One of Britain’s business taxes is fuelling inflation. But the chancellor ignored it

Freezing business rates in the mini-Budget would have made sense by easing the pressure on businesses. But Kwasi Kwarteng instead sought to chase headlines by cutting corporation tax, writes James Moore

Retailers are under huge pressure. In April they face a 10 per cent tax hike (EPA)

Kwasi Kwarteng’s mini-car crash is a failure of historic proportions. The best of it is, the supposed tax-cutting chancellor couldn’t even cut the right tax.

We’re talking about business levies. Corporation tax was the one he chose to attack, scrapping the increases planned by Rishi Sunak and setting the headline rate at 19p.

So far, so wrong. Britain has for some time had the lowest headline rate of corporation tax in the G7 but also the lowest level of business investment. Previous chancellors said their purpose in cutting it was to encourage that. It failed to do so.

However, the biggest bugbear for a good number of businesses, retailers in particular, isn’t corporation tax either at 19p or 24p or... take your pick. It is, instead, business rates. And they are causing real problems.

The level a business pays is based on the rateable value of their premises, which creates perversity from the outlet. For example, a small chain of bookshops in the south of England – they still exist – will end up paying proportionately much more than Amazon will. The latter cites its vast warehouses where property is cheap and rates are correspondingly low.

However, the real problem today is that rates are increased every April based on September’s CPI inflation. Right away, you should be able to see why that’s causing a fuss. CPI inflation is likely to top 10 per cent this month, which means rate-paying businesses are going to get thumped with a massive tax hike at the beginning of the new financial year.

The British Retail Consortium (BRC) reckons its members stump up roughly a quarter of the tax, members which are already grappling with nightmarish cost pressures. There is the pound’s government-inspired plunge, surging energy bills and global commodity prices, rising transport costs and wage bills as a result of the tight labour market.

Throw in the burden of the extra bills the government has thrown at them through a variety of failed policies including, yes, Brexit, and is it any wonder that shop price inflation is heading north at a rapid rate? The BRC’s latest data, released this morning, shows that shop price inflation accelerated to 5.7 per cent in September, compared to August’s 5.1 per cent.

Food inflation is proving to be particularly problematic: it jumped to 10.6 per cent from 9.3 per cent. Throwing in a 10 per cent tax hike on top of that lot is a bit like chucking a lit match into the middle of a petrol forecourt after a tanker spillage.

Freezing rates in a mini-Budget would therefore actually have made some kind of sense, even if it were pricey and only temporary. It might have taken some of the heat out of the inflationary fires burning unchecked in the British economy, inflationary fires which are scorching those on low incomes, and increasingly leaving scars on those further up the ladder.

But only the rich are winners from Kwarteng’s descent into ideological madness. It looks as if the chancellor chose to cut corporation tax in the pursuit of cheap headlines and boastful ministerial statements: “Look, see how we’ve got the lowest headline rate in the G7.”

Labour has promised to “scrap” business rates but has been a little vague about what that might actually mean in practice because there will have to be some kind of property-based levy. The reason rates are still with us is that they’re much harder to avoid than corporation tax, which is all but optional when it comes to large multinationals with battalions of clever accountants at their beck and call. If rates were easy to reform then they would have been reformed by now. As such, Labour’s promises have to be taken with a pinch of salt.

But at least the party sees that there is a problem. Kwarteng, to quote one of his predecessors, seems to be singing in his bath in the face of it.