Boris Johnson drops Tory plan to cut UK corporation tax

Boris Johnson has suspended a proposed corporate tax cut to free up £6billion for extra spending in an election campaign that signals the government’s desire to prioritize public services over to business support measures.

The proposal demonstrates the absence of any war chests available to the Tories for tax cuts and public spending pledges as they pledged this month to balance the government’s books off capital investment.

The Prime Minister told the annual conference of business lobby group CBI that corporation tax would not fall to 17% next year as the government had originally planned. The move will free up money for National Health Service spending and other priorities.

Mr Johnson said he should disappoint businesses and abandon the planned tax cut ‘because the NHS is the nation’s priority and because we strongly believe in fiscal prudence’.

Projections for public finances show that the government’s target measure will be barely in the black in 2022-23, leaving very little room for giveaways in this election.

Postponing further corporate tax cuts to invest in public services could benefit the country if supported by further efforts to [address] the costs of doing business and promoting growth

Against this headwind, Mr Johnson pointed out that corporation tax had already fallen from 28p to 19p in the pound since 2010 when the Tories entered into a coalition with the Liberal Democrats. The Tories announced in 2016 that they would further reduce the level to 17p in 2020.

“The alternative is [Labour leader] Jeremy Corbyn that would take him back to the highest levels in Europe,” Mr Johnson said.

The opposition Labor Party publishes its manifesto on Thursday. But his latest manifesto, ahead of the 2017 general election, promised several tax hikes, including an income tax hike for those earning over £80,000, a new ‘excess earnings levy’, a financial transactions tax of £5bn a year and a leap in corporation tax from 19p to 26p in the pound.

The corporate tax rate is 31% in France, 30% in
Germany and 29% in Belgium.

Mr Corbyn has defended his plan to bring corporation tax back to 2011 levels.

“I want us to rebalance the way we do things,” he said at the same CBI event in east London. “It doesn’t mean a massive change for everyone [but] it means taxes at the very top. It means we will create a more productive society.

The Conservative Party has often used ‘Laffer curve’ rhetoric, suggesting that cutting corporation tax will lead to greater tax revenue because it encourages more activity. However, Tory chancellors have always accepted in written budget documents that corporate tax cuts cost money.

Mr Johnson’s latest plan contradicts his previous comments on corporation tax in the Tory leadership race and appears to be designed to neutralize Labor attacks that the Tories are too close to big business.

The Institute for Fiscal Studies, a think tank, said corporation tax revenue rose between 2010 and 2019 even as the rate fell in part due to a recovery in profitability since the crisis. fiscal, and partly due to stealth increases in the ‘effective rate’ of tax – even as the overall rate has been reduced.

Stuart Adam, senior research economist at IFS, said “the headline rate isn’t all that matters”, dismissing the idea that there was a Laffer effect in the increase in tax revenue as the main rate was reduced.

Mr Johnson’s plan to reverse the corporation tax cut was originally due to feature in the canceled November budget, according to the Prime Minister’s advisers.

A Tory aide said politics could still be revived, for example if the economy needed an urgent boost after a no-deal Brexit. “Downsizing was not something companies particularly wanted, not a business priority, and it didn’t figure very strongly as a driving factor in business planning,” the aide said.

Carolyn Fairbairn, chief executive of the CBI, said: “Delaying further corporate tax cuts to invest in public services could work for the country if supported by renewed efforts to [address] the costs of doing business and promoting growth.

Dan Neidle, tax partner at law firm Clifford Chance, said: ‘I haven’t met literally anyone in business asking for the corporate tax rate to drop to 17 per cent.’

But Kate Andrews, associate director of the Institute of Economic Affairs, a free market think tank, called the announcement a “mistake”.

“Corporation tax is a stealth tax on workers,” she said. “Not to mention bad for competition, innovation and attracting business and investment from around the world.”

Mr Johnson said the Tories were ‘not opposed’ to cutting business taxes, but said delaying the cut was the most ‘fiscally responsible’ thing to do.

The current corporate tax rate was already the lowest “of all major economies”, he said.