Out-Law News 3 min. read

Prime minister signals more tax cuts, corporate governance reforms in CBI speech


The UK government will work “hand-in-hand with business” to deliver a modern industrial strategy, backed by tough corporate governance reforms, the prime minister has said.

Speaking at the CBI annual conference, Theresa May set out some of the government’s plans to secure the UK’s long-term commitment to research and innovation ahead of formal announcements, which will form part of this week’s Autumn Statement. They include a commitment to £2 billion per year for research and development (R&D) funding by 2020 and a review of the current tax incentives for R&D.

The prime minister also confirmed her “aim” for the UK to have “the lowest corporate tax rate in the G20”, leading to speculation in the press that further cuts were on the horizon. The UK’s headline rate of corporation tax is due to fall to 17% by 2020; however, US president-elect Donald Trump announced his intention to cut the equivalent corporate taxes in the US from 35% to 15% as part of his recent campaign for the presidency.

UK corporation tax has already been cut substantially in recent years, down from 28% in 2010 to the current rate of 20%.

Tax expert Catherine Robins of Pinsent Masons, the law firm behind Out-Law.com, said that the scheduled corporation tax cut would already make the UK “extremely competitive” as a place to do business.

“A further cut is not top of most people’s wish lists for the Autumn Statement,” she said. “Larger businesses will be more interested to hear from the chancellor whether the government will be going ahead from April, as planned, with its proposed interest relief restrictions and limits on the use of corporate losses.”

The government has been under pressure to delay the introduction of a new ‘fixed ratio’ rule, which will limit tax relief for interest and other financing costs to 30% of earnings before interest, taxes, depreciation and amortisation (EBITDA). The changes are being introduced as part of global measures to crack down on so-called base erosion and profit shifting (BEPS), although the UK has planned to do so early. Planned limits on the use of corporate losses were announced by then chancellor George Osborne during his last Budget in March.

In her speech to the CBI conference, May described her plans for a UK industrial strategy as a “new way of thinking for government”, based on government “stepping up, not stepping back, building on our strengths, and helping Britain overcome the long-standing challenges in our economy that have held us back for too long”.

It would do so through increased R&D spending and tax incentives, and by creating a new Industrial Strategy Challenge Fund to “direct some of that investment to … a number of priority technologies in particular”, including robotics and biotechnology, she said. The Treasury would also begin a ‘patient capital review’ to “examine how we can break down the obstacles to getting long-term investment into innovative firms”.

However, she told the audience of business leaders that industry must also “open its mind to a new approach” ahead of the government’s planned ‘green paper’ on corporate governance reform.

“This will be a genuine consultation – we want to work with the grain of business and to draw from what works,” she said. “But it will also be a consultation that will deliver results.”

The package of reforms would “categorically” not require companies to directly appoint workers or trade union representatives to their boards, as suggested in earlier speeches, provided that the interests of employees were “properly represented in board deliberations”, she said.

“Some companies may find that these models work best for them – but there are other routes that use existing board structures, complemented or supplemented by advisory councils or panels, to ensure all those with a stake in the company are properly represented,” she said. “It will be a question of finding the model that works.”

“While some will be quick to describe this as the prime minister back-tracking on employee representatives on company boards, this was always unlikely to be a workable solution,” said executive remuneration and corporate governance expert Graeme Standen of Pinsent Masons.

“From the text of the speech, Theresa May does not appear to be relenting on the strong messaging around corporate governance that has been apparent since the early days of her Conservative leadership campaign: a UK business and economic environment that will ‘work for everyone’, and improvements in business behaviour from the few who have ‘gamed the system’ and damaged the reputation of business and capitalism. May also strongly hinted in her references to addressing executive pay and accountability to shareholders that she plans to continue with her other key July proposals: CEO:median worker total pay ratios and annual binding shareholder votes on pay,” he said.

“We await with interest the BEIS consultation expected since the summer, in order to see exactly how these principles are to be delivered,” he said.

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