Business leaders warn Tory candidates over focus on corporation tax cuts

Business leaders have warned prospective Conservative party leaders against making headlines over cuts to corporation tax without a longer-term plan for growth and support for investment in the UK.

MPs such as Liz Truss and Nadhim Zahawi, who are vying to become the next prime minister, have put tax cuts at the centre of their pitches, including reversing the proposed increase in corporation tax. Some have also advocated business rates reform and reducing National Insurance costs.

Businesses are sceptical about the need for an immediate cut to corporation tax, however, arguing that it is a tax levied on profits at a time when many companies are facing recession.

“A lot of companies would not see any benefit of corporation tax cuts as they are not making any money,” said Stephen Phipson, head of Make UK, which represents manufacturing in the UK.

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Claire Walker, co-executive director of the British Chambers of Commerce said: “Businesses are not interested in headlines; they want realistic levels of tax cuts and, while a reduction in corporation tax would be welcomed by firms, the immediate need is still great.”

She pointed to the need to reduce value added tax on energy bills and reverse the rise in National Insurance, adding: “Talk of a headline corporation tax rate of 15 per cent could place the UK in breach of new international agreements as the effective rate would be below [that] once allowances and deductions were considered.”

Kate Nicholls, head of UKHospitality, which represents many high street businesses, said: “You have to make a profit before you pay corporation tax and for many businesses in the sector the question now is day-to-day viability in the face of soaring energy costs, food bills and labour shortages . . . we want to see urgent action here first and foremost to ensure we have the right conditions for growth.”

There were also concerns about the speculative nature of the proposals from Tory MPs, as they outlined policies interpreted as aimed at winning the leadership rather than protecting the UK economy from a recession.

One business leader dismissed policy proposals from some candidates as “fantasy economics”.

Phipson said companies were far more concerned with reducing the costs of doing business at a time of rocketing inflation, which included business rates, VAT and National Insurance.

The CBI employers’ organisation is expected to publish a “plan for growth” on Wednesday that will also call for business rates reform and new incentives for investment as part of a package of support.

Craig Beaumont, chief of external affairs at the Federation of Small Businesses, said a cut to corporation tax was not even among the top five demands from smaller companies and start-ups.

He said the government should reconsider the broader package of business taxes, adding: “There is an opportunity to bring down VAT, cut fuel duty and help on energy bills, as well as carry out long awaited business rates reform.”

One senior business leader said: “There is no company in the world that makes decisions on investment based on the headline corporation tax. It’s the other taxes that need fixing urgently, but every candidate needs a cost and credible plan and [to] demonstrate this will not lead to inflation.” 

Many industry leaders are also concerned that headline-grabbing tax cuts have taken priority over the harder policies to stimulate growth and tackle rising prices.

“Where is the long-term plan for the UK?” asked Phipson. “It’s all soundbites so far but it’s early days. Companies want to know why they should invest in the UK.”

The candidates seen most favourably by business leaders so far include former chancellor Rishi Sunak, who forged strong relationships with many companies during the pandemic, as well as his successor Nadhim Zahawi, who is viewed as sympathetic to industry given his business background.

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