Rishi Sunak resists demands from Johnson for cut to corporation tax

Rishi Sunak is resisting calls to scrap a scheduled rise in Corporation Tax in his autumn Budget despite pressure from Downing Street figures and Tory MPs.

Boris Johnson is pushing for timely tax cuts to boost the economy and reportedly favours reversing the planned increase in Corporation Tax, which is set to rise from 19pc to 25pc next year.

Tory backbenchers have also been pressing Mr Sunak to ditch the change, arguing such a sizable tax increase would be ill-judged just as economic growth is set to flat-line.

However Mr Sunak is understood to be sticking by his original plan, with work being conducted on a replacement to the so-called ‘super deduction’ on tax for companies, which incentivised investment.

The Chancellor wants to spend some of the money raised by the tax rise creating a major new tax incentive to drive investment into the UK — seen inside the Treasury as critical to securing future growth.

The issue could become the latest front in clashes between Number 10 and Number 11 over how and when to cut tax.

There remains half a year before final decisions will be taken in the Budget, with spokesmen for both Mr Johnson and Mr Sunak saying autumn will be the point tax changes are announced.

The pair are pencilled in to conduct a joint speech on the economy the week after next, with government officials working up what is being dubbed a “plan for growth”.

The early indication from both the Treasury and Mr Johnson’s team is that new tax cuts will not be announced in the speech, which is more about setting out the top-level economic strategy for tackling soaring inflation and stuttering growth.

Mr Sunak outlined his argument for why increasing Corporation Tax while providing new incentives to invest was the right approach in the Mais Lecture in February 2022.

The Chancellor noted that investment in capital in the UK had been lower than leading economic European rivals.

He went on: “An analysis of the Net Present Values of different countries’ tax treatment of long-lived capital assets like plant and machinery shows that despite the UK’s highly competitive headline corporation tax rates, the overall tax treatment provided for capital investment is much less generous than the OECD average.

“It is unclear that cutting the headline corporation tax rate did lead to a step change in business investment; we need our future tax policy to be targeted and strategic.

“So as I develop a business tax strategy for the years ahead, it seems likely to me that a priority will be to cut taxes on business investment.”

Mr Johnson side-stepped on Tuesday when asked if the Corporation Tax rise will definitely go ahead as planned next year.

The Prime Minister said: “Tax is a matter for the Chancellor but I'd point out that what we've already done is cut council tax, cut fuel duty and next month £330 on average coming off most payers of national insurance."

Pressed on whether he backed corporation tax going up he said: "Next month we've got tax cuts coming in for people up and down the country, we'll do whatever we can to help people through the cost-of-living crisis, we've got to be sensible, we've got to be responsible."

Mr Johnson pledged to bring down tax to Tory MPs as he sought to secure their support ahead of a confidence vote but has since not announced any new tax cuts.

Economic forecasts suggest that the overall tax burden is set to rise to the highest point in 70 years, despite rhetoric on Mr Johnson and Mr Sunak.

Mr Sunak hinted at considering another fuel duty cut on Tuesday as he admitted drivers are failing to feel the impact of his initial £5bn giveaway.

The Chancellor said his 5p a litre cut to fuel duty announced at the Spring Statement is “significant” but admitted it is “not being felt at the pumps because of the rise in wholesale prices”.

Responding to questions in the House of Commons, Mr Sunak said he would consider calls from an MP for a bigger cut to the fuel tax but underlined the support already handed out.

Prices at the pumps hit a new record of an average of 191.1p a litre on Monday amid concerns that petrol retailers are not passing on the reduction in fuel duty.

He added that the competitions watchdog and business secretary Kwasi Kwarteng are looking at ensuring that the “fuel duty cut is being passed on”.