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British Prime Minister Rishi Sunak on March 1.
Photo:
Martyn Wheatley / Zuma Press
UK Prime Minister Rishi Sunak promised economic literacy when he took office last autumn. British businesses think it needs a revamp. Witness the beer riot over the mammoth tax hike Mr Sunak cooked up with Chancellor Jeremy Hunt.
Messrs. Sunak and Hunt announced the revised budget in November and are promising more of the same in their fall budget announcement. They want to raise the top corporate tax rate from 19% to 25% to balance the budget. Cut the top 45% personal income-tax rate to £125,140 from £150,000. And skip the middle class by freezing tax brackets until 2028 so inflation drags families to higher tax rates before their living standards improve.
This is expected to restore Britain’s “credibility” after a Tory revolt against former Prime Minister Liz Truss’ supply-side agenda in September. The ruling Conservatives are convinced that only a balanced budget will encourage businesses to invest in Britain. But Messrs. Sunak and Hunt have done more than reverse Ms. Truss’s ideas, and investors are not happy.
Simon Louth, chief financial officer of telecoms BT Group, said: “Tax is an important consideration when businesses are making investment decisions.,
He warned recently. The office produced a 26-page report detailing the relationship. James Dyson, the famous vacuum cleaner entrepreneur, wrote in the Telegraph in January that the Tories’ tax hike and deregulation policy was “short-sighted” and “stupid”.
Those companies were polite enough to warn Mr. Sunak, but others are voting with their feet. Pharmaceutical giant AstraZeneca said last month it would build a £320m factory in low-tax Ireland instead of the UK. [U.K.] The tax rate was disappointing,” he said. Shell is reviewing $25bn of oil and gas investments after Mr Hunt added a windfall-profits tax above the standard corporate rate. Britain’s 25% corporate tax rate will still be competitive with the rest of Western Europe, the Tory majority said.
Mr Hunt is killing deductions for business investment that were introduced at the start of the pandemic. The “super-discount,” which allowed companies to cut investment costs by 130%, may be too generous in the long run. But without it or some alternative, Britain has one of the most punitive tax regimes for capital investment in Europe.
The Tax Foundation’s analysis shows that before the super-reduction, the net investment tax credit of UK companies was 62% of the value of the investment, compared to 74% in France, 68% in the US and 66% in Germany.
The trade revolt is a warning that the taxes will be fiscal duds. The Office for Budget Responsibility projects smaller deficits and GDP growth of more than 2.6 percent in 2025, driven in part by 8 percent growth in business investment that year. But if companies don’t invest, GDP won’t grow, and if the economy doesn’t grow, tax revenue won’t grow.
That could leave the Tories with slower growth, higher taxes and record deficits and debt at the next election. The low-tax, pro-growth party of the right, which has lost its economic credibility, is headed for defeat.
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