Sunday 23 October 2016 4:30 pm

Businesses unsure of Theresa May's threat to cut corporation tax to 10 per cent

Businesses have given a lukewarm reception to the idea that Theresa May could slash corporation tax if she does not secure a good exit deal with the EU.

Both the British Chambers of Commerce (BCC) and the Institute of Directors (IoD) said cutting corporation tax would not be top of their wish-list if the government is considering tax cuts or spending increases in the wake of the EU referendum.

Both did, however, acknowledge the importance a cut could have in attracting international investment at a time when overseas money may be looking elsewhere for places to invest.

The response comes after reports suggest Theresa May is considering the idea of telling the EU she will slash the UK's headline corporation tax rate to just 10 per cent in a bid to attract businesses from Europe and ensure places like Frankfurt, Dublin and Paris cannot entice firms across the Channel.

Read more: Should Philip Hammond cut VAT?

The UK currently charges firms 20 per cent tax on their domestic profits, though this will be cut to 17 per cent by 2020. George Osborne had proposed a further cut to 15 per cent in the wake of the referendum to allay any growing concern from multinational firms. His successor, Philip Hammond, however, appears to have shelved that idea as he puts the finishing touches to his 23 November Autumn Statement.

Adam Marshall, director general of the BCC told City A.M.: "It's time to bury the old Treasury obsession with corporation tax cuts and focus on making Britain more competitive in a sustainable way – great infrastructure, great skills, great access to growth finance.

"Cutting corporation tax further does very little to support most firms here at home, even if it does help secure some multinational investment into the UK. Most firms we speak to want to see support for investment over tax cuts whose benefits accrue mostly to very large firms."

Stephen Herring, head of tax at the IoD, said raising tax reliefs like the annual investment allowance that focus on investment and increasing productivity among entrepreneurs and mid-sized firms was "second to none" in the business lobby's eyes.

However, he did say slashing corporation tax would fit with the idea Britain was "open for business".

"Corporation tax still remains the headline litmus tests for foreign direct investors," Herring told City A.M. "The proof of the pudding is in Ireland, where low corporation tax has been very effective."

He added: "It's got to be one of the things on the list, as the government would be foolish not to look at all of the elements that can make the UK a more competitive economy. Tax competition is no different from competing on infrastructure spending, employment costs or flexible labour markets. You're targeting different sorts of businesses."

The IoD has previously advocated scraping corporation tax and replacing it with a less complex and less open-to-abuse alternative such as a sales tax or levies linked to domestic employment, amid ongoing uproar over the amount of tax paid by tech companies such Google and Facebook.