Belfast Telegraph

UK Website Of The Year

Companies 'prefer stability and certainty over lower corporation tax rate'

Published 04/07/2016

George Osborne said the Government will slash corporation tax to less than 15% in a sign that Britain is
George Osborne said the Government will slash corporation tax to less than 15% in a sign that Britain is "still open for business"

The Chancellor's pledge to cut corporation tax may fail to attract fresh foreign investment because companies prefer "certainty" and "stability" over lower levies, experts have said.

George Osborne said the Government will slash the tax on firms to less than 15% in a sign that Britain is "still open for business" despite voting to leave the European Union.

However, the uncertainty hanging over the UK economy post-Brexit will prevent cash coming in from overseas , according to accountancy giant KPMG.

Robin Walduck, tax partner at KPMG UK, said: "Will this latest cut really make a difference? Whilst from a policy perspective it may help make the UK a 'super-competitive economy', a reduction in rates will likely not be enough on its own to drive foreign direct investment (FDI).

"KPMG surveys of clients have consistently concluded that companies want stability, predictability and certainty, both in economic (including tax) and political terms.

"Whilst the current political and economic volatility prevails and uncertainty over a post-Brexit UK remains, companies may well be reluctant to invest in the UK."

Mr Osborne's move comes after the Government proposed to slash the corporation tax rate from 20% to 17% in 2020.

A further cut to below 15% would see Britain closing in on the Republic of Ireland's 12.5% levy and make the UK one of the most competitive global economies.

Helen Miller, associate director at the Institute for Fiscal Studies (IFS), said the tax cut might catch the eye of some multinationals, but was unlikely to have a major impact on foreign investment because the UK already offers one of the lowest rates of corporation tax in the world.

She said: "I expect it will have a minimal impact on the UK economy because it is not a firm policy measure with a firm date. It is an ambition, which may or may not come to pass."

She said Mr Osborne could have made a greater impact by improving capital allowances for smaller businesses, while any cut to corporation tax is likely to push up Government borrowing unless the Chancellor introduces measures to cover the costs.

The Chancellor wants to focus on generating investment from China as well as ensuring support for bank lending, bolstering the Northern Powerhouse and maintaining the UK's fiscal credibility to shore up the economy following the shock referendum vote.

Lee Hopley, chief economist at manufacturing body EEF, said a cut to corporation tax would have to be the first in many steps towards providing economic certainty.

She added: "Forecasters are pointing to significant risks to business investment in the next few years, so it is vital that the Treasury works closely with industry to identify other blockages that will need to be tackled.

"This includes keeping the R&D tax credit competitive, including plant and machinery in business rates calculations, boosting the Annual Investment Allowance for smaller companies and delaying the apprenticeship levy, amongst others."

Read More

From Belfast Telegraph