US Edition
Rishi Sunak’s plan to adopt a minimum corporate tax rate will damage Britain’s competitiveness and leave the country drowning in red tape and extra costs, a think tank has warned.
The Legatum Institute urged the Prime Minister not to cede control of the key business tax, following a global agreement to implement a 15pc minimum levy on multinational companies.
The report, authored by Liz Truss’s former chief economic adviser Matthew Sinclair and due to be released on Monday, urges Mr Sunak to use Brexit freedoms to reject the global minimum facilitated by the OECD and “reassert UK sovereignty over tax policy”.
More than 130 countries, including the US, UK and the rest of the G7 signed a landmark deal in 2021 to tackle tax abuses by some of the world’s biggest companies and establish a minimum global corporate tax rate for the first time.
Joe Biden had sought a 21pc minimum, but the US president agreed to reduce this to 15pc for companies with annual revenue of at least $750m (£615m) to secure an agreement with more countries.
The Institute highlighted that the UK had signed up to the agreement without a debate or vote in Parliament, branding the OECD minimum “a bad idea in principle and an unwelcome departure from a longstanding, bipartisan commitment to maintain the UK’s sovereignty over its tax affairs”.
It warned that the UK’s decision to implement the policy faster than other nations would create “unnecessary” additional costs, leave the UK at a competitive disadvantage and prevent future governments from slashing taxes.
Rejecting a corporate tax floor would ensure policymakers could determine the “right corporation tax for the UK”, Mr Sinclair said.
The Institute said officials had also “materially underestimate[d] the cost of implementation” for businesses, warning many would be left drowning in compliance costs.
HMRC has estimated that complying with the new minimum tax would cost businesses £13.2m up-front costs and £8.2m in annual costs on average. Money would go towards updating software, retraining staff and other administrative expenses.
Mr Sinclair said: “It is vital that future governments have the flexibility to set taxes in a way that reflects the UK’s changing economic needs and longstanding concerns about how corporation tax distorts business decisions.
“Implementing the OECD minimum tax early will only magnify the risks and the enormous costs of compliance to UK multinationals, while failing to deliver the revenue the Treasury is after.”
The OECD’s minimum tax plan has also been met by fierce opposition by Republicans in Congress and has led to speculation that Donald Trump will row back on America’s commitment to the policy if he wins the presidency in 2024.
Mr Sinclair said: “As it seems more and more likely that the US Congress is not going to complete its implementation of the agreement, the Government should reconsider if this new tax is right for Britain.”
Mr Sunak has already presided over the biggest corporation tax hike since 1974, lifting the main rate from 19pc to 25pc.
Mr Sinclair said relinquishing some control of business taxes could limit the UK’s ability to support businesses in future through tax reliefs.
He added: “There is a fundamental tension in leaving the EU in order to recover UK sovereignty and then giving sovereignty away in an area that Ministers of all parties defended it when the UK was an EU member state.”
Pressure to row back on the corporation tax promise comes as Jeremy Hunt considers giving businesses a £10bn tax cut in the upcoming Autumn Statement.
The Telegraph has reported that the Chancellor wants to extend a tax break known as “full expensing” to boost long-term economic growth. The policy allows companies to write-off the cost of investment against their tax bill in one go, allowing them to shave up to 25p off their tax bill for every pound invested.
Extending the tax cut for investment by three years would not be inflationary, Treasury officials have concluded, meaning it passes one of Mr Hunt’s key tests.
Business groups have pressured Jeremy Hunt, the Chancellor, to make a flagship corporate tax break permanent.
Treasury officials have held discussions with business groups including the Confederation of British Industry and think-tanks such as the Institute for Fiscal Studies and the Centre for Policy Studies who have told the Treasury the true cost of the policy over the longer term is less than the £10bn estimate by the Office for Budget Responsibility, the Government’s tax and spending watchdog.
Stephen Phipson, chief executive of Make UK, said: “We need capital allowances to be long-term, generous, and accessible. Long term capital allowances and full expensing will enable the investment the sector needs and ensure we can attract the inward investment vital for our growth.”