Chancellor makes pledge to cut UK corporation tax

Chancellor, George Osborne has pledged to slash corporation tax rates across the UK in a bid to encourage firms to continue investment in the UK after the EU referendum vote.

In a recent interview with the Financial Times, Osborne confirmed his plans to cut the rate to less than 15 per cent – some five per cent lower than the existing 20 per cent tax rate.

The move would result in the UK having the lowest corporation tax of any established global economy.

However, Pascal Lamy, former chief of the World Trade Organisation, urged the Chancellor to consider the views of the European Union (EU), given that the move may be viewed as the beginning of formal Brexit negotiations.

“The UK is already activating one of the weapons in this negotiation, which is tax dumping, tax competition,” said Lamy.

“I can understand why he [Mr Osborne] does that, because previously 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.”

The Chancellor said the tax cut was part of his plans to build a “super-competitive economy” with low tax rates.

However, shadow chancellor, John McDonnell labelled the proposals “counter-productive” in a recent interview with the BBC, stating it would not create the business investment that the UK needed.

McDonnell said it was “not constructive” to be “offering up Britain as a tax haven” to Europe, warning that this could hit UK taxpayers hard whilst making negotiations for the best deal in Europe somewhat harder.

“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,” said McDonnell.

Date published 7 Jul 2016 | Last updated 7 Jul 2016