Taxes on company profits should be cut by half over the next decade to kickstart the economy after the Covid crisis and to signal that post-Brexit Britain is ready to take on the world.
In an upbeat assessment of the country’s financial prospects before next week’s Budget, a major cross-party think-tank tells the Chancellor that the UK economy will bounce back quickly after the pandemic and urges him to resist calls for tax rises to balance the books.
It says that a combination of lifting the lockdown by the summer and the advent of anti-Covid vaccines will trigger robust economic growth and a sharp improvement in the debt-ridden public finances.
In a pre-Budget statement, the Centre for Brexit Policy (CBP) declares: “The Chancellor should not be aiming to raise any of the key tax rates, either in this Budget or in the Budgets immediately beyond. Nor should he be aiming at any form of backdoor tax rise through such initiatives as freezing personal allowances.
“The pre-Budget mood music and leaks to the media suggest the Chancellor is considering substantial tax increases focused on corporation tax and capital gains tax (CGT). Raising these taxes is precisely the opposite of what is required post-Brexit.”
The CBP adds: “The Chancellor needs to send out an unequivocal message that Britain is open for business and ready to take on the world.”
The statement, drawn up by the CBP and leading economists Roger Bootle, Graeme Leach and Patrick Minford, calls on Rishi Sunak to make the UK a magnet for inward investment and global entrepreneurs by slashing corporation tax to 10 per cent by 2030 – making it the lowest of any major country in the world.
The current rate is 19 per cent, lower than the European average and the USA. But steady reductions in corporation tax were halted in last year’s Budget and the current predictions are that Mr Sunak could increase it to as much as 25 per cent to boost Treasury coffers.
John Longworth, Director-General of the CBP, said: “The last thing the country needs is a return to the austerity imposed after the financial crash of 2008/9. There is huge pent-up demand in the country that will rapidly be released once vaccine distribution is complete and the lockdown is lifted.
“Much as we did after the world wars we can borrow long to fund the extraordinary but necessary measures we have had to take to keep families and businesses afloat. But at the same time, we have to reap the benefits of Brexit by making the UK the business capital of the world – slashing taxes on firms and red tape, which we are free to do after leaving the EU, and so encouraging global players to set up operations in the UK or expand existing ventures.”
Sir Iain Duncan Smith, a CBP fellow, added: “We should resist the siren voices calling for a lurch into increased taxes and cutting our way out of the crater in the nation’s finances left by Covid.
“Taxes, especially taxes on enterprise and job creation, should be avoided, instead they should even be lowered, as these highly respected economists point out so that we send a clear signal to the world’s wealth creators that a post-Brexit UK is the perfect place to do business.”
The CBP acknowledges that as a result of the pandemic and the vast sums expended to soften its impact on workers and firms, the public sector annual deficit and the nation’s accumulated debt are at high levels. But because interest rates are low and set to stay low and because growth will surge once the lockdown is lifted, the country’s finances are set for rapid improvement.
“Even though the Government has announced a series of ‘temporary’ Covid-recovery spending measures which may, in fact, linger on for a while, the pace of recovery is likely to be so strong that the deficit may fall to acceptable and sustainable levels pretty quickly.,” the CBP says
It points out that while the deficit is at a peacetime high, this is not true of the ratio of government debt to GDP, currently hovering at around 100 per cent. Over the past 250years, the UK has spent more time with the debt ratio above 100 per cent than it has with it below this level.
The CBP urges the Government to borrow long in the same way as it did in World War One.
It says: “With gilt yields well below the growth of nominal GDP, tax revenue growth even greater, Covid spending falling away, and very low interest rates, the primary surplus should rise rapidly, paying off debt steadily. Accordingly, we should be in no hurry to bring the debt ratio down. It will come down of its own accord in response to economic growth and prices rising a bit, as it has done before.”