What if Britain becomes a tax heaven?

The UK chancellor, Philip Hammond, said if the European Union cannot accept a satisfactory Brexit deal, Britain could be forced to become a tax heaven. Why could Britain be forced to be a tax heaven? Because once Britain loses its access to the European single market, some companies will move out of Britain to the European continent. In order to avoid the sharp decrease in the number of companies locating in the UK, the UK government has to find a new attractive point to provide incentives for these businesses to locate their offices in the UK. The most obvious and crucial strategy is to lower the tax levels and make Britain become a tax heaven.

If Britain becomes a tax heaven, it is difficult to give an accurate predication about how it may change the current government budget position, as it also depends on the Brexit deal. There is one thing certain that when Britain becomes a tax heaven, more companies will locate their office in Britain and more profits will be transfered into Britain. In addition, Britain will attract more wealthy people around the world, this could attract more assets and increase the investment. Britain becoming a tax heaven will have a huge impact on the European Union. Firstly, there are some tax heavens existing in Europe, once Britain becomes a tax heaven, it will definitely create a shock on these tax heaven countries, as Britain has a more complete financial sector with much more resources. Secondly, when Britain lowers its tax levels, it is possible for some European countries to lower their tax levels accordingly in order to keep their competitiveness. It may create another trade war between Britain and the European continent.

I think that the chancellor may use such possible strategy as a threaten when negotiating with the European Union in order to get a better deal. Generally speaking becoming a tax heaven I think is only Britain's one possibility when the Brexit negotiation delivers the worst outcome.