Paul Goodman has a piece over at ConservativeHome speculating that an early election in 2023 could be part of a cunning plan to never implement the tax hikes Rishi scheduled yesterday.
“The Corporation Tax hike to 25%, due to happen that year, will no longer be needed. The freezing of income tax allowances will go the same way. And Sunak will be able to have another look at the other thresholds, allowances and exempt amounts he is also freezing.”
Ignoring the rumours that Rishi wanted to hike the tax this year and Boris over-ruled him, the one bit of good news for low tax Tories, the 130% super-deduction for capital expenses is why Guido thinks it is a delusion that Rishi doesn’t really intend to raise the tax burden. A 6 point hike in corporation tax rates from 19% to 25% in 2 years encourages finance directors to delay their firm making investments until they can take advantage of the higher deduction resulting from the higher headline corporation tax rate. The Treasury realises raising tax rates tomorrow postpones investment today.
The purpose of the 130% super-deduction for 2 years is to make that calculation for finance directors irrelevant, removing the cliff edge. 19 x 130% gives you 24.7 meaning the finance director has no accounting reason to delay making that capital investment. That is the real purpose of the super-deduction. It also signals that Rishi firmly intends to be the first Chancellor since Denis Healey to raise corporation tax.