Business leader warns Sunak of backlash to corporate tax hike

UK Chancellor Rishi Sunak is expected to raise the corporate tax rate from 19% to 25%. Photo: Toby Melville/POOL/AFP via Getty

As taxpayers digest the news of the planned National Insurance increase, the government is also facing a wider rollback in tax hikes in the corporate sector.

Tony Danker, head of the Confederation of British Industry (CBI), is expected to say in a speech at the Alliance Manchester Business School later on Monday that the government risks taking the ‘easy option’ by relying on businesses to finance public spending.

Danker must say he is “deeply concerned” by the assumption that taxing businesses will not impact growth and that “smarter taxation” is needed to take the UK forward. He’s about to say the increase is “self-defeating.”

Last week the government proposed a rise in corporation tax from 19p to 25p. He also backed an increase in National Insurance rates from 12% to 13.5% – an overall increase of almost 10% for millions of taxpayers. These measures are expected to raise £12bn ($16.6bn) to close the black hole in health and social care spending, and a total of £36bn over the next three years.

Read more: Johnson announces 1.25 percentage point increase in NI and dividend rate to fund NHS and social care

“We are at an inflection point. Brexit, COVID, climate change – all require the UK to forge a new growth story to compete in the world. And believe me, it will be a competition – for new markets, new skills and technologies advantage,” says Danker.

The CBI boss lays out the idea that the current aim is to beat the benchmarks of previous governments, not those of the rest of the world, which could make the UK uncompetitive in a global landscape.

Between 2021 and 2025, the UK government is expected to invest an average of 3.4% of GDP, compared to 3.9% in the US, 4.1% in Canada, 5.9% in Japan and 9.0% in China, according to Danker.

Regarding skills shortages and labor market issues, the CBI recommended investing in skills and development, using the system developed after Brexit to address the issues.

Danker is about to say that the “seismic reskilling challenge” for the next decade has already been identified – Around 90% of the workforce will need to learn new skills. ‘It will cost an additional £13billion a year just to prevent skills gaps from worsening.’

Read more: UK plans £650bn infrastructure spending as supply chain crisis continues

This is why the CBI is also calling for a reform of the apprenticeship tax as well as an overhaul of corporate taxation.

Earlier on Monday, acknowledging a skills shortage, the government presented a plan to inject £650bn ($897.8bn) into infrastructure, a move it hopes will support 425,000 jobs per year.

The latest Jobs Plan progress update calls for investments in infrastructure projects across the country over the next decade.

Some £350bn has already been spent on this since the start of the pandemic.

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Luisa D. Fuller