In Rishi Sunak’s budget last week, he announced an increase in the rate of corporation tax from 19% to 25% in 2023. The Independent said ‘we have to balance the public finances – at some point’ – but – why announce anything now? To my mind it is sheer madness.
True, the deficit could soon hit £400billion; national debt of £2 trillion and rising, but with so much uncertainty – why announce anything now?
Unemployment now stands at 1.7 million, but if just a third of furloughed workers end up losing their jobs, Liam Halligan in the Sun says it will ‘soar over three million – to levels that convulsed British politics during the 1980s’
Sunak seems to have forgotten that we need thriving businesses to grow and expand to employ our unemployed and if some businesses go bust as a result of Covid-19 we need to attract new businesses to the UK – not drive them to places like Dublin where corporation tax rate is a mere 12.5% and it does not have the uncertainty of Brexit hanging over its head
According to an EY Financial Services Brexit Tracker report
43% (95 out of 222) of Financial Service Firms have moved or plan to move some UK operations and/or staff to Europe, taking the total number of Brexit related job moves to almost 7,600
Dublin and Luxembourg remain the most popular EU destinations for staff relocations, new European hubs or office relocations
Asset managers and investment and retail banks need clarity over Brexit which is still being negotiated in order to make strategic decisions.
And to add to the incentive to move out of the UK, Sunak bumps up the corporation tax to twice that of Dublin.
Added to this was the headline in the Saturday’s Financial Times (a paper to which I was a contributor on tax and trust for 12 years) ‘Brexit barriers hit UK-Europe trade flows’. The first hard data showed a steep decline in activity between the UK and other large EU countries
French exports to the UK were down 13 percent in January compared with the average of the previous six months, while French imports from the UK fell 20% according to the French customs office.
The volume of French exports and imports from other countries rose in January compared with the previous month. These figures indicate that the frictional barriers and uncertainty created by Brexit have dealt a heavy blow to commercial activity between the UK and the EU, its biggest trading partner.
Italy also reported sharp declines, a 38% year on year drop in exports to the UK and a 70% drop in British imports in January.
True – we don’t know how much is due to Brexit and how much is due to lockdown which dealt a heavy blow to global trade in the first half of last year.
But with so much uncertainty in my opinion it was rash of Sunak to announce any form of attempt to balance the books now – given how much we as a nation need to stimulate business activity; not suppress it.
The Daily Telegraph is of the same opinion as me – it said that the danger of announcing an increase in the rate of corporation tax now – is that it will slow if not stall the rate of recovery.
I accept that at 25% our corporation tax rate is still below the G7 average of 27% and the Biden administration’s proposed 28% - but that is to compare apples with pears – we should not look at the other G7 countries we need to look across the Irish sea and see what the rate is there – half of what we will be charging here 12.5% rather than 25%. Lunacy - bonkers.
And as if this was not enough, Sunak deliberately singled out the wealthy for special adverse treatment. Most elderly who need to live off their savings will see the raise in corporation tax adversely affect an already low rate of return on their investments, but he went further – any family which has pooled its investments into Family Investment Companies – to take advantage of the lower rates of corporate tax at 19% rather than the higher income tax rates at more than twice that will be denied access to the 19% corporation tax that is otherwise available to companies with profits of less than £50,000. Close Investment Holding Companies – of which most Family Investment Companies are a subset will pay the full rate of 25% regardless of their profits.
So in short – Sunak’s Budget is focussed on the voters, not the need to stimulate the economy, attract new businesses to the UK and get our jobless back to work – post pandemic - I am not a fan
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