Following the suggestions of Prime Minister Theresa May and Chancellor Philip Hammond to lower UK corporation tax, concerns were raised by JPMorgan saying that lowering corporate tax rate "would not come close to offsetting the shock of a very hard Brexit," and would only lower UK's corporate tax revenues.
Prime Minister Theresa May and Chancellor Philip Hammond have suggested earlier this year that Britain may lower the corporate tax rates to attract companies and ensure the competitiveness of Britain after it leaves the European Union.
However Allan Monks, an economist at JPMorgan, said in a note, which circulated to clients earlier this month, that even economically low corporate tax rate would not offset the shock of a very hard Brexit. According to JPMorgan, the UK’s corporate tax regime already looks competitive, both historically and internationally, and further cuts would only decrease the UK's revenue without any significant benefits.
"The most recent tax rate cut to 20% has if anything coincided with a decline in corporate tax receipts. This is very different to the 1980s, when cuts to corporation tax cuts coincided with a large increase in corporate revenues relative to GDP. At present, the OBR estimates that each 1%-pt drop in the corporation tax rate is likely to lower corporate tax revenues over three years by around £2.4bn—or 0.1% of GDP," JPMorgan said.
Earlier this month, Andreas Dombret, a Bundesbank executive board member, warned UK-based banks "not to come up with schemes to get around regulations as they seek ways of preserving their access to the EU market after Brexit," The Independent has reported. “Given how the Brexit debate developed early this year, this warning is not at all an empty one,” Mr Dombret said.
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