Simmering tensions over Conservative policy on business taxes erupted yesterday with the first public attack by a big company on its pledge to cut the corporate rate.
General Electric, the infrastructure, finance and media conglomerate, spoke out against plans for a swift 3 percentage point cut in the headline rate, funded by reducing investment incentives, saying it would be a "real own goal" for manufacturers and big inward investors.
Will Morris, senior international tax counsel at GE, defended the existing 28 per cent corporate tax rate as "actually pretty competitive".
He said the Conservatives' proposal would undermine certainty and potentially increase effective tax rates, hit earnings and weaken manufacturers' balance sheets. "So I'm afraid that doesn't say to me that Britain is open to business."
The criticisms were underlined in a new report by Reform, a free-market think-tank, which said cutting the main rate of corporation tax might be worthwhile in the medium to longer term, but "should not be a priority for the next government".
Mark Hoban, shadow financial secretary to the Treasury, shrugged off the criticism, with a warning against "being seduced by the arguments of the losers".
He said there was a "clear argument" for cutting the headline rate because it sent out a signal about competitiveness.
Bringing capital allowances more closely in line with the depreciation rates used in accounts was a way of funding this rate cut, which was necessary at a time of fiscal restraint, he said.
But manufacturers argue that cutting capital allowance rates from 20 per cent to 12.5 per cent would be a move in the wrong direction, because technological change meant that plant and machinery were depreciating increasingly rapidly.
The EEF, representing manufacturers, said the impact of the policy would be felt far beyond the sector, which accounts for less than a fifth of all capital allowances.
Jeegar Kakkad, senior economist at the EEF, said investors would face "a massive cash-flow cost up front" as a result of the proposals. "Any business would have to think twice about investing in the UK."
The business split over the Conservative tax proposals has provided ammunition for political opponents.
This week Stephen Timms, financial secretary to the Treasury, said scrapping tax reliefs and allowances was "not the way to support businesses investing to grow. In fact, it's the opposite of what we should be doing."
Last weekend, George Osborne, shadow chancellor, said the proposed rate cut to 25 per cent would feature in an emergency Budget within 50 days of a Tory election victory - taking effect by next April at the latest.
Mr Hoban said the need to address the balance between debt and equity was one lesson from the financial crisis, but there was a recognition of the need to "move carefully".