Monday 24 October 2016

'We are copying Ireland' - UK's tax cut to boost FDI

Published 11/07/2016 | 02:30

UK Chancellor George Osborne plans to cut corporate tax
UK Chancellor George Osborne plans to cut corporate tax

Cutting the UK's corporation tax rate to 15pc would boost foreign investment there by almost 11pc and reverse any declines suffered as a result of Brexit, a think tank has said.

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Chancellor George Osborne has unveiled plans to aggressively cut the country's corporate tax to less than 15pc to woo businesses deterred by Brexit. That will place it in direct competition with Ireland in terms of foreign direct investment.

It would take Britain close to the 12.5pc corporation tax rate in Ireland, which has been a cornerstone of our economy and helped attract major employers, including Apple, Pfizer and Google.

The London-based Centre for Economics and Business Research (Cebr) said the move would be successful, boosting FDI into the UK by 10.7pc.

Its president, Douglas McWilliams, said there is a push in the UK to cut the corporate tax rate further, with one eye on the success achieved by Ireland.

"We're copying you," he told the Irish Independent.

"We've looked at the experience of an island very close to us and they seem to be successful at attracting inward investment with a low corporate tax rate. It does strike us that copying what you're doing in Ireland isn't an entirely silly idea.

"I think there is a very strong drive [in the UK for a lower corporate tax rate]. We obviously don't know who is going to be the next Tory leader in a few weeks' time, but all the movers and shakers on the economic side are basically going that way. It's fairly cost-free.

"It does have an initial cost but five years down the line there is no exchequer cost at all. So there's not very much to say whey they would not do it."

The UK has radically closed the tax gap in recent years.

In 2008, the UK corporation tax was 30pc, and now it looks set to become half that rate. It is already set to fall to 17pc by 2020.

"We have run the impact of cutting the rate to 15pc in April 2017 instead of to the 19pc rate currently planned for that year," Mr McWilliams said, in his analysis.

"The results are fascinating. Borrowing in 2017/18 is £3.2bn more; by 2020/21 it is £1.8bn less and by 2025/26 it is £5.2bn less.

"Investment is boosted by 10.7pc after 10 years and GDP by 1.5pc after the same time."

And he suggested the UK could go even further, and adopt a 10pc rate.

"Indeed there is an argument for moving to a system where corporates are taxed at an ultra low rate and taxes only charged on distributions through dividends and corporate pay.

"A 10pc corporate tax rate could - according to the model - boost GDP by nearly 5pc additionally and would pay for itself in five years."

He said the optimal strategy to get the UK economy moving again might be a mix of lower top rate personal taxes and lower corporate taxes.

Irish Independent

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