Sunak Faces Backlash Over Business Tax Hike as U.K. Budget Sours
(Bloomberg) -- Rishi Sunak faced a backlash from his own Conservative colleagues over plans to raise the U.K. corporation tax rate for the first time since 1974 in a break with the party’s pro-business orthodoxy.
In his annual budget on Wednesday, the chancellor of the exchequer announced his intention to hike the tax to 25% in 2023, from 19%, for businesses with profits over 250,000 pounds ($349,000). Smaller firms, which Sunak says make up 70% of British businesses, will be charged at the current rate.
“I’m a low-tax Conservative and it’s a horrifying thought that businesses will be paying the highest taxes for 50 years,” said Tory member of Parliament Richard Drax in an interview.
“It’s the private sector we need to nurture to encourage and create a field of play to create jobs,” Drax said. “That doesn’t mean raising taxes and I very much hope the rise in corporation tax can be canceled.”
When George Osborne was the Tory chancellor in David Cameron’s government, he made a point of repeatedly cutting corporation tax to show his pro-business credentials. The rate fell from 28% in 2010 to 20% under Osborne, and then again to 19% in 2017.
But Boris Johnson was unwilling to continue the trend. He canceled a plan to cut the tax further, insisting the money was needed for investment in the National Health Service instead.
Conservative MPs are now struggling to accept the shift in Tory economics. Paul Johnson of the Institute for Fiscal Studies, described it on Thursday as a “screeching U-turn on Conservative policy over the last decade.”
“Whether that rise in the corporation tax will actually be delivered without additional concessions, we will wait and see,” Johnson added. “I reckon 50-50 at best.”
Speaking privately, Conservative MPs said they are unhappy with the rise and want Sunak to cancel it if the economy improves over the next two years. They aim to keep up the pressure on the chancellor to revise his plan.
Whether or not Sunak intends to backtrack later, the Tory hope that he might is a sign he has not yet won the argument with his party.
“I believe the chancellor has given himself room to see how the economy performs and what effect that has on tax revenues,” Tory MP Iain Duncan Smith, a former cabinet minister and party leader, said in an interview. “If it looks progressively better, he may be able to review his corporation tax decision further down the road.”
Sunak defended his policy and played down the idea that corporation tax cuts in the past had boosted revenue collected by the Treasury. Most of the increase in revenue came from the “cyclical recovery in corporate profits” after the financial crisis, he told the BBC on Thursday.
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