Theresa May is reportedly considering a dramatic reduction in corporation tax if she is faced with a “brutal Brexit” in talks with the EU.
According to the Sunday Times, May could slash the tax rate from 20 per cent down to just 10 per cent if the UK can't secure passporting rights for financial services or a free trade deal.
The move would be positioned as a reassurance to businesses that the UK remains a desirable location, in spite of any harsh terms. However, the idea of a 10 per cent corporation tax rate received a lukewarm response from business lobbies.
In the aftermath of the referendum, then-chancellor George Osborne said the UK's tax rate should fall below 15 per cent, although he left office before the reforms could be put in place.
An aggressive 10 per cent corporation tax rate would put the UK far below many of Europe's largest economies.
Equivalent tax rates in France, Germany and Italy all sit at around 30 per cent, while Far East economies Hong Kong and Singapore set a charge of around 15 per cent.
It comes after May's debut at the European Council last week, where the prime minister attempted to raise the topic of Brexit over a working dinner.
However, the Times quotes a European source set to be involved in negotiations warning: “The British did not take seriously our claim that we will simply not engage before they start the formal process, but I think now they have realised the reality of their position.”
They add: “A failure to reach an agreement would lead to an uncontrolled exit that would damage the British economy, indeed a brutal Brexit — it would also have a negative impact on the EU.”
Downing Street declined to comment, but a Treasury spokeswoman said: “As we have said before, we keep all taxes under review.”