Rishi Sunak may clash with companies over proposed corporate tax hike

Chancellor Rishi Sunak is heading for a clash with businesses over plans to raise corporation tax in his March budget, as businesses say they are still grappling with the shock of the pandemic of coronavirus.

Despite media speculation that post-Brexit Britain could emulate Singapore’s low-tax model, Mr Sunak is seeking to tax businesses more to help close a shortfall that could top £400billion in 2020-21.

He told Treasury officials that a rise in corporation tax would still leave Britain ‘competitive’ with other G7 countries: it could leave room for a significant rise over time against the rate current 19%.

The Chancellor argues that there is little evidence that Britain’s low corporate tax rate is a major driver of foreign investment. Every one percentage point increase in the rate would bring £3.4bn to the Treasury.

While Boris Johnson is sticking to the pledge in the 2019 Tory election manifesto not to raise the rates of the three biggest taxes based on income – income tax, national insurance and added value – Mr Sunak found himself with little wiggle room before his budget on March 3.

The chancellor told officials he saw it as a “matter of fairness” that companies that have received tens of billions in taxpayer support during the Covid-19 crisis should help foot the bill.

But Tony Danker, chief executive of business lobby group CBI, said: ‘I think it would be a mistake to raise business taxes when we don’t have a recovery.

The CBI is pushing for the continuation of the VAT relief and corporate rates for certain industries which was introduced by Mr Sunak at the start of the pandemic, to help businesses recover from the economic downturn.

“I don’t really understand how the government can be sure over the next six months that next year is a good time for business tax hikes,” Danker said.

Mr Sunak’s budget is unlikely to contain many significant tax hikes, as the Chancellor’s main focus will be on maintaining support for businesses and households as the economy slowly begins to recover from the pandemic .

But Mr Sunak’s colleagues at the Treasury said he wanted to start making “tough choices” to start repairing the fiscal damage caused by the coronavirus.

One Horse Guards Road officials are considering arguments for raising capital gains tax revenues, although the Treasury declined to comment on any proposed tax increases.

Last November, a capital gains tax review ordered by Sunak recommended significantly reducing the annual allowance and aligning rates more closely with income tax, a move that could pay dividends. billion pounds to the Treasury.

The Office of Tax Simplification concluded in a report that current capital gains tax rules are “counter-intuitive” and create “strange incentives” in several areas.

At the time, Mr Sunak’s allies said the report had been written by a ‘bunch of assholes’ and downplayed the prospect of sweeping capital gains tax changes, which would affect property owners. second homes and owner-managers of small businesses.

However, Mr. Sunak has few other options. Allies said they did not expect him to ‘come near’ to raising fuel taxes – a sensitive political issue for many Tory MPs – while tax increases on income, national insurance and VAT are prohibited for the moment, at least because of the position of the Prime Minister.

Last year the Chancellor scrapped a planned cut in corporation tax from 19% to 17%, a move that drew little criticism from business or Tory MPs.

The UK collects less corporate income tax than the OECD average, collecting 2.6% of gross domestic product from corporation tax in 2018, compared to an average of 3.1% for rich countries.

The CBI has asked the Chancellor for additional financial support for businesses struggling with the latest lockdowns as bosses now make ‘tough decisions’ about the future of their businesses.

In a letter to Mr Sunak on Tuesday, Mr Danker said the government must avoid the end of support measures such as the job retention scheme “at a precipice that is not in line with a gradual reopening of the economy and the gradual return of demand”.