Business World

Friday 17 January 2020

Osborne cuts corporation tax by 2pc to stave off downgrade

Thomas Molloy

BRITISH finance minister George Osborne cut Britain's corporation tax to 24pc and promised to reduce the rate to 22pc within two years as he unveiled his annual budget yesterday.

"I don't think it's going to have any effect on the Republic," said Michael Hall, a managing Partner, Ernst & Young Northern Ireland.

Mr Hall said Mr Osborne was trying to make Britain more attractive to businesses by cutting the headline rate by a greater-than-expected two percentage points. Company taxes are falling in many countries.

Mr Osborne also cut the top income tax rate to 45pc from 50pc. "Senior executives were telling him that 50pc was too high to attract people," Mr Hall said.

To help pay for this tax cut, Mr Osborne abolished child benefit for those earning above £60,000 (€72,000) and reduced the benefit for anybody earning more than £50,000 and increased the levy on banks.

Seeking to remove the sting and to appease the Liberal Democrats, who share power in the Conservative-led coalition, Mr Osborne increased the threshold for paying income tax by £1,100. He also sought to stop the practice of avoiding stamp duty by buying homes through a company. He imposed a 15pc tax on such transactions.

He confirmed that he would devolve the tax of airport passengers to Northern Ireland.

Analysts said Mr Osborne took a political gamble yesterday by sticking to his government's tough austerity plan.

Mindful of the risk that Britain could lose its AAA credit rating, Mr Osborne said there was no room to soften the plan of unprecedented spending cuts and tax increases, aimed at reducing sky-high debts.

In November, economic weakness forced Mr Osborne to add two more years of austerity after the 2015 election and pointing to a much slower recovery than they expected when they took power in 2010.

Ratings agencies have warned Britain that it could be downgraded, with apparently only Mr Osborne's unwavering determination to cut the deficit keeping them onside for now.

Mr Osborne identified rising oil prices and the euro-area debt crisis as threats to Britain's economy.

The non-partisan Office for Budget Responsibility said the budget gap would narrow to 7.6pc of GDP in the fiscal year beginning next month, still more than France, Germany and Italy. The public sector debt will peak at 76pc in about 2015, less than previously anticipated, it said.

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