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George Osborne pledges to slash corporation tax to encourage Global business to UK a target of less than 15%

George Osborne has pledged to slash corporation tax to encourage businesses to still invest in the UK following the EU referendum vote.

The chancellor said he would cut the rate to below 15% - some 5% lower than its current 20% rate.

Such a sharp cut in business taxes would take Britain close to the 12.5 corporation tax rate in Ireland and would anger EU finance ministers who fear a race to the bottom. 

The move could also alienate voters, given recent controversies over tax deals struck with multinationals such as Google.

The head of tax at the Organisation for Economic Co-operation and Development warned, in an internal memo cited by Reuters, that the fallout from Brexit “may push the UK to be even more aggressive in its tax offer” but that further steps in that direction “would really turn the UK into a tax haven type of economy”.

Beside the tax cut, the chancellor said his five-point plan 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 credibilty.

Before the referendum Mr Osborne had threatened to make £30bn of tax rises or spending cuts in a post-Brexit emergency Budget; he is now striking a more cautious note, awaiting official forecasts before announcing any new measures in the Autumn Statement.

That would give the UK the lowest corporation tax of any major economy.

Mr Osborne said the cut was part of his plans to build a "super-competitive economy" with low tax rates.

A Treasury spokesperson confirmed the Financial Times's story was correct but said they did not know when the cut would happen.

In March, the chancellor said corporation tax would fall to 17% by 2020.

Mr Osborne told the FT it was important for "Britain to "get on with it" to prove to investors that the country was still "open for business".

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Image captionThe Bank of England could lower the amount of capital banks have to hold in case of unexpected risks

Before the referendum, George Osborne said that a vote to leave the EU would force him to introduce billions of pounds worth of tax increases and spending cuts in order to repair damage to the public finances.

It is now clear that his real strategy is very different.

The proposed cut to corporation tax, which would give the UK one of the lowest rates of any major economy, is designed to help the country attract new investment and court businesses which might otherwise have been put off by the uncertainty surrounding the country's relationship with the EU.

Mr Osborne's announcement comes amid reports that the Bank of England could this week lower the amount of capital banks have to keep aside as a safety net in case of unexpected risks.

On Tuesday, the Bank publishes the outcome of its bi-annual Financial Policy Committee meeting which looks at risks to the UK's financial stability.

Mr Carney said last week that the Bank would take "any further actions it deems appropriate to support financial stability".

One option could be to reduce the amount of capital banks are required to hold to help stimulate the economy.
'Signs of shock'

Mr Osborne has already abandoned his long-held target to restore government finances to a surplus by 2020 amid fears the uncertainty caused by the Leave vote could hold back the economy.

The chancellor said the economy was showing "clear signs" of shock following the vote to leave the European Union.

"How we respond will determine the impact on jobs and growth," he said at the time.

Economists have also warned about the impact of the Leave vote.

"Having voted for Brexit last week, the economy is clearly going to go into a down swing, that might be a full-blown recession, that might just be very very low growth," Paul Johnson, the director of the Institute for Fiscal Studies, said last week.

Mr Osborne wants to set the lowest corporation tax rate of any major economy, announcing a target of less than 15 per cent, down from 20 per cent now. He said Britain should “get on with it” to prove to investors that the country was still “open for business”.

Further Reading 

A strong Europe in an uncertain world or A European Superstate ?

Statement by the Chancellor following the EU referendum

Queen Elizabeth Speech Scottish Parliament 5th Opening staying calm and collected