MPs are calling on Rishi Sunak to allow businesses to offset pandemic losses with a corporation tax refund as pressure mounts on the chancellor to prioritise incentives for investment over tax rises in his budget on Wednesday.
The Treasury select committee said that now was not the time to raise taxes and it urged the government to introduce a rebate for trading losses at firms that had been profitable and had paid tax in Britain before the pandemic.
Under the “loss carry-back” scheme, companies and self-employed people would offset the tax relief against up to three previously profitable tax years and would get back tax already paid. A similar policy was adopted during economic crises in 1991 and 2008.
Sir Paul Marshall, co-founder of Marshall Wace, the hedge fund, writes in The Times today: “Anybody who works in business and investment understands just how important even marginal differences in corporation tax rates are to decisions about company domicile and investment. Unfortunately for the UK, most Treasury civil servants have no experience of business.”
The committee’s loss offset idea forms part of its report on post-pandemic tax reform. Mel Stride, its Conservative chairman, said: “With our public finances on an unsustainable long-term trajectory, our clear message is that budget 2021 is not the time for tax rises or fiscal consolidation, which could undermine the . . . recovery.”
MPs called for the chancellor to increase investment incentives for businesses, including extending the annual investment allowance, which provides tax relief for spending on equipment.
They said that a windfall tax on profits that had resulted from the pandemic would be difficult to apply this year because of the challenge of identifying sectors to which the tax should apply. However, they said that a windfall tax in certain circumstances in the future should not be ruled out.
The chancellor is understood to have considered a tax on the insurance industry amid public anger about its refusal to pay out on many business interruption claims. Suspending a plan to reduce the scope of the bank levy this year was also looked at. Both appear to have been shelved to prioritise making companies competitive, sources said.
Reforms to pension tax relief and stamp duty land tax, which affect how often and when people move house, should be prioritised, the report says.
A moderate increase in the rate of corporation tax could raise revenue without damaging growth, especially if balanced with measures to support business, MPs said. Big businesses have railed against a rise in corporation tax, warning it could delay the recovery.
A poll of business leaders by BDO, an accountancy firm, found that 85 per cent wanted the government to expand digital taxes to cover more online sales. A little over half said that the government should use post-Brexit freedoms to increase business innovation by supporting a reduction in carbon dioxide emissions, including by giving tax reliefs when companies invest to meet environmental standards.
Paul Falvey, tax partner at BDO, the advisory firm, said: “Business leaders are looking for the government to introduce progressive steps to help individuals and businesses flourish. This survey shows that most business leaders accept that higher taxes on companies will be a key component to the post-Covid-19 recovery and would like the chancellor to overhaul business rates, digital taxes and green taxes.”
The Institute of Economic Affairs called for “a low and radically simplified tax system” to support an economic recovery. The Centre for Policy Studies said that any immediate tax rises would be a “mistake” and tax rises on business would be an even “greater error”.
