacles in the London market as one reason it is heading overseas.
The decision is devastating to Britain’s high-tech ambitions and a snub to the Prime Minister. Worse, it raises concerns that a flood of quoted firms based here could follow suit.
Indeed, both tech companies and more traditional firms which earn large slices of their income in the United States are threatening to take their stock market quotations and much of their headquarters staff across the Atlantic.
Those of us who supported Brexit, hoping for freedom from the kind of sclerotic red tape we associate with Brussels and yearning for a low-tax Britain, are bitterly disappointed.
Far from the high-productivity, fast-growing economy we envisaged, the Square Mile seems bound up in pettifogging regulation, concerns about high taxes and a lack of economic ambition.
Perversely, output and entrepreneurship are actually being hindered by the Treasury and the Chancellor Jeremy Hunt who should surely be focusing above all on getting the City, the lifeblood of our economy, firing on all cylinders.
For fear of upsetting the market for government bonds following last year’s failed experiment in Trussonomics, Hunt & Co are taking a deeply cautious approach, and fiscal orthodoxy — which means high taxes — rules the day.
So far, the Chancellor is refusing to rescind next month’s rise in corporation tax from a competitive 19 per cent to a whopping 26 per cent.
This is in spite of the fact that leading think-tanks, including the Institute for Fiscal Studies and the Left-leaning Resolution Foundation, estimate that the Chancellor has up to £ 30 billion of headroom for extra spending and tax changes in next Wednesday’s Budget.
It is economic vandalism, pure and simple. At the weekend, the head of tax policy at the consultancy KPMG blamed high taxes for the fact ‘at least a dozen . . . probably dozens’ of its U.S. clients have decided not to invest in the UK.
‘ What we can’t get away from is that the UK is now no longer trying to be a low-tax location,’ he said. ‘It is now just somewhere in the middle of the pack.’
Billionaire entrepreneur James Dyson, who is among Britain’s greatest inventors and employers, is even more blunt, describing Tory tax policies as ‘stupid and short-sighted’.
The evidence of this destruction is all too apparent. AstraZeneca, the nation’s £168 billion life sciences champion, decided to locate its next major manufacturing plant in Ireland, taking advantage of a corporation tax rate of 12.5 per cent, rather than Macclesfield where it could have been a levelling-up triumph.
Shell, another of the biggest beasts on the London Stock Exchange, recently considered ( but thankfully decided against) shifting its headquarters out of Britain because of high taxation rates.
The UK’s largest investor in offshore North Sea oil and gas exploration, Harbour Energy, cut jobs and expansion plans when the Chancellor hammered the energy sector with a windfall tax which raised the rate on its earnings to 75 per cent.
There is no escaping the fact all this could put the UK in the slow lane in spite of its glorious technological, science and aerospace innovation. The need for Britain to lift its vision and attract new investment has become all the more critical following recent initiatives in the U.S.
President Joe Biden has unsheathed a huge programme of investment designed to lure companies to America.
Applications are open for up to $39 billion (£32.5 billion) of funding to companies — such as Arm — which are prepared to invest in advanced semiconductor research and production in the U.S.
Last week, a delegation of British microchip makers travelled to Washington where they met White House and congressional staff intent on persuading them to move to the U.S., to reduce America’s dependence on semi-conductor makers in Taiwan.
As Scott White, chief executive of Cambridge-based Pragmatic Semiconductor said: ‘If we can go anywhere else in the world and get support for the capital investment of installing manufacturing facilities, then it’s relatively speaking far less attractive to do it in the UK.’
To be fair, Sunak yesterday launched a £360 million plan to turn Britain into a science ‘superpower’ by the end of the decade, promising to use postBrexit freedoms to develop a pro-innovation culture. But how does that square with the policies business leaders say are making Britain a less attractive place?
Equally alarming is the $370 billion (£308 billion) offered by the U.S. for firms wishing to invest in carbon reduction.
Shell has already indicated it may move some green projects to the US. Brussels is so rattled by the prospect of America acting as a vacuum cleaner for green projects that it is considering lifting strict rules on industrial subsidies in an effort to remain competitive.
Instead of London becoming a magnet for tech, green industries or for flotations of companies, it is in danger of losing out on an enormous scale. The Irishbased building materials group CRH, at the heart of which sits the heritage firm Tarmac, is also off to New York.
It follows UK plumbing giant Ferguson, which headed in the same direction last year.
Reversing the tide of great UK companies heading for the exit is a gargantuan task. It is made infinitely harder by City bureaucracy, a government seemingly impervious to the dangers of overseas takeovers and one determined to raise business taxes in the eye of a global slowdown.
Britain’s economy is far from moribund and has world-leading positions in finance, technology, the creative industries and much else. Instead of building on this excellence, the finger of the state is hovering over the self-destruct button.
The Chancellor has the chance to set a new course in the Budget by cutting taxes without undermining longer term plans to lower government borrowing and debt.
It is a golden opportunity for Sunak’s Tories to offer a radically different approach to Keir Starmer’s statism and reap the rich harvest of a low tax, deregulated economy.