Big business warns Sunak to get a grip on tax before recession hits
RISHI SUNAK must cut business taxes now to save the economy from recession, the Confederation of British Industry has warned, as the cost of living crisis derails the economic recovery from Covid.
The Chancellor has promised that “in the autumn, we’ll be setting out a range of tax cuts”, but Tony Danker, the business group’s director-general, said that will be too late and the Government must act immediately.
He said: “We already have a cost of living crisis. Are we really going to wait for a full-blown recession before the Government starts to grip this? The Government needs to pull this together now and think about the range of big actions and small actions that are going to boost business confidence and investment. We need business tax cuts.”
Traditionally the Chancellor aims to make tax and spending announcements only at the annual Budget and Spring Statement. But this year the intensity of the cost of living crisis and the pace with which it has engulfed the economy have forced Mr Sunak to play catch-up.
This has included council tax breaks and an energy bills loan announced in February, before the war in Ukraine and more than a month before the Spring Statement, followed by another announcement of help with bills last month. Pressure is already mounting for more support for households, as well as tax breaks which the CBI wants to keep investment growing.
The CBI has slashed its growth forecasts as rampant inflation undermines family finances, making “households go into recession” with only the recovery in business investment keeping the economy from entering a formal recession, usually defined as two consecutive quarters of shrinking GDP.
It expects the economy to grow by 3.7pc this year and just 1pc next year, down from previous predictions of 5.1pc and 3pc respectively.
Mr Danker said: “We’re expecting the economy to be pretty much stagnant. It won’t take much to tip us into a reces- sion. And even if we don’t, it will feel like one for too many people.”
The CBI predicted that inflation will see a second peak of almost 9pc in October when the household energy price cap goes up again.
“It’s as clear as day that business investment is one of the few bright spots left in our economy.
“The super deduction is one of the only reasons we have staved off the threat of recession for now – there must be a permanent successor.”
The super-deduction, a tax break for certain businesses ramping up investment, comes to an end next spring at the same time as the corporation tax leaps from 19pc to 25pc, which Mr Danker calls “an incredibly high level”.
If this is not cancelled or accompanied by incentives and tax breaks, “the corporation tax rise will be damaging to business investment, damaging to the economy and damaging to our overall competitiveness”. Mr Sunak “needs to outcompete the rest of the world when it comes to incentives for business investment”, said the CBI chief.
The Chancellor has argued that too much spending or too many tax cuts could stoke inflation further, but Mr Danker said that “business tax cuts, if done well, will not fuel inflation, they will boost confidence and investment”.
A Treasury spokesman said: “While we can’t shield everyone from all of the global challenges we face, we’re doing everything we can to support British businesses in the months ahead.
“The Chancellor has made clear he will reform and cut taxes on investment in the autumn to spur growth and productivity – and we’re currently working with industry on how best to do this.”