Sunak plans corporate tax rise to bolster UK public finances
Rates rising from 19% to up to 25% seen as possible
UK chancellor Rishi Sunak needs to find extra tax revenue. Photograph: PA Wire
UK chancellor Rishi Sunak will use the election of Joe Biden as partial cover for a big budget increase in corporation tax rates, arguing that the US president is also planning a rise in business taxes.
UK government officials note Mr Biden – and more recently US treasury secretary Janet Yellen – have proposed an increase in corporate tax rates from 21 per cent to 28 per cent.
Mr Sunak is also expected to announce a sharp rise in the UK’s corporation tax rate, currently 19 per cent, as he tries to restore order to the country’s public finances. The Irish corporation tax rate is 12.5 per cent.
Officials working on the budget say Mr Sunak wants to keep Britain’s business taxes “competitive” with other G7 countries; that formulation could allow rates to rise to 25 per cent or higher.
The proposed rise in the headline corporate tax rate in the US would give Mr Sunak greater scope to increase the UK rate. Mr Biden explained his policy on the basis of budgetary prudence and fiscal equity.
British officials say a notional headline rate of 25 per cent would still be among the lowest in the G7 group, although such an increase would trigger a backlash from some Conservative MPs. The UK Treasury declined to comment.
Business groups have expected smaller rises – perhaps to 23 per cent – and one former Tory cabinet minister claimed the government was putting up “straw men” and that a smaller increase was likely.
“The idea of 25 per cent is a bad idea and would not fly with the Tory backbenches,” the ex-minister said. “A more modest increase is probably inevitable and probably manageable.”
George Osborne, former chancellor, wanted to cut corporation tax to less than 15 per cent as a post-Brexit signal to the world that the country wanted to be a magnet for investment.
But Mr Sunak needs extra tax revenue – each percentage point increase in corporation tax raises £3.3 billion – and is sceptical about the amount of extra inward investment generated by the UK’s low rates.– Copyright The Financial Times Limited 2021