The Sunday Times yesterday reported that the UK was toying with the idea of cutting corporation tax to as low as 10%; if the EU refuses a free trade deal, or blocks UK financial institutions from accessing European financial markets. At the moment UK corporation tax is 20%, with plans for a gradual reduction to 17% by 2020. The idea was put forward by Prime Minister Theresa May’s close advisers after attitudes towards the UK over Brexit seem to be hardening, with EU leaders making it clear the UK would not be able to ‘cherry pick’.
The newspaper said a government source close to the discussions was quoted as saying ‘People say we have not got any cards, however, we have some quite good cards we can play if they start getting difficult with us. If they're saying no passporting and high trade tariffs we can cut corporation tax to 10 percent’.
Of course this idea is not new. The former Chancellor George Osborne floated the idea of a 15% corporation tax immediately after the Brexit vote. During his time as chancellor he reduced the tax from 28% to 20%, and installed the path for further cuts. At the moment the average corporation tax in the EU is 22%, with the 2 biggest economies, Germany and France having tax rates of nearly 30% and over 31% respectively. As was widely reported after Apple’s tax bill from the EU, Ireland has the lowest tax rate at just 12.5%.
A warning about the fallout from Brexit also comes from the head of the British Bankers’ Association, Anthony Browne who said that banks’ hands are ‘quivering over the relocate button’. Browne says smaller banks plan to start relocating before Christmas, whilst bigger ones are looking to start the relocation process in the first quarter of next year. ‘Most international banks now have project teams working out which operations they need to move to ensure they can continue serving customers, the date by which this must happen, and how best to do it’ he said. He went on to say that those who claim the UK could sign a ‘third country equivalence’ to replace passporting are deluded, adding ‘The EU’s equivalence regime is a poor shadow of passporting – it only covers a narrow range of services, can be withdrawn at virtually no notice, and will probably mean the UK will have to accept rules it has no influence over. For most banks, equivalence won’t prevent them from relocating their operations.’