Rachel Reeves vows to cap corporation tax for five years after Tory U-turns

01 February 2024 , 10:59

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Rachel Reeves said Labour will not change the tax for major firms for five years (Image: PA)

Rachel Reeves has vowed to cap corporation tax if Labour wins the next general election.

The Shadow Chancellor said the current rate of 25% will not change for the first term of a Labour Government as she addressed a packed-out hall of business leaders in London. In Labour's latest attempt to woo business chiefs, Ms Reeves said the commitment will be included in the party's election manifesto, in its first major announcement around taxation.

In a speech to Labour's Business conference, she said: "There have been 26 changes to our corporation tax arrangements in this Parliament alone. We can't go on like this. 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 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 added: “That means businesses can plan investment projects today, with the confidence of knowing how their returns will be taxed for the rest of this decade."

But the Shadow Chancellor refused to commit to unfreezing income tax thresholds, which has meant ordinary workers are being dragged into higher tax brackets due to inflation. She said: "I've made no secret of the fact that I think taxes on working people are too high but I won't make any commitments that are not fully costed and fully funded."

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It comes after a flurry of Tory U-turns over corporation tax. In Spring 2021, Rishi Sunak promised to hike the levy on firms with profits of more than £250,000 when he was Chancellor - which came into force last April. Liz Truss attempted to scrap the measure during her short stint in No10 but was forced into a humiliating U-turn amid economic turmoil.

The move is likely to anger some on the left of the party, as even at the higher rate of 25%, corporation tax in the UK is the lowest in the G7 - a group of the world's seven richest nations.

A spokesman for left-wing Momentum group said: "The UK has the lowest level of corporation tax in the G7. Meanwhile, our public services are battered & starved of funds. Starmer and Reeves' cosying up to big business is bad policy and bad politics."

Robert Palmer, Executive Director at Tax Justice UK said: "The Shadow Chancellor is at risk of backing a future Labour government into a corner with the latest announcement ruling out a corporation tax rise. Simply put, schools are crumbling, hospitals and GP surgeries are creaking under the strain and councils are going bust.

"While plans to crack down on tax avoidance and windfall tax loopholes are welcome, alone, they aren’t enough. Reeves needs to support sensible and credible ways of generating revenue, like keeping open fair tax rises on company profits, to sort out the mess that Britain is in."

Ms Reeves also promised a room of 400 bosses at Labour's Business Conference in London "stability" as she comes under criticism for pledging not to restore the cap on bankers' bonuses and the party's wobbling over the £28 billion green investment commitment.

Keir Starmer, whose party has made considerable strides in reassuring and winning over company bosses and City investors in recent years, told business leaders that Labour would “get underneath the bonnet” of the UK economy to fire up growth.

But he also warned them Labour was planning to “level up workers’ rights" - whether business likes it or not. The Labour leader said: “We will make work pay. Zero hour contracts, scrapped. Fire and rehire, finished. A genuine living wage. I want to be crystal clear about this. We are going to level up workers’ rights in a way that has not been attempted for decades."

Mr Starmer also took a swipe at his predecessor Jeremy Corbyn, asking business leaders if they would have bothered attending a Labour business conference in 2019.

Ashley Cowburn