Corporation tax rise ‘significant departure’ from Tory values, Chancellor warned
‘Politically convenient’ move may do long-term harm, warns former chief secretary to the Treasury
RISHI SUNAK’S corporation tax rise marks a “significant departure” from Conservative principles and will have a “long-term detrimental effect” economically, a former Tory chief Treasury secretary has warned.
The Chancellor yesterday suggested that George Osborne cutting the corporate tax rate should be questioned. Mr Osborne incrementally slashed the levy from 26 per cent in 2011 to 20 per cent in 2016. It was cut a further percentage point the following year.
In the Budget, however, Mr Sunak unveiled plans to introduce a six percentage point jump in the rate to 25 per cent in April 2023. David Gauke, Tory chief Treasury secretary when Mr Osborne was chancellor, told The Daily Telegraph the tax rise marked “quite a significant departure, not just from Conservative orthodoxy but also Treasury orthodoxy”.
It is “politically convenient, but economically will have a long-term detrimental effect on the way the UK is seen as a place to invest”, he said.
He insisted the economic case for a competitive corporation tax rate remained “very strong” and said the previous cuts had not resulted in higher receipts to the Exchequer due to wider economic challenges linked to the recovery from the global crash.
Rachel Wolf, co-author of the 2019 Tory manifesto, yesterday said that the wider Budget suggested a more profound reorientation.
“This is unquestionably a party and a government that has realigned,” she said. She added that a small proportion of the Conservative Party had believed that Britain would become an ultra-low tax country after Brexit. “That was
always going to be a tension and I don’t think it was ever going to be resolved in the direction that they wanted,” she said. Mr Sunak argued that a rise in tax
receipts as the rate has fallen in recent years was “probably more likely due to the cyclical recovery in corporate profits” which were damaged in the global financial crisis and took a long time to recover. He pointed out that corporation tax cuts have historically been forecast to lead to lower Treasury income.
On BBC Radio 4, he said: “Over the past few years, we haven’t seen a step change in the capital investment level that businesses are doing as a result of those corporation tax decreases.”
Lord Lamont of Lerwick, the former chancellor, defended Mr Sunak.
“We all prefer lower taxes to higher taxes. But you can’t expect the state to bail out people and then conjure money from nowhere,” he told The Telegraph.
Paul Johnson, director of the Institute for Fiscal Studies think tank, predicted there was only a “50-50” chance that the corporation tax rise to 25 per cent will actually happen.
He said there were likely to be “additional concessions” before the proposed date, adding that the Covid support spending plans looked “implausibly low”. “Take account of the cuts to planned spending announced in the autumn and Santa Sunak, purveyor of billions, today looks more like Scrooge Sunak, cutting spending and raising taxes to the tune of nearly £50billion,” he said. Tax experts say Britain’s effective corporate tax rate will be “towards the top of the table” internationally if the rise goes ahead and more generous allowances are not introduced.
George Bull, a senior tax consultant at global auditing firm RSM UK, said if the headline rate rose to 25 per cent and similar allowances were in place, the effective corporate tax rate would be 24 per cent. In an analysis for The Telegraph, he said this compared unfavourably at present with rates of 7 per cent in the US, 20 per cent in Japan, 19 per cent in Germany and 11 per cent in Italy.
The analysis threatened to undermine Mr Sunak’s claim the UK will still have the lowest corporate tax rate in the G7 after the six-point increase.
The Tax Foundation in the US last night published figures showing Britain dropping from 17th to 29th in the OECD on its “international tax competitiveness index”.