Labour pledges review of business tax system to build 'stability' and 'certainty'

Shadow chancellor Rachel Reeves has said a Labour government would launch a review of the UK's business tax regime to prevent "yo-yo" changes and provide certainty to companies.

Delivering a speech at a conference by manufacturers' group Make UK, Reeves said businesses are frustrated by repeated updates to the tax system.

The party's analysis found that the government has made 22 changes to corporation tax since the December 2019 general election.

"In recent years, corporation tax has gone up and down like a yo-yo while the government has papered over the cracks with short-term fixes like the super-deduction", Reeves said.

"So it's no wonder businesses are unable to plan and our investment rates are cratering.

"The answer is not unfunded tax giveaways – we've seen where that takes us.

"But Labour knows that there is a role for the tax system in supporting investment."

If she becomes chancellor, Reeves said she would launch a review of the business tax regime.

"The review will look at how we can build more stability for businesses in the tax system, and drive that crucial investment forward.

"If the government brings forward a genuine boost to investment and if it is affordable, we will back it to help get our economy growing again.

"But stop-go tax policy is only a sticking plaster. What businesses need are certainty, consistency and incentives for investment. Labour will provide that."

Reeves added that the review would work towards "a roadmap for tax which lasts over a parliament," and look at whether the UK's "system of capital allowances is fit for purpose in its design and operation, including for small businesses who are crucial for growth".

Increase to corporation tax

Reeves' announcement comes amid calls by some Conservative MPs and business groups for the government to use the Budget on 15 March to reverse the planned April increase in corporation tax from 19% to 25%.

But Rachel Reeves said the increase should go ahead.

"We still will have the lowest corporation tax in the G7 so I would resist, if I was the chancellor, the siren calls from some in his party to cut corporation tax.

"But instead, if there is money available, to use that to hand support and incentives for investment - but not just for one year or two years but have stability, because investment decisions aren’t things you can switch on and off, while the government moves business taxation up and down like a yo-yo.

"We want to provide that stability as well as those incentives to encourage investment."

Corporation tax increase and small businesses

Enterprise Nation's view is that the corporation tax increase should be reconsidered due to the impact on small businesses:

The sliding scale of the marginal rate means firms that make more than £50,000 in profit are already impacted by high taxation. Experts point to the fact that incremental increases can attract up to 26.3% in tax. Our members tell us the increased taxation on profit is misunderstanding the small business mindset and risks not only deterring expansion, but also overseas investment at a time when the economy needs to see dramatic growth.

If you'd like to share your view on the increase in corporation tax, email Liz Slee.

Scrapping business rates

Also in her speech, Reeves repeated Labour's previous pledge to scrap business rates and replace them with a new form of taxation. She said the party would conduct more regular valuations of property, provide instant discounts if property falls in value and deliver incentives to businesses moving into empty premises.

In addition, the shadow chancellor promised to "fix the holes" in the Brexit deal and make it easier for businesses to export to the EU. She said:

"We've already seen with the changes to the Northern Ireland Protocol that it is possible to make changes to our relationship with the European Union, changes that will make it easier for British business to trade freely

"We don't want to stop at Northern Ireland though. We want to make it easier for British businesses to trade with countries across the European Union."

Join our Budget 2023 panel of business owners

Enterprise Nation is running an online panel of business owners sharing their instant reaction to the Budget on 15 March. If you're an Enterprise Nation adviser member and you'd like to join the panel, email Dan Martin.