LONDON (Reuters) – British finance minister Rishi Sunak will probably have to offer concessions to businesses if he wants to be able to implement a big hike in corporation tax that is at the centre of his new budget plan, leading think tanks said on Thursday.
The Institute for Fiscal Studies also said it was very unlikely that Sunak would be able to deliver the 17 billion pounds ($23.7 billion) of annual spending cuts included in his plan for the middle of the decade.
IFS director Paul Johnson said if the plan was implemented as announced on Wednesday, Sunak would meet one definition of a balanced budget – borrowing only to invest – by 2025-26.
“The sad truth is that that would be a balance built on the highest sustained tax burden in UK history and yet further cuts in unprotected public service spending,” Johnson said.
“That is perhaps one measure of the difficulties presented by more than a decade of paltry growth followed by the deepest recession in history.”
Both the IFS and the Resolution Foundation raised questions about Sunak’s ability to raise corporation tax to 25% in 2023 from its current rate of 19%.
“I will be amazed if in two years the CBI (Confederation of British Industry) is not saying it is absolutely bonkers that we are raising corporation tax to 25%, whereas 23% I think maybe they would have got away with,” Resolution Foundation director Torsten Bell said.
Sunak says the 25% rate would be lower in headline terms than in other countries in the G7 group of richer nations.
However Britain has fewer exemptions from the tax and the IFS estimated that under Sunak’s plans, Britain would be collecting a higher share of national income through the tax than the United States, Germany, France or Italy.
Bell at the Resolution Foundation said Sunak was likely to face pressure to ease the measure from Conservative Party lawmakers who believed low taxation was a bigger priority than reducing debt levels.
($1 = 0.7178 pounds)
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