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British companies will be able to keep more of their profits for shareholders, under plans announced in the Summer Budget, but will be expected to pay their staff more.
The Chancellor announced that he was reducing the rate of corporation tax on company profits from its current 20% to 19% in 2017 and then further, to 18% in 2020. The move gives the UK the lowest rate of corporation tax in the G20.
However, in a major political U-turn, he announced the creation of a National Living Wage of £7.20 an hour for workers over 25 from next April, with a target to raise this to £9 an hour by 2020. The current National Minimum Wage, opposed by the Conservatives at the time of its introduction, is £6.20 an hour.
"Britain can afford a pay rise," he said and he went on to claim that OBR forecasts said the increase would have "a fractional effect" on jobs.
The Chancellor also said that corporation tax payment dates for the largest companies - those making profits of more than £20m a year - would be brought forward to "bring them closer to the dates on which profits are made". This would have a one-off effect of improving government cash flow from April 2017.
At the other end of the scale, the government is reviewing the status of smaller companies where "a director is the sole employee". It has asked HMRC to start a dialogue with business on how "to improve the effectiveness of existing IR35 legislation" which was designed as an anti-avoidance measure.
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