United Kingdom: the first increase in corporate tax since the 1970s

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Chancellor of the Exchequer Rishi Sunak has just presented his 2021 budget for the United Kingdom. While still focused on immediate and extensive support measures totalling some £60 billion along with various stimulus measures that include a two-year super-deduction tax-relief scheme for corporate plant and machinery expenditure, this budget also sets out the measures that will be taken in the future to reduce the deficit levels that are lying in wait. Income tax thresholds will be frozen from 2022 and in 2023 the corporate tax rate will rise from 19% to 25%.

Our analysis

While the UK government could conceivably reverse this measure before 2023, any rowing back will depend on how the economy performs. The current budget calculations assume a lasting 3% impact from the Covid-19 crisis (as well as Brexit?) compared to the pre-crisis trend. A stronger-than-expected recovery could provide leeway for the government to reverse the measure.

Is the UK’s announcement creating a precedent that other countries could follow? With the passage of the $1,900 billion stimulus package looking imminent, the Biden administration will set about preparing its multi-annual infrastructure investment plan, which would be partly financed by higher taxation on corporates and the wealthy. In the eurozone, the European Commission has just recommended extending the Stability and Growth Pact’s general escape clause to 2022, which postpones the start of fiscal consolidation to 2023 as well as the debate on the measures to be taken.

Whatever the case, this measure represents a blot on the landscape described by some Brexit supporters of the United Kingdom evolving into a tax and regulatory haven.

 

See also: https://latribune.lazardfreresgestion.fr/en/higher-long-term-rates-a-shift-in-driving-force/

The following opinion was written on March 5th 2021 and is susceptible of changing.

 

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