London corporation tax

Osborne pledges to cut corporation tax

Osborne stated in the Financial Times: “we must focus on the horizon and the journey ahead and make the most of the hand we’ve been dealt.”

New plans to cut corporation tax from Osborne. They come a week after he said he would abandon a budget surplus by 2020.

What is it?

Corporation tax is taken from the profits of a limited company, any foreign company with a UK branch or office, or a club/co-operative/other unincorporated association in the UK.

You may have heard it from the corporation tax scandals that got global firms like Starbucks, Google and Amazon into trouble.

The current rate of corporation tax in the UK is 20%… but before BREXIT, Osborne had said the tax would fall to 17% by 2020.

Back in 2008, UK corporation tax was at 30%.

Why is Osborne doing this?

Osborne wants to show that we’re still “open for business”. In an interview with the Financial Times, he stated that Britain needs to “get on with it” after the EU referendum.

Cutting corporation tax would bring us close to the Republic of Ireland, which has an amazing corporation tax rate of 12.5%. This would make us one of the most competitive global economies and give the UK the lowest corporation tax rate of any major advanced economy.

“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” – John McDonnell, Shadow Chancellor, statement for the BBC.

Osborne has a plan. He wants to focus on investments in China and ensure support from the bank lenders. He also plans to utilise the “Northern powerhouse” (proposal to boost £££ growth in the North of England) and maintaining UK fiscal credibility (how other countries view our economy) after BREXIT.

You could say he’s using these tax cuts to attract investors to the UK. This would give the economy a bit of a boost through monetary stimulation.

Still, Osborne is waiting for official forecasts before announcing new measures. There’s also no mention of a timeline for when this corporation tax cut will come in.

Also, if Andrea Leadsom (#leadsom4leader) becomes the new leader of the Conservative party by September 9th (and therefore Prime Minister of the UK) she has stated that Osborne will be out.

article 50 sign runner brexit

As Britain heads towards Article 50, is now the best time to begin negotiations?

What are the implications for the economy?

Who really knows? This has been the biggest issue for people with the Remain/Leave campaign, the result we now have carries so much uncertainty.

Osborne and others that support his plans hope that this will attract foreign investors. Hopefully it will also encourage corporations to stick with the UK and not take their head offices out of the UK.

There’s still concern that this will impact the weak relationships we have with the EU already. Osborne’s plans could be seen as the start of negotiations despite the delay in triggering Article 50.

“Once again, Andrea Leadsom has said if she is to become Prime Minister she will trigger Article 50 straight away. I think this will be good for the UK.” – Gary Das, Owner of Active Brokers

What are the experts saying about this?

Pascal Lamy (former World Trade Organisation chief) 

“The UK is already activating one of the weapons in this negotiation, which is tax dumping, tax competition. I can understand why he [Mr Osborne] does that, because obviously 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.”

 

Jonathan Isaby (chief executive of the Tax Payers’ Alliance) 

“The Chancellor is absolutely right to be considering a big cut to corporation tax, as it would show that the UK is ready to seize new opportunities in the global economy.

“But Mr Osborne must be bold and cut the rate to 10% as soon as possible, to really demonstrate that we are open for business, with competitive conditions to match our talented workforce.

“It’s crucial that our politicians have a positive vision for British taxpayers outside the EU, and meaningful tax cuts to boost growth and prosperity are an excellent first step.”

 

Conservative Lord Lawson and independent Social Democrat Lord Owen:

In an article for CityAM: “Whoever is the new prime minister must enter Downing Street ready with clear views to discuss with a new Cabinet and when agreed issue instructions for Whitehall to prepare to leave the EU swiftly and smoothly.”

“The reason why some seem to think this is so much more complicated is because they presume that we need to strike a trade deal with the EU before we start the transition to leave.

“This would be a massive strategic error.”

 

Mike Cherry (FSB National Chairman)

“It’s been a week of political turmoil, but as small business owners you are used to dealing with difficult times. Small businesses are the back bone of the UK economy, you account for 99 per cent of UK business, with a combined annual turnover of £1.8 trillion and hire 60 per cent of all private sector employment. Smaller businesses are the driving force of the UK Economy and it is crucial that you are protected during this unstable time. That’s the message we are bringing right to the heart of government, FSB fights for small business.

“For now I want you to know that FSB will continue to be the small business voice at the table.”

Sources:

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BBC – Corporation Tax

BBC – 2020 Surplus

BBC – Corporation Tax Scandal

The Telegraph

Sky News

Politics Home

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Belfast Telegraph

International Business Times

BT News

Reuters

HMRC – Corporation Tax

CityAM – Lord Owen and Lord Lawson

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Sources last accessed 14:26 BST 04/07/2016.

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