Tory leader hopefuls should avoid tax cuts that are ‘doomed to fail’, warns CBI

CBI director general Tony Danker is urging candidates to prioritise policies that boost business investment and productivity.

Conservative leadership contenders should focus on long-term growth policies and not tax cuts to boost consumer spending that are “doomed to fail”, the CBI business group has warned (PA) (PA Wire)

Conservative leader contenders should focus on long-term growth policies and not tax cuts that are “doomed to fail”, the CBI business group has warned.

In an open letter to candidates launching their leadership bids to become the next prime minister, CBI director general Tony Danker urged them to “develop serious, credible and bold plans for growth”.

He said that while tax policies are stealing the limelight, “growth policy is about more than this” and warned that headline-grabbing tax cuts for households may end up fuelling inflation further.

Sustainable economic growth must be at the heart of your manifestos. Without it, leadership ambitions cannot be met nor those of the British people and businesses

Tony Danker, CBI director general

“Growth that relies on only government or household consumption is doomed to fail, especially at a time of rising inflation and high debt,” he wrote.

He added: “Sustainable economic growth must be at the heart of your manifestos.

“Without it, leadership ambitions cannot be met nor those of the British people and businesses.”

Mr Danker insisted tax changes that address “our nation’s longstanding poor performance on business investment” must be the priority, such as a permanent successor to the super deduction tax that ends next April, an urgent reform of the business rates system and a revision of the timing and rate of the planned corporation tax rise.

He stressed that while the corporation tax hike should be “revisited” given the wider weakening economy, leadership candidates should look at the UK’s entire business tax regime as a whole.

Mr Danker wrote: “Investment-targeted business tax measures avoid significant inflation risk as they seek to materialise into economic activity over the year ahead and beyond, rather than right now in the midst of inflation.

“They ensure that any downturn we face is short and shallow and that inflation-driven pay rises are replaced by sustainable, productivity driven ones.”

The plea comes as the leadership contenders outline their campaign policies, with tax front and centre for each.

Chancellor Nadhim Zahawi pledged on Monday to cut income tax in 2023 and 2024 and abolish green levies on energy bills for two years, while Foreign Secretary Liz Truss vowed to cut taxes “from day one”.

Jeremy Hunt, who has been both health and foreign secretary, told BBC Breakfast he wants to “cut all taxes”.

But former Chancellor Rishi Sunak is launching his bid to become prime minister with a promise to only cut taxes once inflation has been brought back under control.

Setting out its own plan to boost the economy, the CBI told the would-be prime ministers that long-term growth ambitions are vital.

Mr Danker wrote: “We all know the serious challenges that the country faces today – its people and its business community: eye-watering inflation putting households and enterprises under real pressure, firms unable to find the skills and talent they need in a super-tight labour market, and global supply chains remaining disrupted, not least by the tragic events in Ukraine.”

He added: “But the UK is also caught in a longer-term trap of low growth. Higher productivity is the only sustainable way to achieve higher standards of living and tackle the fiscal challenges of an ageing population and decarbonisation while lower the UK’s high tax burden.”

Labour’s shadow chancellor Rachel Reeves said Tory candidates should “seriously heed these warnings”.

She said: “The level of unfunded tax cuts currently being bandied about by them would blow a massive hole in the public finances.

“Instead of setting out serious plans to help people with the cost of living crisis or grow our economy, we are presented with the extraordinary spectacle of a Tory tombola of tax cuts – with no explanation of what public services will be cut, or how else they’d be paid for.”