Trump tax cuts threaten to cost UK £18bn as companies flee to America
Donald Trump's tax plans could blow an £18 billion hole in the British economy, new analysis shows.
Mr Trump campaigned on a platform of slashing US corporation tax rates and has already disavowed the OECD's minimum tax deal, which aimed to reduce tax competition between countries.
New economic modelling reveals that the president's corporate tax plans could adversely affect Britain, where the levy on business remains at a relatively high 25 per cent.
If Mr Trump cuts US corporation tax to 14 per cent, one point below the OECD minimum rate, American investment in the UK could quickly dry up.
During the US election, Mr Trump pledged to cut the corporate tax rate to at least 15 per cent, 6 percentage points below the 21 per cent rate set by former president Joe Biden.
In its analysis, the Prosperity Institute said: 'If the United States government cuts US corporate tax to 14 per cent – one point below the OECD's minimum threshold of 15 per cent – this would give the United States an 11 per cent tax differential over the UK, whose corporate tax rate is currently 25 per cent.
'We predict a reduction of up to £18.2 billion in foreign direct investment from the USA to the British economy between now and 2030-31.'
The think tank also warned that Trump's tax reforms could cancel out many of the revenue raising plans set out by Rachel Reeves, the Chancellor.
It said: 'Furthermore, this would negatively impact the UK's GDP by 0.1 per cent (£3.4 billion) over the same period, based on OBR forecasts of UK GDP growth, equivalent to the anticipated gains from recent business rates reform (£1.2 billion) and increased capital gains tax (£2.2 billion).'
Emmanuel Igwe and Jordan McKittrick, economists at the Prosperity Institute, said: 'Without embracing competition, the UK will find itself potentially losing business to its largest trading partner, as more American money is reshored. This is a risk that the UK can scarcely afford to take, considering the state of public finances and the economy.'
'The ability to set tax rates is fundamental to any nation's sovereignty. While corporation tax is just one item in a nation's toolbox, alongside regulatory reform, energy policy, labour laws and others, it is of fundamental importance.'
An HM Treasury spokesman said: 'The UK has been recently recognised as the second most attractive investment destination in the world, beating Germany, China and India, and is forecast by both the IMF and OECD to be the fastest growing major economy in Europe in the coming years.
'Our competitive tax system is just one way we are going further and faster to kick-start that economic growth, with corporation tax capped at 25 per cent – the lowest in the G7 – for the entire Parliament and permanent full expensing backing businesses to create wealth and opportunity across Britain.'
In recent weeks, the Chancellor has tried to convince global businesses that they should invest in Britain. Ms Reeves visited the World Economic Forum in Davos last month and told conference delegates: 'The time to invest in Britain is now.'
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