The Labour Party will confirm next week that it will raise Corporation Tax if it is elected next year. The party is also considering a tax break in order to equalise the way that debt and equity finance for companies is treated.
Ed Balls, the Shadow Chancellor is allegedly going to say that he is examining the case for an ‘allowance of corporate equity’ as part of proposed reforms to encourage businesses to think more long-term. He will reiterate the party’s intention to reverse Government plans currently in place to cut Corporation Tax in April by 1% because it believes that cutting and then freezing business rates on premises is of a higher priority. This move means that Labour will be committed to maintaining the most competitive corporation tax rate in the G7. This stance could still give the party room to increase the tax if it wins the next General Election.
Currently, the UK’s corporation tax rates are much lower than other G7 countries following a series of cuts by the Government in the last few years. Canada has the lowest rate at the moment of 26.3 per cent.
The Labour Party is also considering an allowance for Corporate Equity, an idea that has been floating around since the 1980s in order to address the way that Britain and its tax system favours debt finance over equity finance, as critics believe that this can lead to an over-reliance on debt.
Versions of this have been introduced in Italy and Belgium but the policy could prove to be very expensive. When asked about the idea, Mr.Balls said that he and his party were pursuing ‘big ideas’.
Separately, Labour leader Ed Miliband kicked off a week of economic announcements by saying that he would transfer £30 billion worth of funding from central Government to local Governments.