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The U.K. Is Slashing Business Taxes in Response to Brexit

Chancellor George Osborne Prepares To Announce His Autumn StatementChancellor George Osborne Prepares To Announce His Autumn Statement
British finance minister George OsbornePhotograph by WPA Pool/Getty Images

British Treasury chief George Osborne is planning to cut the tax rate on corporate profits to less than 15 percent in an effort to cushion the shock of the country’s decision to leave the European Union, the Financial Times reported on Sunday.

Osborne was also quoted saying he would put more effort into Britain’s relationship with China and lead another trade visit later this year, after the shock referendum decision.

He told the newspaper he wanted to build a “super competitive economy” with low business taxes and a global focus.

Osborne did not specify a date for cutting corporation tax to below 15 percent. In his most recent budget statement, announced in March, Osborne announced a cut in the corporation tax to 17 percent by 2020, down from 20 percent now.

That compares with an average of about 25 percent among other countries in the Organisation for Economic Co-operation and Development and a further cut may anger some EU countries which have expressed concerns about competitive tax policies.

Earlier on Sunday, Reuters reported that the OECD, in an internal email, said it believed a further cut in corporation tax by Britain was unlikely but if it happened it would “really turn the UK into a tax haven type of economy.”

Other elements of Osborne’s plan to steer the economy through the upheaval caused by the Brexit vote included ensuring support for bank lending, intensifying efforts to direct investment to northern England and maintaining Britain’s fiscal credibility, the FT quoted him as saying.

Last week, Osborne said he would no longer target a budget surplus in 2020 because of the expected hit to the economy from the referendum result.

The signs from Osborne of a softer approach to fixing the public finances and tax cuts to woo investors come after Bank of England Governor Mark Carney said last week that he believed the economy would need more monetary stimulus soon.

The Brexit vote threatens to redefine Britain’s growing financial services relationship with China, which has agreed to a number of joint projects as part of the China-UK Economic and Financial Dialogue program to deepen economic ties between the two counties, based largely on the UK’s membership of the EU.

Chinese President Xi Jinping paid a state visit to Britain last October to seal what both call a “golden time” in relations.

Britons stunned the world with a vote to leave the EU in a referendum on June 23. Prime Minister David Cameron resigned after the vote, asking his Conservative Party to choose another leader by the autumn.

Osborne told the FT he had not yet decided who to back in the Tory leadership contest, which has seen interior minister Theresa May become the front-runner to become prime minister.

Osborne was talking to the BoE to ensure lending does not “seize up” and that the Brexit vote does not produce a repeat of the credit crunch in 2007-2008, according to the paper.

Osborne was once considered a future British leader but he has not put himself forward to succeed Cameron after the two men failed in their campaign to keep Britain in the EU.

“But we have got to make sure we are as close as possible to our European allies and that they remain not just key friends and strategic partners but also a crucial export market,” Osborne said.