Chancellor Rishi Sunak will use Joe Biden’s election as partial coverage for a large increase in corporate tax rates in the budget, arguing that the US president plans to increase corporate taxes as well.
British government officials note that Biden – and more recently US Treasury Secretary Janet Yellen – have proposed raising corporate tax rates from 21 percent to 28 percent.
Sunak is also expected to announce a sharp hike in the UK corporate tax rate from the current 19 percent to Parliament as it seeks to put the country’s public finances back in order.
Budget officials say Sunak wants to keep UK corporate taxes “competitive” with other G7 countries. This wording could allow rates to climb to 25p or higher.
Of all the options available, raising corporate tax by relatively small percentages strikes me as one of the least unattractive.
The proposed increase in the US corporate tax rate would give Sunak more leeway to increase the UK tax rate. Biden explained his policy on the basis of budgetary caution and financial fairness.
British officials say a fictitious headline rate of 25 percent would still be among the lowest in the G7 group, although such a surge would spark a backlash from some Conservative MPs. The Treasury declined to comment.
Business groups were expecting smaller increases – perhaps 23p – and a former Tory cabinet minister claimed the government had put in “front men” and that the increase was likely to be smaller.
“The idea of 25p is a bad idea and would not fly with the Tory back benches,” said the ex-minister. “A modest increase is likely inevitable and probably manageable.”
George Osborne, former Chancellor, wanted to cut corporate tax to less than 15 percent to signal to the post-Brexit world that the country wanted to be a magnet for investment.
However, Sunak needs additional tax revenue – each percentage point increase in corporate tax increases £ 3.3 billion – and is skeptical of the amount of additional foreign investment generated by the UK’s low tax rates.
Michael Heseltine, former President of the Board of Trade, told the Financial Times: “The Chancellor has a huge budget deficit and needs to address it. Of all the options available, raising corporate taxes by relatively small percentages seems to me to be one of the least unattractive. “
Business leaders were largely relaxed about the prospect of a government hike in corporate taxes. Several executives said it would at least mean they would make a profit and spare those still affected by the pandemic.
One said, “Corporate tax is a pretty sure political reason. There isn’t too much outrage. At least with a profit tax, the point is that profit must be taxed. It doesn’t hit us on the way in. “
However, the bosses also warned that it would depend on how high the tax hikes were. One business leader said: “It would raise questions about our international competitiveness and attracting foreign investment, which the government seems very interested in.”
Stuart Adam of the Institute for Fiscal Studies said Britain had a low corporate tax rate but was “mediocre” on international rankings when all corporate tax revenues were calculated as a percentage of national income.
Adam said that corporate tax revenue “comes mostly from a number of very large and profitable companies.” In contrast, Sunak’s budget is expected to be focused on smaller, innovative companies, many of which are not making a profit.