Donald Trump’s proposed corporate tax cuts could cost the British economy £18 billion, according to new analysis from the Prosperity Institute.
The former US president’s plans to slash corporation tax rates threaten to divert American investment away from the UK, where business tax remains at 25 per cent.
Economic modelling suggests that if Trump reduces US corporate tax to 14 per cent – one point below the OECD minimum rate – it could rapidly diminish American investment flows into Britain.
During the US election campaign, Trump pledged to cut the corporate tax rate to at least 15 per cent.
This would mark a significant reduction from the current 21 per cent rate established under Joe Biden’s administration.
Trump has already distanced himself from the OECD’s minimum tax deal, which was designed to prevent aggressive tax competition between nations.
In its analysis, the Prosperity Institute said: “If the United States government cuts US corporate tax to 14 per cent – one point below the OECD’s minimum threshold of 15 per cent – this would give the United States an 11 per cent tax differential over the UK, whose corporate tax rate is currently 25 per cent.
“We predict a reduction of up to £18.2 billion in foreign direct investment from the USA to the British economy between now and 2030-31.”
This gap could prompt American businesses to redirect their investments back to the United States, potentially undermining Britain’s position as a key destination for US capital.
The tax reforms could reduce UK GDP by 0.1 per cent (£3.4 billion) through 2030-31, based on OBR forecasts.
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The think tank also warned it would effectively cancel out anticipated gains from Chancellor Rachel Reeves’ recent revenue-raising initiatives.
The GDP reduction would offset the expected £1.2 billion boost from business rates reform. It would also negate the projected £2.2bn increase from capital gains tax changes.
These findings suggest Trump’s proposals could significantly undermine the Chancellor’s fiscal strategy.
Emmanuel Igwe and Jordan McKittrick, economists at the Prosperity Institute, warned that Britain must embrace competition to avoid losing business.
They said: “Without embracing competition, the UK will find itself potentially losing business to its largest trading partner, as more American money is reshored.
“This is a risk that the UK can scarcely afford to take, considering the state of public finances and the economy.
“The ability to set tax rates is fundamental to any nation’s sovereignty. While corporation tax is just one item in a nation’s toolbox, alongside regulatory reform, energy policy, labour laws and others, it is of fundamental importance.”
A Treasury spokesman defended Britain’s investment climate, noting the UK’s position as the second most attractive investment destination globally.
The spokesman highlighted that Britain outranks Germany, China and India for investment appeal.
The UK is forecast to be Europe’s fastest-growing major economy in coming years, according to both the IMF and OECD.
The spokesman said: “Our competitive tax system is just one way we are going further and faster to kick-start that economic growth,” emphasising that corporation tax will remain capped at 25 per cent – “the lowest in the G7” – throughout Parliament.
In recent weeks, Chancellor Rachel Reeves has been actively courting international investment.
The Chancellor attended the World Economic Forum in Davos last month, where she made a direct appeal to global business leaders.
Reeves told delegates at the forum: “The time to invest in Britain is now.”
