BREXIT: businesses seeking stability, not tax cuts, from government post-vote, says expert

Out-Law News | 05 Jul 2016 | 10:41 am | 2 min. read

UK corporation tax will be cut to "less than 15%" as part of a five-point plan to boost the economy following the country's vote to leave the EU, the chancellor of the exchequer has said.

This is part of Out-Law's series of news and insights from Pinsent Masons experts on the impact of the UK's EU referendum. Watch our video on the issues facing businesses and sign up to receive our 'What next?' checklist.

Speaking to the Financial Times in his first official interview following the referendum on EU membership, George Osborne said that his plans for low business taxes and a closer trade relationship with China would prove to international investors that the UK was "open for business".

UK corporation tax has been cut from 28% in 2010 to the current rate of 20%, but is due to fall to 17% by 2020. The UK Treasury confirmed Osborne's comments as official government policy, but did not provide a timetable for further tax rate cuts.

Tax expert Heather Self of Pinsent Masons, the law firm behind, said that businesses needed stability from the government following the referendum outcome. There were "perhaps higher priorities" that the government should be addressing relating to business tax before it put forward rate cuts that businesses had not called for, she said.

"Business has repeatedly said that it wants to see stability, simplicity and certainty in the UK's corporate tax system," she said.

"Whilst a competitive rate of corporation tax is part of that, there is no current pressure from business to go as low as 15%, and there are real concerns about other tax issues around 'Brexit', such as VAT and customs duties, which should perhaps be higher priorities for the chancellor at present. Stability will be key to achieving fiscal credibility during what will inevitably be a difficult period," she said.

Speaking to the Financial Times, Osborne refused to back down from his pre-referendum warnings of a further recession if the UK voted to leave the EU. However, he said that he was working with the Bank of England to ensure that the referendum would not lead to a repeat of the global economic crisis of 2007/08. The central bank's Financial Policy Committee (FPC), which is due to publish the minutes of its latest meeting on Tuesday, has "tools at their disposal" with which to do so, Osborne said.

For its part, the government would "ensure support for bank lending" as part of the chancellor's five-point plan, Osborne said. As well as the prospective corporation tax cut, the five-point plan also includes a renewed drive for investment from China and investment in the so-called 'Northern Powerhouse', as well as "maintaining the UK's fiscal credibility", he told the FT. However, formal budgetary measures would not be announced before the Autumn Statement later this year, he said.

"Any government moves to support bank lending are gratefully acknowledged signs of support in the current climate," said banking expert Tony Anderson of Pinsent Masons. "However, how this support would be manifested and how effective it might be are very much unknown quantities at the present time."

The UK's next prime minister would have to prioritise "getting our new relationship with Europe in place and right", which would mean "putting the greatest emphasis on having the best possible trade in goods and in services including financial services", Osborne said in the FT interview.

"Clearly you can't have all the benefits of EU membership without any of the costs or obligations. There's going to have to be reform of free movement of people because to ignore that would be, I think, to ignore one of the clear verdicts of the referendum," he said.