George Osborne's Tax Cut Promise is Music to Business Leaders' Ears

Last Updated May 20, 2010 6:25 AM EDT

Chancellor George Osborne has a big bag of sweeties for his friends at the CBI. In his first speech at his new job, he pledged to the great and the good at the CBI annual dinner to reduce corporation tax from 28 percent to 25 percent, simplify reliefs and allowances and crack down on tax avoiders.

The pledge is expected to be put into writing in a Tory/LibDem coalition agreement today and it will doubtless by music to the ears of business leaders still struggling to stay afloat in a sluggish UK economy.
Additionally, he has promised a reform of complex controlled foreign companies rules, in an effort to woo multinationals back into the country.
On the face of it, this is a bold and long-looked-for move by the new government, although fully in line with Conservative ideals set out before the election. But, these broad brush-strokes will have to be separated out into detailed strategies, hopefully in the emergency budget slated for June.

The reduction in corporation tax is estimated to cost the government £4.5bn in revenues. It's a massive sum, considering it is already committed to reducing public spending by £6bn. Pundits believe the tax cut will incur little or no cost to the Exchequer, but when has any government reform not cost a large amount of money to achieve?

The government has delivered a crowd-pleaser, but it hasn't revealed who is going to have to pay for it -- and someone always does. The chancellor needs to make people feel happy about his appointment and has the luxury of painting the future in bright colours before he has to get down to the nitty gritty and work out the details, which may contain some hard decisions.

It's usual for governments to give with one hand and then take away with the other. Still for now, many business leaders will be relieved that the government appears to be listening to them and gaining confidence in that sign. Osborne, like many chancellors before him has declared Britain is now open for business.

(Pic: altogetherfool cc2.0)