Businesses will pay lower taxes on their profits in Britain than anywhere else among the world's leading economies, the chancellor, George Osborne, said as he vowed to create a country that would be "carried aloft by the march of the makers".
A faster than expected reduction in corporation tax – two percentage points rather than one – by April will take the rate from 28% to 23% in the next four years. Osborne said that it would be the lowest in the G7 elite group of industrialised countries.
The chancellor's decision to accelerate the cuts to corporation tax was taken at the last minute, the government's own documents show, but it was welcomed by business groups and their advisers, who were stunned that they were being handed tax breaks given the fragile state of the nation's finances.
"It's pretty good news, given the difficulties with the public finances. It's quite a surprise," said Chris Sanger, global head of tax policy at the accountants Ernst & Young.
Osborne said the tax cut was among a series of measures – including plans to encourage non-domiciled entrepreneurs to invest in the UK and a cut in taxes paid by big businesses on overseas operations – that would "put fuel into the tank of the British economy".
"We want the words 'made in Britain, created in Britain, designed in Britain, invented in Britain' to drive our nation forward," Osborne said.
The banks, however, will be excluded from the benefit of the corporation tax cut by a rise in a bank levy, while oil companies were hit by a surprise fuel tax.
Planning laws are also being relaxed to encourage business development, while 21 enterprise zones – more than expected – are being set up, which will offer a 100% business rate discount for five years.
The Office for Budget Responsibility admitted it had been told of the change to corporation tax and the 1p cut in fuel duty from 1 April "too late to incorporate any indirect effect of these measures in the economy forecast".
However, its analysts concluded that the impact of the change would have been minimal.
John Cridland, director-general of the CBI, said: "This budget will help businesses grow and create jobs. The chancellor has made clear the UK is open for business."
United Business Media, which was once one of the UK's biggest companies but changed its tax domicile to Ireland in 2008, said it was now "actively considering" returning to the UK.
The chancellor's comments on personal tax rates – particularly the pledge to rethink the 50% tax rate for higher earners – was also regarded as crucial in setting the tone for banks, such as HSBC, which are considering whether to pull their headquarters out of the UK because of the bank levy.
Sanger said: "This budget is getting close to the ideal: a tax rate that encourages business to be here and a personal tax regime that encourages high earners."
He calculated that companies would benefit from a £2bn cut in taxes by 2014-15 – just over £1bn from the reduction in corporation tax, with the remainder coming from a series of changes to the way that profits made overseas by UK-based companies are taxed.
Anneli Collins, head of tax policy at KPMG, said the budget was generally good for business and would encourage multinational businesses to be located in the UK, particularly in the 21 new enterprise zones being created.
She highlighted new rules for non-domiciled individuals that will allow them to bring their income back into the UK tax free, provided they make commercial investments. "This will provide an additional encouragement for non-domiciled entrepreneurs to invest into the UK," she said.
A number of announcements were aimed at business startups and entrepreneurs, such as the increase in the amount that can be used in the enterprise investment scheme – intended to help investors buy shares in companies – and the doubling of the entrepreneurs' capital gains tax limit to £10m.
David Woodward, head of research and development tax relief at KPMG, pointed to an increase from 175% to 200% in the tax credit received by small and medium sized enterprises investing in research and development. "For a profitable SME spending £500,000 on qualifying R&D, each additional 25% deduction will be worth around £25,000 in cash," he said.
