By William Schomberg
LONDON (Reuters) – British employers urged finance minister Rishi Sunak on Tuesday to give them permanent tax breaks which they said would fix the country’s lagging business investment levels and accelerate its plodding growth outlook.
Ahead of an expected March 23 budget statement by Sunak, the Confederation of British Industry said the world’s fifth-biggest economy could almost double its growth forecast to 2.5% a year if business investment incentives were made permanent.
Sunak last year offered firms a two-year tax break – costing the public finances a total of around 25 billion pounds ($34 billion) – in the hope of delivering a productivity boost to companies as they emerged from the coronavirus pandemic.
But he also said he would sharply raise the corporate tax rate in 2023 by 6 percentage points to help pay for soaring public spending demands by bringing in around an extra 16 billion pounds a year.
“If you’re about to, overnight, increase corporation tax for firms by 6%, I think you’re obliged to mitigate the potential damage that does to business investment which is already the lowest in the G7,” CBI Director-General Tony Danker said.
A CBI survey of 350 businesses showed 20% of capital investment expected to qualify for Sunak’s ongoing super-deduction would not have taken place without it, and a further 19% had been brought forward to qualify.
A permanent, 100% tax offset, applicable from year one, would boost business investment by 17% the end of 2026 and was likely to pay for itself, the CBI said.
Last week Sunak said he wanted to help companies to invest more in capital and in research and development via tax incentives, a plan that the CBI welcomed. But he added that tax cuts did not typically generate enough extra activity to be self-funding.
Among other budget suggestions, the CBI called for the creation of an advisory body to fix labour shortages and skills gaps via immigration, which has been hit by the pandemic and by Brexit, and better training.
Last year, Prime Minister Boris Johnson angered business leaders by vowing to end “the old failed model of low wages” based on uncontrolled immigration.
Separately, Make UK – a group representing manufacturers – urged Sunak to delay an increase in social security contributions scheduled for April because many companies were struggling with fast-rising inflation and higher wage demands.
A survey by Make UK found 60% of companies believed the rise would hurt recruitment and more than 70% said they would or were very likely to pass on the extra cost to customers.
“The proposed increase remains illogical and will be even more ill-timed given how circumstances have rapidly changed since it was announced,” Make UK Chief Executive Stephen Phipson said.
Sunak and Johnson have said they intend to stick to the planned increase.
($1 = 0.7457 pounds)
(Writing by William Schomberg)
