Boris Johnson wants to reverse Rishi Sunak’s planned multibillion-pound tax raid on business as he tries to firm up support on the Tory right in the aftermath of last week’s confidence vote.
Allies of the prime minister said that Johnson was determined to stop next year’s six-percentage-point rise in corporation tax that was announced by Sunak last year. But any changes to the planned rise would leave the Treasury with a £15 billion-a-year black hole at a time when growth is stagnating.
One senior Conservative source said that Johnson was prepared to have a “big fight” with Sunak over the issue. “He doesn’t want to put up corporation tax but the Treasury and Rishi are holding him to it,” the ally said. “It is a constant battle. He’s going to try and cut [the planned rises] in corporation tax. He’s going to have a big fight with Rishi on it.”
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A Downing Street source said that corporation tax rates were a “matter for the chancellor”.
Under plans announced by Sunak in last year’s budget, corporation tax is due to rise from 19 per cent to 25 per cent in April next year. At the same time the so-called super-deduction tax break designed to encourage companies to invest in new plants and machinery is due to end.
Sunak is thought to be drawing up plans for a successor to the scheme to be announced in the autumn budget. But senior Tory MPs are pushing the chancellor to go further and unwind, at least in part, some of the six-point corporation tax increase. Johnson is understood to be sympathetic to their calls and has privately indicated that he wants to see a change in approach.
This is likely to put him in conflict with Sunak, who has made clear that he does not want to alter the policy. A Treasury source said at 25 per cent Britain would still have the lowest corporation tax rate of the G7 economies and there was no evidence that low rates increased business investment. Sunak has previously said he prefers “targeted and strategic” tax breaks.
One Tory source said: “There are a lot of MPs who are very unhappy with the planned rise and are lobbying hard to stop it. It sends out entirely the wrong message to business when the economy is on the brink of recession.”
A former cabinet minister said: “Raising corporation tax is the worst thing we could possibly do. It is a particularly inefficient way of raising revenue and signals to international business that you are not serious about inward investment.”
Another Tory MP said that with predicted zero growth in the economy this year it was not the time to impose tax increases on businesses, adding: “No 10 and the Treasury are going to need to show that they are listening.”
Paul Johnson, director of the Institute for Fiscal Studies think tank, said: “We know Rishi Sunak is thinking about significant changes to the corporate tax system, in particular how it could be reformed to encourage investment. That’s likely to mean changes to the structure of the system rather than a reversal of the rate increase.
“He may be tempted to go ahead with a tax rise at a time of high inflation, since it will take some money out of the economy. But using some of the money raised from increasing the rate to increase incentives for R&D [research and development] and investment could have long-term positive impacts on growth and productivity.”
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Johnson determined to reverse £15bn tax raid on business