Labour backs 25 per cent corporation tax rate amid calls to scrap rise ahead of budget
Labour will back the government’s bod to keep the planned corporation tax rise to 25 per cent amid “siren calls” to scrap the move ahead of the budget.
It comes as the shadow chancellor is set to say Britain must be in “lockstep” with the G7 and work to “incentivise investment”, at the announcement of a review of business taxes.
Rachel Reeves will say: “In recent years, corporation tax has gone up and down like a yo-yo while the government has papered over the cracks with short-term fixes like the super-deduction.
“It’s no wonder businesses are unable to plan and our investment rates are cratering. Stop-go tax policy is only a sticking plaster.”
Last year Reeves criticised ex-PM Liz Truss’ decision to scrap her predecessor Boris Johnson’s corporation tax increase from 19 per cent, saying Labour would revive the policy.
Meanwhile, ahead of Hunt’s budget this month, Trussite Tories are calling for the rise to once again be reversed, pressure which the Chancellor is widely expected to resist.
Labour is promising an evaluation of the tax regime in a bid to provide firms with certainty, boost investment and back Labour’s mission to achieve the top sustained growth in the G7.
Speaking at MakeUK’s annual conference, Reeves will highlight a “deep frustration” among bosses for potential being “squandered amidst political dysfunction and economic instability”.
Addressing hundreds of manufacturers in London, Reeves will pledge to provide “stability in business taxation” as Chancellor.
Labour says its review will look at building a tax roadmap, how to affordably support investment within the tax system and how to encourage investment of profits and revenue.
OBR figures now show the super-deduction tax relief costs the taxpayer more than the investment it brings into the UK economy, the party says, while the UK has a five percentage point of GDP gap in investment – equating to £100bn – compared to the rest of the G7.
Reeves is also set to confirm Labour will “back” a Tory plan for capital allowances, a scheme which allows businesses to deduct the value of items from their pre-tax profits, if it is both affordable and a “genuine boost to investment”.
Annual investment allowance (AIA) amounts have changed six times since 2008. Business groups appeared to cautiously welcome Labour’s calls for better incentives for investment.
Tom Clougherty, from the Centre for Policy Studies (CPS), said more generous investment allowances would be “interesting” after Labour already said it would scrap business rates.
“Both could be excellent moves if the policies are designed and implemented effectively,” he told City A.M. “Businesses will also like the certainty that a tax roadmap could give.
“But there’s also plenty of scope for Labour to get things wrong – for instance by politicising the business tax system to make everything fit a particular green agenda.
“Their goal really should be tax neutrality – removing the massive disincentives to investment that currently exist throughout the tax system, but without introducing new distortions of their own.”
Craig Beaumont, from the Federation for Small Businesses (FSB), said: ““Labour has now clearly shifted to be more pro-business in its outlook, and the real test of this will be how it tackles business taxation.
“From April, small businesses will be facing the highest tax burden since the 1940s.
“The key will be to create a tax framework that supports economic growth while promoting fairness for all businesses.”
Dr Roger Barker, from the Institute of Directors (IoD), welcomed the review and said it seemed consistent with key policy asks in submissions to the upcoming budget.
“We have called for the Chancellor to raise growth and productivity by strengthening investment incentives for firms, in particular to address skills shortages, to increase fixed capital and to speed our net zero transition,” he said.
A BVCA spokesperson said: “We welcome Labour’s proposals to review taxation and look at how we can best incentivise investment in Britain’s growing businesses.”
Conservative Party Chairman Greg Hands said: “We don’t need Labour to do a tax review to know that they’d put taxes up on business.
“Corporation tax remains lower than it was at any point of the last Labour government.”