Holidaymakers risk higher costs because of corporation tax raid, suggests British Airways

Jeremy Hunt, UK chancellor of the exchequer, during a bilateral meeting with Janet Yellen, US Treasury secretary, at the Group of 20 (G-20) finance ministers and central bank governors meeting in Bengaluru, India, on Friday, Feb. 24, 2023. The world's most powerful finance ministers and central bank chiefs are gathering this week, with the one-year anniversary of Russia’s invasion of Ukraine — and its impacts on the global economy — looming over an agenda focused on the risks of debt distress and fighting inflation. Photographer: Samyukta Lakshmi/Bloomberg - Samyukta Lakshmi/Bloomberg

Holiday prices are at risk of taking off because of a corporation tax raid by Jeremy Hunt, the owner of British Airways has suggested.

IAG, the FTSE 100 company that owns British Airways, Aer Lingus and Iberia, said that increases in its costs will ultimately be borne by passengers amid a growing backlash against the Chancellor's plan to raise corporation tax from 19pc to 25pc in April

It came as the chief executive of Coutts & Co, the King's bank, backed a joint statement of business leaders demanding a rethink.

When asked about the impact of the looming corporation tax increase, IAG's finance chief Nicholas Cadbury said: “Every single investment we take has got to pass the return on capital, which tax is taken into account.

“So the higher the tax, the higher hurdle you need to do [any new investment] – and it gets passed onto the customer in some way.”

However, Mr Cadbury added that “corporation tax is just one of the taxes we pay”, with the British Airways owner also subject to air passenger duty and carbon taxes on the flight it operates.

He said: “Corporation tax is no longer the biggest tax we pay overall.

“What we are trying to encourage the government both in the UK and Spain and Europe to think about is how they encourage investment.”

One of the key areas IAG wants tax incentives to support investment relates to the production of sustainable aviation fuel, which is designed to cut carbon emissions by 80pc.

IAG and British Airways are today joined by a coalition of business leaders calling on Mr Hunt to think again about the impact of tax rises on corporate investment just as a major tax break expires.

The so-called super deduction, which provides tax incentives to companies investing in plant and machinery assets, will end at the end of next month.

The Global Britain Commission (GBC), whose members includes Peter Flavel, chief executive of Coutts – a subsidiary of Natwest, which itself is partly owned by the Treasury – urged the chancellor to “maintain an internationally competitive tax regime”.

The GBC, which also counts the bosses of Virgin Atlantic and Heathrow Airport among its commissioners, said: “Government has a real opportunity to harness the power of business trade and growth through implementing policies which follow these principles.

“Last year UK business investment fell to the lowest in the G7 and a dramatic shift is required to help boost this investment and attract necessary levels of foreign direct investment. Only then can our economy begin to recover and advance on a path towards sustained and meaningful growth.”

Bob Wigley, another commissioner and chairman of the banking trade body UK Finance, added: “The banking and finance sector is the engine of the UK economy, providing jobs and investment up and down the country.

“The taxes the sector faces in the bank corporation tax surcharge and the bank levy do not however encourage growth or investment. They have served their purpose, to make the UK less competitive than other global financial centres and the Government should set out a roadmap for their removal.”

Mr Sunak and Mr Hunt are facing a growing backlash over the Government’s tax plans, with the likes of BT and Sir James Dyson warning that the raid will damage investment and choke off a nascent recovery.

Tesco chairman John Allan has said the only way to raise living standards is with a “really serious, thought-through, long-term growth plan”.

Advertising mogul Sir Martin Sorrell, chief executive of S4 Capital, took a different view, however.

He said: “I think we are all in agreement that less tax, less regulation. The only issue is timing,”

“I hate to say this but Liz Truss was in a way right. But her timing and execution was way off.”

Saying that it was politically and economically correct to stick to the corporation tax rise, Sir Martin said:  “If we look at the cost of the Covid programmes. The cost of our standard of living. The cost of the health service. The strikes we are going through. Public sector pay. You put all of that together and there is no wiggle room.”