It might seem a strange thing to say about a Chancellor who is presiding over an annual deficit of £355 billion, but Rishi Sunak is a fiscal conservative. This is what explains his decision to hike corporation tax to 25p in 2023. He thinks that this move is necessary to begin to put the public finances on a sounder footing.
The increase in corporation tax is offset by the so-called ‘super deduction’. This allows companies to write off 130 per cent of the cost of an investment against tax for the next two years. The aim is to try and boost investment and help address this country’s long-standing productivity problems. The move is particularly likely to benefit manufacturing which should help with the government’s levelling up agenda.
Another factor which may well make the increase less of a big deal than expected is the fact that other countries may well increase their own rates. All governments have spent big to handle Covid and with rising concern about global inflationary pressures, there is a chance that many countries will go down the route of raising taxes on business profits.