I was in vacation all last week in the Crested Butte area of Colorado, a very beautiful area. On the flight back home last evening I was thinking about how the UK could make the most of Brexit.
One of the ways I came up with was for the UK to cut corporate taxes and truly embrace free trade. I wrote about that at 2:00 AM this morning in Stellar Opportunity for UK to Set Example for the World.
I was unaware that UK chancellor George Osborne had decided to do cut taxes.
It’s Noon and I just got up, surprised to see this headline: France Hits Out at UK Plan to Cut Corporate Tax.
France’s finance minister has warned that the UK’s plan to slash corporate taxes could hit Britain’s negotiations with the EU following the country’s vote to leave the bloc.
Michel Sapin said the initiative — which officials in both Paris and Berlin view as hostile — could affect Britain’s prospects of retaining the “European passport” that allows financial groups to sell their services and raise funds in the EU’s single market.
“I am not persuaded that this is a good thing for the UK,” the French minister said of Britain’s corporate tax plans at a press conference on Monday. “This will not change anything on the passport for instance. In fact, it’s not a good way to start a negotiation.”
Mr Sapin also criticised the “manners” of George Osborne, the UK chancellor who has promised to cut the corporate tax rate by five points to 15 per cent in an attempt to boost Britain’s attractiveness to business in the wake of last month’s referendum.
His comments echo remarks by Wolfgang Schäuble, Germany’s finance minister, who last week criticised the UK’s fiscal “race to the bottom”.
France and Germany are both concerned that the UK will be tempted to establish itself as a low-tax offshore jurisdiction in the EU’s outskirts in response to the Leave vote.
Michel Sapin Pisses and Moans
First Step in Training a Mule
There’s an old saying “The first step in training a mule is to hit it as hard as you can in the head with a stick.”
I don’t really advise that with mules, but it is the precise thing to do to EU nannycrats.
Reflections on Clearness
“It’s clear that the UK can’t participate in the big decisions involving the EU’s future,” said Emmanuel Macron, France’s economy minister.
Well, it’s equally clear the EU cannot participate in big decisions involving the UK’s future.
And with his plan to cut corporate taxes, chancellor Osborne just hit nannycrat mules in Germany, France, and Belgium in the head with not a stick, but a brick.
Trade War the Right Way
The UK should preemptively stick it to the EU by slashing its corporate tax rate to 10%, lower than any country in the EU.
| Country | Corporate Tax Rate % | Highest | Lowest |
|---|---|---|---|
| Austria | 25 | 55 | 25 |
| Belgium | 33 | 48 | 33 |
| Bulgaria | 10 | 40.2 | 10 |
| Croatia | 20 | 20.32 | 20 |
| Cyprus | 12.5 | 29 | 10 |
| Czech Republic | 19 | 45 | 19 |
| Denmark | 23.5 | 50 | 23.5 |
| Estonia | 20 | 26 | 20 |
| Finland | 20 | 61.8 | 20 |
| France | 33.3 | 50 | 33.3 |
| Germany | 29.65 | 56.8 | 29.4 |
| Greece | 29 | 49 | 20 |
| Hungary | 19 | 50 | 16 |
| Ireland | 12.5 | 50 | 12.5 |
| Italy | 31.4 | 53.2 | 31.4 |
| Latvia | 15 | 29 | 15 |
| Lithuania | 15 | 20 | 15 |
| Luxembourg | 29.22 | 40.29 | 28.6 |
| Malta | 35 | 35 | 35 |
| Netherlands | 25 | 48 | 25 |
| Poland | 19 | 40 | 19 |
| Portugal | 21 | 55.1 | 21 |
| Romania | 16 | 38 | 16 |
| Slovakia | 22 | 45 | 19 |
| Slovenia | 17 | 25 | 17 |
| Spain | 28 | 35 | 28 |
| Sweden | 22 | 60.1 | 22 |
| United Kingdom | 20 | 52 | 20 |
| Euro area Average | 24.6 | 36.8 | 24.3 |
| European Union Average | 22.8 | 35.2 | 22.8 |
The above table created from Trading Economics data.
