Labour will not raise corporation tax above its current rate of 25% during the next parliament, the party has pledged, in an attempt to offer businesses greater certainty – but the promise has prompted warnings about a lack of fiscal flexibility.
The shadow chancellor, Rachel Reeves, said the tax pledge included maintaining full expensing, which allows businesses that invest in IT equipment and machinery to claim back up to 100% of the cost of the investment by writing it off against tax on their profits.
She said Labour would also maintain the annual investment allowance introduced by Jeremy Hunt.
Speaking at a conference in London attended by over 400 business leaders, Reeves said business and government must work together “like never before”.
She said: “We reject the calls from those on the right wing of the Conservative party to cut corporation tax. Our current rate is the lowest in the G7.
“We believe that a 25% rate strikes the correct balance between the needs of our public finances and the demands of a competitive global economy.
“The next Labour government will make the pro-business choice and the pro-growth choice. We will cap the headline rate of corporation tax at its current rate of 25% for the next parliament. And should our competitiveness come under threat, if necessary, we will act.”
She accused the government of pushing through Brexit without a plan and of bringing instability and uncertainty by churning through a succession of ministers.
Reeves has sought to woo the business community over several years as part of a strategy to improve the party’s reputation for managing the economy. “This Labour party sees profit as not something to be disdained but of business succeeding,” she said.
The conference, for which tickets sold out within hours, heard that Labour would listen to the concerns of UK firms, overhauling the planning system and investing in green infrastructure.
The corporation tax pledge comes just a day after Reeves surprised some in the party by saying Labour would not reinstate a cap on bankers’ bonuses if it wins power.
Compass, the Labour-aligned thinktank, said the decision on corporation tax “only serves to underline how difficult it is to change things under our political system”.
Neal Lawson, its director, said: “More and more people and organisations want a society that is fairer and more equal, and better investment in our crumbling public services.
“But to win under FPTP [first past the post] means promising to the corporate lobby that nothing much will change, and so dissatisfaction with politics grows.”
Ed Balls, the former shadow chancellor, said there was a risk that Reeves would “box herself in quite a lot” on tax before the election.
He told the Political Currency podcast: “The more commitments you make on tax in opposition, the harder it is to govern when you’re there. And she’s definitely making her task more difficult.”
While the conference was aimed at further boosting Labour’s ties with business, a key section of Keir Starmer’s speech to the event was to set out the party’s plan for better workers’ rights, saying he wanted to “level up workers’ rights in a way that has not been attempted for decades”.
He said: “That might not please everyone in the room or the wider business community. But nobody can doubt that our labour market is at the heart of our challenges on productivity, a clear reason why the wealth we create fails to generate economic security. That’s not just an argument about social justice, it’s also about growth.”
Shevaun Haviland, the director general of the British Chambers of Commerce, said businesses were having a tough time and “urgently need stability and long-term certainty”.
She said: “The [cap] will give both UK firms and global companies looking to invest here the confidence to help the economy get back to sustainable growth.”
Nigel Higgins, the chair of Barclays, who was on a breakfast panel with the Abrdn chair, Douglas Flint, and the chair of Legal & General, Sir John Kingman, said Labour’s report on the finance industry – published at the conference – showed how banks and insurance companies could support the wider economy.
“A vibrant and dynamic financial services sector is crucial for long-term economic growth. This report recognises this fact and helps to join up some of the interconnected issues, challenges and opportunities within the sector, including recognising the importance of international competitiveness,” he said.
Miles Celic, the chief executive of TheCityUK, which represents the financial services industry, said the plan showed “a clear focus on innovation, modernising the regulatory landscape, driving more investment, and unlocking growth in the wider economy”.