United Kingdom

Big business ready to swallow 'bitter pill' of tax hikes to help rebuild Britain's finances

Big businesses are grudgingly accepting a higher tax burden as they prepare to play their part in rebuilding Britain’s finances in the wake of the pandemic.

In a move that sent shockwaves through boardrooms, Chancellor Rishi Sunak said in the Budget on Wednesday that the headline rate of corporation tax would rise from 19 per cent to 25 per cent in 2023 as he desperately tries to plug the hole in the public purse.

The increase is the first since Labour’s Denis Healey put up corporation tax in 1974, and according to the Office for Budget Responsibility it will raise an extra £17.2billion in 2025-26.

Chancellor Rishi Sunak said in the Budget that the headline rate of corporation tax would rise from 19 per cent to 25 per cent in 2023 as he tries to plug the hole in the public purse

Paul Johnson, director of the Institute for Fiscal Studies (IFS) think tank, branded it a ‘screeching U-turn on Conservative policy over the last decade’ during which successive Tory chancellors cut corporation tax from 28 per cent.

Warning that the tax hike could dent productivity in the long run, he added: ‘The rise in corporation tax is of historic proportions.

‘Whether that rise will actually be delivered without additional concessions, we will wait and see.

‘Even if it does, as the OBR expects, raise £17billion in 2025-26, it will raise less over the long run.’

In a boost for Sunak, however, business leaders said they were ready to swallow the bitter pill.

Simon Peckham, chief executive of manufacturing group Melrose, said: ‘Clearly we don’t welcome increases in corporate tax but understand they are necessary and don’t believe that they will impact the UK’s competitiveness.’

Amanda Blanc, chief executive of insurance giant Aviva, said: ‘As far as corporation tax is concerned, as one of the leading taxpayers in the UK we think it’s important that Aviva plays its part. We are supportive of that.’

And developer John Laing’s boss Ben Loomis said: ‘We are very supportive of what the Government has done to support the economy in the pandemic and realise that there has been a big build-up of debt. We recognise this has to be paid for and pleased to play our part.’

However, some business leaders worried that the higher rate of corporation tax could hinder the UK’s competitiveness.

Luke Davis, chief executive of investment firm IW Capital, said: ‘The incentive to grow is now heavily burdened and this will impact future entrepreneurialism here in the UK.’

The rate of corporation tax will be tapered, so businesses with profits below £50,000 continue to pay 19 per cent and this builds up to 25 per cent for firms with profits of more than £250,000. 

In an effort to mollify businesses, Sunak pointed out that the UK would still have the lowest level of corporation tax in the G7 group of wealthy countries.

And Stuart Adam, senior research economist at the IFS, said: ‘Of course, it’s always quite possible that other countries may also increase their corporation tax rate – the UK isn’t the only country with a fiscal hole to fill.’

Tony Danker, director-general of the CBI, said: ‘When it comes to the corporation tax rise, I think businesses all accept and believe that we need to pay our fair share of tax in the years ahead and that taxes need to go up for the crisis. But yes, going from 19 per cent to 25 per cent overnight in two years’ time is a shock.

‘This question of long-term competitiveness of the UK and the post-Brexit, post-Covid era is on the minds of companies.’

Danker was more optimistic about the so-called ‘Super Deduction’ which Sunak announced on Wednesday. 

This allows any companies investing in plant and machinery over the next two years to deduct 130 per cent of the cost of that investment from their tax bill. Danker said this was a ‘very good move for kick-starting the recovery’.

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