Britain slashed its company tax rate in a surprise move on Wednesday that its finance minister said gave it the most competitive business rate of any major economy.
Gordon Brown, chancellor of the exchequer, announced the move in his eleventh and last Budget, along with unexpected cuts in income tax. From 2008, the basic income tax rate will be cut from 22% to 20% in the pound and corporation tax will fall from 30% to 28%. Brown claimed the cut in corporation tax meant Britain would have the lowest company tax rate „of all the major economies”, including the US, Germany, France and Japan. This would give the UK the edge over „all of our other major competitors”, he said.
What the chancellor gave he took away in a revenue-neutral Budget intended to simplify a tax system that has become more complicated since the Labor party came to power in 1997. Despite the tight public finances and expected slowdown in public expenditure over the next three years, Brown had hoped a bold Budget would cement his position as the only possible successor to Tony Blair as prime minister this summer. But initial enthusiasm gave way to skepticism as the finer details of his proposals emerged. The politically eye-catching income tax cut will be paid for by scrapping the 10% starting rate of income tax and by higher national insurance – or social security – contributions.
The cuts to corporation tax – intended to make Britain a more attractive location for inward investors – will be financed by cutting back on complex allowances and reliefs for industry. Brown’s budget was a grand finale to his decade as master of Britain’s public finances and came after an unusually destabilizing week in which he was compared to Stalin and received a poor rating in new opinion polls. One opinion poll suggested that the current 10 percentage point lead for the opposition Conservatives would widen to a 15 point lead if Brown were prime minister, spelling a heavy defeat for Labor at the next election, expected in 2009. Some of the shine has come off Brown’s macro-economic record, with a spike in inflation, the worst since 1991. Brown used the Budget to mount his counter-offensive, predicting 2.5% to 3% growth next year, the fastest of any of the G7 group of leading economies, and his prudent stewardship of the public finances. But with government borrowing larger than he predicted only three months ago, and with disappointing revenues from North Sea oil, Brown had little room for maneuver.
„You have finally given us a tax cut,” David Cameron, the leader of the opposition Conservatives, told the chancellor. „You normally do that before a general election but you are in such a deep hole you have had to do it before the leadership election.” (FT.com)