The Chancellor, George Osborne has pledged that the government will simplify the business tax system and will introduce a five-year plan to reduce corporation tax.
He made the announcement in a speech to the CBI’s annual dinner. Mr Osborne informed guests that he would work to create in the UK the “most competitive corporate tax regime in the G20″.
The government is seeking to cut the headline rate of large company corporation tax from its current 28 per cent.
A part of the promised changes will be a streamlining of the present business reliefs and allowances system, along with anti-avoidance measures.
Mr Osborne said: “I want corporate tax reform to be a priority for this government.
“We will reform the corporate tax system by simplifying reliefs and allowances, and tackling avoidance, in order to reduce headline rates. Our aim is to create the most competitive corporate tax regime in the G20, while protecting manufacturing industries.”
A 1 per cent reduction in corporation tax represents a loss of about £800 million to the Treasury.
The Conservatives promised a 3 per cent reduction in corporation tax in their manifesto, but whether the cut is introduced at once or graduated over the length of the Parliament will only become clear when the emergency Budget is delivered.
Following concerted efforts by manufacturing groups, the Chancellor has opted not to ditch the research and development tax credit.
Touching on the broader economic picture, Mr Osborne said that the business community can expect three things from the government.
“First, the sunlight to confidence and stability instead of living in the shadow of debt and uncertainty. You need to know that the government is controlling spending, dealing with its debts, so that you are not hit by ever-higher interest rates and never-ending tax increases.
“Second, the freedom to compete. You might have the best product in the world, but how can you win the order when the taxes you pay and the regulation you face price you out of the market?
“And third, the raw materials to succeed. I don’t just mean the iron ore, copper and oil – important as our heavy industry is. I mean the raw materials of new industries, like an educated workforce, a welfare system that rewards work, modern energy, digital and transport networks.”
Citing the need to make the business tax system fairer and less complex, he added that UK “corporate tax rates are increasingly uncompetitive”, with a “World Economic Forum report ranking the UK 84th out of 133 countries in terms of the competitiveness of the tax system”.
He continued: “As well as lower rates and a simpler system, I want to reform the complex controlled foreign companies rules that have driven businesses overseas. I want multinationals coming to the UK, not leaving.”
This could mean dropping or softening the impact of the overseas subsidiary levy introduced by the last government.