British finance minister George Osborne plans to slash corporation tax to under 15% to tempt businesses to stay following the country’s shock vote to leave the European Union, the Financial Times reported Sunday (3 July).
Osborne plans to create what he called a super-competitive economy, cutting corporation tax by over five percentage points from 20% currently to the lowest for any major economy, it said.
“We must focus on the horizon and the journey ahead and make the most of the hand we’ve been dealt,” Osborne told the newspaper.
Turning the UK in a tax haven?
The move, which would bring corporation tax close to Ireland’s 12.5% rate, follows concern companies could flee the uncertainty hanging over Britain’s future relationship with the EU.
That compares with an average of about 25% among other countries in the Organisation for Economic Co-operation and Development (OECD) and a further cut may anger some EU countries which have expressed concerns about competitive tax policies.
Earlier on Sunday, the OECD, in an internal email seen by Reuters, said it believed a further cut in corporation tax by Britain was unlikely but if it happened it would “really turn the UK into a tax haven type of economy”.
Osborne did not specify a date for his plan. In his most recent budget statement, announced in March, Osborne said he planned to cut the corporation tax to 17% by 2020, down from 20% now.
The 23 June vote to leave the 28-member bloc sent the value of the British pound tumbling against the dollar and rocked financial markets.
EasyJet, British Airways owner IAG, and estate agency Foxtons have issued profit warnings since then.
Softer approach to public finances
Osborne was also quoted saying he would put more effort into Britain’s relationship with China and lead another trade visit later this year, after the shock referendum decision.
Other elements of his plan to steer the economy through the upheaval caused by the Brexit vote included ensuring support for bank lending, intensifying efforts to direct investment to northern England and maintaining Britain’s fiscal credibility, the FT quoted him as saying.
Last week, Osborne said he would no longer target a budget surplus in 2020 because of the expected hit to the economy from the referendum result, but he stressed he would continue to be tough on the deficit.
The signs from Osborne of a softer approach to fixing the public finances and tax cuts to woo investors come after Bank of England Governor Mark Carney said last week that he believed the economy would need more monetary stimulus soon.
The Brexit vote threatens to redefine Britain’s growing financial services relationship with China, which has agreed to a number of joint projects as part of the China-UK Economic and Financial Dialogue programme to deepen economic ties between the two counties, based largely on the UK’s membership of the EU.
Chinese President Xi Jinping paid a state visit to Britain last October to seal what both call a “golden time” in relations.
Britain’s shock vote to leave the EU stunned the world, prompting Prime Minister David Cameron to resign, asking his Conservative Party to choose another leader by the autumn.
Race for Tory leadership
The finance minister said he had not yet decided who to back in the Tory leadership contest, which has seen interior minister Theresa May become the front-runner to become prime minister.
Osborne is also talking to the Bank of England to ensure that lending does not “seize up” and that the Brexit vote does not produce a repeat of the credit crunch in 2007-2008, according to the paper.
Osborne was once considered a future British leader but he has not put himself forward to succeed Cameron after the two men failed in their campaign to keep Britain in the EU.
“But we have got to make sure we are as close as possible to our European allies and that they remain not just key friends and strategic partners but also a crucial export market,” Osborne said.