Sat. Oct 16th, 2021

UK Government updates

Britain’s Conservatives have been known as the business party for decades. Even the government of Boris Johnson has come to power to be a business-friendly administration that understands ‘the concept of enterprise’. With last week’s social care reform plans, it has imposed two consecutive tax increases aimed, in whole or in part, at businesses and employers. This is not only bad for the reputation of the party with its traditional base. It is detrimental to the economy, investment and growth.

The Tories’ 2019 Manifestos was careful to explain that companies are important because they are the wealth of the country and the way services and infrastructure can be funded. Businesses have to pay its fair share of taxes. The government can also argue that it has poured billions of pounds to support large and small businesses through the pandemic, from expiration schemes to the business rate holiday.

However, some businesses have repaid all or part of their Covid-19 support. More importantly, Chancellor Rishi Sunak already scheduled a solid 6 percentage point increase in the corporate tax rate — from 19 to 25 percent — from 2023. Sunak sweetened the pill by offering two-year ‘super deductions’ or savings on investment spending versus profits to businesses. The future rate is also still among most G7 peers; in the US the House Democrats want to do it now increases the rate from 21 to 26.5 percent to help fund the expansion of the social safety net. Yet, including deductions and allowances, the UK will tax the profits of businesses more heavily than other advanced economies. Many industry bosses assumed it was adequate compensation for their Covid assistance.

The increase in national insurance contributions from employees as well as employers that Johnson announced last week to fund backlogs in health care and then social care thus constitutes a double blow to the business. A large portion of the increase in employers’ NICs will eventually be levied on employees, either through lower salary settlements, or because the “employment tax” reduces the amount businesses spend on hiring. Any tax increase to be paid by companies must be paid by someone, whether workers, investors or consumers.

Moreover, these increases cannot be seen separately. Before the recent holidays, many companies business rates have risen over the past three decades; a review promised by the government was delayed by the pandemic. Last week’s increase in taxes on dividends to fund social care also affects businesses and entrepreneurs.

This willingness to impose taxes on companies indicates a tendency at the top of the government to view business profits as a cake pot with which it can provide to meet financing needs without causing the same anger as raising income taxes. This seems to reflect in part a cabinet that is generally light on business acumen.

The government must recognize that raising corporate taxes is not a victimless crime, but that it entails real costs in terms of economic prosperity. This newspaper argued that raising income taxes to fund social care, although politically more expensive, would be preferable. It would be more progressive and spread across a broader base, including older people who would be the most immediate beneficiaries. Johnson’s cabinet must refrain from further increases on business taxes. As CBI Director-General suggested on Monday, the chancellor should also use his autumn budget to show that his party intends to support business more – by offering additional incentives to companies investing in a sustainable future after Covid.

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