Labour will not hike the rate of corporation tax during its first term, shadow chancellor Rachel Reeves said as she promised to be “pro-business”.
Ms Reeves said on Thursday that the current 25% level “strikes the correct balance” but hinted that she could even cut it if the UK’s “competitiveness comes under threat”.
She made the announcement at the party’s business conference in central London, as she and Labour leader Sir Keir Starmer promised a room of 400 bosses “stability” under a Labour government after years of political drama in Westminster.
The event is the latest bid by Labour to woo top firms and City of London executives ahead of the next election, with Ms Reeves introduced on Thursday by the boss of HSBC’s innovation banking arm before taking part in a Q&A with Aviva chief executive Amanda Blanc.
Labour did not give any clarity on the circumstances or criteria under which corporation tax could fall, but Ms Reeves was clear to business leaders it would be kept under review.
Taking questions after her speech, she said: “The reason I said if necessary we would act, we want to stay competitive.
“And so if we found that our competitive edge on corporation tax slip we would look at that, and that’s why we set a cap of 25% rather than locking it at that level, regardless of what our competitors do.”
As chancellor, Rishi Sunak announced a rise in corporation tax from 19% to the current 25% rate for companies with profits over £250,000 – a move that came into force in April last year.
That move had provoked the ire of some free marketeer Tories, with Liz Truss pledging but ultimately failing to scrap the rise during her short-lived premiership.
Jeremy Corbyn’s left-wing manifesto for Labour in the 2019 election had included a hike in corporation tax to 26%.
Ms Reeves told businesses that Labour would prize stability for businesses, as she said: “If we expect businesses to invest in Britain, tax rates cannot shoot up and down like a yo-yo according to each political whim.”
She said: “We reject the calls from those on the right wing of the Conservative Party to cut corporation tax. Our current rate is the lowest in the G7.
“We believe that 25% rate strikes the correct balance between the needs of our public finances, and the demands of a competitive global economy.
“The next Labour government will make the pro-business choice and the pro-growth choice: We will cap the headline rate of corporation tax at its current rate of 25% for the next parliament. And should our competitiveness come under threat, if necessary we will act.
“Be in no doubt. We will campaign as a pro-business party – and we will govern as a pro-business party.”
It comes as Ms Reeves comes under criticism for pledging not to restore the cap on bankers’ bonuses and of weakening the £28 billion green investment commitment.
Sir Keir, whose party has made considerable strides in reassuring and winning over company bosses and City investors in recent years, used his speech to hit out at the “chopping and the changing” of recent years.
The UK’s tax regime, he said, needed to be “stable”.
“You know this chaos has a cost,” he told businesspeople.
Heaping praise on the contribution business makes to Britain, he said the “caricature that British business only serves the shareholder interest is lazy and out of date”.
“Your fingerprints (are) on every one of our five missions,” he said.
He also took a veiled swipe at his predecessor Mr Corbyn, telling the audience to chuckles: “Let’s imagine that you were invited to an event like this, a Labour business conference, before any of the changes to our party had taken place.
“The question is, would you go?”
Ms Reeves earlier praised the value of business, promising a close working relationship between Whitehall and the private sector if Labour wins power.
“This Labour Party sees profit not as something to be disdained but as a mark of business succeeding,” she said.
She also vowed to maintain other favourable terms for businesses.
“We have heard loud and clear the demand for clarity and certainty from business,” she said.
“So we will maintain full expensing and the annual investment allowance. And within its first six months, an incoming Labour government will publish a roadmap for business taxation, setting out our plans on business tax over the duration of the parliament.”
Full expensing, a tax break allowing firms to cut their bills if they invest in new equipment, was made permanent by Chancellor Jeremy Hunt at the last autumn statement.
Ms Reeves also shrugged off calls from Jurgen Maier, the former UK head of Siemens who is helping advise Labour on policy, for Labour to stick to the £28 billion plan in the face of Tory attacks.
“Jurgen Maier is advising us on transport policy,” she said, adding that the green prosperity plan, like all Labour policies, would be subject to the party’s fiscal rules.
Elsewhere she defended her decision to allow unlimited bonuses for bankers by not bringing back the cap axed by the Conservatives, while also not committing to ending “fiscal drag”.
“I’ve made no secret of the fact that I think taxes on working people are too high but I won’t make any commitments that are not fully costed and fully funded,” she said.