Corporation tax will fall from 30% to 28% in the UK following the Chancellor's budget, predicted to be Gordon Brown's last. Brown announced a boost to research and science, with £100 million in extra tax credits for research and development.
Science investment will rise to £6.3 billion in a move which, along with the R&D credits, is intended to boost hi-tech innovation.
"As part of our plan to double investment in science, I can announce that in the next four years public investment in science will rise from £5 billion this year to £6.3 billion by 2010-11 – a 25% cash increase," said Brown in Parliament.
"The Secretary for Industry is also today announcing a £100 million competition for Britain to lead in high tech innovation – challenging universities and businesses to come together, from medical research to environmental transport, to convert British scientific breakthroughs into British commercial success and jobs," he said.
Brown said that his cut in the main rate of corporation tax is also designed to spur innovation. "Having continued to look carefully at the requirements for a modern corporate tax system for the global economy I propose the following changes that reflect the increasing importance in investment decisions of R&D, skills, intellectual property and environmental innovations," he said. "I have decided to cut mainstream corporation tax from April 2008 from 30p down to 28p – at 28p a rate lower than America, Germany, France, Japan, and all of our other major competitors."
The rate for small companies, though, will rise, from 19% to 22%. That move, criticised by business representative groups, was designed to close a loophole, said Brown.
"I do need to act to deal with individuals artificially incorporating as small companies to avoid paying their due share of tax, a practise if left unaddressed would cost the rest of the taxpaying population billions of pounds," said Brown.
"To reduce the tax difference between self employment and small company incorporation, I will raise the small companies' rate in three stages from 20p this year to 22p in 2009, recycling all these revenues to legitimate small businesses investing for the future," he said.
Brown also announced that public borrowing would hit £34 billion, £3 billion higher than previous estimates.
Brown estimated that this year UK economic growth would be 2.5% to 3%, that inflation will be down from 2.8% to 2% and that the forecast for business investment growth is 7%.