Post Brexit, Britain has announced plans to cut business tax from the current 20 percent to less than 15.
The hope is to keep companies in the UK and woo those put off by the vote to leave the European Union, but it could also lead to competitive tax cuts across the EU.
Finance minister George Osborne said he wants to build a “super competitive economy” and “sell Britain to the world” but did not reveal when corporation tax – which accounts for about seven percent of British tax revenues – might be cut.
Britain open for business: lower business taxes, support for bank lending, infrastructure investment, more trade with China + rest of world— George Osborne (@George_Osborne) July 4, 2016
Osborne’s previous target was to cut corporation tax to 17 percent by 2020. The UK’s 20 percent rate compares with an average of 25 percent among most developed economies.
Market Analyst Michael Hewson with CMC Markets warned he will have to do more: “I think Mr Osborne needs to think more broadly in terms of not only corporation tax cuts but also reviewing business rates. Business rates remain a significant cost to smaller and bigger UK businesses. And he also I think needs to look at potential future infrastructure spending.”
Illustrating the concerns, and effects of the Brexit, a new survey shows Britain’s construction industry suffered its worst contraction in seven years in June in the run-up to the referendum vote.
Good morning from London. Most read right now: Brexit: George Osborne to slash corporate tax rate https://t.co/EudxSUDCRn— Financial Times (@FT) July 4, 2016
Ireland, Netherlands, Greens react
Osborne’s tax cut plan – which he announced in an interview with the Financial Times – did not go down well in Ireland. Dublin has attracted corporate giants like Apple and Pfizer with 12.5 percent corporation tax.
Ireland’s Transport Minister Shane Ross called it an “obvious attempt“ to lure investors away. He added: “If the headline figure was to come down to 12.5 percent in the UK, it would be threatening to us and we would have to adjust accordingly and make ourselves more attractive again.”
The Netherlands – another low tax country – said it would review its taxation rates to ensure it remained attractive. “It is something we are thinking about with an eye to the future,” finance ministry spokesman Paul van der Zanden said. “On the one side we want to fight tax avoidance and on the other we need to look at our investment climate.”
Molly Scott Cato, a member of the European parliament for Britain’s Green Party, said Osborne was using the referendum result to accelerate already policy planned.
“He wants to usher in an era in which the UK embarks on a race to the bottom, not just through cutting corporation tax, but also on social and environmental deregulation and even more stringent public spending cuts,” she said.
“We need a general election so people have a chance to have their say on the sort of country we want to build together.”
Some took Osborne’s announcement as the opening salvo in future negotiations between London and Brussels.
Pascal Lamy, a former World Trade Organisation head, said Osborne was moving fast to activate one of Britain’s weapons in the talks as well as trying to reassure foreign investors who are worried about Britain’s access to the EU’s single market.
“I can understand that from his side but he has to think about the impact of this on the continent,” Lamy told BBC radio.
“I am 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.”
George Osborne's corporate tax cut goal: calm business, scare Brussels
gfhay</a> <a href="https://t.co/zoTwyQ6XIn">https://t.co/zoTwyQ6XIn</a> <a href="https://twitter.com/hashtag/Brexit?src=hash">#Brexit</a> <a href="https://twitter.com/hashtag/Tax?src=hash">#Tax</a> <a href="https://t.co/jvZKlR3gbv">pic.twitter.com/jvZKlR3gbv</a></p>— ReutersBreakingviews (Breakingviews) July 4, 2016