The chancellor is planning to slash corporation tax to less than 15 per cent in an effort to reassure business post-Brexit Britain, as part of his new five-point plan for the economy.
George Osborne told FTAdviser’s parent paper the Financial Times that the country must “make the most of the hand we’ve been dealt” while not backtracking on warnings that the European Union referendum vote could cause another recession.
As part of proposals to build a “super competitive economy”, he suggested setting the lowest corporation tax rate of any major economy, with a target of less than 15 per cent, down from 20 per cent currently.
Such a sharp cut would take Britain close to the 12.5 per cent corporation tax rate in Ireland, potentially angering EU finance ministers who fear a race to the bottom following the UK’s decision to vote for a Brexit.
The chancellor’s plans also included focusing on a new push for investment from China; ensuring support for bank lending; redoubling efforts to invest in the Northern powerhouse; and maintaining the UK’s fiscal credibility.
He accepted that Britain faced a “very challenging time” and urged the Bank of England to use its powers to avoid “a contraction of credit in the economy”, reminiscent of the height of the 2008 financial crisis.
The Bank of England is set to publish the results of its Financial Policy Committee meeting on Tuesday (5 July), with possibilities including withdrawing its commitment to increase the buffers that banks have to hold or even set up a new Funding for Lending Scheme in conjunction with the Treasury.
Mr Osborne stated: “I don’t sit here feeling sorry for myself, feeling somehow that it is all going to unravel; quite the reverse.
“We should accept their verdict instead of moping around or trying to unpick it.”
Having ruled himself out of the leadership race, he also did not back any current runners, although some allies have thrown their weight behind home secretary Theresa May, although former Treasury minister Andrea Leadsom is also picking up support from within the department.
Last week the chancellor dropped his target of a 2020 budget surplus, as the Treasury’s focus moved from austerity to policies to stopping the shock of Brexit on the economy.
Mr Osborne said whoever became prime minister should seek maximum access to the EU single market for Britain’s goods, services and financial services, but conceded that could be curtailed by the fact that voters in last month’s referendum also want restrictions on EU migration.
peter.walker@ft.com
