Jeremy Hunt risks choking off a potential economic recovery with his plans for a tax raid following a surprise rise in consumer confidence, business leaders and economists have warned.
Experts said that the Chancellor's looming increase in corporation tax will hold back growth, just as a closely-watched survey by the data company GfK found that confidence had unexpectedly bounced back to its highest level since April last year. Jagjit Chadha, director of the National Institute of Economic and Social Research, said the tax rise will damage growth both in the short and the long term. He said: “It will act as an ongoing drag on the economy. Business investment is much lower than it should be and an increase in corporation tax is not going to help it recover.”
Hunt is increasing the rate of corporation tax from 19pc to 25pc in April – a jump projected to raise £16bn per year for the Treasury. Martin Beck of EY Item Club said the rise would damage the economy at a time when the outlook had improved significantly following falls in energy prices.
But increasing numbers of business leaders have expressed concern about the looming tax rise, which comes just as a generous policy enabling firms to offset investments against their HMRC bill ends. The hawkish policy-maker said more rises to borrowing costs would be needed to dampen inflation.