(Bloomberg) -- UK Chancellor of the Exchequer Rishi Sunak promised to cut taxes at his next budget in the fall, one of the key demands of some disgruntled Conservative MPs who almost deposed Boris Johnson this week.
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Sunak, who has overseen Britain’s tax burden rising to its highest level since the 1950s to pay for pandemic-related spending, said he wants to reduce levies on businesses to spur economic growth and productivity.
“In the autumn we will be setting out a range of tax cuts and reforms to incentivise businesses to invest more, train more and innovate more,” Sunak said in a speech late Tuesday to the Onward think tank, according to extracts sent by his office. “We all know higher productivity is the only way to achieve a sustainably high-growth, high-wage economy.”
Johnson is seeking to save his premiership by repairing relations with his fractured Conservative Party and move the agenda on from the partygate saga and political in-fighting that’s almost cost him his job. The UK’s high tax burden has been a regular gripe of many of his backbenchers, for whom tax-and-spend policies jar with their Thatcherite instincts.
Johnson himself dangled the prospect of future tax cuts when urging his MPs to support him before a confidence vote this week, which he only narrowly won.
“The way out now is to drive supply side reform on Conservative principles and to cut taxes,” Johnson told MPs in a private meeting on Monday, according to a readout from his office. “That is the way to drive growth and jobs.”
The trouble for Johnson is that he is also trying to alleviate a record cost-of-living squeeze in the UK, and last month announced an extra £15 billion ($18.9 billion) of spending to help Britons with soaring energy bills and food costs.
He’s also promised voters he’ll spread wealth and opportunity across the UK as part of his so-called “leveling up” agenda, which is expected to require significant new public investment in areas such as infrastructure and housing.
Read More: Sunak’s Tax Cut Agenda Highlights a Weakness in the UK Economy
The business context for Sunak’s corporate tax-cutting pledge is that the UK has fallen behind other advanced economies in the Group of Seven on private investment in research and development to improve technology and equipment. Many British companies are sitting on significant cash piles after pausing dividends and capital investment plans at the height of the pandemic.
The CBI, Britain’s biggest business lobby group, has urged Sunak to reduce tax rates for companies to encourage them to bring forward investment plans. And as it stands, tax rises are on the horizon: Sunak has pledged to increase the main corporate tax rate to 25% from 2023, compared to 19% currently.
In 2021, he also introduced an incentive that hands firms 25 pence off their tax bills for every £1 they spend on qualifying plant and machinery, but that is due to expire in April. The Treasury is consulting on what should replace it.
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