​Labour's Promise to Cap Corporation Tax at 25%

​Labour's Promise to Cap Corporation Tax at 25%

Posted by Emily on 1st Feb 2024

Shadow Chancellor Rachel Reeves has pledged that a future Labour government would fix the corporation tax rate at 25%. Addressing over 400 senior business leaders at Labour's day-long summit with business leaders, Reeves emphasised the need for stability in tax rates to encourage investment in Britain, especially in the wake of post-Brexit changes.

Official portrait of Rachel Reeves crop 1 Chris McAndrew, CC BY 3.0, via Wikimedia Commons

Labour's assurance comes against fluctuating tax rates under successive Conservative governments. The corporation tax, a critical lever for economic competitiveness, had been progressively reduced from 30% in 2007 to 19% in 2017, only to be raised to 25% in April 2023 amid the financial strains of the COVID-19 pandemic and the Ukraine crisis.

Reeves articulated Labour's balanced approach: "We believe that a 25% rate strikes the correct balance between the needs of our public finances and the demands of a competitive global economy." This statement underscores Labour's commitment to maintaining fiscal prudence while fostering a business-friendly environment.

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In addition to the tax cap, Labour proposes to continue the " full expensing" regime, a significant tax relief for capital investments introduced by the Conservatives and valued at up to £11bn annually. This move, welcomed by business leaders like Miles Celic of The CityUK, aims to stimulate capital investment further.

Labour's approach represents a marked shift from earlier policies that leaned towards increasing corporation tax. This change reflects an evolving economic strategy, as noted by Rachel McEwen of SSE, who lauds Labour's ambitious green initiatives but seeks more detailed plans.

However, Reeves' stance on other fiscal measures, like the non-reinstatement of the cap on bankers' bonuses and the proposal to close tax loopholes for non-domiciled residents, signals a nuanced approach to business taxation. These decisions, seen as attempts to balance regulatory oversight with market freedom, have drawn mixed reactions.

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