LONDON • Britain's Chancellor of the Exchequer George Osborne has set a goal of lowering the corporate tax rate to 15 per cent in an effort to keep businesses investing in the United Kingdom as it prepares to leave the European Union.
Mr Osborne, who campaigned for Remain, told The Financial Times in an interview that he accepted the result of the June 23 referendum and wants to mitigate the economic impact. Britain has a 20 per cent tax rate for business that is set to fall to 19 per cent in April and to 17 per cent in 2020.
"We have now got to be part of a supreme national effort to make it work for the British people," Mr Osborne said in the interview, which was published yesterday. He said he stands by the warnings he has made about the possible impact of Brexit - "including a recession".
The planned tax cut illustrates the risks ahead for Britain after its historic vote to exit the EU. The pound has lost 11 per cent since the referendum, other EU nations are lining up to take business from the City of London, and the ratings agency Standard & Poor's yesterday said Britain will "barely" escape a recession because of Brexit.
There is also political uncertainty amid a bitter contest to replace Prime Minister David Cameron and turmoil in the opposition Labour Party. Mr Osborne's inclusion in the next Cabinet is not certain.
We have now got to be part of a supreme national effort to make it work for the British people.
BRITAIN'S CHANCELLOR OF THE EXCHEQUER GEORGE OSBORNE
"I see no realistic way back" from Brexit, and investors are underestimating the risk of a new government that tears up any residual relations with the EU, said UniCredit Bank economist Erik Nielsen. This means UK growth is likely to "head towards recession... and possibly severely so".
Mr Osborne has cut the main corporation tax rate from 28 per cent since taking office in 2010. In the fiscal year ended March 31, the tax generated about £45 billion (S$80 billion), or 7 per cent of total government income. The amount collected fluctuates with the fortunes of financial services companies, which contributed almost a fifth of all corporate tax revenue last year.
Mr Osborne's proposal would bring the corporate tax down to a level closer to Ireland's 12.5 per cent, angering Germany and others in the process. Last year, approximate corporation tax was 33.3 per cent in France, 28 per cent in Spain, 29.65 per cent in Germany, 25 per cent in Holland, and 17.92 per cent in non-EU Switzerland, according to KPMG. The average corporate tax rate in the Group of 20 leading economies was 28.7 per cent, said the Oxford University Centre For Business Taxation.
"Cutting taxes in this way will mean the burden will fall on others and that means basically middle and lower earners," Labour's finance spokesman John McDonnell told Sky News yesterday, adding "we're sending out a message that Britain is becoming a tax haven".
Before the vote, Mr Osborne had warned that Brexit would force him to announce an emergency budget of spending cuts and tax rises. That has been dropped for now, although the Treasury's position is that downgraded forecasts at the end of the year may mean it comes back onto the agenda.