Osborne: We’ll revive economy by cutting business tax below 25p
Corporation tax may be cut below 25p under Tory plans to reduce the debts of industry, shadow chancellor George Osborne announced today.
Firms will get less tax relief on their borrowings and be encouraged to issue shares to raise money. The rewards could be lower stamp duty on shares or a cut in the headline rate of corporation tax.
"By reducing the tax breaks for debt we could potentially fund a significant reduction in the headline rate of corporation tax — a key determinant of our international competitiveness," he declared to businessmen in Birmingham.
"I have already committed to reduce the headline rate from 28p to 25p by reducing complex reliefs and allowances, but we will need to go further if we are to keep pace with an increasingly competitive global economy."
Mr Osborne pledged a "considerable prize" with a simpler and more competitive tax system, encouraging jobs and investment.
British businesses must become less dependent on debt, he said. "This is already painfully clear in our banking industry. Economy built on debt has to give way to one built on greater ownership."
His speech comes after CBI director general Richard Lambert predicted this week that equity capital will play a more prominent role following the credit crunch.
Mr Osborne said the corporate tax structure had long favoured debt over equity by making interest costs fully deductible while taxing returns on equity. This had been exacerbated by Gordon Brown taxing pension funds dividends more heavily in 1997.
He promised the changes would be long-term to give businesses time to adjust. But a recession was "exactly the right time" to invest in new entrepreneurs: "It is start-ups not bail-outs that will drive our recovery."
The shadow chancellor also warned that Britons would have to tighten their belts to climb out of recession. "The truth is that Britain is going to have to work hard and save hard to get out of this hole. The Conservatives are ready to tell people these home truths, and the country is ready to hear them," he said.