Black Holes
France, Germany, and Belgium are hell bent on sticking it to the UK to make a point.
Recall that the Belgian Premier Warns EU Won’t Help UK Out of “Black Hole”
Ironically, If the UK does things correctly, it will be the EU that falls into the black hole.
Set Example for the World
Shed of inane EU rules and regulations coupled with the freedom to do anything it wants, the UK has a golden opportunity to embrace the benefits of genuine free trade and growth via low taxes.
I have often stated the first country that fully embraces free trade, regardless of what any other country does, will come out stunningly ahead.
The UK now has that chance.
Osborne Changes Tune
Osborne, whom I heavily criticized before Brexit because of his idiotic proposal to hike taxes (See Brexit Debate Focus Shifts to Chickens, Dead Cats, Taxes), has actually started the negotiation process quite well.
Getting France and Germany to piss and moan about “unfair” corporate tax rates in the UK is an excellent first step by Osborne.
Merkel Needs Another Smack to the Head
EU mules and nannycrats are very stubborn beasts.
Osborne should cut the rate not to 15% but to 10% to make the point clear that negotiations will not be as one-sided as her majesty, German chancellor Angela Merkel thinks.
As I have stated all along, the UK, not the EU has the upper hand in these negotiations.
For details, please see “No Cherry Picking” Says Merkel; Risk of Global Trade Collapse says Mish.
Mike “Mish” Shedlock
Wonder if we’ll finally get to see how Operation Sea Lion would have turned out?
Glad to see you enjoyed your vacation in beautiful Colorado Mish. I explored the Black Canyon of the Gunnison River in early June, very near Crested Butte, Colorado is beautiful beyond words, can’t wait to go back…
Good post. The low tax move was very good work by Osborne, as is his current tour of global financial centres. The man is genuinely quite capable, and although he has made mistakes in the past, I wouldn’t complain if he stays on as Chancellor, or failing that at least a move to a Foreign Secretary post etc.
People gain when they exploit opportunities. In an environment where people work, as opposed to expect benefits, Brexit is an amazing opportunity to exploit the EU cost of doing business. The Brits have an amazing upside, if they’re willing to work. They can eat the EU’s lunch now and for years if they want.
I’m skeptical of the willingness to work now that Central Banks offer free money and asset appreciation if you play along. The wealthy can mine the benefits of big government and war in the mid east. The poor can get free stuff out the wazoo and live a subsistence life if they want.
As I wrote earlier, the world is at civil war now, thanks to central banks free money and low rates and monetized debt. Free stuff for the richest and the poorest vs the people who still work. The people who still work will be left holding the bag if the war ends a natural death. Eventually all free lunches fail. As opposed to a future where the workers rise up and toss out the free loaders, who also happen to be wealthy and those with political power.
I’m skeptical of the fortitude of the working class. The rich and the poor, supported by the political class, will use free money to exploit the workers who actually have earned wealth. Very sophisticated theft and a long game.
The key is for the Brits to win via hard work. Investment will follow and so will wealth and Wall Street. Inflation will follow after that and so will central bankers proclaiming success. The EU will be desolate if the free loaders lose. Go Brits.
With Trump, the UK, US, Canada, Australia, and New Zealand could form an English free trade zone with the common law and culture (I’d add the Falklands and such).
It is one thing to try to have “free trade” with an alien culture like China, but before 9/11, Windsor, Canada was in some ways a nice suburb of Detroit, so if I was downtown, I’d cross the bridge and have a meal and shop there. With NAFTA managed trade, things broke – Mexico was unlike the rest.
The EU is about regulation, restriction, or worse. And the unified currency where the austere Germans and the lax Italians try to have the same fiscal policy and interest rates. It is like a family credit card where the responsible one and the profligate black sheep has the same interest rate and credit line.
