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Chancellor Jeremy Hunt admitted on Monday that British corporate taxes were too high, as he came under pressure at a major business event to restore tax breaks on shopping for overseas visitors.
Rishi Sunak used the government’s Business Connect event with about 250 corporate leaders to declare he would be “unashamedly pro-business”, as he sought to counter Labour’s charm offensive with UK plc.
Sunak announced £100mn in government funding for a task force aimed at accelerating Britain’s capabilities in an area of artificial intelligence known as “foundation models” — which is used in chatbots such as OpenAI’s ChatGPT.
But the prime minister was immediately challenged by business leaders over policies that he had minted as chancellor — including the post-Brexit withdrawal of value added tax breaks on UK shopping by overseas visitors.
Gerry Murphy, chair of luxury goods brand Burberry, said the move had made the UK the least attractive shopping destination in Europe, and described it as a “bad decision” that benefits EU neighbours.
“The UK is, by far, the weakest recovery of all those major [European] markets [in Burberry trading],” added Murphy. “We are actively exporting business as a result of that policy to our continental competitors.”
Sunak said he would “take that away” but government insiders said ministers were unlikely to restore the VAT breaks, which they claimed could cost £2bn a year.
In total, Sunak used the words “listen” or “engage” almost 20 times at the business event, as he and his chancellor were repeatedly pressed to set out a clearer strategy on economic growth and trade.
Hunt admitted that UK business taxes were too high but said the best way to lower them would be to expand the economy.
He defended the government’s decision to increase corporation tax from 19 per cent to 25 per cent this month, arguing that lowering the rate previously had not yielded an increase in business investment.
“The tax burden is too high. We would like to bring it down,” said Hunt. “The way we will bring the tax burden down is through growth.”
He said the decision to scrap VAT-free shopping for overseas visitors was the right move given the cost. He also said it was right to impose a windfall tax on energy companies’ profits but that he would keep “a dialogue going . . . because we need to unlock investment in the North Sea. It’s part of a transition to net zero, and it’s also part of energy security”.
Conservative party insiders privately admit that Labour leader Sir Keir Starmer has led a highly successful charm offensive with business in recent months, alongside shadow chancellor Rachel Reeves.
Sunak’s appointment of former Morgan Stanley executive Franck Petitgas as his new business and investment adviser is a sign of a new effort by the government to improve relations with corporate leaders.
Many attendees at the Business Connect event were positive, although some said Sunak needed to follow through on his “listening” exercise with business-friendly policies.
Sir Martin Sorrell, the marketing veteran and founder of S4Capital, said Sunak “was very good on detail and knowledge” but needed to deliver for business.
Romi Savova, chief executive of financial services company PensionBee, said it was “excellent to see [Sunak] engaging so openly with the business community across a range of policy issues”.
But she added: “Many business leaders have engaged with the government across multiple events and there is a growing sense of Groundhog Day as we wait for concrete policy developments.”
Corporate leaders asked questions about the government’s plans to boost business investment, innovation and exports.
CS Venkatakrishnan, chief executive of Barclays bank, asked how government and business could work together to mobilise private capital.
Vibhor Gupta, founder of AI company PangaeaData. AI, pressed Sunak for help to grow “early businesses like ours, scale up in other markets, and also be competitive or at least be able to compete” in larger markets such as the US.
Nadia Sood, founder of technology company CreditEnable, asked the prime minister about how the government would support businesses that wanted to expand in India.
Fashion designer Anya Hindmarch said it would be easy for the UK to lose its edge in its world-leading creative industries and called for government support.
Keith Anderson, chief executive of energy company Scottish Power, said the group had £10bn ready to invest in the UK renewables supply chain and that business and the government needed to work together.
Sunak said the government was boosting investment by having the lowest rate of corporation tax among G7 nations combined with “full expensing” tax relief on capital spending. “So this is pretty much the most attractive place to invest anywhere in the world,” he added.
He also said the UK needed more innovation “because that’s the best long-term driver of growth”, which was why the government was increasing its investment in research and development.
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