PROFIT TAX HIKE TO HIT INVESTMENT

Firms To Slash Spending After Corporation Tax Jump

JEREMY HUNT and Rishi Sunak’s corporation tax hike is poised to squeeze the UK economy by mothballing investment, new figures out today show.

Nearly half of all mid-sized companies intend to shelve big spending projects due to the Chancellor and Prime Minister snatching a greater share of company profits, according to a survey by consultancy BDO.

Last month, the rate of corporation tax jumped to 25 per cent from 19 per cent, reversing years of cuts to the headline rate of the profits tax.

BDO said almost a third (31 per cent) of the 500 medium sized companies it surveyed warned the uplift in corporation tax had prompted them to consider leaving the UK.

Pharmaceutical giant Astrazeneca earlier this year decided to build a £320m factory in Ireland instead of the UK, partly due to Hunt and Sunak’s tax rise.

Corporation tax is a levy on profits above £250,000. Economists have warned raising it weakens incentives for firms to invest in resources that enable them to create more goods and services as doing so takes away a larger share of the return yielded from such spending.

In order to soften the six percentage point tax rise, the Chancellor gave businesses an effective tax cut by allowing them to deduct the whole cost of certain investments from their corporation tax liabilities.

The move is intended to steer firms toward investing by offering them tax cuts conditional on them boosting capital spending. It will last until April 2026 and replaces the 130 per cent super-deduction.

Over two thirds of mid-market firms plan to step up investment to benefit from the tax relief, BDO said.

“The headline corporation tax rate will dampen current business investment plans although the positive reaction to the new ‘full expensing’ capital allowances regime suggests this may only be a short-term effect. It has also highlighted a high degree of concern about the international competitiveness of the UK’s corporate tax regime,” Paul Falvey, tax partner at BDO, said.

Hunt, at the budget last March, expanded free childcare for children aged nine months to five years to most working parents in a huge expansion of the welfare state, which BDO said will make it a lot easier for companies to hire new staff.

A Treasury spokesperson told City A.M.: “Our corporation tax rate is the lowest in the G7 and businesses with profits below £250,000 have been protected from the full rate rise – with 70 per cent of UK companies seeing no increase at all.”

HOUSE prices this month jumped up by the greatest amount so far this year to a record high of £372,894, new figures out today reveal.

The average price of a home coming to market climbed 1.8 per cent over the last month, the strongest increase in 2023, according to property search site Rightmove.

Over the last year asking prices have jumped 1.5 per cent.

Tim Bannister, director of property science at Rightmove, said the “gloomy” predictions for the market at the start of the year are now “looking increasingly unlikely”.

“Steadying mortgage rates and a generally more positive outlook for the economy are also contributing to more seller confidence, though there are likely to be more twists and turns to come,” he added.

London house prices climbed faster than the national average on an annual basis, up 2.8 per cent to nearly £700,000.

Hackney house prices in east London rose the fastest in the capital, up 5.3 per cent over the last year to £724,000.