Truss corporation tax U-turn will ‘get less attention in the board room’

Peter Morley of Pinsent Masons said that the prime minister’s U-turn, announced at a Downing Street press conference this afternoon, would “get less attention in the board room than elsewhere” because firms have been planning for an increase in the main rate of corporation tax from 19% to 25% since one was announced by the previous Conservative administration in Spring 2021.

He added: “The reversal of that proposal was so short lived that most businesses will not have had chance to adjust their investment plans in any event. Therefore, in many ways the announcement that the rate will still increase to 25% means businesses will just get on with their existing plans.” His comments came after a tumultuous day in British politics, which saw chancellor Kwasi Kwarteng recalled to London from a meeting of the International Monetary Fund (IMF) in Washington DC.

Kwarteng, who unveiled plans to halt the planned rise in corporation tax in a ‘mini budget’ last month, was promptly sacked by Liz Truss upon his return and replaced by former health secretary Jeremy Hunt. Following the No.11 reshuffle, the prime minister told a press conference that she was remained committed to delivering “a low tax, high wage, high growth economy”. But she admitted that it was “clear that parts of our mini budget went further and faster than markets were expecting” and pledged to reassure investors of her government’s “fiscal discipline”.

Morley said: “The government will no doubt want to remind businesses that, at 25%, the UK’s corporation tax remains competitive in relation to other major economies – including the US, Germany, and France. As far as we know at this stage, the other business incentives announced in the mini budget will continue, including the increase in the annual investment allowance to £1 million, which was welcomed by businesses and will be of additional benefit with the rate reverting to 25%.”

But he warned that a lack of detail provided by ministers on the remaining aspects of the mini budget risked slowing down investment in the UK economy. “Other proposals, such as the introduction of investment zones, are still lacking specifics and businesses would welcome further detail as soon as possible if these proposals are going to generate growth. The lack of detail is currently more likely to slow down investment than encourage it as businesses wait to see where they should invest to take advantage of the tax incentives.”