The treasury has reduced corporation tax from 28 per cent to 23 per cent so far in government, with plans to reduce it further to 21 per cent next year.
However, the final cut, which is due to bring the corporation tax rate to 20 per cent in 2015, is now under threat. Miliband announced yesterday that a future Labour government would reverse the change if elected, in favour of freezing business rates.
Labour suggests that the reversal will raised £340m in 2015-16, and £785m in the financial year after that. According to the party’s calculations, cutting and freezing business rates would save 1.5m shops and small business premises an average of £450 per property.
The Confederation of British Industry (CBI) led criticism of the plan. Director-general John Cridland said: “The proposal to reduce business rates has merit, but to do it for some firms, through an increase in corporation tax for others, is divisive.”
Terry Scuoler of manufacturers’ group EEF, and Simon Walker of the Institute of Directors (IoD) were equally opposed, citing the need for British companies to compete against global challenges.
Scuoler said: “The headline rate of corporation tax sends an important signal to investors that Britain is open for business. Beyond its immediate impact, this will raise doubts amongst business on the commitment of a future Labour government to a competitive tax regime.”
Simon Walker added: “The government has spent three years telling the world that we are open for business, and reductions in corporation tax have been a key part of that strategy. It’s a dangerous move for Labour to risk our business-friendly environment in this way.”
The British Chambers of Commerce’s John Longworth concluded: “We question why a freeze or cut in business rates for smaller firms should be offset by a delayed reduction in corporation tax. Miliband’s proposals hit the investment potential of our crucial medium-sized companies, who are the backbone of the real economy.”
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