Corporate tax rates cut to spur investment
LONDON | - The British government cut the corporation tax to entice foreign investment as it acknowledged that economic growth will be slower than anticipated this year.
Treasury chief George Osborne attempted to sweeten the pill for Britons who are reeling from the country’s worst recession since World War II with a headline-grabbing cut in the fuel duty.
With Britain still struggling to get back to firm growth after wallowing in recession longer than other major industrialized nations, the government hopes more foreign investment and more innovation from domestic businesses will help.
“Let it be heard clearly around the world … that Britain is open for business,” Mr. Osborne told lawmakers in the House of Commons as he tried to swing the spotlight from hugely unpopular government spending cuts on services from welfare to education. “We are only going to raise the living standards of families if we have an economy that can compete in the modern age.”
Mr. Osborne detailed a raft of business-friendly measures in the annual budget that includes a 2 percent trim to the corporate tax rate - double the cut previously announced - a yearlong extension of a tax break for small businesses and funding for 40,000 more apprenticeship places.
Mr. Osborne was forced to acknowledge that the Office for Budget Responsibility has downgraded its forecast for gross domestic product growth for 2011 to 1.7 percent, compared with the 2.1 percent it predicted in November.
The reduction, which brings the forecast closer to a 1.5 percent prediction by the Organization for Economic Cooperation and Development, was made because of rising commodity prices, higher inflation and a shocking 0.6 percent contraction in fourth-quarter GDP.
The Office for Budget Responsibility, created by Mr. Osborne last year to keep economic forecasts at arm’s length from government, also sharply raised its inflation forecast to between 4 percent and 5 percent this year, up from 3 percent previously.
That leaves inflation at more than double the Bank of England’s target of 2 percent, raising the specter of an imminent increase in interest rates from a current record low of 0.5 percent and increasing the pressure on average Britons facing rising unemployment alongside higher prices.
Ed Miliband, leader of the main opposition Labor Party, said the growth forecasts revealed that the Conservative-led coalition had gone “too far, too fast” with its austerity program of harsh spending cuts aimed at bringing down the government’s budget deficit.
Mr. Osborne has made it a priority to almost eliminate a deficit that currently stands at about 10 percent of GDP by the 2015 general election. He revealed Wednesday that government borrowing will come in at $237 billion this year, slightly under the target of $243 billion, but then will fall less sharply than had been anticipated in subsequent years.