UK businesses seek new aid after Truss’ corporate tax U-turn

On Friday, business leaders demanded that Liz Truss urgently find ways to help businesses cope with her planned corporate tax hike, warning that inaction risked hurting investment in the Kingdom -United.

Following the government’s announcement in its ‘mini’ budget last month that a planned corporate tax hike would not materialise, alternative plans around investment incentives were scrapped and a bank surcharge on profits was maintained at a higher rate.

But after Truss’ U-turn on Friday, business leaders said businesses could be worse off than before, with lenders facing a combined tax rate of 33% on their profits.

“Raising corporation tax in 2023 can help on the fiscal credibility front, but if taken in isolation it could backfire,” said Tony Danker, chief executive of the CBI, the largest British business group.

“Currently we have investment tax incentives that are working but are expiring,” he added. “The government should therefore balance any increase in corporation tax with investment allowances. In this way, you contribute both to stability and to investment.

Banks have also expressed concern about the impact of Truss’ decision on taxes in the sector. Former Chancellor Kwasi Kwarteng said last month that the decision not to raise corporation tax meant the bank profits surcharge would not be lowered from 8% to 3%, as had been proposed by the Chancellor Rishi Sunak last year.

Following the corporate tax U-turn, bankers said ministers should cut the surcharge, citing the threat of a combined tax rate of 33%.

David Postings, chief executive of UK Finance, which represents UK lenders, pointed out that the decision by Boris Johnson’s government to raise corporation tax initially included a reduction in the surcharge levied on banks.

“Following today’s decision to revert to the originally proposed corporate tax rate, we urge the government to consider the surcharge very carefully and not to jeopardize the competitiveness of the UK’s banking and finance sector. “, did he declare.

It is unclear whether Truss will introduce further tax relief for businesses before the medium-term budget plan is presented on October 31. As part of the upcoming tax review, the government has said it will look at how the tax system can go further. promote growth and investment.

Johnson had proposed a permanent replacement for a temporary capital expenditure allowance, which was due to expire in April next year, to offset the rise in corporation tax.

But Truss’ decision to go ahead with the corporate tax hike leaves businesses without that extra support to balance the effect of the increase against their investment plans.

Groups including BT have previously said business capital expenditure incentives would play an important role in spurring investment in critical infrastructure, such as broadband.

One business leader described the decision to raise corporation tax without introducing a similar investment tax break as “the worst of both worlds”.

He added that international companies were already putting investment plans on hold as the turmoil at Westminster meant political decisions could not be trusted. “It’s not back to where things were – it’s worse.”

The CBI, which has backed Sunak’s proposals to permanently replace the ‘super-deduction’ scheme, has warned that UK business investment as a share of gross domestic product will fall to the lowest level among G7 members in 2023, when the regime ends and corporation tax increases.

According to a survey by manufacturers group Make UK due to be published next week, two-thirds of UK businesses believe raising corporation tax to 25% will make the UK less attractive for overseas investment. More than half say it will encourage manufacturers to invest less capital.

Chief executive Stephen Phipson said “the short-term decision to raise corporation tax again sends the wrong signal to investors about the attractiveness of the UK as a destination for overseas investment”.

But he added: “There are much bigger issues at stake than just a fiscal decision. We cannot continue to zigzag from policy to policy.