Rishi Sunak resists Johnson’s demands to cut corporation tax
Rishi Sunak is resisting calls to scrap a planned corporation tax hike in his autumn budget despite pressure from Downing Street figures and Tory MPs.
Boris Johnson is pushing for timely tax cuts to boost the economy and would favor reversing the planned rise in corporation tax, which is set to rise from 19% to 25% this year next.
Tory backbenchers have also pressured Mr Sunak to drop the change, arguing that such a big tax hike would be ill-advised just as economic growth is set to stagnate.
However, Mr Sunak is understood to be sticking to his original plan, with work underway on a replacement for the so-called ‘super deduction’ on business tax, which incentivized investment.
The Chancellor wants to spend some of the money raised from the tax hike, creating a major new tax incentive to boost investment in the UK – seen within the Treasury as key to securing future growth.
The issue could become the latest front in clashes between Number 10 and Number 11 over how and when to cut taxes.
With six months left before final decisions are made in the budget, spokespersons for Messrs. Johnson and Sunak claiming that the fall will be when tax changes are announced.
The pair are set to deliver a joint speech on the economy the following week, with government officials working on what is dubbed a ‘growth plan’.
Early indications from Treasury and Mr Johnson’s team are that further tax cuts will not be announced in the speech, which is more about setting out the high-level economic strategy to tackle soaring inflation and growth stutter.
Mr Sunak explained why raising corporate taxes while providing new incentives to invest was the right approach at the But conference in February 2022.
The Chancellor noted that capital investment in the UK had lagged that of Europe’s main economic rivals.
He continued: “An analysis of the net present values of the tax treatment of long-lived fixed assets such as plant and machinery in different countries shows that despite the very competitive UK corporate tax rates, the overall expected tax treatment for capital investment is much less generous than the OECD average.
“It is not certain that the reduction in the overall corporate tax rate has led to a radical change in business investment; we need our future tax policy to be focused and strategic.
“As I develop a business tax strategy for the years to come, it seems likely to me that a priority will be to reduce taxes on business investment.”
Mr Johnson stepped aside on Tuesday when asked whether the corporate tax hike would continue as planned next year.
The Prime Minister said: “Taxation is a Chancellor’s job but I want to stress that what we have already done is cut council tax, cut fuel tax and next month £330 on average from most National Insurance payers.”
Asked if he supported the corporate tax hike, he said: “Next month we will have tax cuts for people across the country, we will do everything we can to help people get through the cost of living crisis, we have to be reasonable, we have to be responsible.”
Mr Johnson pledged to cut taxes for Tory MPs as he sought their support ahead of a confidence vote, but has since announced no further tax cuts.
Economic forecasts suggest the overall tax burden is set to hit its highest level in 70 years, despite the rhetoric about Messrs. Johnson and Sunak.
Mr Sunak hinted he was considering another fuel tax cut on Tuesday as he admitted drivers were not feeling the impact of his initial £5bn giveaway.
The Chancellor said his 5p per liter fuel tax cut announced at the Spring Statement was ‘significant’ but admitted it was ‘not being felt at the pump due to the rise wholesale prices”.
Responding to questions from the House of Commons, Mr Sunak said he would consider calls from an MP for a deeper fuel tax cut, but highlighted the support already given.
Pump prices hit a new record high of an average of 191.1 pa liter on Monday, as gasoline retailers fail to pass on the reduction in fuel duties.
He added that competitions watchdog and business secretary Kwasi Kwarteng was looking to ensure that the ‘fuel tax reduction was passed on’.