Employer groups representing more than a quarter of jobs in Britain have called on Rishi Sunak to cut rates on companies in the budget later this month to unlock billions of pounds of investment in the economy.
In a joint statement ahead of the Chancellor’s post-lockdown budget, the Confederation of British Industry (CBI) and 41 other major business groups are demanding fundamental changes to the system, which taxes businesses based on the premises they occupy .
Representing more than 260,000 companies and 9 million employees combined, professional groups have warned that failure to act would weigh on the government’s ambition to create a high-wage, high-productivity, high-investment economy. .
The intervention will increase pressure on the Chancellor to cut corporate rates after a wave of demands from Conservative ‘red wall’ MPs and a Labor proposal to eliminate them altogether. Businesses seek the Chancellor’s help as they face severe headwinds from soaring costs and supply chain disruptions caused by Covid and Brexit.
Industry groups – representing all sectors of the UK economy, from airports to pubs, shops, construction and manufacturing – have said the current system serves as a tax on investment and could prevent companies from spending on green projects and to stimulate their operations outside London and the big cities.
Their statement urged the Chancellor to announce a cut in corporate rates alongside other reforms to ease the burden on businesses, including removing disincentives to green investment.
Under the current system, a business investing in its physical premises by installing solar panels or heat pumps could add to the value of the building, increasing its taxable value and therefore the tax burden of the business.
The recommendation echoes proposals made by fictional chancellor Rachel Reeves at last month’s labor conference. Reeves said a Labor government would freeze corporate rates and eventually replace them with a new, as yet undefined system that she said would reward investment, with a particular focus on companies investing in decarbonization and green technologies.
Labor seeks to position itself as a business ally as Boris Johnson’s Tories raise corporate taxes despite soaring costs facing businesses and slower economic growth.
In response to the CBI’s statement, Reeves said it was clear the companies’ pricing system was no longer suited to its purpose. “It penalizes big box stores for the benefit of web giants and dissuades companies from investing in new green technologies,” she said.
According to trade associations – which include the British Retail Consortium, UK Hospitality and the Federation of Master Builders – up to 50% of business investments are potentially subject to commercial tariffs.
The groups told the Chancellor that decisions this fall will dictate the shape of Britain’s economic recovery from the pandemic and whether businesses can meet ambitious targets to decarbonize the economy.
Launching the warning in a joint statement, they said: “If we as a country are serious about taking it to the next level and meeting our net zero commitments, setting an example in the year we host Cop26, then triggering a wave of business investment should be the primary goal. “
Sunak is expected to conclude years of consultations on the future of the corporate tariff system in the fall budget, after repeated delays in a fundamental government review.
Several large companies, including Tesco, B&Q and Waterstones, have warned the government that failure to act will endanger thousands of jobs on the streets, while allowing online giants to avoid paying fair taxes. With much smaller physical footprints, in cheaper locations outside of major city centers, digital businesses pay less in commercial rates than traditional retailers with extensive high street store networks.
Earlier this year, it emerged that the Treasury was exploring options for an online sales tax as part of the trade tariff review. While such a measure would be supported by some large retailers, it is opposed by others, including large trading organizations.
Rain Newton-Smith, the CBI’s chief economist, said Sunak could not afford to delay taking action on corporate rates. “If the government is serious about achieving its net zero ambitions, launching reforms further into the high grass may not be the answer,” she said.
“Steps for investment to flow to and around the UK are absolutely necessary to strengthen our recovery. The government deserves credit for convening the Supply Chain Advisory Group to unblock temporary challenges, but as we are seeing with energy prices, there is no substitute for longer term planning and investment. .
A government spokesperson said it would conclude the trade rate review this fall and had granted extensive trade rate relief worth £ 16 billion during the pandemic, with support continuing through March of next year.
“We have also shown that we are committed to supporting investments through the tax system, extending the increase in the annual investment allowance for another year and introducing the super-deduction – the biggest reduction in the tax system. corporate tax of modern British history. “