Now with the race for Conservative Leadership underway, candidates are pledging tax cuts for businesses – but will they follow through if elected?
Initially, there were eleven candidates for leadership of the Conservative Party. Some fresh faces, some well-known. Perhaps unsurprisingly, some recognisable faces include current Chancellor of the Exchequer Nadhim Zahawi, Foreign Secretary Liz Truss, and the MP for Richmond Rishi Sunak.
Many campaign speeches and videos are already live, and most of them pledge to cut down on existing taxes. In his first interview after appointment last week, Nadhim Zahawi said “nothing is off the table” in reference to potential tax cuts. Now, as a candidate for Conservative Leadership he seems to be pushing forward on this for his campaign – with emphasis on cutting VAT, and a determination to scrap the planned Corporation Tax increase altogether. While on the surface these look like a series of fantastic steps forward to help commercial property owners and tenants and get the economy back on track, how do they really help?
For June, the British Retail Consortium (BRC) found that even the demand caused by the Queen’s Platinum Jubilee was not enough to stop retail sales from falling 1% when compared to the year before. This lack of demand is causing some businesses in the North West to struggle as they try to avoid hiking up prices for consumers. The BRC has called on the government to provide help – nominally with lower business rates.
Lowering the Corporation Tax is one of the ways that some of the current Conservative candidates have mentioned could help businesses. It is calculated on businesses annual profits and was frozen at 19% for 2020 and 2021. Former-Chancellor Rishi Sunak was spearheading a rise in the tax for 2023; which would see it reach 25% and was expected to raise £12 billion. Less tax on profits is of course a major boon for businesses, however, some disagree. In an interview with the BBC, Mr Krebel of the New Economics Foundation said:
“[…] cutting corporation taxes would be a costly measure but unlikely to offer much of economic boost, since business growth ultimately depends on strong demand in the economy.”
So while a slashed Corporation Tax may provide a cushy safety net for some North West businesses, without consumers able to frequent these businesses, it may have very little impact on economic growth.
This is where the proposed VAT tax cut comes in. Slashing VAT would mean that the price of goods and services would go down. At least, for businesses that can afford to do so. Some commercial property owners and tenants struggling in the current financial climate may not be able to pass these savings on to their consumers. Rendering a proposed VAT tax cut rather insufficient, especially as it inevitably rises again and the price of goods and services follow. Perhaps most telling however, is that the Conservative Leadership candidates who are standing firm on such proposed tax cuts, have not said just where they will get the money from to subsidise these cuts.
The Managing Director of RVA Surveyors, Anthony Hughes, commented:
“Business rates represent the third or fourth highest cost for any business and we would welcome significant reductions in business rates liability for commercial property owners and tenants. In addition, a simplification and streamlining of the processes to help correct inaccurate business rates are essential in creating a fairer property tax system.”
RVA Surveyors are a business rates reduction specialist based in Greater Manchester. With their ‘no reduction, no fee policy’, there is little risk for businesses.
Oddly, business rates are not a common tax cut brought up in the current race for leadership of the Conservative Party. Only two candidates out of the initial eleven in fact mention business rates specifically in their policies – the Chancellor of the Exchequer Nadhim Zahawi, and Former Health Secretary Jeremy Hunt. While cutting taxes is a major pushing point for most of the candidates, that only two specifically mention business rates is surprising. Business rates can be in the top three biggest expenses for any business.
While a cut or freeze in business rates is a step forward – and something companies have been calling on the government to implement anyway – many businesses are unaware that they can check their business rates. People are predisposed to believe that taxes are applied correctly, however given the current economic and political uncertainty, checking your business rates liability is quite possibly the last way to create savings.