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London - Chancellor of the Exchequer George Osborne set a goal of lowering the corporate tax rate to 15% in an effort to keep businesses investing in the UK as it prepares to leave the European Union.
Osborne, who campaigned to remain in the EU, said in an interview with the Financial Times that he accepted the result of the June 23 referendum and now wants to mitigate the economic impact. Britain currently has a 20% tax rate for business that’s scheduled to fall to 19% in April and to 17% in 2020.
“We have now got to be part of a supreme national effort to make it work for the British people,” Osborne said in the interview, which was published in Monday’s edition. Osborne said he stands by the warnings he’s made about the possible impact of Brexit - “including a recession.”
The planned tax cut illustrates the risks ahead for Britain after its historic decision to break with the EU after more than four decades, becoming the first major economy to strike out alone. The pound has lost 11% since the referendum, other EU nations are lining up to take business from the City of London, and the UK is riddled with political uncertainty amid a bitter contest to replace David Cameron and turmoil in the opposition Labour Party. Osborne’s inclusion in the next cabinet is also far from certain.
“I see no realistic way back” from Brexit, and investors are underestimating the risk of a UK government being installed that tears up any residual relations with the EU, said Erik Nielsen, chief economist at UniCredit Bank. “This means that UK growth is indeed most likely to head towards recession in the coming quarters, and possibly severely so.”
The pound was little changed in Asian trading on Monday. The price of an ounce of silver exceeded $20 for the first time in almost two years and gold advanced for a fourth day, as investors sought precious metals as safe haven assets.
Osborne’s proposal would bring the U.K. corporation tax down to a level closer to Ireland’s 12.5%, angering Germany and others in the process. In 2015, the average corporation-tax rate in the Group of 20 leading economies was 28.7%, according to the Oxford University Center For Business Taxation.
Austerity budget
Before the referendum, Osborne had warned that a vote to leave the EU would force him to announce an emergency budget of spending cuts and tax rises. That’s been dropped for now, although the Treasury’s position is that downgraded forecasts at the end of the year may mean it comes back onto the agenda. Osborne has also dropped his target of delivering a UK budget surplus by 2020, saying that the likely impact of a Brexit on the economy made that impossible.
In the FT interview, confirmed by the Treasury, Osborne urged whoever succeeds Cameron as prime minister to seek as much access as possible to the EU’s single market, though he conceded that the pressure to restrict migration might make that impossible. EU leaders have said that freedom of movement is a prerequisite for accessing the single market and that no “cherry picking” will be allowed in talks with the UK.
Osborne also said that Cameron’s successor should maintain the government’s commitment to contentious transportation projects such as the high-speed rail line from London to the north of England and a new airport runway for the capital. Both could be under threat with the future direction of the government uncertain.
One of the candidates, Work and Pensions Secretary Stephen Crabb, has proposed the government issue 100 billion pounds of long-dated gilts over the next five years to fund infrastructure investment.
Conservative contest
With Home Secretary Theresa May the front-runner to succeed Cameron as Conservative leader and prime minister, other candidates turned their fire on her on Sunday, saying the country would be better off with someone who supported the Brexit campaign at the helm. While the first round of voting among lawmakers starts Tuesday, Osborne said he wasn’t backing any candidate at the moment.
“The country needs to be led by someone who believes fervently - and understands - the opportunities of leaving,” Andrea Leadsom, who bookmakers rate as May’s closest contender, said on the BBC’s Andrew Marr Show. “I just don’t think it would be right to have a coronation. People need to have a choice of candidates.”
May dismissed those objections, saying that Britain needs a prime minister who can unite the country after a divisive referendum.
“They’re not looking for a prime minister who’s just the Brexit prime minister, but a prime minister who can govern for the whole of the country, and that’s what’s important,” May said on ITV television’s Peston on Sunday.
Lawmaker backing
May has emerged from the turmoil of the last week as the favorite to lead the Conservatives. According to the Conservative Home blog, she has the support of 104 of the party’s 330 lawmakers. Michael Gove has the backing of 25 lawmakers, as does Leadsom. Crabb has 21 and Liam Fox has 8.
Conservative lawmakers vote in the first round of balloting, and will eventually whittle the field down to two. Assuming that both candidates stand, the winner will be chosen by the party rank-and-file by September 9.
May told ITV that migrant numbers arriving from the EU may increase in the short term as people try to enter while it’s still legal. She refused to offer assurances about whether migrants already in the U.K. would be allowed to stay after Brexit.
“What’s important is there will be a negotiation here as to how we deal with that issue of people who are already here and who have established life here, and Brits who have established life in other countries within the European Union,” she said.
