Labour will cap corporation tax at 25 per cent during the next parliament under a raft of new measures designed to kickstart the UK economy.
Shadow chancellor Rachel Reeves said on Thursday that the current level “strikes the correct balance” but hinted that she could even cut it if the UK’s “competitiveness comes under threat”.
The announcement came in front of gathering of business leaders at a sold-out event in London designed to win over executives ahead of a general election later this year.
The event is the latest bid by Labour to woo top firms and City of London executives ahead of the next election, with Ms Reeves introduced on Thursday by the boss of HSBC’s innovation banking arm before taking part in a Q&A with Aviva chief executive Amanda Blanc.
Labour did not give any clarity on the circumstances or criteria under which corporation tax could fall, but Ms Reeves was clear to business leaders it would be kept under review.
“The next Labour government will make the pro-business choice and the pro-growth choice: We will cap the headline rate of corporation tax at its current rate of 25 per cent for the next parliament. And should our competitiveness come under threat, if necessary we will act.”
Ms Reeves’ announcement follows a week of discussion and disagreement about Labour’s fiscal policies. The shadow chancellor made headlines when she said Labour would not reverse the removal of the cap on banker’s bonuses.
She told the BBC that the party “does not have any intention of bringing that back” and that while the cap on bonuses was “the right thing to do to rebuild the public finances […] that has gone now and we don’t have any intention of bringing that back.”
Her comments sparked a backlash from some on the left of the party and trade union figures, who called on Labour to rethink its decision.
As chancellor, Rishi Sunak announced a rise in corporation tax from 19 per cent to the current 25 per cent rate for companies with profits over £250,000 – a move that came into force in April last year.
That move had provoked the ire of some free marketeer Tories, with Liz Truss pledging but ultimately failing to scrap the rise during her short-lived premiership.
Jeremy Corbyn’s left-wing manifesto for Labour in the 2019 election had included a hike in corporation tax to 26 per cent. The decision to cap corporate tax at 25 per cent is a significant climbdown from the 2019 manifesto commitment, which pledged to raise corporation tax to 26 per cent.
Jonathan Reynolds labelled Chancellor Jeremy Hunt’s discussion of further tax cuts in the coming months as ‘a scorched earth policy’
But today Ms Reeves said that capping the figure means “businesses can plan investment projects today, with the confidence of knowing how their returns will be taxed for the rest of this decade.”
She said: “To those you in this room who might be wondering – do we really mean what we say? Has Labour really changed? Will warm words today be matched by action in government?
“Be in no doubt. We will campaign as a pro-business party – and we will govern as a pro-business party.”
Left-wing grassroots organisation Momentum – who backed former Labour leader Jeremy Corbyn – have criticised the policy, stating that Starmer and Reeves’ “cosying up to big business” is “bad policy and bad politics.”
They added: “The Labour Leadership’s priorities are deeply out of touch with the labour movement and the public at large.
Voters want higher wages, more money in public services and free school meals, not bungs for bankers & gifts to the City.”
Meanwhile, the British Chamber of Commerce has welcomed the announcement.
Shevaun Haviland, the director general, said:
“Businesses will also welcome a cap of 25% corporation tax over the life of the next parliament. This commitment will give both UK firms and global companies looking to invest here – the confidence to help the economy get back to sustainable growth.”
The party have also been under fire for its gradual retreat from the £28bn green prosperity pledge, with shadow business secretary Jonathan Reynolds’ giving the strongest hint yet that the party may drop the £28bn figure entirely.
The MP for Stalybridge and Hyde, in Greater Manchester, said it was Labour’s “ambition” to carry out the multi-billion pound investment but warned that “sometimes circumstances change”.
Sir Keir Starmer is taking a much more fiscally restrained approach to Labour’s spending
Sir Keir Starmer and his colleagues have been sounding warnings about the state of public finances and have suggested that the Tories may “salt the earth” to make it harder for Labour to make good on spending commitments.
The party have been preoccupied with trying to re-build their fiscal reputation, following a long-held attack line by the Conservatives that they are irresponsible with public money.
As a result, Sir Keir and Ms Reeves have been operating under an ethos of fiscal conservatism, with the shadow cabinet told not to make any pledges unless they are fully funded.
Labour have come under fire from the Conservatives who have said their promise “isn’t worth the paper it’s written on”.
Business and Trade Secretary, Kemi Badenoch MP said:
“With Labour’s consistent track record of saying one thing but doing another, this is another Labour promise that isn’t worth the paper it’s written on.
“Labour cannot say how they will pay for their £28 billion spending spree because they do not have a plan. That will just end up meaning higher taxes on businesses and working people.
She added: “By sticking to our plan, Rishi Sunak and the Conservatives are strengthening the economy and the plan is working – with inflation more than halved and taxes cut for businesses and families.”
