Jeremy Hunt’s corporation tax hike ‘would make Britain a far worse place to do business’, top think tank warns
- The corporation tax hike will take levy from 19 per cent to 25 per cent next month
- A report found the Chancellor can afford almost £100billion of tax cuts in budget
Jeremy Hunt’s corporation tax hike will make Britain a ‘significantly worse place to do business’, a top think-tank has warned.
The increase, which will take the levy from 19 per cent to 25 per cent next month, will knock around £30billion from the UK’s annual economic output, the Centre for Policy Studies (CPS) found.
And as pressure mounts on the Chancellor to boost growth, a separate report found he can afford almost £100billion of tax cuts in next week’s Budget without breaking his fiscal rules.
In a stark intervention ahead of the Budget, CPS director Robert Colvile said the hike would be a ‘big mistake’.
Senior Tory MPs and business chiefs have urged Mr Hunt to scrap the planned increase, which they say will drive investment away and stifle growth.
And as pressure mounts on the Chancellor to boost growth, a separate report found he can afford almost £100billion of tax cuts in next week’s Budget
The CPS said raising corporation tax, while letting the super-deduction tax break expire, would make the UK a less attractive place to invest.
The changes would see Britain drop from 10th to 33rd out of 38 Organisation for Economic Co-operation and Development countries based on the competitiveness of its taxes.
The CPS said it is ‘not too late’ to reconsider the tax hike and the Government should introduce a system to replace the super-deduction – which gives big tax breaks to companies investing in infrastructure and factory and machinery assets.
Mr Hunt is considering replacement options such as a ‘full expensing’ regime, which would allow investments to be offset against profits for tax purposes. The CPS said a ‘generous’ version of the tax break could boost the economy by 3.4 per cent in the long run – adding more than £60billion to GDP each year.
Mr Colvile said: ‘We still believe that increasing corporation tax is a big mistake. But introducing full expensing as a replacement for the expiring super-deduction would at least compensate for its effects and persuade businesses to help deliver the growth we so desperately need.’
Meanwhile the National Institute of Economic and Social Research said that lower than expected spending, higher income and a better economic outlook have left Mr Hunt with a £97.5billion windfall.
Researchers said the headroom should be used to reduce or scrap the corporation tax hike, which they said would harm investment and growth.
The CPS said raising corporation tax, while letting the super-deduction tax break expire, would make the UK a less attractive place to invest
Tory former leader Sir Iain Duncan Smith said the Government needs to make Britain more competitive for firms through deregulation and lower tax rates. ‘Do that, and we have a chance,’ he said.
He added: ‘If we put up corporation tax it will tell people abroad Britain does not value companies making profits.’
The Government said the UK’s corporation tax will still be the lowest in the G7 after April, while 70 per cent of companies will be unaffected by the increase. A spokesman said: ‘Growing the economy is one of the Prime Minister’s top priorities.’
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