Tax rises will be 'acid rain on green shoots' as investors flee overseas, warns minister

Tax rises could lead to investors sending their money overseas as a minister warned it would be akin to "acid rain falling on the green shoots of recovery”.

Senior business chiefs and economists have warned successful entrepreneurs will flee overseas and major companies shun UK investments if the Treasury presses ahead with “daft” hikes.

The outcry comes after mounting speculation that Chancellor Rishi Sunak could unveil steep rises in corporation tax and capital gains tax in the Budget to help repair the catastrophic impact of Covid-19 on a UK deficit which could top £300bn this year.

Mr Sunak has pledged to return the public finances to a “sustainable” footing but business leaders have pushed back strongly against the threat of tax hikes, warning that “fluid and mobile” capital could take flight. 

Advertising mogul Sir Martin Sorrell, the founder and former chief executive of global giant WPP, warned the move would be a further “downer” on businesses already facing the end of the furlough scheme in October.

He said: “When I was running WPP, we moved to Ireland and then we came back when the Conservatives put in a bill to reduce corporation tax and kill tax on overseas profits.

“The government will claim if they are going to do this that 24 per cent is not out of line with France or Germany or Spain, but I don’t think that is the point here. Like everybody else we have to deal with Covid, but unlike everybody else we have to deal with Brexit. What business needs is a further stimulus not a further depressant or downer.

“It will disincentive and push away external investment as well. They will just move it to other jurisdictions. Capital is fluid and mobile, and it will move to jurisdictions where it will get a better deal."

Richard Tice, Brexit Party chairman and chief executive of property investor Quidnet Capital, also pressed for pro-growth tax reform to support firms “struggling to survive” and “provide some incentive for international investors to come to the country”.

He warned: “Unlike normal, lots of investors will be thinking that the UK has had a bad Covid and it has got a pretty incompetent Government."

He added: “We live in a much more mobile world. They’ll just disappear overseas. There are all sorts of places and it is much easier for entrepreneurs to go and base themselves there.

“We need to be really careful about this. Before you know it, successful people will disappear offshore - and guess what, they’ll take lots of jobs offshore. We are at a pivotal moment here and this Government needs to be reducing and reforming tax.”

A row over how to pay for the cost of coronavirus has been raging between Number 10 and the Treasury since the start of August, with Downing Street convinced that promoting growth is the best way to tackle the black hole in public finances.

A Cabinet minister told the Telegraph: "This is not the time to be increasing tax. The cost of coronavirus is a one-off, and to pay off the debt you have to grow the economy. We should be looking to cut corporation tax and other taxes to increase transactions.

"Putting taxes up now would be like acid rain falling on the green shoots of recovery.

"If you increase capital gains tax, for instance, people will just stop selling their assets, so you will get less tax revenue."

Julian Jessop, an independent economist, said: “I personally think it is daft to be talking about this now. I know it has been said that 24 per cent would still be at or below the average from the Organisation for Economic Cooperation and Development, but so what? It’s still 5 per cent higher and moving in the wrong direction. The trend in corporation tax revenues has been down for a number of years.

He added: “Companies are relatively mobile and top executives are relatively mobile as well. Politically it seems attractive to make companies pay but in practice it is not the companies that pay, it’s the customers or the people who work for them, or their shareholders.

“It would backfire partly because it would drive companies overseas and but also because taxes aren’t paid by companies, they are paid by people - it is not pain free.”