As published on: theguardian.com, Monday 3 July, 2023.
Labour is considering bringing in long-term tax breaks to boost investment and raise the UK’s sluggish growth rate, adding to pressure on the chancellor from a swathe of industry leaders calling for pro-business measures in next week’s budget.
The shadow chancellor, Rachel Reeves, will tell a conference organised by the MakeUK employer’s organisation on Tuesday that Britain needs a system of investment allowances lasting for the length of a parliament in order to provide companies with stability and certainty.
Her comments come after the chief executives of three leading UK companies criticised the government’s energy policy, accusing it of failing to spur investment. Shell boss Wael Sawan, Miles Roberts, the chief executive of packaging company DS Smith, and Keith Anderson, the chief executive of ScottishPower, said investment in energy was being held back by uncertainty and planning difficulties.
Industry groups have also voiced concerns about the dual impact of April’s increase in corporation tax rates from 19% to 25% and the end of the two-year super deduction investment tax break.
The entrepreneur James Dyson wrote to the chancellor, Jeremy Hunt, pointing out that the pharmaceuticals firm AstraZeneca recently chose to build a $360m (£299m) advanced manufacturing factory in Ireland, not the UK, citing “discouraging” UK tax rates.
He also criticised the UK for taking part in the minimum global tax plans being worked on jointly by members of the Organisation for Economic Co-operation and Development, in a letter to the chancellor shared with the Sun, saying: “The government has done nothing but pile tax upon tax on to British companies.”
Hunt is thought to be considering a replacement for the super deduction tax break as part of his budget, but Reeves criticised what she called the government’s 11th-hour approach to business taxation.
“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,” the shadow chancellor is due to say on Tuesday. “So it’s no wonder businesses are unable to plan and our investment rates are cratering.”
Reeves is opposed to unfunded tax giveaways and cuts in corporation tax, but instead believes the UK should follow the example of other G7 countries and use targeted capital allowances to stimulate investment.
“Labour knows that there is a role for the tax system in supporting investment,” Reeves will say.
“We will look closely at what the government proposes on capital allowances in that budget … If the government brings forward a genuine boost to investment and if it is affordable, we will back it to help get our economy growing again. But stop-go tax policy is only a sticking plaster. What businesses need are certainty, consistency and incentives for investment.”
The comments from leading chief executives come amid scrutiny of the UK’s attractiveness for business compared with rivals such as the US, which is planning large subsidies particularly for green energy.
The UK’s competitiveness has also been put in the spotlight after Shell reportedly considered moving its headquarters out of the UK and another FTSE 100 company, building materials supplier CRH, said it would move its primary stock market listing from London to New York.
On Monday, the London-listed big data company WANdisco said it would also list its shares in the US. WANdisco, which has headquarters in Sheffield, England, and California, said it was “in the early stages of proactively exploring” the option of a dual listing, but that it was “committed” to keeping its listing on London’s Alternative Investment Market.
Roberts said the government’s long-term energy plan was unclear, making it difficult for DS Smith, a large-scale energy user and a member of the FTSE 100, to commit to UK investments.
“When we look at the UK we’re really saying to the government help us understand, ‘what are your short, medium, and long-term plans for energy, carbon zero?’ And then we can invest behind.”
Sawan compared UK “volatility” with the “10-year clarity and tangible, fixed incentives that people know to bank on” introduced by the US government, notably under the $369bn (£307bn) Inflation Reduction Act package of subsidies for green energy.
Anderson said there was a danger of the UK missing out on “an absolutely colossal opportunity” in offshore wind power because of the extended planning permission process. He said the delays meant energy companies were unable to roll out new investments quickly enough to address the energy crisis triggered by Russia’s invasion of Ukraine.