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Conservatives ditch planned corporation tax cuts


Boris Johnson announced on Monday that planned cuts to the rate of corporation tax had been shelved, calling the move the “fiscally responsible thing to do” at a conference of business leaders.

Corporation tax had been due to be slashed from 19 to 17 per cent from April 2020 onwards, which would have represented a significant increase in net income for limited company contractors working “outside IR35”.

Speaking to the Confederation of British Industry’s annual conference in London, Mr Johnson said that keeping corporation tax at current rates would represent a saving of £6 billion, which would instead be spent on the NHS and other public services.

The Conservatives are keen to distance themselves from their conventional image of being the party of big business, and have been competing with Labour’s spending pledges in an attempt to win over older, poorer voters, particularly in leave-voting constituencies that traditionally vote Labour.

Mr Johnson did however commit to other tax cuts which will disproportionately benefit small businesses, such as cuts to business rates and an increase in the employment allowance, which reduces employers’ bills for National Insurance, from £3,000 to £4,000.

In a move that should boost the manufacturing sector, the R&D tax credit rate will also be increased from 12 to 13 per cent, and the structures and buildings allowance, which was brought in last October for businesses who invest in newly-built or renovated buildings, is set to rise from 2 per cent to 3 per cent.

After making the announcements of planned tax breaks from small businesses, Mr Johnson revealed the surprise delay to the plans to cut corporation tax, which was not included in press briefings beforehand, “because the NHS is the nation’s priority” – although he did not include specifics on exactly where the £6 billion would go.

Johnson also gave an “absolutely categorical assurance” that Sajid Javid would remain as chancellor, following several occasions recently where Downing Street has overruled him.

Mr Johnson previously dropped a commitment he made during the Conservative leadership contest to raise the 40p income tax threshold from £50,000 to £80,000.  The Tory election manifesto is however expected to pledge a tax cut for lower-paid workers via raising the National Insurance primary threshold.

Formerly Treasury civil servant Nick Macpherson said the decision to postpone the cuts to corporation tax meant that, if the Conservatives win the general election, Boris Johnson’s government would be “collecting more of the nation’s income in tax than any previous Tory government”.

Kate Andrews, associate director of the Institute of Economic Affairs, said the decision was a mistake that would be

“bad for competition, innovation and attracting business and investment from all over the world.”

The CBI also heard a speech from Labour leader Jeremy Corbyn, who has committed to raise corporation tax, which stood at 30 per cent for larger organisations in 2008, to 26 per cent.  He told the conference: “It’s not anti-business to be against poverty pay.  It’s not anti-business to say the largest corporations should pay their taxes just as smaller companies do.  It’s not anti-business to want prosperity in every part of our country and not only the City of London.”

The £6 billion that would be saved on reducing corporation tax, if entirely spent on the NHS, would bring the Conservatives’ NHS spending commitment up to £26 billion, exactly matching Labour’s proposals.

Cutting corporation tax to 17 per cent would have meant an “outside IR35” limited company contractor who is sole director/shareholder, earning £450 per day with 10 per cent expenses, would have been better off to the order of around £1,130 per annum.  Instead many contractors face being forced onto PAYE as a result of the planned Off-Payroll IR35 reform which is due to take effect in the private sector from April 2020.

Dame Carolyn Fairbairn, director-general of the CBI, said: “Postponing further cuts to corporation tax to invest in public services could work for the country if it is backed by further efforts to the costs of doing business and promote growth.”

She also attacked what she called “extreme ideologies” brewing in UK politics.

On the right, she said some of those advocating a no-deal Brexit were

“driven by a zeal, an obsession even, for something much bigger than this.  That is the wholesale deregulation of the British economy.  This is not what British firms, large or small, want.”

18th November 2019.