You nailed it. Wall Street goes where the capital flows. Trump + Brexit + All Others who see the opportunity VS EU deadwood and social parasites, including idiotic economists who think negative rates and monetized debt is a fantastically good idea to spark actual wealth creation.
To the bad, I think the free loaders will win. They’re too rich and too powerful to ignore and they will circle to take what they can. I expect stalling and status quo. Unless the Brits turn into sharks, I see decomposition and fighting over the remnants in out futures.
Since most of them already pay zero corporation tax, how will reducing the current rate improve matters exactly?
Are you talking about the US or UK?
Tariffs on products are already near zero. What could be ‘freer’ than that?
Are you ‘pro’ on the Trans Pacific Partnership?
FT — quoting French minister: “I am not persuaded that this is a good thing for the UK,” the French minister said of Britain’s corporate tax plans…
I am not persuaded that a French bureaucrat has any jurisdiction outside of France.
FT — quoting French minister: “This will not change anything on the passport for instance. In fact, it’s not a good way to start a negotiation.”
So the bankers in London settle their retail trades through existing offices in Geneva, New York, Dubai or Tokyo. EU citizens will ultimately pay all extra taxes and can negotiate with their EU during the next referendum. This assumes EU citizens still have a savings pool to invest after the EU’s policies, which is uncertain.
PS — this is not a negotiation. There is nothing being bought or sold, no assets to divvy up, no price to be agreed upon. The EU is a sinking ship — if French bureaucrats think they can breath underwater, they can stay aboard all the way to the bottom.
I’m convinced a French bureaucrat and all the EU bureaucrats don’t know their end from a hole in the ground – so to speak………….
Oh Lordy!!! Mish is on a tear today! Everyone stand clear!!!!!
GO MISH GO!!!!!!!!!
Agreed, UK should cut to 10% and blow the EU right out of the water!
Hope you had a chance to visit Paonia While you were there. Great little farming town.
Did not. Will look it up next time.
If I’m the EU, I’m imposing a 20% tariff on all British imports the second the tax cut goes into effect. That will immediately throw the UK into depression.
Like…..they’re already in a depression…..the EU even deeper depression……
— “If I’m the EU, I’m imposing a 20% tariff on all British imports…”
If? You sound just like the EU…
So England buys all their produce from the US and Latin America. French farmers tell you where to stick your tax temper tantrum.
England enjoys lower cost produce while focusing on more important things like expanding trade to Commonwealth (Canada, Australia, New Zealand), Latin America, Asia, Africa…
EU needs Britain as a trade partner more than Britain needs the EU.
Mish is 100% correct. Britain has the upper hand, and the entire Brexit scenario is a ripe opportunity for Britain to develop structural/economic advantages that will pay off handsomely in the long run…
Mish — assuming the UK now “activates” Article 50 of the EU trade agreement, what exactly are they supposed to negotiate about? It seems like another silly excuse to waste taxpayer money.
Does the EU come with a money back guarantee? They have to negotiate partial or full refund? They aren’t buying/selling anything, there are no assets to return, no prices / valuations to agree upon, no joint income streams… and they already agreed they don’t like each other.
Neither wins from a trade war — perhaps the EU would be hurt a bit more than the UK, but both would lose. The UK has plenty of alternate trade blocs they could join (and should regardless of the EU). Many of those other blocs would be more lucrative anyway (the same or higher benefits, much lower costs). UK trade negotiations already take place with other sovereign nations, some of which (like the UK) already belong to several trade blocs — no change there.
The EU has to decide whether to shoot themselves in one foot or in both feet? Still not a negotiation, and it doesn’t involve the UK.
Seems like Article 50 could be settled with a post card. “Dear EU: Bye bye! xoxo UK” Do they really need to waste millions of pounds / euros of taxpayer money on a fancy bureaucrat dinner?
