By Jason Douglas
LONDON--The U.K.'s Chancellor of the Exchequer George Osborne
announced Wednesday further cuts to the U.K.'s corporate tax rate
and changes to levies on banks, as he set out his first package of
tax-and-spending plans following national elections in May.
Presenting his budget to Parliament, Mr. Osborne said he
expected to take an extra year of tough government-spending cuts to
achieve his goal of closing the U.K.'s budget deficit. Official
forecasts Wednesday showed he will run a surplus in early
2020--further pushing back a target that he had hoped when he first
took office in 2010 to meet by this year.
On the global economy, Mr. Osborne said the outlook was
darkening, citing a slowdown in the U.S. and China as well as the
debt crisis in Greece.
While the U.K. economy is stronger than it was five years ago,
"the greatest mistake this country could make would be to think all
our problems are solved," Mr. Osborne said. "You only have to look
at the crisis unfolding in Greece as I speak, to realize that if a
country's not in control of its borrowing, the borrowing takes
control of the country."
Mr. Osborne, said he would lower the U.K.'s corporate tax rate
to 18% over the next five years, making it the lowest in the Group
of 20 major economies. The current rate of 20% puts the U.K. at
joint lowest of that group with several other countries, including
Russia. In the U.S., the federal government taxes corporate profits
at 35%, with state taxes on top taking the effective rate closer to
40%.
On the banking sector, Mr. Osborne said he intends to phase out
by 2021 a levy on U.K. banks linked to their balance sheets that
raised billions of pounds for the exchequer each year.
But from next year, banks face a new 8% surcharge on their
profits, which Mr. Osborne said will raise more money from
financial firms in the next five years than if the government stuck
with the levy.
Together the changes will raise an additional GBP1.7 billion
from banks over the next five years, according to Treasury
figures.
The change in bank taxation marked a turnaround by Mr. Osborne,
who in March told lawmakers the levy was "here to stay." Analysts
said Wednesday it should eventually lead to lower bills for HSBC
and Standard Chartered, and could encourage HSBC to remain
headquartered in the U.K. HSBC Chairman Douglas Flint announced a
review of the bank's location in April, to be completed by the end
of the year.
A spokesman for Standard Chartered said: "We welcome the
announcement on the reduction in the levy rate over 6 years,
alongside the fact it will only be charged on U.K. balance sheets
after this period." A spokeswoman for HSBC declined to comment.
"The reform and reduction in the bank levy will be welcomed
particularly by those banks with large overseas operations," said
Matthew Barling, a banking tax partner at PricewaterhouseCoopers.
But the rising tax rate on profits sends "a mixed message in terms
of competitiveness of the U.K. as a place for carrying on banking
business," he said.
The Treasury also gave additional details Wednesday of its plan
to start selling shares in 80% state-owned Royal Bank of Scotland
Group PLC. It said it expects to raise at least GBP2 billion from
share sales by April, and to have sold at least three quarters of
the existing stake by 2020.
Mr. Osborne was presenting his first budget since a national
election in May handed Prime Minister David Cameron and his
center-right Conservative Party a large enough victory to govern
alone after five years of coalition with the center-left Liberal
Democrats. It is the first all-Conservative budget since 1996.
In a sign of the difficulty for the chancellor of finding
additional areas of savings following five years of already steep
government-spending reductions, Mr. Osborne Wednesday said he would
spread further cuts out over four years rather than three--a move
some economists described as a significant easing of the expected
squeeze on public services.
He offered U.K. households a mixed bag of giveaways and
takeaways, with voter-wooing measures such as 30 hours of free
child care a week and plans to raise the minimum wage offset by
cuts to welfare benefits enjoyed by many working families and net
tax increases.
Mr. Osborne also committed to spending 2% of the U.K.'s annual
national income on defense, easing concerns the U.K. would fall
short of its commitment as a member of the North Atlantic Treaty
Organization. U.S. officials both privately and publicly have
expressed concerns to the government that efforts to trim the
U.K.'s budget deficit could hinder its military capability.
Margot Patrick and Nicholas Winning contributed to this
article.
Write to Jason Douglas at jason.douglas@wsj.com
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