| CBI warns of tax hike |
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| Monday, 07 April 2008 | |
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British business faces a tax increase of over £4bn over the next three years as a result of fiscal measures that came into effect on Sunday.
The net increase comes despite the 2p cut in headline corporation tax and undermines the government's claim to be boosting the UK's international tax competitiveness, according to a CBI analysis of Treasury figures. The CBI said that the government should be helping business keep the economy growing, not raising taxes, at a time of economic slowdown and uncertainty. Its analysis of this month's new tax rules, however, shows that UK businesses will pay a net total of £4.21bn in taxes by 2010/11 on top of existing financial demands. Breaking this down, companies will pay an extra £1.84bn in tax in 2008/9, £1.24bn in 2009/10, and £1.13bn in 2010/11. The majority of this comes from the loss of plant and machinery investment allowances and the abolition of empty property relief. The penny in the pound increases to the small business tax rate (from 19 per cent to 20 per cent last year, rising to 22 per cent in 2009/10) will also deal smaller companies a heavy financial blow. John Cridland, deputy director-general of the CBI, said that when the economy is slowing, the last thing a government should do is raise taxes on the part of society which creates jobs and wealth. He warned that the consequence would be that hard-pressed companies, which are already paying high rates of tax, would find life getting even tougher. "Despite enjoying a decade of strong growth and stable economic conditions, the government has little room to manoeuvre to give the economy a booster shot in the arm when most needed - instead it is leaning on the business community to shore up its finances,” Cridland added. He pointed out that the UK had been slipping down the league table for international tax competitiveness for years and had become increasingly less attractive to overseas investors. "This has been exacerbated by the abrupt changes to capital gains tax and the poorly handled reforms of non-domicile taxation - personal issues rather than business tax but ones that heavily influence the general business climate,” he said. CGT changes are expected to raise £1.05bn over the next three years and the non-dom measures are forecast to yield the Exchequer £1.2bn by £2010/11. The increase in the Small Business Tax Rate will cost smaller companies £10m in 2007/8, £370m in 2008/9 and £820m in 2009/10. Last month an independent taskforce commissioned by the CBI published its analysis of the UK tax regime and argued that the system was in need of a radical overhaul. It used dynamic analysis to show that cutting the headline rate of corporation tax to 18 per cent over eight years was not only affordable but would boost tax receipts over the long term. According to the World Economic Forum, the UK has slipped from 4th place in 1998 to 15th in 2003 on the Global Competitiveness Index. While the UK's corporation tax rate was third lowest in the EU in 1997, it is now the sixth highest and the effective average corporation tax rate is the eighth highest in the OECD. In addition to the tax changes, several new employment regulations also came into force on Sunday, including new rules on consulting employees in small firms and amendments to discrimination law. These changes will add £303m to business costs and bring the total cost of the 42 new employment regulations introduced since 1998 to over £49bn. The CBI said that it had taken a conservative approach and erred on the side of the caution to reach its total to ensure accuracy and fairness in its calculations. It has not included the replacement of the Air Passenger Duty by a per plane duty, from November 2009, because the aviation industry will pass the charge on to customers. The calculation does not include capital gains tax changes or attempt to measure the impact of taxes on alcohol or tobacco on the relevant industries either. Related articles
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