Tax hike outcry shows Boris Johnson still has a problem with business

It is fair to say Boris Johnson still has a problem with business.

Even before he became prime minister, plenty of business leaders were wary, chiefly because of Mr Johnson’s notorious “f*** business” remark in June 2018.

The pandemic changed attitudes to an extent.

Businesses appreciated government initiatives, such as the job retention scheme and the coronavirus business interruption loan scheme, which made the difference between many companies surviving or failing.

Now the bills are starting to arrive, and business leaders are unhappy about the extent to which they are being asked to pick up the tab.

Rishi Sunak, the chancellor, shocked them when, in his March budget, he announced a raise in the rate of corporation tax from 19p in the pound to 25p from 2023 onwards.

The move, criticised by Mr Sunak’s predecessor-but-two George Osborne, is likely to extract an extra £16bn a year from businesses.

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Then came last week’s hikes in national insurance and dividend taxes.

They are likely to rake in a further £12bn a year – more than half of which will be stumped up by businesses and business owners.

No-one in the commercial world is calling for business to be exempt from the tax increases that were inevitable after the pandemic.

What they are concerned about is the extent the increases appear to be falling on businesses.

As Tony Danker, director-general of the UK’s largest business organisation, the CBI, put it in a speech today at the Alliance Manchester Business School: “After the pandemic, we in business believe that we should pay our fair share to tackle the debts of COVID.

“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.”

Mr Danker is far from alone in making this point.

Another to do so today was Lord Macpherson, permanent secretary to the Treasury from 2005-16, a period taking in the global financial crisis and subsequent recession.

He wrote in the Financial Times: “Taxing employers is easier politically. They don’t have many votes.

“But employers’ national insurance is a tax on jobs. Tax more employment and you get less of it.

“Sunak has announced more than £40bn of tax increases this year, nearly two-thirds of which will be borne by business in the form of higher corporation tax and national insurance.

“That may be good politics, but at a time when Brexit has made it more important than ever that the UK is business-friendly, it is almost certainly bad economics.”

What has made a lot of business people uneasy, including some who have previously donated money to the Conservative Party, is the way Mr Johnson appears to have moved away from the low-tax “Singapore-on-Thames” model many of them hoped for after Brexit, towards a high-tax, high-spending approach.

The prime minister himself has alluded to this by describing his approach to government as that of a “Brexity Hezza”, a reference to the interventionist Lord Heseltine, who on being appointed secretary of state for trade & industry revived the long-dormant title of President of the Board of Trade.

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It is important to note that the UK is not the only country raising taxes on business.

The US president, Joe Biden, unveiled plans in the spring to raise the rate of corporate taxation from 21% to 28% to help pay for a major expansion of social security and a big package of infrastructure spending.

That hike looks like being scaled back to 26.5% under proposals due to be unveiled today by Democrats in the House of Representatives that would also see higher income taxes levied on wealthier Americans.

Sir Martin Sorrell, the advertising mogul, told Sky News today: “It is unrealistic to believe that taxes can remain at the level [they now are].

“There will be higher income taxes, there will be higher corporate taxes, there will be higher personal taxes.

“It has to happen, it’s unrealistic to believe that governments can balance their budgets having spent the sort of money they have without increasing taxes.”

But adding to the unease is the way the UK government is spending the money being raised.

Mr Danker highlighted today how the UK is investing low amounts in infrastructure and on the transition to net-zero compared with the US and some EU countries.

Instead, as the Institute of Fiscal Studies pointed out last week, the NHS looks set to “swallow up” nearly all the extra money raised from the tax increases.

Expect the debate to intensify if, as expected, hiring levels drop off when the national insurance increases are implemented next year.

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