The Prime Minister, who is facing a rebellion over the policy as senior Tory MPs demand the rise is stopped, was challenged over the increase during a visit to Northern Ireland.
He was asked how the region will remain attractive for foreign direct investment once its corporation tax is double that of the Republic of Ireland.
Sunak said international companies are “queuing up” to invest in Northern Ireland once his new Windsor Framework for the region’s post-Brexit trading arrangements is implemented, with access to EU and UK markets putting it in an “unbelievably special position.”
Speaking at a Coca-Cola factory, the former chancellor said corporation tax is going up because “we’re borrowing an enormous amount of money”.
“That’s not good. It’s not good for the country and we’ve got to get that borrowing down. We’ve got to do that in a responsible way and that’s going to help us do it,” he said.
The Prime Minister and Chancellor Jeremy Hunt have faced pressure from senior Conservative MPs to use the spring Budget to scrap the planned corporation tax hike, including from former home secretary Priti Patel and ex-Tory leader Sir Iain Duncan Smith.
The right of the Tory party is pushing them to slash taxes ahead of the next election in a bid to revive the UK’s stalling economy, which only narrowly avoided falling into recession last year.
Former prime ministers Boris Johnson and Liz Truss are among those advocating for cuts.
Yet, Sunak defended the planned corporation tax rise.
“This is why you don’t need to worry about it. At 25%, it will still be the lowest rate out of all the large economies that we compete with around the world. It also only applies to the biggest 10% of companies.”
He added he wanted to see businesses investing more, and spoke of an “incredibly generous tax break” for small or medium-sized businesses to invest back into their company or expand.
Businesses in Northern Ireland, the Prime Minister said, would benefit from being in “the world’s most exciting economic zone”.
“If we get this right, if we get this Framework implemented, if we get the Executive back up and running here, Northern Ireland is in the unbelievably special position – a unique position in the entire world, European continent – in having privileged access, not just to the UK home market, which is enormous… but also the European Union single market.
“That’s like the world’s most exciting economic zone.”