Surplus Target: Corporation Tax — House of Lords, 2016-07-04
Topic: Macroeconomics
Terence O'Neill (Conservative, Centre-right): My Lords, I shall now repeat as a Statement the Answer to an Urgent Question made by the Chancellor in the other place "Mr Speaker, I have always sought to level with the British people about the economic challenges we now face, but to mix that realism with reassurance that we can rise to those challenges. The financial contingency plans that the Governor of the Bank of England and I put in place have proved effective to date. Financial markets have adjusted, but I can report today that they have shown no signs of disorder The next task is to be ready to respond to the developments in the real economy. This will require a supreme national effort. Here are the five steps we should now take. First, we need to look to support demand and make sure credit flows freely in our economy. The governor said on Friday that, "some monetary policy easing will likely be required over the summer" Thanks to the reforms that I have introduced, the independent Bank has the tools it needs to act against the cycle and support lending in the economy. The Financial Policy Committee will publish its decisions tomorrow, and we stand ready in the Treasury to act in concert with the Bank should more need to be done to support funding for lending The second part of our national effort must be to maintain Britain’s fiscal credibility. Eight years ago, people questioned Britain’s ability to pay its way in the world. Eight years later, British gilts are seen as a safe haven and funding costs have fallen to record lows. We should maintain the fiscal consolidation measures we have announced, but our rules were always explicit that in the face of what the charter calls a "significant negative shock", we should allow the automatic stabilisers to operate. With the consensus of economic forecasters now lowering the forecast growth for the UK next year from close to 2% to 0.4%, that we will do. We have to be realistic that the target for a surplus is unlikely to be achieved in 2019-20. The OBR will conduct a formal assessment when it produces a new independent forecast in the autumn, and then we will have a clear idea of what additional measures are required to maintain fiscal credibility Thirdly, we should broadcast loud and clear the message that Britain remains the best place in the world to do business. Over the past six years, I have reduced Britain’s corporation tax from 28% to 20% today and 17% in the future. I did that at the same time as taking difficult decisions elsewhere to balance the books. In my view, the strongest signal we could send to the world that Britain, after this referendum, is open to the world and ready to do business would be to cut corporation tax still further. We should aim for a rate of 15%, and preferably lower, because if you are pro-business, you are pro-jobs, pro-living standards and pro-working people Fourthly, the referendum result revealed a deep-seated feeling of disfranchisement in too many of our communities, especially in the Midlands and the north of England. As I said in Manchester on Friday, devolving power and building a northern powerhouse is the right response, and we need to double down on those efforts. We will have new elected mayors, and new transport and science investments, and projects such as HS2 and HS3 are more necessary than ever. Once both parties have determined who their new leaders will be, we should take the decision quickly on where to build a new runway in the south-east. Britain cannot be open to the world if we cannot fly there Fifthly and finally, while we must seek the best possible terms of trade in goods and services, including financial services, with our European neighbours, now is the time also to redouble our efforts to promote trade with the rest of the world. I have already spoken to my US counterparts. Later this month I will travel to China to build on our important new partnership This is a blueprint to meet our economic challenge. Nothing positive will come from looking back in anger. We must lift our eyes to the horizon ahead and make the best of what is to come".