Rishi Sunak is facing rebellion from a coalition of Conservative MPs over the corporation tax rise coming in April.
The leaders of several backbench Tory factions have written to the prime minister to urge him to “abandon” his plan to hike the tax from 19 to 25 per cent ahead of the March Budget.
Liz Truss backer Simon Clarke, who is chair of the new tax-cut-supporting Conservative Growth Group (CGG), Sir Jake Berry, founder of the Northern Research Group, and Mark Francois, the European Research Group chair, have all demanded a rethink.
Greg Smith and John Redwood, leaders of the Thatcherite groups Conservative Way Forward and No Turning Back, also signed the letter, warning that a tax rise could hit investment and jobs.
The letter stated: “We are writing to urge you to reconsider the government’s plans to increase corporation tax from 19 per cent to 25 per cent in April this year.”
It added: “If the increase proceeds, potential new jobs and higher national output will be lost and your commendable ambition of transforming Britain into a ‘science superpower’ will be undermined. Levelling-up hopes will be hit hard.”
Membership of the factions amounts to around 150 Tory MPs, a sign of major rebellion against the forthcoming March Budget, as chancellor Jeremy Hunt continues to rule out tax cuts until later in the year.
Business leaders including Wetherspoon founder Tim Martin and hotelier Sir Rocco Forte also signed the letter backing a U-turn on the proposed corporation tax rise.
The group warned that AstraZeneca’s decision to relocate its main drug-production facility to Ireland – citing rising taxes – could be a “harbinger of what may come”. It added: “Many, like AstraZeneca, will relocate future investment beyond our shores. Fewer will seek to establish themselves here.”
Allies of Ms Truss will present Mr Hunt with a wider blueprint for tax cuts before his March Budget, in a move that underlines Tory splits on the economy. Mr Hunt has warned that the state of the public finances means it is highly unlikely there will be significant tax cuts as he focuses on getting inflation down.
The CGG was launched last month by around 20 MPs who champion the low-tax, low-regulation policies Ms Truss promised both before and during her brief term in office. But the group has been “gathering strength”, with one source claiming that it now has more than 50 MPs on board, which would be enough to inflict defeats on the government.
Ms Truss has said she wanted to “be part of promoting a pro-growth agenda” and to build a “strong intellectual base”.
In an interview with The Spectator earlier this month, she largely blamed Whitehall officials for the market turmoil that characterised her seven weeks as prime minister – but admitted her botched plan to ditch the 45p top rate of tax for the highest earners was a “bridge too far”.
Former chancellor Kwasi Kwarteng said he has regrets about his brief time in office – but claimed that the “general direction” of his economy-crashing mini-Budget had been “right”.
Despite having tanked the value of the pound in the autumn with his promises of unfunded tax cuts, Mr Kwarteng said his political beliefs had not changed since being dismissed. “I don’t think you get to prosperity by high taxes,” he told TalkTV, in his first interview since being sacked by Ms Truss shortly before her own downfall.
