Labour promises not to raise UK corporation tax

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Shadow chancellor Rachel Reeves has promised a future Labour government would cap corporation tax at its current rate of 25 per cent and retain a big tax break for British businesses.

Reeves said the commitment on corporation tax rates, should her party win the general election later this year, would provide business certainty in the UK after years of post-Brexit upheavals.

“If we expect business to invest in Britain, then tax rates cannot shoot up and down like a yo-yo,” she said in a speech to 400 senior business leaders at a business conference at the Oval cricket ground in south London.    

Alongside the freeze on corporation tax, Reeves also announced a Labour government would keep the “full expensing” regime. The major tax break, which was made permanent by the Conservative government in November, is intended to boost capital investment and is worth up to £11bn a year.

“What Labour offers is a genuinely pro-business tax plan founded on a fair contract between a pro-business government and great British business,” Reeves said.

She rejected suggestions from right-wing Conservative MPs that corporation tax, which is the lowest in the G7, should be cut to make the UK more competitive. “We believe that 25 per cent rate strikes the correct balance between the needs of our public finances and the demands of a competitive global economy,” she said.

But she did not rule out reducing it, if necessary, should a Labour government win a second term. “We will cap the headline rate of corporation tax at its current rate of 25 per cent for the next parliament. And should our competitiveness come under threat, if necessary we will act.”

Miles Celic, chief executive of financial services lobby group The CityUK, welcomed the announcements. “The more certainty there is on tax the more welcoming international investors will find that,” he said. But he added that businesses also wanted the tax system simplified: “The tax rate is a big issue but . . . there is a cost that comes with complexity.”

Reeves also added further caveats to Labour’s “ambition” to spend £28bn a year on a green prosperity plan by making it contingent on what measures the government announces in the Budget on March 6 and at a possible second fiscal event that Downing Street is considering should the election be held towards the end of the year.

“There will be at least one more fiscal statement and possibly another in the autumn,” she said. “We will set out our plans to ensure they are consistent with our fiscal rules.”

Reeves has claimed chancellor Jeremy Hunt intends to adopt a “scorched earth” approach to the public finances limiting the fiscal room for manoeuvre for a future Labour government.

The shadow chancellor also defended her decision not to reintroduce a cap on bankers’ bonuses; she had previously been highly critical of the decision announced during Liz Truss’s shortlived administration in 2022.

Reeves, seeking to burnish her pro-City credentials, said business had suffered enough uncertainty. But she confirmed the party intended to close “tax loopholes” for non-domiciled residents, private schools and private equity bosses.

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