Labour announce plans for a “competitive” but “fairer” tax system

Today, Ed Balls, the Shadow Chancellor, will lay out how Labour will continue to maintain a low rate of corporation tax.

As part of a speech in which Balls will outline how Labour plans to deal with tax avoidance – that we wrote about over the weekend – he will also explain that Labour plan to address the country’s ‘cost of living crisis’ by adopting “pro-business but not business-as-usual” policies.

Emerging from an extensive consultation process carried out by himself and Labour’s shadow exchequer secretary, Shabana Mahmood, Balls will say that Labour’s “pro-business” plans include ensuring that the UK continues to have the lowest corporation tax in the G7 (meaning that it would be anywhere below 26.5%).

He will say that the Labour leadership believe in a tax system that is “competitive”, “simpler, predictable and fair” but one that also promotes “long-term investment and innovation”. Drawing upon recent history, he will explain:

“The last Labour Government left Britain with the most competitive rate of corporation tax in the G7 and we are committed to maintaining that position. But unlike George Osborne we also recognise that companies are just as concerned about other elements of the business tax regime, such as capital allowances and business rates.

That is why, having started and supported successive cuts in corporation tax over the last 15 years, we do not think the right priority is a further cut next year. We will, instead, cut and then freeze business rates for more than 1.5 million business properties. When resources are tight this is a tough choice to allow us to support more businesses and keep our overall business tax regime competitive. The purpose of a competitive tax system must be that companies view Britain as a great place to do business, not simply a cheap place to shift their profits[…]With this approach Britain can compete in a race to the top, with a highly skilled, productive workforce directly benefiting from sustainable economic growth.”

Balls will go on to stress the importance of tackling the “short-termism that has become an entrenched feature of the UK business environment” and outline policies the leadership are currently considering with regards to this:

“We are examining the case for introducing an Allowance for Corporate Equity, along the lines suggested in the Mirrlees Review, to redress the systemic bias in favour of debt finance.

Such a scheme would offer a strong incentive for long-term investment, building more robust businesses that would be better able to plan for the future. We will consult with business and other stakeholders on the case for introducing this reform, and how it might be implemented.

We will also examine the possibility of structural changes to the tax system to incentivise long-term investment. In his report on short-termism in British business, Sir George Cox recommended a series of reforms including a lower rate of capital gains tax for long-term investors. This could complement an Allowance for Corporate Equity, by making long-term investment attractive to the investor as well as to the recipient of funding. Labour is consulting with industry on the potential impact of these and other recommendations of the Cox Review and how they could be delivered in a revenue-neutral way.”

The Guardian has reported that UK business organisation the Confederation of British Industry (CBI) has responded well to the proposals, saying a competitive business tax system is “crucial for future growth”, and that boosting long-term investment would “help firms of all sizes harness their potential”.