Chancellor announces surprise corporation tax cut

Corporation tax for businesses will be cut to 23%, with two percentage points cut on the tax rate in April from 28%, and a 1% drop in each of the following three years.

The initial drop from 28% comes in place of the 1% cut that had previously been announced.

To ensure the arrangement is not a "net tax cut for banks" the Chancellor announced a £285 million rise in the bank levy from January 2012.

"Other countries are attracting multinationals away from the UK. I want this to be a place that international companies go to, not leave," said George Osborne.

The Government has promised to radically simplify the tax system and reform taxes on profits collected overseas, under an overhaul of the controlled foreign company rules. This is seen as a move to attract businesses back to the UK after a number of British firms – including marketing and communications giant WPP, office group Regus and pharmaceutical firm Shire – recently switched their headquarters from the UK to escape hefty tax bills.

Mr Osborne said Britain needs a more competitive tax system to keep companies and jobs in the UK which has "the sixth highest corporation tax rate in the world; a tax system so complex that it overtook India" in complexity.

The corporation tax reduction will ensure the UK has the lowest rate of corporation tax in the G7, according to the Treasury.

The move will see a reduction in the corporation tax take of £425 million in the financial year to March 2012, with the new 23% rate cutting the haul by £1 billion in 2014/15.