Nadhim Zahawi to review corporate tax hike as Boris Johnson fights to stay in power
Nadhim Zahawi, Britain’s new Chancellor of the Exchequer, has said he will reconsider the government’s plans to raise corporation tax from 19p to 25p as Boris Johnson seeks to bail out his struggling administration.
Zahawi was appointed on Tuesday evening after the shock resignations of his predecessor Rishi Sunak, Health Secretary Sajid Javid and several junior cabinet members.
There were more resignations on Wednesday morning, including several ministers, bringing the total to 21 in less than 24 hours.
As Johnson fights for his future as Prime Minister, Downing Street wants the new Chancellor to cut taxes – and reverse planned tax hikes – in a bid to win back voters, despite the potential consequences for public finances fragile parts of Britain.
On Wednesday morning, Johnson was preparing for a tough midday Q&A session with the Prime Minister.
Meanwhile, rebel MPs are plotting to change the Conservative Party’s rules to stage another vote of confidence against him before Parliament’s summer recess.
Zahawi told Times Radio on Wednesday morning that he could cancel the corporate tax hike scheduled for next April. “When boards of directors invest, companies invest, they invest for the long term and they compare corporate tax rates,” he said. “Then I’ll watch everything.”
April’s tax hike aims to raise £17bn a year to help fix public finances after the UK government borrowed hundreds of billions of pounds to navigate the country through the Covid-19 pandemic . It was partly offset by a new “super-deduction” intended to encourage companies to accelerate their capital investment.
Sunak feared the tax cut would fuel inflation, which is already in the double digits. He said in his resignation letter that he could not agree an economic strategy with Johnson, who is known to dislike impending corporate tax hikes because their approaches were “fundamentally too different”.
A senior government official suggested the new chancellor would pursue a different economic strategy to Sunak’s: “For the next stage, we need a growth plan and not just balancing the books.”
Markets will watch whether a looser tax regime could force the Bank of England to raise interest rates more quickly.
Sunak and Javid’s resignations follow multiple scandals that threaten Johnson. The latest came last week when Deputy Chief Whip Chris Pincher resigned after allegations he groped two men while drunk at a private club.
Downing Street insisted for days that Johnson had not been made aware of Pincher’s “specific allegations” of misconduct in the past. On Tuesday, Johnson admitted he had been made aware of the allegations in 2019 – but had forgotten about it.
Many Tory MPs believe the cabinet mutiny signals the beginning of the end for Johnson.
John Glen, Economic Secretary to the Treasury, Justice Minister Victoria Atkins, Schools Minister Robin Walker and Environment Minister Jo Churchill were among those who resigned.