Impact of increasing business taxes

In a speech today at the Alliance Manchester Business School, Tony Danker, director general of the CBI, called on the government to rethink the tax burden it is placing on businesses or face a ‘self-defeating’ halt to investment in the UK.

In response to the 1.25% National Insurance contributions (NIC) rise which was announced last week,  Danker states that further business tax increases ‘must end’ and warns the government that a return to ‘businesses as usual in our economic policy would be a mistake’.

The speech states that while companies across the country had been ready to shoulder some of the costs arising from Covid-19 the government is now ‘going too far’ with its latest plan to increase NICs.

Businesses also pay NICs on their workers’ salaries, and the step has provoked a backlash among industry groups who believe the tax hike is coming with too many other pressures on employers in the wake of the Covid-19 pandemic and as the furlough scheme comes to an end.

Danker states that instead the government must use the Autumn Budget, which is planned for 27 October, to ‘flip business taxation on its head’ and reward businesses which invest to achieve a high-growth, sustainable recovery.

Danker said: ‘After the pandemic, we in business believe that we should pay our fair share to tackle the debts of Covid-19. That is why many business leaders accepted the jaw-dropping six-point corporate tax increase announced in March. But there is a real risk now that the government will keep turning to business taxes to carry the load.

‘Choosing national insurance for social care funding is the latest example and I am deeply worried the government thinks that taxing business, perhaps more politically palatable, is without consequence to growth. It’s not. Raising business taxes too far has always been self-defeating as it stymies further investment.’

In his speech, Danker also covers the ‘failing business rates system’, stating that it makes ‘something of a mockery’ of the UK’s commitment to net zero. He states that more than half of business investment is subject to business rates and that UK property tax levels are four times higher than Germany, and 50% higher than the G7 average as a share of GDP.

Danker highlights that the UK is ‘lagging behind some of its international competitors in driving investment in industries of the future’ and that the Budget will require ‘big choices from the government’ if the UK is to unleash business investment and ‘forge a new growth story to compete in the world’.

In his speech, he suggests four key levers that the government should use to get businesses investing more.

Danker states that the UK needs ‘smarter taxation’ and should reward businesses who invest and should stop punishing greening UK building stock through business rate increases. He also states that the government should ‘create individual training accounts’ to help those easily access support for those most in need or who are out of work.

Other suggestions include plans to ‘speed up the development of major infrastructure projects, new industries, and cutting-edge tech’ and plans to ‘replicate the successes of offshore wind in hydrogen and other emerging industries’ to rebalance UK economic regulation.

Danker concluded: ‘Investing in the UK. Investing by the UK. That must be our mantra now so that the decade ahead does not repeat the low growth, zero productivity of the decade past. And government holds the key to unlocking it all.

‘Looking forward, it’s clear that consumption is likely to rage in the short run. Consumers have saved and will spend. So, watch the news in coming months and you’re likely to feel that things are going well. But unless investment catches up, rather than falls behind, that story will be short lived.

‘There is much about it that’s unfair and it’s changing the face of British high streets. But amazingly it’s deterring firms from decarbonising their operations because investment in energy-efficiency measures, can make them liable for higher rates. We need to do better, fairer and greener.’