Brexit: Osborne plans to cut Corporation Tax for businesses
Chancellor keen to show the UK is still ‘open for business’ – just days after warning households to prepare for tax hikes.
George Osborne has pledged to slash Corporation Tax from 20% to under 15% in a bid to encourage businesses to continue investing in the UK following the Brexit vote.
The chancellor revealed plans for the cut in an interview with the Financial Times and explained it was part of his plan to form a ‘super-competitive economy’ with a focus on low business taxes.
It comes just a week after Osborne warned households to prepare for tax hikes and cutbacks to "show the country and the world that the Government can live within its means".
‘Open for business’
Cutting the Corporation Tax rate to under 15% would mean the UK would have the lowest Corporation Tax of any major economy.
In March, the chancellor set out plans to cut Corporation Tax to 17% by 2020, but given the result of the EU referendum it seems the cuts could come sooner and be more generous to curb the shock to the economy.
He added that Britain should "get on with it" and needed to prove to investors that the country was still "open for business".
A sharp cut to business taxes would mean Britain would be nearly as cheap as Ireland, which has a 12.5% Corporation Tax rate.
Besides the Corporation Tax cut, Osborne has said his five-point plan will focus on new investment from China, ensuring support for bank lending, redoubling efforts to invest in the Northern powerhouse and maintain the UK’s fiscal credibility.
Tax haven?
Osborne’s plans to offer a low tax environment for big companies have come in for criticism. Shadow Chancellor John McDonnell described the plan as "counter-productive".
In an interview with the BBC, he said the tax cut would not help create business investment that the UK needed and he warned it was "not constructive" to be offering up Britain as a tax haven to Europe.
McDonnell accused the chancellor of being ‘chaotic’ by suggesting "panic tax cuts" and called for a "steady strategy". He also warned the cuts were not the right way to open negotiations to get the best deal with 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.
Bitter pill to swallow
The generous proposed tax advantage to business will be a bitter pill to swallow for everyday working people, who can expect to be hit with more austerity measures.
Speaking to the BBC last week, the chancellor said we were “absolutely” facing tax hikes and Government spending cuts.
And it's not the first time we've heard that warning. Before the referendum, the chancellor claimed the Government would need to fill a £30 billion black hole in public finances if we voted to leave.
In order to achieve this, he claimed the basic rate of Income Tax may need to go up 2% to 22% and the higher rate by 3% to 43%. Duties on fuel, alcohol and cigarettes could also be hiked by 5% and Inheritance Tax may also need to be increased by 5%, he added.
The hikes are estimated to make up £15 billion of the £30 billion black hole. The rest of the money needed is expected to come from spending cuts.
Wait and see
While the post-Brexit emergency Budget has been put on ice for now the changes haven’t been ruled out entirely.
We won’t know for sure what will happen to any of the rules affecting our money until the new Prime Minister is in place this autumn.
This story was first published on July 4, but has since been updated
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