Rishi Sunak defends increase in UK corporation tax

Chancellor Rishi Sunak on Thursday defended the government’s decision to increase corporation tax, arguing that the UK was still committed to providing an “internationally competitive” business environment.

In his Budget on Wednesday, Sunak announced that corporation tax would increase from 19 per cent to 25 per cent in 2023, making him the first chancellor to raise the levy since Labour’s Denis Healey in 1974.

The move, which will raise an additional £17bn a year for the Treasury, was met with dismay from business representatives within the City, who warned that it would send a “worrying signal” to investors.

In an interview with the BBC’s Today programme on Thursday, Sunak sought to reassure the sector, arguing that the government was still offering an “internationally competitive rate”. 

“On the corporation tax increase . . . it is not coming in for two years, because in the short term we want to support economic recovery and when it does come in we will have a lower corporation tax rate than our G7 competitors”, he said. 

Sunak also argued that while it was important to be honest with the public and businesses about the challenges posed by coronavirus, the government was still committed to a “pro enterprise and pro business” approach and had adopted a range of initiatives to support the economy.

The £25bn “super-deduction” tax break for investments in the next two years would, he argued, offer a “direct way to help businesses invest” and “drive growth in the economy”. 

The chancellor also sought to address concerns that the Budget had failed to allocate funding for some pandemic-related costs and had failed to address the long-term funding of the NHS and social care.

The chair of the Office for Budget Responsibility, the independent fiscal watchdog, told the BBC on Thursday that the government had not “set aside any additional resources” to cover programmes such as repeat vaccinations and test and trace. 

“It’s actually set itself up for more difficult spending rounds coming up this autumn, because it’s put aside even fewer resources to deal with those legacy issues coming out of the pandemic,” Richard Hughes said. 

Meanwhile, shadow chancellor Anneliese Dodds said that successive Conservative governments had failed to face up to the long-term problems associated with delivering and funding social care. “There will need to be a sensible financing solution for social care into the future,” she added.

In response, Sunak said the Conservatives remained committed to finding a “cross party” solution to sustainable social care but the immediate focus for the government was its response to the pandemic. 

He also argued that the government had already allocated £55bn in the November spending review in order to “deal with all the various Covid costs in the coming 12 months”.

The government wanted to build “reliance and fiscal strength” for the country in the long term, Sunak said, and recognised that the country may be dealing with coronavirus for some time.

“As other members of government have also talked about, this will hopefully become something like the flu that we do learn to live with . . . We are not going to completely ever be able to eliminate Covid,” he added.