May risks Treasury row with plan to halve corporation tax

A PLAN to sharply reduce corporation tax is being considered by No 10 officials, fuelling claims of a row between Theresa May and Philip Hammond.

Senior advisers are understood to be considering plans to cut the levy by nearly half to 10 per cent if Brexit negotiations become difficult.

The suggestion comes after the Chancellor told European Union finance ministers last month that the UK will stick to a proposal to cut the tax to 17 per cent by 2020 and rejected calls for it to be cut further to 15 per cent.

The “nuclear option” proposed by No 10 experts would put pressure on EU states by encouraging businesses to relocate to London and could be used if talks over passporting rights or a free trade deal become fraught.

The UK already has one of the lowest rates of corporation tax in the developed world, but advisers are understood to believe it could be the country’s most powerful bargaining chip if talks with EU partners do not go well.

Stephen Herring, head of tax at the Institute of Directors, backed the idea in principle, but warned it could cost the UK between £10 billion and £15 billion in lost tax receipts, which would need to be recovered in new business or by tackling tax avoidance.

Downing Street officials are said to be considering the plan as part of a hardline British bargaining position with the EU, but Mr Hammond has repeatedly urged caution and called for a softer position.