Rishi Sunak is eyeing increasing corporation tax from 19% to 25% in the Budget next Wednesday, March 3.
Previously, it was thought the Chancellor was only considering going as high as 24 per cent.
The chancellor needs to raise money to help start paying off the staggering £394bn deficit the UK economy is facing because of Covid-19, not least the £71bn the Government has spent supporting businesses.
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Each percentage point hiked on corporation tax rates raises another £3.3bn in revenue. This implies that the chancellor could raise nearly £20bn if he increases corporation tax to 25%.
Mr Sunak is also getting political cover to do this because his US counterpart, Janet Yellen, said recently that US corporation tax might rise from 21 per cent to 28 per cent. This would mean that the UK could still claim to have the lowest level of corporation tax in the G7 group of developed nations. According to the Times, the first increase is likely to be in the autumn budget, with subsequent rises.
Also, corporation tax revenue overwhelmingly comes from a number of enterprise-level companies and corporates, as opposed to small businesses – many of which struggle to turn a profit.
Business groups have expected smaller rises and one former Tory cabinet minister told the Financial Times the government was putting up “straw men” and that a smaller increase was likely.
“The idea of 25 per cent is a bad idea and would not fly with the Tory backbenches,” the ex-minister told the newspaper. “A more modest increase is probably inevitable and probably manageable.”
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In a bizarre Alice in Wonderland moment yesterday, Labour leader Sir Keir Starmer lambasted Prime Minister Boris Johnson for planning to increase taxes. Now was not the time to do so during a pandemic, he argued.
Separately, Sir Keir has called on the Government to introduce Covid recovery bonds and to boost funding for start-up loans to help create 100,000 small businesses.
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