Chancellor of the Exchequer George Osborne promised on 19 May to cut corporate tax rates, with a view to tempting back companies that have left Britain for fiscal reasons.

The Chancellor told the annual Confederation of British Industry (CBI) dinner that he would cut corporation tax to the lowest rate across the G20 within five years.

He is expected to honour an election manifesto pledge to reduce the rate from 28 to 25% in next month¡¯s Budget.

Osborne also hinted that manufacturers would not assume the brunt of the cost for the tax cut. Before the election, the Conservatives had planned to reduce capital allowances on the cost of new equipment and machinery to fund the change, but industrial groups said that would be unfair.

The Chancellor said last night: ¡°Our aim is to create the most competitive corporate tax regime in the G20, while protecting manufacturing industries.¡±

A 3% reduction in the corporation tax rate would cost the UK Treasury £4.5 billion a year, but Osborne thinks he can claw some of that back through allowance cuts and cracking down on tax avoidance.

He also indicated that the Treasury would try either to water down or dump an overseas subsidiary levy introduced by the previous Labour government, saying: ¡°I want to reform the complex rules governing foreign subsidiary companies that have driven business overseas. I want multinationals coming to the UK, not leaving.¡±

Martin Dawkins, Bayer¡¯s managing director for the UK and Ireland, said: ¡°I think it¡¯s wonderful rhetoric, but we still need to see how he delivers.¡±

John Cridland, deputy director-general of the CBI, said: ¡°The Chancellor hit the right note. We are pleased that he has recognised that the tax competitiveness of the UK is challenged. Business will warmly encourage a five-year road map which will encourage economic growth.¡±