Labour government will cap corporation tax for five years, says Rachel Reeves

Sir Keir Starmer will cap corporation tax at 25 per cent for the first five years of a Labour government under a raft of new measures aimed at winning over big business.

Shadow chancellor Rachel Reeves said on Thursday that the current level “strikes the correct balance” but hinted that she could even cut it if the UK’s “competitiveness comes under threat”.

The announcement came in front of gathering of business leaders at a sold-out event in London designed to win over executives ahead of a general election later this year.

Labour did not give any clarity on the circumstances or criteria under which corporation tax could fall, but Ms Reeves was clear to business leaders it would be kept under review.

“The next Labour government will make the pro-business choice and the pro-growth choice,” she said. “We will cap the headline rate of corporation tax at its current rate of 25 per cent for the next parliament. And should our competitiveness come under threat, if necessary we will act.”

Ms Reeves’ announcement follows a week of discussion and disagreement about Labour’s fiscal policies. The shadow chancellor made headlines when she said Labour would not reverse Liz Truss’s removal of the cap on banker’s bonuses.

She said the party “does not have any intention of bringing that back”. Her comments sparked a backlash from some on the left of the party and trade union figures, who called on Labour to rethink its decision.

Rachel Reeves said big business could trust Labour again (PA)
Rachel Reeves said big business could trust Labour again (PA)

As chancellor, Rishi Sunak announced a rise in corporation tax from 19 per cent to the current 25 per cent rate for companies with profits over £250,000 – a move that came into force in April last year.

That move had provoked the ire of some free marketeer Tories, with former Tory PM Truss pledging but ultimately failing to scrap the rise during her short-lived premiership.

Jeremy Corbyn’s left-wing manifesto for Labour in the 2019 election had included a hike in corporation tax to 26 per cent.

But today Ms Reeves said that capping the figure means “businesses can plan investment projects today”. She said: “To those you in this room who might be wondering – do we really mean what we say? ... Be in no doubt. We will campaign as a pro-business party – and we will govern as a pro-business party.”

Labour’s Jonathan Reynolds rowed back on the £28bn green spending pledge (PA)
Labour’s Jonathan Reynolds rowed back on the £28bn green spending pledge (PA)

Tax Justice UK criticised Ms Reeves – saying Labour should keep the option of “fair tax rises on company profits to sort out the mess”.

A spokesperson for the campaign group said: “Schools are crumbling, hospitals and GP surgeries are creaking under the strain and councils are going bust. Reeves needs to support sensible and credible ways of generating revenue.”

Left-wing campaign Momentum also said Labour’s corporation tax cap was “bad policy and bad politics” – saying it would mean “public services are battered and starved of funds”.

The New Economics Foundation (NEF) said Labour and the Tories both had “too much faith” in competitive corporation tax rates to boost productivity in the UK, when greater investment in skills, infrastructure and housing were needed.

However, business chiefs backed the move. The British Chambers of Commerce said Ms Reeves’ promised “roadmap” for business taxation would offer “certainty for future planning”.

Sir Keir and Ms Reeves have been under fire for the gradual retreat from the £28bn green prosperity pledge, with shadow business secretary Jonathan Reynolds giving the strongest hint yet that the party may drop the £28bn plan entirely.

Mr Reynolds said on Thursday that it was now only an “ambition” to carry out the multi-billion pound investment, as he warned that “sometimes circumstances change”.

Keir Starmer made his latest pitch to woo big business (PA)
Keir Starmer made his latest pitch to woo big business (PA)

Ms Reeves repeatedly refused to set out whether she is standing by her commitment to spend £28bn a year on green investment. Asked around 10 times in an interview with Sky News, she refused to state whether she was committed to the spending plan.

“The fiscal rules will come first and all of our policies will be subject to the iron discipline,” Ms Reeves said – before promising that “of course we will update people on our thinking on this”.

Ms Reeves also defended her decision to allow unlimited bonuses for bankers – insisting that there were now “much stronger rules” to prevent risky behaviour in the City.

Sir Keir made veiled jab at his predecessor Jeremy Corbyn during his own speech at the conference with business leaders – saying he understood why they had ignored Labour.

“Let’s imagine that you were invited to an event like this, a Labour business conference, before any of the changes to our party had taken place,” he asked.

“The question is, would you go? Would you as a wealth creator feel that your ambition, the vital role you play in our economy commanded the respect it deserves?”

Meanwhile, Tory business secretary Kemi Badenoch said the 25 per cent corporation tax cap “isn’t worth the paper it’s written on”.

She also attacked the U-turn on the green investment. “Labour cannot say how they will pay for their £28bn spending spree because they do not have a plan. That will just end up meaning higher taxes on businesses and working people,” said Ms Badenoch.