Telecoms company joins the growing opposition to proposed increases in corporation tax
BT warns that Jeremy Hunt will send Britain in a “drastically Anti-Investment Direction” if he continues with a planned rise in corporation tax.
According to the telecom giant, the country is heading towards a “cliff edge deterioration in the tax environment investment,” ahead of an April increase in the tax rate from 19pc – 25pc.
BT stated that the Chancellor’s raid would cause harm to the UK’s international standing, and that it would be a new threat to the country’s economy. This was despite growing opposition from Conservative backbenchers and business leaders.
Simon Lowth, BT’s chief financial officer, stated: “Productivity growth has been stubbornly low, and although it is not a problem in the UK, it does mean that some international competitors are beginning to outpace me.
“Business investment has been also poor. This is a problem because it’s one key way to help the UK break the cycle low growth.”
Just as the City’s hopes increase that a recession can be avoided, so does the fear that higher taxes could pose a threat to growth.
Citi analysts had previously predicted that inflation would reach 18pc in this year but now they expect it to fall to 2.3pc by November. This is close to the Bank of England target.
Mr Hunt pledged to continue with tax increases despite improving public finances after a sharp fall of wholesale energy costs. also saw a surprising PS5.4bn surplus for January. He denied that there were any tax cuts earlier this week.
The Treasury is being constantly pressured by major businesses and business groups, who fear that the proposals will hold back Britain.
Sir James Dyson criticized the Tories “shortsighted” and “stupid” approach last month . He argued that the Conservatives appear to believe “penalizing the private sector is a win at the ballot box.”
Tony Danker, director general of the Confederation of British Industry has warned that money is leaving Britain as a consequence of the Tories’ policies. John Allan, Tesco chairman, stated that the only way to improve living standards is through a “really serious and thought-through long-term growth strategy”.
John Redwood, a senior Tory backbencher, says that higher tax rates will result in lower growth and less revenue.
The Government has announced plans to raise the headline rate for corporation tax from 19pc, to 25pc, starting in April.
At the end of next month, the so-called super deduction expires. This tax break provides a significant tax break to companies that invest in plant and machine assets.
BT published a report on Wednesday saying: “Should productivity growth not increase materially relative to the levels seen since the financial crisis,” there would be significant negative consequences for the UK’s economy, living standards and government’s fiscal position as well as the provision of public service.
BT warned that the UK’s current position as the lowest tax country in the OECD group would be lost and it would fall into the middle ranks. This would make the country less competitive.
The Tax Foundation also pointed out research that showed the UK could fall to 33rd place in 38 OECD countries if no follow-on support is provided for the super deduction. This is due to the generousity of its incentives to invest machinery.
Mr Lowth stated: “At an urgent time when the economic growth that business investment could unlock it is required, the case to intervene at the upcoming Budget was never clearer.”
A separate analysis by Centre for Economics and Business Research suggests that an increase in corporation taxes will impact the economy by approximately PS45bn over ten years as productivity and growth slow down and business investment recovers.
According to the consultancy, raising the headline rate six percentage points would reduce annual business investment by about 3pc over five years. It will also drag down gross domestic product (GDP), by 1.8pc over the long-term. In addition, it will bring in billions more taxes than Treasury’s forecasts.
As fewer jobs are created and investments are made, a higher headline rate will likely reduce other revenues.
Douglas McWilliams is the CEBR’s deputy chair. He said that the tax hike could also hinder the Chancellor’s goal to make the UK “next Silicon Valley”, as many businesses have stopped investing in the UK due to its high taxes.
He stated that a large amount of business investment now is in software and new systems. Therefore, a lot potential new investments are heavily tech-based. The tech sector will not grow if it doesn’t invest in these technologies. This has an impact on productivity because tech is one the most productive areas of the country.
The Centre for Policy Studies (CPS), Tax Foundation think tanks, have found that raising corporation tax could reduce GDP by 1.2pc, invest by 2pc, wages by 1.1pc in five to ten year periods, unless there are major reforms to investment allowances.
Research by the British Chambers of Commerce has shown that three out of ten companies are concerned about taxes and regulation.
Analysts are growing more optimistic that the country will not fall into a deep recession in the coming months.
JP Morgan stated Wednesday that it does not expect the economy to go into recession, despite recent surveys indicating the economy is performing better. Allan Monks, economist, stated that “we also expect the unemployment to remain lower for longer, while job growth remains firm.”
The boss of Britain’s largest lender, said that the UK economy would rebound in 2024 after a weak recession this year.
Charlie Nunn, chief executive officer of Lloyds Banking Group said that “We are anticipating what we would consider a mild recession.” It will not be like the financial crisis, but it will be more like the earlier recessions that we experienced in the first half of this century.
Nunn said that the program will still be meaningful for customers, especially those in the UK with lower incomes who will likely struggle to make ends meets.
Chief UK economist at Pantheon Macroeconomics Samuel Tombs said that Jeremy Hunt would be able to get as much as PS69bn if the economy was stronger and tax revenues were higher. He anticipates that the Office for Budget Responsibility will lower its projections for borrowing in 2022-24 and 2023-24 by approximately PS37bn and PS32bn respectively.
He said that the OBR would likely revise its medium-term inflation forecasts and decrease its estimation of the UK’s long term growth potential. This would result in an increase in borrowing of up to PS20bn over five years.
Tombs stated that this could violate Mr Hunt’s fiscal rule to keep annual borrowing under 3pc GDP. This was why he was “cautious about” the possibility of tax cuts.A spokesperson for the government stated that “Growing the Economy is one of Prime Minister’s Top Priorities, which is why we have maintained record amounts of capital investment, R&D spending, and continued to incentivise investments through measures like increases to the Seed Enterprise Investment Scheme.“To encourage long-term growth, it is vital that we adhere to our plan to halve the inflation in this year and to reduce our debt. Our corporation tax rate will remain the lowest in G7 countries starting April, which will keep the UK competitive internationally. Capital allowances are still valued by the Government to support businesses in investing.