Anneliese Dodds: Government has 'seen the light' on corporation tax but super deduction makes move more expensive

Dr Dodds, who made a virtual visit to Yorkshire last week, said across Yorkshire the perceived benefits of cutting corporation tax in recent years had not been seen.

But she said the Government had now acted too late and this would now cost the country more.

Mr Sunak announced last week that the tax rate on profits made by businesses will increase from 19 per cent to 25 per cent, but will not be implemented until 2023.

According to the Budget Red Book, it will see an extra £11.9bn raised in 2023/24, £16.25bn in 2024/25 and £17.2bn in 2025/26.

Mr Sunak said: “The Government is providing businesses with over £100 billion of support to get through this pandemic, so it is fair and necessary to ask them to contribute to our recovery.

“Even after this change the UK will still have the lowest corporation tax rate in the G7 – lower than the United States, Canada, Italy, Japan, Germany and France.”

However, to offset the rises and encourage spending, a super deduction was introduced where companies will be able to reduce tax bills by 130 per cent of business investment in machinery and equipment.

Speaking to The Yorkshire Post, Dr Dodds denied she was concerned the Government was using revenue-raising measures traditionally promoted by Labour after former Conservative minister Sir Christopher Chope suggested the Government’s corporation tax policy had more in common with those proposed by former Labour leader Jeremy Corbyn.

While the Institute for Fiscal Studies (IFS) said freezing income tax allowances and hiking corporation tax was a “screeching U-turns on Conservative policy”.

Dr Dodds said: “I would describe it as the Government has seen the light a bit on a corporation tax, because actually over the last 10 years, we've seen Conservative Government's cutting the rate back and back.

“They said it would generate more investment or private investment growth. It's not done that and unfortunately we see in Yorkshire and across the country that we really haven't seen that additional investment going in.”

Dr Dodds welcomed the “change in heart” from the Government, however she said: “But it's really expensive for them to act in this way now, to have had this stop start approach, because they've had to introduce a super deduction at the same time to stop businesses then pushing investment right back and counting it against their higher corporation tax bill at the end of the period.

“So this has been a really expensive series of mistakes by the Conservative Party that our country should have been spared from.”

She added: “Labour definitely would have taken a very different approach, we did advocate a different approach, for example, to corporation tax that would have meant our public finances would have been in a more stable position before we entered this crisis.

“But also we would have focused on some of those reasons why we've not seen sustained growth to the extent that we would have wanted to see it, some of those productivity gaps and the gaps in productivity growth in particular between Yorkshire and some other areas.”

The Chancellor said that, even with his planned six-point corporation tax rise, he still expected the UK to be internationally competitive.

Mr Sunak told LBC radio: “Even after the increase in corporation tax, which remember is not going to happen for a couple of years from now, so after we’ve got through this and started recovering, we will still have a lower corporation tax rate than all of our large G7 economy countries.”

Asked about Financial Times analysis suggesting that, once deduction and allowances are taken into account, that UK corporates are taxed more heavily than in any other advanced economy, Mr Sunak replied: “I haven’t seen their numbers.

“But the OECD numbers that compare countries on a comparable basis show that we would have the lowest effective corporation tax rate out of the G7, the fifth lowest in the G20 and, with the ‘super deduction’, we shoot up from 30th to first over the next two years in terms of this being an attractive place to invest.

“So I feel very confident that this will continue to be an internationally competitive country with initiatives like free ports, for example, our investment in R&D and innovation – we are a fantastic economy, you are seeing that today.”