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

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

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

It came as Rishi Sunak was accused by rivals of setting Britain on course for “a recession” and of “dirty tricks” after cementing his status as the frontrunner to succeed Boris Johnson.

He came under fire from both wings of his party, after securing most nominations in a race for the Tory leadership that descended into vicious backbiting.

But while tax policies are stealing the limelight in the contest, Mr Danker warned that headline-grabbing tax cuts for households may end up fuelling inflation further.

"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 in the letter.

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 has pledged to cut income tax in 2023 and 2024 and abolish green levies on energy bills for two years, while the foreign secretary Liz Truss vowed to cut taxes "from day one".

Jeremy Hunt, who has been both health and foreign secretary, wants to "cut all taxes".

But Mr Sunak said taxes can only be cut when inflation is back under control.

Mr Danker said Britain is “caught in a longer-term trap of low growth” and that higher productivity “is the only sustainable way to achieve higher standards of living and tackle the fiscal challenges of an ageing population and decarbonisation”.

Meanwhile, hospitality business leader Alastair Storey called upon the government to cut VAT for six months to support the industry as it faces the impact of the cost-of-living squeeze.

The BaxterStorey and Searcys chief, who is also chair of skills and training charity Springboard, said: “Working from home and an absence in foreign visitors is still impacting the industry. We’re also seeing pressures with food inflation and energy prices, and it is not realistic to put these costs onto the consumer.”

Nawaz Haq, executive director at SulNOx Group Plc, a firm specialising in the decarbonisation of fuels, said candidates should be addressing the issue of soaring costs.

“We are seeing candidates lining up to pledge further cuts to fuel duty but such repeated and unsustainable mistakes will not help those most affected by the cost of living crisis, or the climate crisis, of which we are seeing very real evidence this week,” he said.

“Tax cuts make easy headlines, but the government needs to tackle the cost of living crisis in a more targeted way. And there is also another issue here that we can’t ignore; we are in the midst of a climate crisis as well as a cost of living crisis, but one does not mitigate the other. If we refuse to tackle the climate crisis it is, again, the poorest in our society who will suffer.”