Shadow chancellor Rachel Reeves has promised to tackle what businesses tend to fear the most: instability. ‘In recent years, corporation tax has gone up and down like a yo-yo, while the government has papered over the cracks with short-term fixes like the super-deduction,’ Reeves told the manufacturing group Make UK’s annual conference this morning.
Under a Labour government, she pledged, there will be a clear ‘roadmap for tax which lasts over a parliament’. Reeves said this would give business leaders a better sense of what to expect, hopefully creating an atmosphere for investment.
Promising a review also puts pressure on Reeves to come up with answers to some of the biggest tax frustrations
Reeves is on a mission to lure the business community over to Labour. This morning showed how she is honing her message, warning about the risks to the UK economy if it gets ‘trapped in a cycle of low growth, lost confidence and weak demand’.
But there are two obvious problems with Reeves’ pitch this morning. The first is that while corporation tax has indeed gone on a journey during successive Tory governments, the Labour party has also been ‘yo-yoing’ right alongside them. In winter 2021, then-shadow chancellor Anneliese Dodds was arguing that, given the state of the economy, corporation tax should not budge above 19 per cent – in direct contrast to the party’s 2019 manifesto just several years back. Indeed, the first pledge in Keir Starmer’s ‘ten pledges’ when he was running for Labour leader in 2020 included a promise to ‘reverse the Tories’ cuts in corporation tax’.
Now, it seems, the party has shifted again, no longer opposing Rishi Sunak and Jeremy Hunt’s plan to push on with corporation tax hikes this April. Labour’s position on tax rates remains completely muddled. They supported the most expensive tax cuts in Liz Truss’s mini-Budget last year, only really defining itself in opposition to the former prime minister’s attempt to cut the top rate of tax.
Reeves has promised a comprehensive review of Britain’s business taxes to help establish a clear position for the party that can be communicated with businesses going into the next election. But this review will present hurdles of its own. It confirms Labour does not have anything like a serious business tax strategy yet. When the time comes to craft policy off the back of this review, Starmer and Reeves are likely to discover that their attempt to make Labour look more tax-friendly and palatable is not a universal sentiment felt throughout the party. Indeed, they will come up against MPs, and plenty of voters, who directly refute more recent comments, like Starmer’s pledge not to ‘soak the City.’
Promising a review also puts pressure on Reeves to come up with answers to some of the biggest tax frustrations among British business. She singled out the ‘outdated system of business rates’ as one of the policies on the chopping block, to be replaced by a system ‘fit for the 21st century’ – something the Tories haven’t managed to do for over a decade in power.
What Reeves has pledged to do today is no small task. She must come up with a serious tax strategy that appeals to business, appeals to her party, and does a decent enough job at showing a distinction between what Labour might do differently from the Tories.
But the biggest indication of differences today came from Reeves’s attack on the ‘super deduction’, which she views as a ‘short-term’ solution to corporate underinvestment (she suggested she will be encouraging changes to capital allowances instead). Going after one of the few schemes designed to spur on investment in recent years may not win her the friends she is looking for in business – especially if this review doesn’t quickly deliver alternatives that seem better, and more workable, than what is currently in place.
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