Rishi Sunak’s budget brings first corporate tax hike since 1974 | Spring 2021 Budget

Rishi Sunak announced the first corporate tax hike in 47 years but sought to soften the blow with £25billion in investment incentives for UK businesses.

The headline rate of corporation tax, the tax companies pay on their profits, will rise to 25% for business profits over £250,000 from April 2023, the Chancellor told Parliament in Wednesday’s budget.

The tax hike will rise by £47.8billion by April 2026, the Treasury said, making it the biggest tax increase in the budget. Companies with profits of less than £50,000 will continue to pay the current corporate tax rate of 19%, although the rate will be reduced for companies as they approach the £250,000 profit level .

Sunak’s announcement is the first rise in the main corporate tax rate since 1974 under Denis Healey, a Labor chancellor. The rise came as a shock to the Conservative Party’s traditional allies in big business. Successive Tory Chancellors had regularly cut corporation tax by 28% when the party came to power in 2010 to an all-time high.

Sunak said it was “just and necessary to ask [businesses] to help our recovery” in light of the over £100billion spending on emergency business support during the coronavirus pandemic.

However, Sunak also announced a new two-year tax “super deduction” for companies investing in new plant or machinery, in a bid to improve the UK’s historically low productivity growth.

Companies will benefit from a tax reduction of 130% of investments made between April 1, 2021 and March 31, 2023, which means that the government will effectively pay for companies to invest their capital. The deduction will amount to £25bn over two years for businesses.

Analysts said the investment grant could prove to be a boon for large companies with pre-existing investment plans. The telecom group BT, which has a major investment program in broadband, recorded a price gain of 6.8% on Wednesday.

Keir Starmer, the Labor Party leader, said the super-deductions policy was “unlikely to catch up with the 10 years when levels of investment growth have lagged other countries”.

He added that the corporate tax hike, backed by the party, showed that “this government’s decade-long corporate tax experiment has failed”.

Plans to raise corporate taxes had been leaked to the media ahead of the budget, but the magnitude of the planned increase came as a surprise to many. EY, the accounting group, said this meant companies would pay 60% of the tax hikes announced by Sunak.

The maximum rate of 25% will be higher than the average overall corporate tax rate in the EU, which was 22.2% in 2020, or the overall corporate tax rate of 21% in the United States. It is also similar to the 26% advocated by Labor under former leader Jeremy Corbyn.

The Confederation of British Industry (CBI) said the budget ‘left open the question of the UK’s long-term competitiveness’. The UK’s biggest business lobby group is generally in favor of lower business tax.

Tony Danker, Chief Executive of the CBI, said: “The Super Deduction should be a real catalyst for companies to greenlight investment decisions. The chancellor’s audacity on this measure is to be admired.

“But dropping corporation tax to 25% in one fell swoop will be a big breather for many businesses and send a worrying signal to those considering investing in the UK.”

The delay in implementing the corporate tax hike has left the door open for lobbying before it is imposed. Jonathan Geldart, chief executive of the Institute of Directors, another business lobby group, said adjustments to the plan should be considered if the economy recovers faster than expected.

Sunak’s attempt to sweeten the pill for business also temporarily extended the ability to “carry over” losses from one year to three years. The rule change will mean that for the next two years businesses that have suffered losses will be able to get refunds of up to £760,000 for tax payments made in the previous three years. The policy is expected to cost around £1billion over two years.

Sunak said his tax increases were “decisions no chancellor wants to make”, but said they were necessary to reduce the amount the government borrows.

“I recognize that they may not be popular, but they are honest,” he said.