Labour And Tory MPs Unite In Budget Row Over Rishi Sunak's Tax Rises
Rishi Sunak faces difficult decisions about what taxes to raise at next week's crucial Budget (PA)
5 min read
Reports Rishi Sunak is planning on raising taxes in the Budget have united Labour’s leadership with Tory backbenchers who oppose it, creating a potential headache for the government.
Unconfirmed reports indicate it is highly likely that corporation tax, which is paid by businesses on their profits, will rise from its current level of 19%, potentially to as high as 25%. Capital gains tax, currently collected at between 10% and 28%, could be increased to more closely match income tax, which ranges between 20% to 45%.
Shadow Cabinet ministers including Lisa Nandy have said that increasing corporation tax could “choke off the recovery” from coronavirus, echoed by veteran Conservatives like John Redwood.
Opposing tax increases is a major shift in policy from Labour, whose last election manifesto called for corporation tax to rise sharply.
But Labour leader Keir Starmer is doing just that. “Now is not the time for tax rises on families and businesses,” he said at Prime Minister’s Questions on Wednesday.
Shadow foreign secretary Lisa Nandy told the BBC on Thursday that increasing corporation tax was “not a responsible course of action”.
“There will be a time for raising taxes, doing it fairly and paying down the debt," Nandy said.
“But that time is not now it would be madness to choke off the recovery in towns like mine before it has even begun.”
The UK currently has the lowest rate of corporation tax in the G20 after it was systematically brought down by former Chancellor George Osborne.
But Rishi Sunak's possible hike on Capital Gains Tax was described as “extremely problematic” for Conservative MPs by Mel Stride, chair of the Treasury select committee.
It would mean lifting it as far as 25% would still allow the UK to claim to have the lowest rate in the G7 group of nations.
Each percentage increase is expected to raise another £3.3billion in revenue, which would be welcome to the Exchequer after a year in which more than £300billion has been spent in dealing with the pandemic.
It would represent a massive break with recent Tory orthodoxy to increase corporation tax, Osborne had wanted to get it as low as 15% to increase business investment but was sacked by Theresa May before he could do so.
Neil O’Brien, an influential Number 10 adviser, wrote a paper for centre-right think tank Onward in 2019 calling for corporation tax to continue to fall to match Ireland’s rate of just 12.5%.
A potential move in the opposite direction has angered MPs like Redwood, who said “the last thing the UK economy needs now is tax rises”, echoed by the former Prime Minister David Cameron, who in a rare intervention told CNN on Thursday said tax rises “wouldn’t make any sense at all”.
The ex-Brexit secretary David Davis has previously warned he would vote against a Budget that included tax hikes, while other senior Tories have written to Sunak warning him against it.
The Prime Minister’s spokesperson has confirmed Tory MPs would have the party whip taken away if they join forces with Labour and try and vote down any Budget containing such measures.
Labour’s official position is angering the left of the party. Influential grassroots group Momentum said Starmer “should support both raising corporation tax and a special Covid-19 windfall tax” for sectors which have increased their profits during the pandemic like Amazon.
Richard Burgon, the former shadow justice secretary and secretary of the Socialist Campaign Group of Labour MPs, said: “Labour has to make clear that the super-rich corporations who have increased profits pay their fair share to bringing the end to this crisis.”
But the TaxPayers' Alliance back the official Labour stance. “You couldn’t pick a worse time to be whacking up business taxes," chief executive John O’Connell said.
“With the economy on its knees and millions facing unemployment, hammering Britain’s big employers would be madness. Taxpayers will never forgive Rishi if he wrecks the recovery before it’s even begun.
“Instead of raising corporation tax, the chancellor should slash the cost of hiring, boost pay packets and drive a wave of employment to get the economy moving again.”
But Stride, a former Treasury minister, told a Resolution Foundation event this morning “it’s inevitable that the government is going to go into that place,” predicting corporation tax will rise to around 23%.
Stride believed an increase in Capital Gains Tax would be “very, very tricky”.
“I think if you were going to align it with income tax rates, I think that would be extremely problematic on the conservative back benches in Parliament,” he added.
Helen Miller, deputy director and head of tax at the Institute for Fiscal Studies told PoliticsHime there was not much appetite among economists for tax rises to repair public finances at this point.
“It is for this reason that the Labour party are opposed to raising corporation tax at the moment despite their more general aim to have a higher rate," Miller said.
"Yet Chancellor Sunak may have his eye on the deficit that we're likely to be left with after the crisis and want to ensure that any permanent giveaways he may want to set out in the budget are paid for with tax rises.
“If the chancellor wants revenue in the short run, corporation tax is not a bad place to look because, broadly, it falls on profitable firms and will have little effect on those not making profits.”
PoliticsHome provides the most comprehensive coverage of UK politics anywhere on the web, offering high quality original reporting and analysis: Subscribe