Labour would back a gradual increase in corporation tax across this parliament, the shadow chancellor has indicated after a week of criticism over the party’s assertion that tax rises should be off the table.
Writing for the Guardian, Anneliese Dodds says Labour would not back an immediate hike in taxes on company profits in Wednesday’s budget but was open-minded about future increases. Rishi Sunak, the chancellor, is believed to be preparing to increase corporation tax from 19% to up to 25% by the end of the parliament in 2024.
Dodds also said the party would back reforms to tighten corporation tax loopholes. But she accused the chancellor of playing politics with early tax hikes, which he reportedly bragged he would cut later in the parliament as a pre-election sweetener.
The Guardian also understands that Labour would not automatically oppose the freezing of the income tax threshold, which Sunak is said to be planning to freeze at £12,500 for basic rate taxpayers and £50,000 for the higher rate for at least three years. “When the Conservatives have raised the personal allowance in the past, it has helped the best-off more than others,” a Labour source said.
Last week Keir Starmer, the Labour leader, faced a backlash after saying he would oppose any new tax on business in this week’s budget, including privately from some shadow cabinet ministers, who urged a more nuanced position.
On Monday night, Richard Burgon, the former shadow cabinet minister who has become one of Starmer’s key critics on the party’s left, said Labour must step up its attacks on the Tories, calling the party’s position on corporation tax a “debacle”.
At the rally organised by the Labour Assembly Against Austerity, with Labour MPs and trade union general secretaries, Burgon said: “We can’t just sidestep big debates when they happen. The tax debacle of the past few days shows that if we continue to do so, then our party will be outflanked by the Tories with their phoney rhetoric of levelling up. We can win the argument for a progressive tax system – but only if we make the case.”
Since Starmer told the Commons that “now is not the time for tax rises on families and businesses”, a shadow cabinet source said there had been representations to the party leader to soften the approach. The more nuanced proposition was a relief, they said. “The approach never seemed final and I think more inexperienced people went in hard briefing about it,” the source said.
Dodds had been more hesitant about endorsing any future tax rises at a video speech hosted by Bloomberg on Monday. “Now is not the time for immediate tax rises,” she said. “We’ve been very clear that right now the chancellor should be focused on promoting jobs, on ensuring that business can keep going, on getting people who are unemployed speedily back into work.”
Sources close to Dodds defended her opposition to immediate tax rises, with one saying it was the general Keynesian proscription against increases when the economy is heading into a recession. “We have never been against rises in corporation tax – this is about what is the right timing in the teeth of a recession,” a senior Labour source said.
In her article, Dodds said it was “hard to find a serious economist who believes that immediate tax rises would achieve anything other than damaging Britain’s recovery”. However, she conceded there was an argument in favour of raising corporation tax. “There is a clear long-term case for rises in the rate of corporation tax – as well as action against loopholes – where the Conservatives have made us an international outlier for a decade,” she wrote.
“If there were a sensible plan to raise the rate across this parliament, of course Labour would look at that carefully – but now is not the time for immediate tax rises.”
However, she said the party was suspicious of Sunak’s motivations. “He has reportedly been going round telling Conservative MPs that if he puts taxes up now, he can cut them again in time for the next election. Instead of doing what is best for the country, he is doing what he thinks will benefit his party in 2024,” she said.
Dodds will argue that key measures expected in Sunak’s budget, like the extension of the furlough scheme, business rates holidays and VAT cuts, are “fiddling round the edges” and could have been announced weeks ago.
She also hopes to drive home the narrative that the economic downturn is down to mismanagement by the past decade of Tory rule, with the foundations of the economy “fundamentally weakened over the last decade … exposed by this crisis”.
Dodds said the budget would still leave many people out in the cold – particularly those excluded from pandemic support – while social care residents were exposed in the early months of the crisis.
“Millions of people have fallen through the gaping holes they tore in the social security net,” she said. “After a decade of negligence and broken promises on social care, a generation of older people were left exposed to the virus in a system that has become a national disgrace. The tragic consequences were entirely avoidable.”
Dodds also said the chancellor must offer succour to businesses that are “deeply concerned about the amount of debt they have had to take on over the last year”. She said the fear of loan repayments would mean businesses failing to invest or take on new staff.
Much of Sunak’s budget is expected to form a rescue package to steady the economy through what the government hopes will be the last few months of the worst period of the pandemic.
The Treasury will announce a series of tax consultations on 23 March, which some have described as a ploy to allow the chancellor to announce the “good news” about extensions of support on budget day while delaying decisions on tax rises until later in the year. Capital gains tax looks to be one area in the spotlight for a considerable hike – which could be brought in line with income tax.