Britain's chancellor George Osborne is planning to cut the UK's corporation tax to less than 15 per cent in an effort to woo business deterred from investing in a post-Brexit Britain as part of a new five-point plan to galvanise the economy.
While the chancellor did not backtrack on his warning that leaving the EU could push the country into recession, he said: “We must focus on the horizon and the journey ahead and make the most of the hand we’ve been dealt.”
Mr Osborne said he wanted a leading role in shaping Britain’s new economic destiny, laying out plans to build a “super competitive economy” with low business taxes and a global focus. Mr Osborne wants to set the lowest corporation tax rate of any major economy, announcing a target of less than 15 per cent, down from 20 per cent now.
He said Britain should “get on with it” to prove to investors that the country was still “open for business”.
Irish corporation tax
Such a sharp cut in business taxes would take Britain close to Ireland’s 12.5 per cent corporation tax rate and would anger EU finance ministers who fear a race to the bottom.
Employers' lobby group Ibec said the proposal reinforces the needs to significantly reform the Irish offering in the upcoming budget to make Ireland more attractive for foreign investment. Its chief executive Danny McCoy said: "Ireland has had very limited control over major recent political and economic developments. However, we must act decisively in areas where we do have control. The next budget should include bold moves to support investment and job creation.
“We need to slash capital gains tax, cut the marginal tax rate to attract mobile talent and bring the tax treatment of share options into line with the UK and other competitor economies. Now is not the time to sit on the sidelines and see what happens.”
The head of tax at the Organisation for Economic Co-operation and Development warned, in an internal memo cited by Reuters, that the fallout from Brexit “may push the UK to be even more aggressive in its tax offer” but that further steps in that direction “would really turn the UK into a tax haven type of economy”.
Beside the tax cut, Britain's chancellor said his five-point plan included focusing on a new push for investment from China; ensuring support for bank lending; redoubling efforts to invest in the Northern powerhouse; and maintaining the UK's fiscal credibility.
Challenging time
Mr Osborne accepted that Britain faced a “very challenging time” and urged the Bank of England to use its powers to avoid “a contraction of credit in the economy”, reminiscent of the squeeze during the height of the financial crisis in 2008.
The Bank of England will publish the results of its financial policy committee meeting tomorrow. It has many options available to maintain the flow of credit to companies and households even if many are reluctant to borrow in current circumstances.
The chancellor said Britain would aggressively seek new bilateral trade deals and that he would lead an extended visit to China this year, in an attempt to keep inward investment flowing.
On the public finances Mr Osborne promised to “maintain the consolidation that we put in place last year” and said a review of the structural damage caused by Brexit would be conducted in the autumn.
– Copyright The Financial Times Limited 2016
