Osborne to cut tax rates to keep business engaged as Brexit looms

04 July 2016

Chancellor of the Exchequer George Osborne, who campaigned for Britain to remain in the European Union has now set a goal of lowering the corporate tax rate to 15 per cent in an effort to keep businesses investing in the UK.

In an interview with the Financial Times, Osborne said that he accepted the result of the 23 June referendum but now he wants to mitigate the economic impact of a split by trying to keep businesses in the country with lower corporate tax rates.

Britain will lower the 20 per cent tax rate for businesses to 19 per cent in 2017 and to 17 per cent in 2020 before bringing it down to 15 per cent.

The proposed reduction in corporate tax, which would give the UK one of the lowest rates of any major economy, is designed to help the country attract new investment, which might otherwise have been put off by the uncertainty over its relationship with the EU.

Meanwhile, Bank of England is expected to lower the amount of cash that banks would need to keep aside as safety net in order to mitigate unexpected risks arising from `Brexit'.

On Tuesday, BoE will publish the outcome of its bi-annual Financial Policy Committee meeting, which looks at risks to the UK's financial stability.

BoE governor Mike Carney said last week that the central bank would take "any further actions it deems appropriate to support financial stability".

One option could be to reduce the amount of capital banks are required to hold to help stimulate the economy.

Osborne has already abandoned his long-held target to restore government finances to a surplus by 2020 amid fears the uncertainty caused by the `Brext' vote could hold back the economy.

The chancellor said the economy was showing "clear signs" of shock following the vote to leave the European Union.

"How we respond will determine the impact on jobs and growth," he said at the time.

"Having voted for Brexit last week, the economy is clearly going to go into a downswing, that might be a full-blown recession, that might just be very very low growth," Paul Johnson, the director of the Institute for Fiscal Studies, said last week.

Pascal Lamy, former chief of the World Trade Organization (WTO), thinks Osborne still cannot go it alone without considering what the EU would think.

He also said while this could be the one plank of UK's Brexit negotiations, starting with tax was not the right way to go about it.
"The UK is already activating one of the weapons in this negotiation, which is tax dumping, tax competition. I can understand why he [Mr Osborne] does that, because obviously investors are flowing out from the UK, and he wants to provide them with some sort of premium that would make them think twice before they leave the United Kingdom.

"He has to think about the impact of this on the continent. This will be seen on the continent as the start of the negotiation.

"And I'm quite convinced that at the end of the day, if you want a proper balanced win-win relationship in the future, starting with tax competition is not the right way psychologically to prepare this negotiation."
Osborne said the cut was part of his plans to build a "super-competitive economy" with low tax rates.

In March, the chancellor said corporation tax would fall to 17 per cent by 2020.

It was important for Britain to "get on with it" to prove to investors that the country was still "open for business," he said.
Shadow chancellor John McDonnell said the proposal was "counter-productive". He told the BBC the tax cut would not create the business investment that the UK needed.

He said it was "not constructive" to be "offering up Britain as a tax haven" to Europe and warned this could instead hit taxpayers.

McDonnell accused the chancellor of being "chaotic" by bringing in "panic tax cuts" and instead called for a "steady strategy". He also warned that it was not the right way to open negotiations to get the best deal in Europe.

"I don't think it sends the right message to those countries that wish to establish a co-operative relationship with us in the future, so that we get some of the benefits we had in the EU, even though we're outside of it," he said.

 search domain-b