A business group has said it is “very concerned” at reports that corporation tax could be increased to help balance the public finances amid the coronavirus pandemic, after a Treasury minister refused to rule out such a move.
Steve Barclay, the chief secretary to the Treasury, said he could not comment on any potential tax measures before the planned autumn budget, which would be the second of 2020.
“Treasury ministers don’t try and get into what a budget will or will not do, and particularly on tax measures,” Barclay told Times Radio. “That’s for the chancellor, for the budget.”
In what appeared to be an unofficial airing of possible Treasury plans for the autumn, two government-friendly newspapers reported on Sunday that Rishi Sunak, the chancellor, and his officials are mooting tax rises to help recoup government funds depleted by the slump caused by Covid-19.
The Sunday Telegraph said capital gains tax could be increased to align with income tax, as well as possible changes to pension tax relief and inheritance tax.
According to a report in the Sunday Times, another move could be to increase corporation tax from its current level of 19%, one of the lowest levels among leading economies, to 24%.
Adam Marshall, director general of the British Chambers of Commerce, said a rise in corporation tax could hamper any post-coronavirus recovery and would particularly affect smaller companies, which did not have the “interesting tax arrangements” of many leading multinationals.
“I’m very concerned by what I’m reading in the papers this morning,” Marshall told Times Radio. “I very much hope that this is the Treasury flying kites, rather than settling policy.
“We do not want to make a choice between a strong recovery, with lots of investment and risk-taking by businesspeople, or a short-term repair of the public finances. We’ve got to give the recovery space to build and grow. If the Treasury snaps back to orthodoxy immediately, it will be a really damaging mistake.”
If companies are told tax rates are going up, “you tell them it’s not a good environment to invest in, not a good environment to take a risk, you will hamstring the recovery,” Marshall said. “Let’s nurture the embers of that recovery first, and then repair the public finances – not get them the wrong way round.”
Also speaking to Times Radio, Barclay confirmed the government’s commitment to maintaining spending levels, particularly on infrastructure projects, but refused to say how this would be financed.
“There is always four moving parts to this,” he said. “The key objective within the Treasury is to get growth – how do we drive productivity, how do we get growth? There is then a balance between the other three moving parts of debt, of spending, spending feeding into that, and tax.
“And what’s your trade-off then between your spending measures and your tax measures? The real objective is to reduce the economic scarring from Covid.”
Asked specifically about corporation tax rises, Barclay refused to rule this out. He said: “As soon as you start to say: ‘Well, I rule this one out,’ you will cherrypick as to which one hasn’t been. So I’m not going to get into that, and I don’t think you’d expect me to.”
From Tuesday, companies who have staff on the furlough jobs protection programme will need to start paying 10% of their wages, before the scheme comes to an end in October.
Frances O’Grady, general secretary of the TUC, said the government should consult on extending furlough for some sectors.
“The worry is that if you pull the plug too soon, then all that good work will be wasted,” she said. “So what we are asking is for the government to look, industry by industry, how can we get people back to work.”
She added: “The truth is, we’re going to have to work our way out of this crisis. We need people in work. We know that the costs of mass unemployment are really high.”
Asked about further help for jobs, Marshall said there was a need for specific measures to help firms in areas affected by local lockdowns.
He said: “Businesses in places like Leicester and Aberdeen were just getting back on their feet when they were hit with closure orders again. Not many firms can survive that, particularly when, over the autumn and the winter, we see more local lockdowns happening across the UK.”
