The planned increase in corporation tax on big business profits will be axed, the chancellor Kwasi Kwarteng has announced, claiming the move can help boost wages and jobs.
The levy was due to rise from 19 per cent to 25 per cent next April – after Rishi Sunak accepted the low rate had failed to boost investment – but will now stay at the lowest rate in the G20, at a cost of £19bn.
Earlier this week, an analysis by the IPPR think tank found that – even with the 19p rate, by far the lowest of leading economies – the UK has fallen behind its rivals in the investment race.
In 2019, it slipped behind Italy and Canada to have the lowest private sector investment in the G7 as a proportion of gross domestic profit (GDP), the left-leaning group said.
But, in the Commons, Mr Kwarteng told MPs: “It is businesses that employ most people in this country. It is businesses that invest in the products and services we rely on.
“I can therefore confirm that next year’s planned increase in corporation tax will be cancelled. The UK’s corporate tax rate will not rise to 25 per cent – it will remain at 19 per cent.
He added: “This will plough almost £19bn a year back into the economy. That’s £19bn for businesses to reinvest, create jobs, raise wages, or pay the dividends that support our pensions.”
But Rachel Reeves, Labour’s shadow chancellor, ridiculed the claim that the government had come up with “a great new idea or a gamechanger, as the minister said”.
“What this plan adds up to is to keep corporation tax where it is today, and take national insurance contributions back to where they were in March. Some new plan,” she told Mr Kwarteng.
“It is all based on an outdated ideology that says if we simply reward those who are already wealthy, the whole of society will benefit. They have decided to replace levelling up with trickle down.”
The boost for big business came in a budget-in-all-but-name, where the biggest surprise was the scrapping of the 45p income tax rate paid by Britain’s highest earners, on more than £150,000.
The chancellor also accelerated a planned 1p cut in the basic rate – from 20p to 19p – which will now come into force next April.
The move will fuel criticism that the mini-budget is handing rewards to the rich at the expense of the least well-off – in what has been dubbed a return to 1980s-style “trickle-down economics”.
Mr Kwarteng also confirmed he is axeing the cap on bankers’ bonuses, while reversing the increase in National Insurance contributions will also overwhelmingly benefit the wealthy.
The pound dropped to a fresh 37-year-low against the dollar as the “growth plan” was unveiled with another steep rise in public borrowing costs in evidence of market nervousness.
The Treasury book showed the extraordinary scale of the tax cuts will cost nearly £27bn in 2023-24 – rising to £45bn by 2026-27.
