‘We’ll be looking at the tax environment and the regulatory environment and everything we can do to encourage and support business in this country,’ Boris Johnson told an audience on Facebook © Facebook

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Boris Johnson has raised the prospect of business tax cuts next year in an attempt to revive the Covid-ravaged British economy, even as chancellor Rishi Sunak looks to increase taxes to repair the public finances.

The prime minister’s comments hint at tensions to come between Number 10 and Number 11, with Mr Sunak determined to use his March Budget to start plugging a fiscal hole that will reach almost £400bn this year.

Mr Johnson told a Facebook Q&A session: “We’ll be looking at the tax environment and the regulatory environment and everything we can do to encourage and support business in this country.”

He said that business was “the motor that is going to enable us to pay for all the things we need in the future” and that its success was vital in controlling the deficit.

Mr Johnson’s hint at business tax cuts runs counter to the prime minister’s own manifesto pledge to raise £6bn a year by abolishing a planned cut in corporation tax from 19 per cent to 17 per cent.

Business had been braced for a further levelling-up in the corporate tax rate towards the average of other advanced economies.

Mr Sunak’s room for fiscal manoeuvre is looking more limited by the day, with Mr Johnson opposing a return to public spending “austerity” and also resisting key revenue-raising measures.

The prime minister is said by senior government figures to be determined to uphold the manifesto pledge not to put up rates of income tax, value added tax or national insurance — the three main tax-raising measures.

Mr Johnson has also opposed Mr Sunak’s push to freeze the costly “triple lock” covering increases in state pensions. Other potential money raisers for the Treasury such as higher fuel duty or a cut to pension tax relief will face fierce opposition from Conservative MPs.

If the prime minister believes that business taxes should fall to bolster the economy, the chancellor will soon be running out of options.

The chancellor’s allies say that Mr Sunak, who used to help his mother do the books in her Southampton pharmacy business, has a deep-seated desire to bring order to the public finances, starting in his March Budget.

In his spending review, the chancellor hinted that the time for announcing tax rises was imminent and probably in the March Budget, saying that the outlook for the public finances was “clearly unsustainable” and the government had a “responsibility” to return them to health once the immediate emergency was over and the economy had recovered.

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The Office for Budget Responsibility warned last week that the longer-term damage of the Covid-19 crisis would leave the burden of public debt rising and the government failing to balance the budget on any plausible measures.

With austerity ruled out, that suggested Mr Sunak would have to find tax rises soon so that the public had accepted them by the time of the next election.

​Letter in response to this article:

The pandemic is an opportunity to simplify UK tax rules​ / From Paul Falvey, Tax Partner, BDO Bristol, UK

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