Candidates to be the UK’s next prime minister should focus on growth and an overhaul of the tax system over quick cuts, a business group has said.
Promises of tax reductions feature heavily in the leadership campaigns but the CBI business group said the wrong cuts could fuel inflation further.
In an open letter, CBI director general Tony Danker called for “serious, credible and bold plans for growth”.
Labour’s Rachel Reeves said candidates should “seriously heed these warnings”.
The race to elect a new Conservative leader and prime minister comes at a time when the UK is grappling with inflation driven by rising costs of food, energy and fuel.
The OECD think tank forecast in June that UK economy will grow more slowly than expected this year and will stagnate next year.
And in April the International Monetary Fund said that the UK will be the slowest growing G7 economy in 2023.
Last week, the government’s independent forecaster warned that the UK debt was on an “unsustainable path” unless spending is tightened and taxes are raised.
Current government plans to increase corporation tax from 19% to 25% in April are not proving popular with businesses, and some candidates have promised to cancel it.
But the CBI said a permanent extension to extra tax reliefs on investment – due to expire in April – and an overhaul of business rates are more important to create investment and growth.
Mr Danker wrote in an open letter to the leadership candidates: “Growth that relies on only government or household consumption is doomed to fail, especially at a time of rising inflation and high debt.”
He added: “Sustainable economic growth must be at the heart of your manifestos.
“Without it, leadership ambitions cannot be met nor those of the British people and businesses.”
Mr Danker wrote that while the corporation tax hike should be “revisited” given the wider weakening economy, leadership candidates should look at the UK’s entire business tax regime as a whole.
Tax front and centre
The plea comes as the Conservative leadership contenders outline their campaign policies, with tax front and centre for each.
Chancellor Nadhim Zahawi pledged on Monday to cut income tax in 2023 and 2024 and abolish green levies on energy bills for two years, while Foreign Secretary Liz Truss vowed to cut taxes “from day one”.
Jeremy Hunt, who has been both health and foreign secretary, told BBC Breakfast he wants to “cut all taxes”.
But former Chancellor Rishi Sunak is launching his bid to become prime minister with a promise to only cut taxes once inflation has been brought back under control.
‘Eye-watering inflation’
Setting out its own plan to boost the economy, the CBI told the would-be prime ministers that long-term growth ambitions are vital.
Mr Danker wrote that the country faces “serious challenges” such as “eye-watering inflation putting households and enterprises under real pressure”.
But he added it is also caught in a longer-term trap of low growth and higher productivity was the only sustainable way forward.
This would “achieve higher standards of living and tackle the fiscal challenges of an ageing population and decarbonisation while lowering the UK’s high tax burden,” he said.
Shadow chancellor Rachel Reeves said: “The level of unfunded tax cuts currently being bandied about by [leadership hopefuls] would blow a massive hole in the public finances.
“Instead of setting out serious plans to help people with the cost of living crisis or grow our economy, we are presented with the extraordinary spectacle of a Tory tombola of tax cuts – with no explanation of what public services will be cut, or how else they’d be paid for.”
