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Labour plans to increase taxes for UK’s big businesses

Although Ed Miliband’s pledge to help smaller businesses has been welcomed by some, the strategy behind the planned changes has not been without criticism. In order to deliver a tax break to smaller businesses, Labour plans to increase corporation tax rates for larger businesses, should the party win the general election in 2015.

By reducing rates for business properties valued at under £50,000 ($80,000), Labour estimates that hundreds of thousands of businesses would benefit from the proposed changes. In order for these smaller businesses to benefit, however, others will suffer.

Since the last election, the coalition government has steadily reduced the corporation tax rate meaning that big businesses have reduced their tax liabilities. In line with these changes, another cut to corporation tax was due to take place in 2015. Rather than increasing or simply freezing the existing rate, the corporation tax rate is set to drop from 21% to 20% which would benefit large businesses significantly.

If the Labour Party is successful in the next election, however, the reduced rate of corporation tax will be scrapped, potentially costing big business upwards of £800 million. With many smaller businesses operating as sole traders or partnerships, and therefore being exempt from corporation tax, it is larger national and multinational businesses which generally benefit from cuts to the corporation tax rate and it’s these businesses which would suffer under Labour’s proposals.

However, plans to attract and assist larger companies have arguably helped to facilitate the start of the economic recovery and have helped create jobs within a variety of industries across the country. Although many are pleased to see help being offered to smaller businesses, some have voiced concern. It is, of course, inevitable that tax breaks for one group will cause cuts in other areas but critics argue that abandoning the planned tax cut for larger businesses will not be beneficial.

With Labour announcing a raft of tax freezes and potential tax breaks to certain organisations, it remains to be seen whether these promises will be attractive to the electorate. While many people may support helping smaller businesses theoretically, some will inevitably argue that it cannot be at a cost to larger businesses and the economy as a whole.

With the coalition government drawing up their own plans for business rates cuts, it seems that pressure from the Labour Party may force them to match the help Labour is offering to smaller businesses. If alternative forms of funding can be found to allow tax breaks to businesses of all sizes, it could be hailed as the ideal solution but this remains unlikely. If the Conservatives and Liberal Democrats continue to support big businesses, the electorate may be faced with a choice between supporting larger companies and the benefits they bring, or pledging their support to smaller businesses in 2015.

This article was written by Baker Tilly.

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