A smart agreement would indeed fit on a postcard. But there are issues. People need passports the UK could kick out British businesses. The UK can do the same. Osborne hit the correct tone, as did May. And it was in direct response to statements from France on financial businesses, Belgium on “black holes”, and Germany on migration issues. If the EU puts huge tariffs on the UK or if the EU demands the UK accept EU rules on migration, the UK could easily put massive tariffs on UK goods. Everyone would lose, but the EU would lose far more. Since the EU has far more to lose, the UK easily has the upper hand.
?I am guessing some “UK” and “EU” got transposed while typing…
Everyone has heard the silly temper tantrums from EU officials wanting to punish the UK, but I have yet to hear a single example punishment that could be implemented.
I don’t believe Belgium is going to ban British NATO commanders from Brussels, and it is even less likely that France / Germany / Italy / Spain are going to increase military spending to 2% of GDP (never mind the 3% they agreed to). NATO headquarters would have to move, or NATO would dissolve before Trump gets elected.
I don’t believe a French politician is really going to incur the wrath of French farmers, tourism agents / realty companies (holiday rentals). Substitute Spain or Italy and the same applies.
I don’t believe Deutche Bank or BNP are going to let UBS / Credit Suisse issue GDRs and/or write total return swaps on European companies — EU banks will cheat faster than OPEC.
Total return swaps and Euro-bond swaps between two non-EU entities are outside the EU, and cannot be controlled. If the EU trades with any country outside of itself — that country can issue TRS and IRS and make a mint. EU banks will ignore Brussels (cheat) or they will lose all market share.
Will the EU stop trading with BIS (located in Geneva)? Will the EU ban SWIFT? How many seconds would it take RBS to use the Russian / Chinese alternative instead? Keep in mind BP’s oil activity before answering more than 10 seconds. As long as BIS stays, UBS and Credit Suisse will make gobs of profits writing GDRs, TRS and IRS on EU companies — until EU banks run their own blockade.
The Libor / Eurodollar market exists because the US Fed tried and failed to do what Eurocrats say they might do. Officially, the EU might revoke UK financial passports — but practically speaking they won’t.
I don’t see why anyone would waste time “negotiating” when every single issue is really a fait accompli (for both sides), even if the eurocrats weren’t behaving like infants.
The UK will get the same terms with the EU as Switzerland did — because neither side really has a choice (and the EU stands to lose much more)
This is a complete and utter FALSEHOOD. (Caps the computer’s not my own)
Great Britain has already “Brexited.” Move along…
Unfortunately, it looks like the UK might have to just suck it up and do whatever the EU asks with tax policies, immigration, or otherwise. The UK needs the EU more than the EU needs the UK. It’s that simple. Worse, the EU believes they have to punish the UK to set an example and keep the other member states in line.
EU leaders are even talking about banning the trade in Euro swaps from taking place in the UK. This is irrational (i.e. Euro swaps are traded in Japan), but they might use a nuclear option like this just to prove a point.
When push comes to shove UK politicians don’t have the guts to go it alone without a free trade agreement with the EU. Worse, the City of London bankers would never allow British politicians to lose the banking “passport” to the EU.
I don’t disagree. The Brits have been played for decades that all things bad are the fault of the EU and all things good come from the Labourite & Tory neo-liberals. Now the government is going to have to take responsibility. And they don’t want to cause any pain. So they’ll have to toe the EU line while finding something else to blame. I’m guessing the lack of “structural adjustments” will be a good pick. Everybody would be rich if we could just cut back on pensions and healthcare.
Personally, I believe that losing the banking passport to the EU would be the best thing ever to happen to the UK. They have let the banking class dictate policy far too long. But I seriously doubt this will happen. The easy money flowing to politicians from the London bankers has given them a virtual strangle-hold on UK policy.
The UK needs the EU more than the EU needs the UK. It’s that simple.
Ass backwards!
It’s that simple, and that easy to see.
Getting the EU into a state of infighting would be another possible outcome of the UK reducing corporate taxes.