Do corporate tax cuts mean competitive edge?

by | Jul 7, 2016 | Investment Tips

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How will Osborne’s drop in corporate tax benefit small business owners?

How will corporate tax cuts affect SMEs?

Following George Osborne’s announcement of a drop in corporate tax from 20% down to less than 15% earlier this week, Britain will soon have one of the lowest rate of any major economy in the world (Ireland’s is 12.5%).Osborne revealed his plans to create a “super competitive economy” through lower taxes during an interview with the Financial Times published on Tuesday.

The bid to make the UK more appealing to global investors and in particular China, forms part of a five-point plan Osborne spoke about to galvanise the post Brexit vote economy. The plan also includes measures to further Chinese investment; guarantee support for bank lending; increase efforts to invest in the Northern powerhouse; and maintain the UK’s fiscal credibility.

Mr Osborne told the FT it was important for “Britain to “get on with it” and to prove to investors that the country was still “open for business”.

The tax cut alone sends a clear signal that the UK remains an attractive place for investment despite uncertainty stemming from the imminent renegotiation of our EU relationship.

A lowered corporate tax rate, coupled with the drop in sterling (much as it may challenge overhead costs), could even help some businesses gain a competitive edge during this period of economic uncertainty. It may be a while though before businesses see the benefit of the new tax rate, as Treasury spokesman told the BBC, it is not yet known when George Osborne’s cut in corporate tax will take place.

Another big announcement was made the same day by the Governor of the Bank of England, Mark Carney. He announced that the Bank had eased special capital requirements for banks, potentially freeing up £150bn for lending. The intention being to go some way towards “promoting monetary and financial stability” for UK businesses.

The hope certainly is that this easing of regulations will enable businesses to continue to borrow capital, at a point when the banks instincts is often to err towards caution.

Whether or not Carney’s announcement assuages market concerns enough (and given the pound’s continued fluctuations this week it would seem not quite yet at least) for banks to loosen their purse strings and give meaningful financial assistance to small businesses remains to be seen.

It may still prove challenging for those small and medium businesses seeking growth capital by more traditional banking means. But it’s also often the case that successful and innovative businesses are borne from times of economic difficulty, and those willing to take a calculated risk can often reap the greatest rewards.

It is therefore reassuring for many that the UK’s rapidly maturing alternative finance market is able to provide a variety of viable funding options. There’s still a hunger amongst savvy investors eager to provide financial assistance the UK’s resilient SMEs, and we will continue to do our utmost to support those businesses in order to stimulate further economic growth.

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