Big corporation tax rise is ‘worrying signal’ for business

RISHI SUNAK has increased corporation tax for the first time in 47 years with a punishing rise which business chiefs said would prompt a “sharp intake of breath” at firms across Britain.

The move is expected to generate £17.2 billion a year for the Exchequer by 2025-26 as the Government seeks to plug the £355 billion hole the pandemic has blown in the public finances.

A series of Chancellors have steadily cut the tax on company profits to 19 per cent since Labour’s Denis Healey last raised it in 1974.

Tony Danker, director general of the Confederation of British Industry, said: “Moving corporation tax to 25 per cent in one leap will cause a sharp intake of breath for many businesses and sends a worrying signal to those planning to invest in the UK.”

The Resolution Foundation think tank questioned whether such a large tax increase would actually be delivered. Jonathan Geldart, director general of the Institute of Directors, warned that higher taxes will “bite” firms that have lost business during the pandemic.

But the Chancellor insisted that raising the tax on company profits from 19 per cent to 25 per cent will not make the UK a less attractive place to do business than other major economies.

Mr Sunak said the UK will still have a “pro-business tax regime” despite the major tax rise.

“Even after this change, the United Kingdom will still have the lowest corporation tax rate in the G7,” he said.

He also argued that the change would not harm the prospects of companies that do not rebound quickly after the pandemic because loss-making companies do not pay corporation tax.

The Chancellor said he was shielding 1.4million small businesses from the increase by allowing them to continue paying tax at the existing rate if their profits are less than £50,000 a year.

He softened the blow for cashstrapped companies by delaying the increase until 2023. The Chancellor said he was announcing the tax rise two years early to give certainty to businesses so they can plan in advance.

“Yes, it’s a tax rise on company profits but only on the larger, more profitable companies, and only in two years’ time,” he said.

The Chancellor also announced a new “superdeduction” to encourage companies to spend money on equipment that will help them become more profitable.

The incentive will mean companies get a tax break that is worth more than the money they spend on new machinery, increasing investment by an estimated £20billion a year.

Under the plan, a construction company that spends £10million on equipment could receive a tax discount of £13 million.

Mr Danker said: “The superdeduction should be a real catalyst for firms to green-light investment decisions. The boldness of the Chancellor on this measure is to be admired.”

Ministers hope the deduction will turbocharge investment to help businesses to grow their way out of the pandemic. Mr Sunak admitted that investment by British firms – seen as crucial to creating new jobs – has lagged behind competitors in other major countries for decades.