Nigel Farage, head of the UK Independence Party has resigned, so has PM David Cameron, a Tory. The Labour leader Jeremy Cobyn grimly hangs on and so does Britain’s Tory Chancellor of the Exchequer.
The latter, George Osborne, proposed a solution for the post-Brexit British economy—making it into a tax-haven. In a weekend interview published in Financial Times, the Tory who supported Britain remaining in the European Union revealed his goal of lowering the basic British corporate tax rate to below 15%. This to encourage companies to continue to invest in Britain as it prepares to leave the European Union.
The current UK corporate tax rate is 20% and it was slated to be lowered by 1% in each of the next two years. Now it will be cut faster, if Osborne has his way. That would make British corporate taxes the lowest offered by a large European country.
Speeding up the cuts, Osborne said, is necessary to make the EU exit work for Britain. It will require abandoning another part of the Tory program, balancing the budget to cut taxes. During the campaign, Osborne, supporting Bremain, warned that leaving the EU risked pushing Britain into a recession, something he now intends to forestall. However, it is unclear if the Chancellor himself will survive into the cabinet to replace that of David Cameron after Sept. when he is due to resign.
The reaction from foreign countries only just aware of Osborne’s plans brass so far has been negative. If Britain engages in competitive tax-cutting, Brussels may make it harder for it to negotiate an exit without damage to its economy.
Pascal Lamy, a French bureaucrat who used to head the World Trade Organization, was one of the first to make a public comment, on the BBC:
“The UK is already activating one of the weapons in this negotiation, tax dumping, tax competition. I can understand why he [Mr Osborne] does that, because obviously investors are flowing out from the UK, and he wants to provide them with some sort of premium that would make them think twice before they leave the United Kingdom.
“He has to think about the impact of this on the Continent. This will be seen on the Continent as the start of the negotiation. And I’m quite convinced that at the end of the day, if you want a proper balanced win-win relationship in the future, starting with tax competition is not the right way psychologically to prepare this negotiation.â€
Last Friday, German central bank chief Jens Weidmann said he would oppose fresh stimulus measures by the European Central Bank in the wake of the UK decision to leave the EU. European CB board member Benoît Coeuré said the ECB should delay further stimulus measures to see how Eurozone banks and businesses react to the British shock.. But taxes are another matter entirely.
