CBI warns Rishi Sunak he risks undercutting future green economy

Britain’s foremost business lobby group has warned Rishi Sunak that his tax and spending plans risk undercutting government ambitions for a green, high-wage economy by discouraging the necessary investment.

Ahead of the chancellor’s budget next week, the Confederation of British Industry (CBI) said there were fundamental inconsistencies in the government’s economic strategy that needed urgent attention.

It said Boris Johnson was “betting the shop” on private sector investment to hit net zero targets and raise economic productivity, but the government was doing too little to encourage firms, instead hitting them with higher taxes.

In a stinging critique ahead of the budget, Tony Danker, the CBI director general, compared government attacks on business over the supply chain crisis with the prime minister’s global investment summit earlier this week.

“Two weeks ago, the private sector was blamed for everything: fuel shortages, labour shortages, immigration, wages, skills and productivity. This week it was wined and dined and asked to multiply its investment,” he said.

Ministers unveiled plans on Tuesday that they said would create up to 440,000 jobs and “unlock” £90bn in investment over the next decade, most of it from private sector firms. However, Danker said they contained fundamental flaws, amid an increasingly frosty relationship between company bosses and the Conservatives.

“Lift the bonnet and what we have is a tax regime that penalises investment, a regulatory model that does the same, and little clarity on the new green business models that investors are supposed to be backing,” he added.

“There is a fundamental inconsistency where the government wants to unlock business investment but its tax policies do the opposite.”

So far this year, Johnson and his chancellor have announced plans to raise taxes by £36bn a year – a bigger rise than at any budget since the mid-1970s – including a sharp rise in corporation tax and through national insurance contributions paid by employers and workers.

It comes while there is growing concern over the impact of severe supply chain shortages holding back the economic recovery from Covid-19. On Thursday, a closely watched survey compiled by the CBI showed manufacturers were suffering with the worst shortages since 1975, harking back to a period of galloping inflation and industrial strife, amid the fallout from Covid and Brexit disruption.

Ahead of next week’s budget, company bosses are pushing for changes to business rates in particular, warning that the system that taxes firms based on the properties they occupy is outdated and risks holding back billions of pounds of investment.

The CBI and 41 other leading trade bodies representing more than a quarter of UK jobs told the chancellor last week that reforms could help to decarbonise company buildings, factories and other premises to meet net zero goals.

It follows similar interventions by Labour and “red wall” Tory MPs, amid concern that business rates unfairly advantage large online retailers over physical shops on the high street. According to the CBI, Britain has the highest property tax levels in the OECD group of wealthy nations, four times higher than in Germany as a share of GDP.

However, business investment in Britain has typically lagged behind that in other advanced economies in recent years, despite the government slashing corporation tax from 28% to 19% over the decade the Tories have been in power, at a cost of billions to the exchequer.

Sunak announced plans at the March budget to raise the headline rate to 25% from April 2023, with an offsetting “super deduction” tax break worth £25bn, designed to encourage firms to invest up until that date. The chancellor is also reportedly preparing to announce a tax cut for banks to help the City of London after Brexit.

Danker said that an end to repeat increases in business taxation was required to encourage companies to invest in the economic recovery from Covid-19 and the government’s priorities to decarbonise and reduce regional inequalities.

“This is the government’s first spending review since the pandemic hit and Brexit kicked in. It must choose: are we going for growth? Or going back to tax and spend?”

A Treasury spokesperson said: “The UK has a highly competitive business tax regime and remains one of the best places in the world to do business – we have a lower headline rate of corporation tax than any other major comparable economy and generous reliefs for both research and development.

“We’re committed to supporting business investment, extending the Annual Investment Allowance increase for another year and introducing the super-deduction – the biggest two-year business tax cut in modern British history.

“Throughout the pandemic we have also supported businesses through our Plan for Jobs – which includes £80bn in loans, £25bn in grants, £16bn in business rates relief and our £69.3bn furlough scheme.”