John Longworth: A radical rise in corporation tax would be an attack

John Longworth is an entrepreneur, Chairman of the Independent Business Network of Family Businesses and previously Director General of the British Chamber of Commerce and an MEP.

During conservative leadership elections, independent business networks of family businesses focused almost entirely on supply-side stimulus and growth policies.

While it’s a tough sell for voters that fat cat businesses that make handsome profits should be given tax breaks, it’s actually the businesses that innovate that are fundamental to the nation’s wealth (and thus government services, jobs and income). , improve productivity, and growth.

To do this there must be rewards, incentives and profits to provide the right mechanisms for innovation and investment. A high level of corporation tax, which reduces profits, does the opposite.

Although taxes on business may seem touchy to the problems facing the country, they are, in fact, fundamental to the UK’s ability to deal with these problems and to the well-being of the British people: the nation’s economic strength will determine our purchasing power. citizens; Tax revenue for government services depends on growth.

Increasing the size of the economy by adding more people is a neat strategy but adds nothing; As long as more clever people equals more innovation and more wealth creation, this only reduces wealth and therefore makes the population poorer. Only productivity improvements will increase national prosperity.

Of course, there is more to providing side incentives than corporation tax. Deregulation can free up time and energy, especially for entrepreneurs and small businesses. Capital Gains Relief encourages business start-ups in Britain and rewards many entrepreneurs for the extreme risks they take to build enterprises.

Access to finance and investment – ​​without loss of control and loss of intellectual property – is crucial and much neglected in the UK. Manufacturing investment has underperformed competitor countries for 150 years. Intellectual property is often lost unnecessarily to foreign multinationals.

Innovation is the key to productivity and growth. It requires profit, competition and investment. Competition comes both domestically and trade. Rishi Sunak’s recent reshuffle shows some understanding of this and should be welcomed. But what about Jeremy Hunt?

While there is much to be done, the thing that will make a difference in the upcoming budget is related to corporation tax. The chancellor clearly realizes its importance – he once advocated a major reduction. Even unreliable forecasters think the increase will hurt growth.

And psychologically anti-profit, a radical anti-growth signal can be far more damaging than imagined. If profitability is a prerequisite for innovation, investment and growth, raising corporation tax is an attack on all of them. (This is something that Labor fails to recognize at all.)

There is also a question of capital allowance super deduction and first year special rate (SR) allowance, which should be retained and extended regardless of the headline rate of corporation tax. Encouraging investment in plant and machinery is an important component of productivity, especially since the greatest productivity returns from investment come from investment in production.

Recognizing that the early innovators and disruptors, essential agents of growth, often start out as unincorporated small businesses, Hunt should consider ways to extend tax relief to these operators, whether through capital gains super relief, income tax, or other means such that the business is ultimately incorporated. When carried.

Likewise, land and property in the UK is so limited and expensive. Expanding the scope to include commercial property, where that property is for industrial use, should be considered.

I must say that I think the UK has changed without me noticing; Growth now seems like a dirty word among the net zero-obsessed political and media establishment, when I used to take it for granted that growth is good and essential and that the primary purpose of business is to make a profit, a necessary activity to generate hard work and funds and thus productivity. cheer up

I think it still holds that to hear James Carville’s famous quote, “Economy, stupid” doesn’t win elections outside of the metropolitan bubble. The forecasters have been proven wrong again and we now see that we can avoid recession, see inflation decline and keep interest rates and public finances under control. Hunt has scope for raising corporation tax.

If the Conservatives can win in 2024 (and they still can) an essential ingredient will be growth and prosperity. What the Chancellor does now on corporation tax could determine the outcome of that election.