The UK government should reform corporate and personal taxes to soften the blow from an expected slowdown after Britain’s vote to leave the EU, British Secretary of State for Business, Innovation and Skills Sajid Javid said.
Javid told the Financial Times that the government needed to switch its focus from reducing the deficit to stimulating economic growth by introducing unfunded tax cuts to boost research and investment for companies.
Confidence in Britain’s economy has been rocked by the decision on June 23 by voters to leave the world’s largest trading bloc. The pound is trading at 31-year lows and the Bank of England has warned that the financial risks it highlighted ahead of the vote were starting to crystallize.
CORPORATE TAX
British Chancellor of the Exchequer George Osborne has said he plans to cut Britain’s corporate tax to below 15 percent and has also dropped his aim of turning Britain’s budget deficit into a surplus by 2020.
Javid backed Osborne’s softer approach to fixing the public finances.
He told the Financial Times that it was hard to predict what would happen to the deficit.
“Does it mean 3 percent becomes 4 percent or 5 percent? I don’t think anyone can say at this point,” he said.
Britain’s budget deficit was just below 4 percent of GDP in the fiscal year that ended in March.
Javid said that the government should double tax credits for research and development, exempt new plant and machinery from business rates and increase the annual investment allowance.
He said the threshold at which people start paying income tax should also rise by ￡1,000 (US$1,293).
As well as the signals from the government of help for the economy from lower taxes, Bank of England Governor Mark Carney has said he expects the central bank to provide more monetary stimulus over the summer.
CENTRAL BANK
On Tuesday, the British central bank lowered a requirement for banks to set aside money to cover losses.
It is not clear how long Osborne and Javid will remain in their jobs. British Prime Minister David Cameron has said he will resign by September and the ruling Conservative Party is in the process of choosing a new leader.
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