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Balls seeks to reassure business by pledging to maintain low rate of corporation tax

Shadow chancellor commits Labour to retaining "the most competitive corporation tax rate in the G7".

Shadow chancellor commits Labour to retaining "the most competitive corporation tax rate in the G7".
Ed Balls speaks at the CBI conference in London last year. Photograph: Getty Images.

For months, Ed Balls has been pushing for Labour to adopt a more unambiguously pro-business tone, demonstrating that it has a plan to create wealth, not just to distribute it more fairly. In his speech at the London Business School tomorrow, the shadow chancellor will make the most striking move yet to reassure industry by pledging to maintain "the most competitive rate of corporation tax in the G7".

While Labour remains committed to cancelling George Osborne's planned reduction of the headline rate from 21 per cent to 20 per cent (in order to fund a cut in business rates for small and medium firms), the promise will reassure big business that this isn't the start of a series of hikes (although it's worth noting that the next lowest rate in the G7 is Canada's 26.5 per cent, so Balls has soom room for maneoeuvre). But expect it to dismay those on the left who already believe that Ed Miliband has compromised too much.

Strikingly, while Miliband has repeatedly distanced himself from New Labour, Balls will remind his audience that it was the last government that started the trend of successive corporation tax cuts (reducing the main rate from 33 per cent in 1997 to 28 per cent in 2007). The former City minister has been more concerned than most by Labour's fractious relationship with industry, recently telling the FT: "I don’t think Labour will win the next election as an anti-business party."

He will say tomorrow:

Our business tax system must be competitive, promote long-term investment and innovation, and be simpler, predictable and fair. The last Labour Government left Britain with the most competitive rate of corporation tax in the G7 and we are committed to maintaining that position.

But unlike George Osborne we also recognise that companies are just as concerned about other elements of the business tax regime, such as capital allowances and business rates. That is why, having started and supported successive cuts in corporation tax over the last 15 years, we do not think the right priority is a further cut next year. We will, instead, cut and then freeze business rates for more than 1.5 million business properties. When resources are tight this is a tough choice to allow us to support more businesses and keep our overall business tax regime competitive.

The purpose of a competitive tax system must be that companies view Britain as a great place to do business, not simply a cheap place to shift their profits. So Labour’s approach will be to develop a business tax system that promotes long-term investment, supports enterprise and innovation, provides a stable and predictable policy framework for business, and which is founded on fairness. With this approach Britain can compete in a race to the top, with a highly skilled, productive workforce directly benefiting from sustainable economic growth.

Balls will also announce that Labour is examining the case for introducing an allowance for corporate equity "to redress the systemic bias in favour of debt finance", and structural changes to the tax system to incentivise long-term investment. He will float the option of a lower rate of capital gains tax for long-term investors, as recommended by George Cox's report on short-termism.

"This could complement an Allowance for Corporate Equity, by making long-term investment attractive to the investor as well as to the recipient of funding. Labour is consulting with industry on the potential impact of these and other recommendations of the Cox Review and how they could be delivered in a revenue-neutral way," he will say.

Balls's words have been warmly received by the CBI, whose deputy director general Katja Hall said: "A competitive business tax system is crucial for future growth – and that includes an attractive headline rate of corporation tax.

"Tax and other measures to boost business investment, including capital allowances and equity finance will help firms of all sizes harness their potential, particularly medium-sized companies and those in the manufacturing sector. It is also important that the tax system encourages and rewards a long-term investment focus.

"The best way of ensuring the recovery benefits all is through a thriving private sector and businesses of all sizes will deliver this growth."

Whether this change of tone from Labour is enough to win hostile FTSE 100 chiefs round is doubtful. But after this week it will be harder for the Tories to argue that Labour lacks a "long-term economic plan" (a term appropriated by Balls in a recent New Statesman piece). On Tuesday, Miliband will launch Andrew Adonis's growth report in Leeds, outlining the party's plans to create a more balanced and productive economy. Then on Thursday, Miliband and Balls will appear alongside Lord Sainsbury, one of Labour's few prominent business supporters, at the Science Museum at Policy Network's Inclusive Prosperity conference (which will also feature Chuka Umunna, Peter Mandelson and a host of business leaders).

But in his speech tomorrow, Balls will also affirm the defining message of Miliband's leadership: that Labour is anti-"business-as-usual". He will warn that public support for an open market economy will only be maintained if Labour ensures that markets like energy and banking "work better for consumers and businesses alike". It's a message that the City would be wise to heed.