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New PM should avoid tax cuts that are ‘doomed to fail’, warns CBI

Tom Shearsmith
13 July 2022

Conservative leader contenders should focus on long-term growth policies and not tax cuts that are “doomed to fail”, the CBI business group has warned.

In an open letter to candidates launching their leadership bids to become the next prime minister, CBI director general Tony Danker urged them to “develop serious, credible and bold plans for growth”.

He said that while tax policies are stealing the limelight, “growth policy is about more than this” and warned that headline-grabbing tax cuts for households may end up fuelling inflation further.

“Growth that relies on only government or household consumption is doomed to fail, especially at a time of rising inflation and high debt. 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.”

Danker insisted tax changes that address “our nation’s longstanding poor performance on business investment” must be the priority, such as a permanent successor to the super deduction tax that ends next April, an urgent reform of the business rates system and a revision of the timing and rate of the planned corporation tax rise.

He stressed 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.

He continued: “Investment-targeted business tax measures avoid significant inflation risk as they seek to materialise into economic activity over the year ahead and beyond, rather than right now in the midst of inflation. They ensure that any downturn we face is short and shallow and that inflation-driven pay rises are replaced by sustainable, productivity driven ones.”

The plea comes as the 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.

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