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CBI head warns Sunak of further backlash over corporate tax hikes

UK tax updates

The UK chancellor faces a further backlash over tax hikes for the corporate sector, with claims that he is risking business investment and taking the “easy option” of turning to companies to fund higher public spending.

Tony Danker, head of the CBI, will say in a speech he is “deeply worried” the government thinks that taxing business will not have any consequences for growth.

Meanwhile Lord Nick Macpherson, the most senior official at the Treasury from 2005-2016, agreed that the chancellor was to some extent taking the “easy option” in raising taxes on companies, not individuals.

Rishi Sunak has proposed an increase in corporation tax from 19p to 25p, and last week hiked national insurance rates for employers and employees by 1.25 percentage points to fund higher health and social care spending.

Labour has called the move a “tax on jobs”, while ministers have insisted that business benefited from a healthy workforce as well as from state support to tackle the Covid crisis.

Danker will say that “there is a real risk now that the government will keep turning to business taxes to carry the load”, warning: “You can’t keep raising business taxes without consequences.”

Boris Johnson, UK prime minister, insisted last week that the Conservatives were still “the party of low taxation”, but business chiefs argue that claim rings hollow to those companies faced with a higher tax bill as they emerge from the pandemic.

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Danker told the FT in an interview that Britain was falling behind other countries in investment, and the latest tax hikes risked further damaging intentions among leading global companies to commit money to the UK. 

Further business tax increases must end, Danker said. “The lack of detail and pace from the government on some of the big economic choices we must make as a country are the biggest concerns for business.”

He said other governments were “coming out faster with big bets and clear plans” for their future, but businesses in the UK were getting impatient given the number of “more high level reviews that lead to more consultations” being launched by ministers. 

Danker instead called for reform to tax policies to encourage firms to invest alongside other policies designed to create new growth markets for the UK and support access to skilled workers. This should include business rates changes to stop penalising improvements to UK buildings, he said. He added: “Is this a going-for-growth government or an old-fashioned tax-and-spend government? This is a real fork in the road.”

Macpherson said the tax rises cut across efforts to make the UK more competitive. “This is a government committed to making this country a business friendly environment where people might want to invest,” he told the BBC’s Week in Westminster.

“That’s even more important given that Brexit has made operating in Britain more difficult and potentially more expensive.”

Businesses have also warned that the tax hikes could hit their finances at a time when many are trying to recover from the pandemic, curtailing their ability to invest and employ. The Federation of Small Businesses last week warned that 50,000 jobs were at risk as a result. 

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An internal assessment by HM Revenue & Customs warned that the Health and Social Care Levy could have an impact “on family formation, stability or breakdown as individuals, who are currently just about managing financially,” and would “see their disposable income reduce”.

Danker will urge the government to “flip business taxation on its head” this autumn. He warn that unless investment catches up with consumer spending, rather than falls behind, the recovery will be short lived.

The CBI boss has called for the government to speed up the development of large infrastructure projects and to replicate the successes of offshore wind in developing markets in hydrogen and other emerging industries.

He pointed to projections putting UK investment as a proportion of GDP behind the US, Canada, Japan and China, and more specifically lower spending on net zero sectors over the next decade.

“The window is closing fast for the UK to deliver the detailed road maps, substantial financial support, and speed of movement it takes to lead in these growing markets. Businesses want this. Investors too. In fact, they are crying out for it.”

The Treasury said the government had “consistently backed business” through the pandemic and supported investment by extending the annual investment allowance and introducing the super-deduction tax cut. “The impact of the pandemic means we have had to make the tough but responsible decision to raise taxes — we’ve asked both individuals and businesses to pay a bit more as we get our public finances back on a sustainable path.”

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Additional reporting by Sebastian Payne


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