Brexit: Ian McConnell — Tories have sent anti-business message, but not with tax rise

His assertion seems like so much nonsense, but more of that later.

And we must realise it is not the rise in corporation tax that is a problem when it comes to any signal that the UK is not “pro-business” – it is the Tory Brexit.

It is worth acknowledging at this stage that at least Mr Osborne, unlike Mr Sunak, will be on the right side of history in terms of his view of Brexit and its effects. That aside, Mr Osborne had a dismal track record as chancellor and it is impossible to agree with his view on the move to raise corporation tax.

Some former chancellors you might listen to – those with a good economic track record such as Conservative veteran Kenneth Clarke or from the Labour side Gordon Brown or Alistair Darling.

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It is important to remember here, given spurious Conservative claims about the root of the global financial crisis, that Messrs Brown and Darling did not cause it. The financial sector did that – globally. One clue here is it was a global financial crisis – something which seemed to escape the Tories or was wilfully ignored by them as they formed their narrative.

Mr Brown, by then prime minister, and Mr (now Lord) Darling acted swiftly, astutely and effectively to stave off collapse of the UK banking sector. The idea that the Conservatives would have regulated the financial sector more in the run-up to the crisis than Labour, had the Tories been in power, remains laughable.

Lord Clarke, for his part, helped embed the recovery from the early 1990s recession, and put in a performance as chancellor that was in stark contrast to the very damaging, boom-and-bust rollercoaster ride inflicted on the country by Nigel Lawson.

For the avoidance of doubt, Mr Osborne is among those chancellors whose track record in the post would suggest his comments should be disregarded. Some might even find it surprising that he has the effrontery to pass judgment on others.

That is not to say Mr Sunak is looking like one of the chancellors you should listen to if or when, in the future, he starts passing judgment on his successors.

His protracted lack of willingness to take anything like a sufficiently long-term view of the Covid-19 pandemic and what was required to combat its economic effects – crucially in terms of his persistent refusals last summer and autumn to extend the coronavirus job retention or furlough scheme – has cost the country dear. It has triggered unnecessary unemployment, and caused such huge uncertainty for businesses and households amid this awful crisis. Mr Sunak’s lack of planning for the grim second wave of the pandemic, the emergence of which was more than obvious in Europe from early August last year, was incredible. More importantly, it was utterly lamentable and costly.

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Of course, Mr Sunak, who deserved credit for putting the furlough scheme in place initially before undoing this good work with his long-time intransigence, was eventually forced to extend the programme.

This extension through to spring and now to autumn has brought him more into line with the two-year views taken by the likes of France and Germany from the onset of the pandemic.

Mr Sunak also seemed very much part of the Tory message last summer that it was time for everything to get back to normal. His summer included a trip to Rothesay to promote his Eat Out to Help Out scheme.

What is interesting is that Mr Osborne is opposing one of the things that Mr Sunak has actually done right – and such successes on the part of the current Chancellor are extremely thin on the ground.

Mr Sunak, in his Budget last week, unveiled plans to raise UK corporation tax from 19% to 25% from 2023.

This might seem like a large rise but there are a few important points to make here.

An increase in the main corporation tax rate to 25% still leaves the UK looking very competitive in this narrow context among the Group of Seven leading industrialised nations.

What is more, Mr Sunak is implementing some major concessions to ensure companies are making relatively large profits before they have to pay the 25% rate. Companies with profits of £50,000 or less will continue to pay 19%. There will then be a tapering process which sees companies only pay 25% when their profits are £250,000 or greater.

So we should be in no doubt that those businesses being asked to pay the new 25% rate can afford it.

What is more, companies can also take advantage of major new investment reliefs. And, in the short term, they can benefit from provisions which allow them to reduce their corporation tax liability with a very generous carry-back of losses.

Crucially, we must also bear in mind the recent historical context.

Mr Osborne began a process which saw the main corporation tax rate cut dramatically from 28% when the Tories came to power in 2010.

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This seemed most inappropriate, from a societal perspective, at the time, given former prime minister David Cameron’s “all in this together” mantra in the wake of the global financial crisis. The actions of Messrs Cameron and Osborne pointed to a reality which was quite the opposite, with the 50% rate of income tax also abolished after the Tories came to power, propped up during their first term by the Liberal Democrats.

Mr Sunak’s planned rise in the main corporation tax rate will leave it well below where it was in 2010. That is a very good deal indeed for companies, given the UK has faced two major crises in the space of little more than a decade.

Mr Osborne’s choices, of which slashing corporation tax was one, proved most counter-productive from the perspective of the economy.

The UK failed to mount a convincing recovery even before the Brexit vote – arising from a referendum Mr Cameron was goaded into by the unpalatable Eurosceptic wing of his party and other right-wing actors – started wreaking its havoc.

Mr Osborne this week reminded us, as he offered his opinions in an online event hosted by the Institute for Government think-tank, that he had preferred the option of a hike in value-added tax to raise revenues.

There is no doubt that VAT is a big revenue generator. However, raising it when trying to embed a recovery is quite the opposite of what should be done. It is a matter of simple arithmetic, if ideology can be set aside.

Rishi Sunak in Rothesay Picture: Jeff J Mitchell/PA

Hiking VAT in a crisis is entirely unacceptable from the point of view of hitting those with least the hardest. Such an increase affects most those who have to spend all of their money to live.

And, by taking money out of these people’s pockets, hiking VAT subtracts quite directly from aggregate demand, thus dragging very significantly on growth.

Still more damaging to demand and the economy, and even more regrettable from the viewpoint of fairness in society and basic human considerations, were the savage welfare cuts implemented during the Osborne and Cameron era.

It remains very surprising that the Liberal Democrats backed this austerity programme, as the junior party in the coalition government between 2010 and 2015. Of course, they U-turned on VAT as well, having opposed an increase in this tax ahead of the 2010 election.

What is also interesting is that Mr Osborne’s slashing of corporation tax, while ordinary people picked up the tab for the global crisis, failed to stimulate business investment to any great extent. Companies benefiting from this huge tax cut appeared either to keep their hands in their pockets, or use the extra cash to pay dividends, or both.

Mr Osborne’s vision of “a Britain carried aloft by the march of the makers”, set out in his March 2011 Budget, failed spectacularly to materialise.

There were flaws in Mr Sunak’s Budget, notably the decision to freeze the income tax personal allowance, after a small rise in the 2021/22 tax year to £12,570, until 2026. This will hit those on the lowest incomes hard, and weigh on demand and growth.

However, the jump in corporation tax seems most sensible.

Mr Osborne flagged his view not only that it indicated the UK was not particularly “pro-business” but also that the corporation tax rise might never happen. He speculated that Mr Sunak might have preferred another VAT rise had it not been for a manifesto commitment not to do this. Who knows?

What is for sure is that it would be entirely unacceptable if the proposed corporation tax rise did not take place in full, especially given what has happened from the start of Mr Osborne’s time in office until now with the mix of policy measures.

This foolish mix has been enormously damaging to the economy and living standards, and we should bear in mind that companies need people to have money in their pockets to be able to buy their goods and services.

Crucially, we should remember always what has actually made the UK look like a laughing stock from an international perspective, in terms of its elected Government’s willingness to do damage to the country’s economy and living standards, and what has in reality made the Tories look downright anti-business: Brexit.