Osborne: I will cut taxes to aid private sector recovery

The coalition Government will cut and simplify business taxes to create the conditions for a private-sector recovery, George Osborne said last night.

In his first major speech since becoming Chancellor, at the CBI's annual dinner in London, he suggested that cutting the huge public deficit will not be enough and said his "guiding principle" would be to boost the private sector. He warned that under Labour, Britain had become too dependent on a public sector that accounted for almost 50 per cent of the economy.

He also admitted his party had considered "whether we could try to bluff our way into a minority government", but in the end were concerned about the prospect of "weak, unstable government, risking defeat night after night in Parliament."

Declaring Britain "open for business", Mr Osborne said the coalition would go ahead with Tory plans to cut corporation tax paid by companies, which will be funded by reducing existing allowances.

A second "coalition agreement" to be published today will say: "We will reform the corporate tax system by simplifying reliefs and allowances, and tackling avoidance, in order to reduce headline rates. Our aim is to create the most competitive corporate tax regime in the G20, while protecting manufacturing industries."

Promising "wholesale reform" of corporate taxes, the Chancellor said his first Budget, on 22 June, would set out a five-year road map. He also plans to reform the complex Controlled Foreign Companies rules that had driven businesses overseas. "I want multinationals coming to the UK, not leaving," he said, adding that Britain must ensure "the whole world must be our marketplace".

Mr Osborne promised the CBI the new regime would deliver "confidence and stability" instead of "debt and uncertainty" leading to higher interest rates and taxes; the freedom to compete in world markets through lower tax and less regulation; and the "raw materials to succeed" – including an educated workforce, a welfare system that rewards work, and modern energy, digital and transport networks.

"All politicians paid lip service to enterprise," he said. "But the ... last 13 years have shown that we can never assume the argument is won."

He added: "Over five million people are out of work and on benefits. Even now, there are those who argue seriously that yet more increases in public spending are the answers to our problems. No wonder too many people around the world thought that Britain had put up a sign that said 'closed for business'. Today we take that sign down."