UK Warns of 10% Corporate Tax Cut

Britain could slash corporation tax to 10% if the European Union refuses to agree a post-Brexit free trade deal or blocks UK-based banks from accessing its market.

The Sunday Times said Sunday that the idea of halving the headline rate from 20% had been put forward by Prime Minister Theresa May’s advisers amid growing fears other EU member states will take a hard line in Brexit negotiations, Reuters reported.

The tax cut would be used to try and persuade the EU to grant “passporting” rights for financial services firms to continue operating across the EU, the newspaper said, in a sign of the likely animosity of the upcoming divorce talks.

At a Brussels summit last week EU leaders were clear they would not allow Britain to “cherry pick” things such as free access to the market for certain sectors without taking on the full responsibilities of EU membership.

“People say we have not got any cards,” the newspaper quoted an unidentified source familiar with the British government’s thinking as saying.

“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%,” the source was quoted as saying.

Cutting corporation tax could attract companies away from the EU to Britain, boosting its economy and challenging Ireland’s preeminence as Europe’s low tax home for large international companies.

EU leaders have warned that if Britain places limits on the free movement people it will lose its preferential access to the single market, leaving London-based international banks worried they could lose their right to sell services across Europe.

Writing in the Observer newspaper, the chief executive of the British Bankers’ Association said the uncertainty over Britain’s future relationship with the EU meant most international banks were already looking at which operations they would need to move out of the UK.

“Their hands are quivering over the relocate button. Many smaller banks plan to start relocations before Christmas; bigger banks are expected to start in the first quarter of next year,” Anthony Browne wrote.

Japanese carmaker Nissan, whose Chief Executive Carlos Ghosn met May this month to discuss his concerns over Brexit, on Sunday denied a story in the Telegraph newspaper that it had decided to make its new Qashqai model in Britain.

Nissan’s CEO has warned he could scrap potential new investment in Britain’s biggest car plant unless the government pledges compensation for any increased tax costs resulting from Brexit.

  Tarrif-Free Trade

Britain will have tariff-free trade with the European Union after it leaves the bloc as it is in both sides interest to do so, Transport Minister Chris Grayling said on Sunday.

Asked whether the EU’s floundering free trade deal with Canada was a worry for Britain, Grayling, a leading campaigner for Brexit, said Britain’s relationship with the EU was different as it was the bloc’s most important export market.

“Nobody in continental Europe benefits from a reduction in the ability to trade with the United Kingdom,” Grayling told the BBC’s Andrew Marr show.

  Economy to Grow

Britain’s economy will grow faster this year than was predicted even before the referendum took place, analysts believe, proving wrong the dire forecasts that the Brexit result would push the UK into an instant recession.

Independent forecasts compiled by the Treasury show that the economy is performing far better than expected in the immediate aftermath of the vote.

In June the average economist thought GDP would grow by 1.8% in 2016, a forecast which was slashed in the wake of the June 23 referendum. But since then the country has proved resilient, so economists now anticipate growth of 1.9% for 2016.