- Business groups want more government to do more to cut rates
- Proposed tax cut brings U.K. closer to Ireland’s 12.5 percent
Multinational businesses may not be happy about Brexit, but U.K. Chancellor George Osborne’s proposal to slash corporate taxes to 15 percent offers small comfort in a period of uncertainty as the fallout from a vote to leave the EU weighs on prospects for doing business in Britain.
In a bid to signal that Britain is "open for businesses," Osborne said in an interview with the Financial Times that he wants to slash corporation taxes from the current 20 percent rate. Business groups say it is just one of many steps they would like to see from the government to maintain and lure investment as the U.K. negotiates its exit from the EU.
"It’s one of a number of measures that would reassure those businesses that are concerned in the aftermath of the referendum,” said Stephen Herring, head of taxation at Institute of Directors, a U.K. organization for professional leaders with 34,500 members. “It’s another way to give a nudge to foreign investors."
Osborne’s vision of post-Brexit Britain as a "super competitive economy" stands in stark contrast to the warnings he made before the referendum that he would be forced to raise taxes and cut spending if the U.K. voted to leave. As five fellow Conservative Party members of parliament mount bids to replace David Cameron as Prime Minister, it’s unclear if Osborne will even be around to push through his proposed tax cut.
"I think he’s putting a stake in the ground saying, ‘The UK has always been open, and we are still open for business,”’ Ross McEwan, the chief executive officer of Royal Bank of Scotland Group Plc, told LBC radio in an interview on Monday.
In the interview, Osborne urged the next prime minister to continue investing in critical infrastructure projects, including a new airport runway, and negotiate to secure the best possible access to the EU’s single market. Most leading U.K. companies backed the camp that sought to remain in the EU, warning of the slowing effect a Brexit will have on investments. Vodafone Group Plc has said it may review the location of its headquarters.
"Low profit taxes are always a positive thing," said Adam Marshall, acting director of the British Chambers of Commerce. "Simply focusing on corporation tax doesn’t make the U.K. as competitive as it possibly could be. The Chancellor also needs to focus on lowering the cost of doing business."
Osborne had already announced plans in March to slash the corporate tax rate to 17 percent by 2020. His latest proposal would put the U.K. closer to Ireland’s 12.5 percent rate in what some EU leaders worry will be a race to the bottom. Last week Osborne abandoned his target of reaching a budget surplus by 2020 as the Treasury girds for the economic consequences of Brexit.
“The Chancellor is right to be considering moves that support economic growth and send out the signal that the U.K. is open for business at this critical time,” said Rain Newton-Smith, chief economist at the Confederation of British Industry.
The proposed tax cut comes amid signs business investment had already begun to slow even before the U.K.’s vote to leave the EU. A survey by the Federation of Small Businesses in the run up to the referendum found that business confidence had fallen to a four-year low. Only 12 percent of small firms were planning new investment over the coming year, down from 32 percent a year ago, the survey found.
"The thing that bothers small and medium-sized businesses is everything they pay up front before they turn over a single pound that stops them from making further investments,” Marshall said.
Since taking office in 2010, Osborne cut corporation tax from 28 percent to the current 20 percent, making it the lowest in the G20. The proposed cut to 15 percent would put the U.K. rate at less than half the U.S., where the corporate tax rate is 39 percent, according to the Organization for Economic Cooperation and Development.
Osborne’s plan is likely to face objections from other EU countries. That includes Germany, which pressed Ireland in the past to increase its corporate tax rate.
“The German government’s goal is to have fair taxes in a common market,” Finance Ministry spokesman Martin Jaeger said on Monday. If Osborne presents the proposal to fellow EU finance ministers, “I suspect this will start off a discussion,” Jaeger told reporters in Berlin.
Lee Hopley, chief economist at EEF, the manufacturer’s organization, said the government should go further by keeping research and development tax credits competitive and delaying the levy on businesses to fund apprenticeships which is due to come into force next year.
"The Chancellor is right to focus on action that will anchor investment in the U.K. -- this is critical at a time of economic uncertainty,” Hopley said. "It is vital that the Treasury works closely with industry to identify other blockages that will need to be tackled."