Government minsters could cut corporation tax by half if Brexit negotiations do not go as they hope, sources suggest.
The proposal to reduce the levy on big businesses from 20 per cent of profits to 10 per cent could be given the go-ahead if EU member states block a free trade deal with the UK or refuse to give British financial services companies access to the European market, according to the Sunday Times.
An unnamed source told the paper: “People say we have not got any cards. 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 per cent."
The UK already has one of the lowest corporation tax rates in the EU but ministers believe a further cut could help keep companies in the UK and attract new investment. Other EU states could fear losing business to the UK should Britain allow companies to keep more of the profits they create.
Labour condemned the suggestion of a further tax cut, saying previous reductions in corporation tax had been funded by slashing public spending.
John McDonnell, the Shadow Chancellor, said: “This is the last thing the Tories should be calling for after six years of failure to meet their own deficit targets and their under investment in our country, which has resulted in our economy being now so vulnerable to Brexit."
"The Chancellor should learn from the mistakes of his predecessor and not repeat them with more unfunded tax breaks as part of their shambolic Brexit plans."
Countries including Ireland and Singapore have credited a low tax rate with helping them attract new business. Ireland imposes a levy of 12.5 per cent while Singapore’s is 17 per cent.
The UK’s 20 per cent corporation tax rates compares to an EU average of 22 per cent. The tax rate is 29.72 per cent in Germany, 31.4 per cent in Italy and 33.3 per cent in France.
The plan to slash the levy could be used if EU member states refuse to grant “passporting rights” to British financial services that would allow them to continue operating freely across European markets.
It comes as EU member states appear unwilling to compromise on the conditions of Britain’s withdrawal, prompting ministers to consider other options should their demands not be met.
Theresa May was warned at her first European Council meeting as Prime Minister that Britain would not be able to dictate the terms of its exit from the EU. Mrs May also requested that the other 27 member states did not continue to exclude her from meetings, but was strongly rebuffed.
What experts have said about Brexit
What experts have said about Brexit
1/11 Chancellor of the Exchequer Philip Hammond
The Chancellor claims London can still be a world financial hub despite Brexit “One of Britain’s great strengths is the ability to offer and aggregate all of the services the global financial services industry needs” “This has not changed as a result of the EU referendum and I will do everything I can to ensure the City of London retains its position as the world’s leading international financial centre.”
2/11 Yanis Varoufakis
Greece's former finance minister compared the UK relations with the EU bloc with a well-known song by the Eagles: “You can check out any time you like, as the Hotel California song says, but you can't really leave. The proof is Theresa May has not even dared to trigger Article 50. It's like Harrison Ford going into Indiana Jones' castle and the path behind him fragmenting. You can get in, but getting out is not at all clear”
3/11 Michael O’Leary
Ryanair boss says UK will be ‘screwed’ by EU in Brexit trade deals: “I have no faith in the politicians in London going on about how ‘the world will want to trade with us’. The world will want to screw you – that's what happens in trade talks,” he said. “They have no interest in giving the UK a deal on trade”
4/11 Tim Martin
JD Wetherspoon's chairman has said claims that the UK would see serious economic consequences from a Brexit vote were "lurid" and wrong: “We were told it would be Armageddon from the OECD, from the IMF, David Cameron, the chancellor and President Obama who were predicting locusts in the fields and tidal waves in the North Sea"
5/11 Mark Carney
Governor of Bank of England is 'serene' about Bank of England's Brexit stance: “I am absolutely serene about the … judgments made both by the MPC and the FPC”
6/11 Christine Lagarde
IMF chief urges quick Brexit to reduce economic uncertainty: “We want to see clarity sooner rather than later because we think that a lack of clarity feeds uncertainty, which itself undermines investment appetites and decision making”
7/11 Inga Beale
Lloyd’s chief executive says Brexit is a major issue: "Clearly the UK's referendum on its EU membership is a major issue for us to deal with and we are now focusing our attention on having in place the plans that will ensure Lloyd's continues trading across Europe”
8/11 Colm Kelleher
President of US bank Morgan Stanley says City of London ‘will suffer’ as result of the EU referendum: “I do believe, and I said prior to the referendum, that the City of London will suffer as result of Brexit. The issue is how much”
9/11 Richard Branson
Virgin founder believes we've lost a THIRD of our value because of Brexit and cancelled a deal worth 3,000 jobs: We're not any worse than anybody else, but I suspect we've lost a third of our value which is dreadful for people in the workplace.' He continued: "We were about to do a very big deal, we cancelled that deal, that would have involved 3,000 jobs, and that’s happening all over the country"
10/11 Barack Obama
US President believes Britain was wrong to vote to leave the EU: "It is absolutely true that I believed pre-Brexit vote and continue to believe post-Brexit vote that the world benefited enormously from the United Kingdom's participation in the EU. We are fully supportive of a process that is as little disruptive as possible so that people around the world can continue to benefit from economic growth"
11/11 Kristin Forbes
American economist and an external member of the Monetary Policy Committee of the Bank of England argues that the economy had been “less stormy than many expected” following the shock referendum result: “For now…the economy is experiencing some chop, but no tsunami. The adverse winds could quickly pick up – and merit a stronger policy response. But recently they have shifted to a more favourable direction”
Former Chancellor George Osborne had previously floated the idea of cutting corporation tax to 15 per cent to reassure businesses worried about the impact of Brexit. He had already reduced the rate from 28 per cent to the current 20 per cent during his time in office.
A Treasury spokesperson would not comment on reports of a further cut but told The Independent: “As we have said before, we keep all taxes under review.”