Creating a tax system that boosts business investment to lift the UK out of its growth malaise is the only way to solve the country’s economic stagnation.
That’s according to the chief of the Confederation of British Industry (CBI), the country’s largest business group.
In an open letter to Conservative leadership candidates published today, Tony Danker, director general of the CBI, has called on the winner of the contest to deliver an economic strategy that taps into £700bn of gains on offer to the UK.
“The next prime minister must have a plan for growth that dominates policymaking across every government department,” Danker said.
Britain is suffering from a tough mix of headwinds that has left it on the brink of a recession.
Living costs have jumped 9.1 per cent over the last year, the quickest acceleration since the 1980s, triggering a cost of living crisis that will erode household finances at rates not seen since records began.
Higher energy costs caused by Russia’s invasion of Ukraine, lingering pandemic supply and demand imbalances and China’s adherence to its zero-Covid policy have pushed inflation higher in the UK.
Tory MPs vying for the party’s crown have promised to cut taxes to cushion the cost of living burden on households.
However, Danker said tax cuts aimed at stimulating demand at a time of high inflation are “doomed to fail”.
Labour MP and shadow chancellor Rahcel Reeves said the early exchanges of the leadership contest have descended into a “spectacle of a Tory tombola of tax cuts – with no explanation of what public services will be cut, or how else they’d be paid for”.
Danker urged candidates to re-shape the tax system to generate supply-side reform by lifting business investment out of doldrums.
“Higher productivity is the only sustainable way to achieve higher standards of living and tackle the fiscal challenges of an aging population and decarbonisation while lower[ing] the UK’s high tax burden,” he said.
The CBI wants businesses to be able to deduct 100 per cent of the value of capital spending off their corporation tax bill. The measure would be a permanent successor to former chancellor Rishi Sunak’s super-deduction.
The organisation also recommended a more competitive tax system and an overhaul of the business rates regime.
The open letter chimes with recommendations from a report published today by a cross-party group of MPs on the treasury committee.
Constant “chopping and changing” of the UK’s economic strategy has restricted growth, the committee said.
Tory MP Mel Stride, chair of the treasury committee, said: “We have a new chancellor and shortly will have a new Prime Minister. Getting a grip on productivity will be key to kickstarting economic growth and stimulating greater business investment in the UK.”
The Treasury declined to comment when contacted by City A.M.