UK Chancellor Rishi Sunak will use Joe Biden’s election as partial cover for a large corporate tax hike, arguing that the US president plans to raise corporate taxes as well.
British government officials note that Mr 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’s corporate tax rate from its current 19 percent as it seeks to put the country’s public finances back in order. The Irish corporate tax rate is 12.5 percent.
Budgetary officials say Mr Sunak wants to keep UK corporate taxes “competitive” with other G7 countries; This formulation could allow the rates to increase to 25 percent or more.
The proposed increase in the corporate tax rate in the US would give Mr. Sunak more leeway to raise the UK tax rate. Mr Biden explained his policy on the basis of budgetary caution and financial fairness.
British officials say a fictional 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 UK Treasury declined to comment.
Business groups were expecting smaller increases – perhaps 23 percent – and a former Tory cabinet minister claimed the government had put in “front men” and that a smaller increase was likely.
“The idea of 25 percent is a bad idea and would not fly with the Tory back benches,” said the ex-minister. “A more 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.
But Mr Sunak is in need of 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. – Copyright The Financial Times Limited 2021