Chancellor Rishi Sunak announced that he intended to raise the tax rate on profits made by businesses from 19 per cent to 25 per cent as he battles to bring as much cash into the Exchequer to begin to repair the nation’s finances.
The rises will not be implemented until 2023 and should see an extra £45bn raised by 2026.
However, concern is mounting that the rise will place additional burdens on business and suppress inward investment into the United Kingdom.
Tony Danker, CBI director general, said the move ”will cause a sharp intake of breath for many businesses” and sends a worrying signal to those planning to invest in the UK.
Stella Amiss, tax partner at PwC, told The Yorkshire Post that the intended tax rise was at the upper end of her firm’s predictions.
“The good news is that it is two years away so it is not an immediate hike,” she said.
“He is giving away with one hand a few decent reliefs. Those reliefs are really good news and will hopefully help drive some immediate investment by companies. That is played out by this hike in Corporation Tax which of course comes in 2023 and when these reliefs disappear. By the time you get to 2023 you will have an increased Corporation Tax rate, those reliefs we have been given and have got used will fall away. What next?”
Ms Amiss said a headline tax rate is always a signal to potential investors from overseas. And while the planned rise will still leave Britain with a lower tax rate than other G7 nations it could still leave the nation at a competitive disadvantage.
“Often people will not look at what lies below that and will look at the headline tax rate,” she said.
“Twenty five per cent is a lot higher than what we have got today and the fact that it is going up to such a degree will send a message to inbound investors.”
Armoghan Mohammed, inset, PwC’s regional chairman for the North, said the Chancellor had been in an “unenviable position”.
“He has to balance supporting the economy to moving to a time where the economy supports the repayment of the most significant debt that we’ve had in peacetime.
“Through that what he is saying is there’s going to be a heavy burden on business to help repay some of that debt.”
Conservative MP for Haltemprice and Howden, David Davis, said the tax increases would “suppress investment”.
He said: “That will have precisely the deterrent effect I worry about with respect to inward investment.”
But Dr Adam Marshall, Director General of the BCC, said the tax hike was blunted by the new incentives for investment and lower rates for the smallest firms.