It’s a question many businesses of the UK have been asking for the last year: how will Brexit actually effect them?
Though much of the discussion has been on bigger picture items, one issue that hits companies directly is finally being made clear: the UK will not cut taxes after it leaves the EU, contrary to comments made just a few months ago.
No Tax Haven
There had been talk in recent months that the UK would slash corporate taxes and regulations to create a tax haven and keep companies in Britain after Brexit, but new comments from UK finance minister Philip Hammond have clarified the government’s stance and made it clear that isn’t the case.
Instead of lowering corporate taxes below the European average in hopes of remaining competitive after Brexit and undercutting EU rivals, the UK will keep an economic and social model that follows European standards and practices. As Brexit comes closer and the UK still doesn’t have a firm trade deal with any countries, many in the UK were talking of creating a tax incentive to draw companies and goods to the area.
The announcement comes after Hammond suggested earlier this year that Britain could possibly have to change its economic model to stay competitive. However, he has changed his tune over the last few months.
“It is often said that London would consider launching into unfair competition in terms of fiscal regulation. That is not our project or our vision for the future,” Hammond recently said. “The amount of tax that we raise, measured as a percentage of GDP, is within the European average, and I think we will remain at that level. Even after we have left the EU, the United Kingdom will keep a social, economic, and cultural model that will be recognizably European.”
Part of the reason for the policy clarification is the new makeup of Parliament; after losing their majority in the recent general election, the Conservatives would likely have a difficult time persuading other parties to cut taxes and regulation. Many analysts believe the announcement is an effort to avoid the contention of trying to push such cuts through the government.
Change of Heart
Hammond’s recent comments on taxes are very different from his stance in January, when he was extremely supportive of cutting corporate taxes and offered a thinly veiled threat to use corporate tax as leverage in Brexit negotiations. In an interview earlier this year, he said the UK would do “whatever we have to do” to stay competitive after Brexit, especially without a strong trade deal.
“If we have no access to the European market, if we are closed off, if Britain were to leave the European Union without an agreement on market access, then we could suffer from economic damage at least in the short-term,” he said at the time.
“In this case, we could be forced to change our economic model and we will have to change our model to regain competitiveness.”
At that point, Hammond was a proponent of corporate tax breaks and less regulations that would create a corporate tax haven, similar to what Singapore has done. Those comments were considered unhelpful by EU negotiators who are trying to finalize the Brexit deal. Hammond’s new, softer stance matches what the rest of the British government has been doing as it backtracks from its previous “no deal is better than a bad deal” stance on Brexit.
The announcement of maintaining taxes after Brexit won’t bring new companies flocking to London, but it shows confidence in a potential trade deal and the British economy, which might just be what the UK needs to succeed.
Take The Next Step with Alvexo Leave your details and we’ll reach out shortly.