© Stefan Rousseau/PA WireFile photo dated 18/04/16 of George Osborne, who has said the Prime Minister must
George Osborne has suggested Rishi Sunak's hike in corporation tax risks denting Britain's "pro-business" reputation, as he hit back at suggestions the Budget was a repudiation of "Osbornomics".
Reigniting the row over increasing the business levy to 25 per cent, the former Tory chancellor warned that it was a "mistake" to believe that "you can increase Britain's business tax by 25 per cent and there'll be no consequences".
"I think you've got to be careful as a country about what signal you're sending around the world," he told the Institute for Government think tank.
"That's true of a very high corporate tax rate, if we ever end up there. You're just sending a message around the world, you know, that Britain's not a particularly enterprising place... at the very moment you want to be encouraging that in a recovery."
He also hit back at Mr Sunak's suggestion his cuts to corporation tax had not boosted tax receipts, arguing that it did "increase revenues coming into the Exchequer" for each percentage of tax levied, albeit the overall amount fell.
Mr Osborne claimed Mr Sunak would have probably preferred to have increased VAT, but was unable to do so because he was "constrained" by the Tory manifesto pledge not to hike it, along with income tax and national insurance.
He was joined by his Tory predecessor Lord Lamont, who said that while Mr Sunak had "no alternative" but to hike corporation tax, it was "proving increasingly difficult to squeeze any more juice out of that lemon".
Separately, Mr Osborne added that the Government needed to start making the argument for new taxes to replace fuel duty, as receipts begin to fall as people convert to electric vehicles.
His comments were echoed by Lord Darling, who suggested the Treasury should look again at road pricing, essentially direct charges levied for the use of roads, such as tolls, congestion charges and distance fees.
It came as Theresa May also took aim at Mr Sunak's £25 billion "super deduction" tax break to spur business investment, arguing that he had been captured by the "Treasury orthodoxy".
Warning that Number 11 had repeatedly pushed for greater capital allowances when she was in power, Mrs May urged ministers to place greater focus on research and development in order to create an "innovation economy".
Last week, Mr Sunak confirmed a six per cent hike in corporation tax from 2023, which is expected to raise almost £18 billion annually for the Treasury by 2025/26.
The move represents a near reversal of Mr Osborne's decision to slash the top rate from 28 per cent to 20 per cent, which was billed at the time as a way to improve the UK's economic competitiveness and attract more business investment.
Supporters of Mr Osborne argued that his cuts had in fact boosted tax receipts due to the broadening of the tax base and its impact on economic growth.
However, last week Mr Sunak said that while tax receipts had risen, the "vast majority if not all" of the increase was "more likely due to the cyclical recovery in corporate profits" after the financial crash.
In what has been interpreted as a rebuttal of Mr Osborne's tax reforms, he also claimed that the cuts had not resulted in a "step change in the level of capital investment that businesses are doing".
Asked who was right, Mr Osborne said: "The situation I faced was the corporate tax regime, in my judgement, had become uncompetitive. Quite a few companies were relocating abroad.
"I think that did have a big effect in both signalling to the world that Britain was pro-business recovering from the financial crash, but also, it did increase the revenues coming into the Exchequer.
"So even if the overall rate the amount of money raised was less, you were raising more percentage of corporation tax you were levying."
"I would say the idea you can increase Britain's business tax by 25 per cent and there'll be no consequence...is a mistake. Taxes have consequences and we will wait to see, if this tax increase does indeed go ahead, what impact it will have."
Sign up to the Front Page newsletter for free: Your essential guide to the day's agenda from The Telegraph - direct to your inbox seven days a week.