Labour pledges to cap corporation tax at current level to keep Britain competitive

Labour will not raise corporation tax in a bid to create a stable climate for businesses when in power, Rachel Reeves has pledged.

Giving a speech at the party’s business conference yesterday, the shadow chancellor said that the current 25 per cent rate strikes the “correct balance” and would become the “cap” during the first term of a Labour government.

Ms Reeves hinted that the level could be dropped if the country’s competitiveness “comes under threat” in the future, despite it currently being the lowest in the G7 advanced economies.

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She told businesses that Labour would prize stability for businesses, as she said: “If we expect businesses to invest in Britain, tax rates cannot shoot up and down like a yo-yo according to each political whim.”

Shadow Chancellor of the Exchequer, Rachel Reeves, at a Labour Business Conference at the Oval on February 1 in London.Shadow Chancellor of the Exchequer, Rachel Reeves, at a Labour Business Conference at the Oval on February 1 in London.
Shadow Chancellor of the Exchequer, Rachel Reeves, at a Labour Business Conference at the Oval on February 1 in London.

“We reject the calls from those on the right wing of the Conservative Party to cut corporation tax. Our current rate is the lowest in the G7.

“We believe that 25 per cent rate strikes the correct balance between the needs of our public finances, and the demands of a competitive global economy.

“Be in no doubt. We will campaign as a pro-business party – and we will govern as a pro-business party.”

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Labour’s offer to business will also keep current subsidies such as full expensing and the annual investment allowance, as well as publishing a “roadmap” for business taxes over the duration of its term in office.

However, the shadow chancellor dodged questions about whether she would ditch Labour’s flagship spending pledge on green energy.

When asked about the party’s £28 billion-a-year plans for green investment, Ms Reeves promised “iron discipline” when abiding by the fiscal rules Labour has set itself.

The pledge was first watered down when it became a target in the second half of a first parliament.

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In an interview with Sky News, the shadow chancellor refused around 10 times to say whether she stands by the plan amid speculation that the party may ditch it entirely following next month’s budget.

Jonathan Reynolds, the shadow business secretary, yesterday said “if we can get there” will depend on the state of the economy as he admitted it might not be achieved.

It has been previously reported that party figures are wary that substantial tax cuts by the Chancellor Jeremy Hunt could mean that the party could be forced to raise taxes while in government or stick to its green plan, were it to win the next election.

Mr Hunt has this week said that the Spring Budget on 6 March will aim to “lighten the tax burden”, but admitted that the size of the package will be less than the Autumn Statement in November.

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“I need to set people’s expectations about the scale of what I am doing because people need to know that when a Conservative government cuts taxes we will do so in a responsible and sensible way,” he said.

This echoed warnings by the International Monetary Fund (IMF) on Tuesday, which said that tax cuts could risk the Government’s ability to deliver much-needed investment into public services such as the NHS.

Yesterday the Prime Minister laid the groundwork for the upcoming budget and on progress for his pledge to grow the economy by hosting business leaders in Downing Street and listening to concerns on how small businesses need more support in launching and growing.

This will be helped by the formation of a Small Business Council and an update of the Help to Grow website to help small firms access the resources they need to expand.

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Rishi Sunak said he had “enormous respect” for people who “take that entrepreneurial plunge”.

In his opening remarks, the Prime Minister said he was “incredibly inspired” by their achievements, adding: “My job and my desire is to help you all succeed.”