The UK will have to “give something else” to foreign investors to keep them doing business in Britain after Brexit, says the Economist’s political editor.
John Peet joined Matthew Wright on talkRADIO’s afternoon show to discuss the fact that Theresa May pledged that the UK would have “the lowest rate of corporation tax in the G20” at the Bloomberg Global Business Forum in New York.
Peet worked at the Treasury for a decade in during the Seventies and Eighties, and co-authored a book on Europe and the Euro.
'Investors came to the UK as a base to export to Europe'
“Corporation tax is 19% at the minute, going down to 17% in 2020 - what do you think the best corporation tax rate should be in a post-Brexit britain?” asked Wright.
“I think it’s quite rational to say that post-Brexit, Britain will have a job attracting foreign investors - a lot came to this country to use it as a base to export frictionlessly to continental Europe,” Peet responded.
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“You’re going to have to give something else to them when your access to the European market is in some ways, less good than it is today.
“One or two points off corporation tax might be quite a good idea. The only thing I would say is, Britain has been playing the game of lowering corporation tax for quite some time within the European Union - it’s not a new idea. There must be some limit of how far you go.
“Ireland is 12% at the moment, that really is getting to a point where companies are going to come in and take advantage and no help apply the revenues to public services.”
'Appetite for public spending cuts is not very high'
Analysis by the Treasury and London School of Economics found that Brexit could reduce the UK’s GDP by 10%, although other reports vary - Economists For Brexit, for example, suggest a potential gain of 4%.
“Could a hard Brexit knock 10% off GDP?” asked Wright.
“It is clear that a softer Brexit would reduce GDP by less, because it would be less disruptive,” Peet explained.
“But the immediate outlook is that public finances would get worse, not better. The scope for tax cuts is not very large.”
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Peet added that he thought Jeremy Corbyn, who vowed to overhaul the economy and end “greed is good” capitalism in his leader’s speech at the Labour conference, was appealing to people who didn’t want to see further cuts to public spending.
“I’ve just come from the Labour conference, that I think the appetite from the British people for further cuts to public spending is not very high,” Peet said.
“To be fair you’ll get that message at Labour conference. Or are you talking beyond the boundaries of the hall?” asked Wright.
“I feel the appeal of Corbyn lies in the fact that we’ve had a long period where public spending has been held down, and many people feel it’s gone as far as it could,” Peet replied.
“I think further cuts to public spending would be politically quite difficult to sell.”