UK business leaders, economists and Conservative MPs have issued the warning following speculation that the Chancellor is contemplating rising corporation tax from 19 percent to 24 percent. The major increase of tax would be part of Mr Sunak’s plans to repair a widening fiscal hole due to the pandemic.
The possible tax rises for the autumn Budget are said to involve capital gains tax increases.
The plans under consideration will also reportedly include a huge scaling back of pension reliefs for top earners.
The Office for Budget Responsibility’s scenario signals a record £322bn in borrowing this year and a deficit standing at £116bn in 2024-25.
But business leaders and Conservative MPs are shocked by the possible corporation tax increases as companies are trying to recover from the COVID-19 lockdown which has shrunk the UK’s economy.
Prime Minister Boris Johnson is also against the tax increase and has told ministers that other actions should be considered first.
Marcus Fysh, Conservative MP, said the tax increase would be the “wrong response” to the pandemic and urged the Government to “resist” the measure.
He said: “Exceptional spending due to present circumstances can and should be financed over the long-term rather than through the usual nearer-term budget balancing processes.
“But the Chancellor has been right to highlight that the scope this provides for current emergency COVID spending programmes is not unlimited.
“We need to help the economy not strangle it. These mixed messages are in themselves damaging and must stop.”
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“It could slow investment, it could slow risk taking among entrepreneurs and growth businesses.
“Everybody in business understands the public finances have to be repaired but do it too early and you risk choking off growth at the crucial moment.”
According to the Treasury, increasing corporation tax to 24 percent would generate £17bn per year and raising capital gains tax would create another £1.05bn.
The Institute for Fiscal Studies said cutting pension tax relief to 20 percent would raise £11bn.
Experts have warned that an increase in corporation tax would send a signal that the UK is “closed for business”.
Chris Sanger, head of UK tax policy at EY, said: “The UK has been on a long journey to reduce its corporation rate, which is seen by many businesses as an indicator of how competitive a country wants to be.
“The UK has prided itself on having the lowest corporate tax rate of any G20 country. The Saudis have a rate of 20pc so it will stop them claiming that and be seen as a sea change in tax policy.”
Matthew Lesh, head of research at Adam Smith Institute, has urged the Government to cut spending before increasing tax.
He said: “Higher corporate taxes would mean less investment, fewer jobs, lower wages and higher prices.
“Cutting corporation tax made Britain one of the best places in the world to invest and supported the pre-COVID jobs boom. A hike in corporate tax rates would send a pretty clear message: Britain is closed for business.”