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Osborne Pledges Changes to U.K. Tax System to Discourage Debt

Britain’s Conservative opposition said its “first priority” will be to change the corporate tax system to remove incentives for companies that borrow, encouraging them to seek equity capital instead.

“We need to change from an economy built on debt to an economy powered by savings and real returns on effort,” George Osborne, the Conservative lawmaker who speaks on finance, told executives today in Birmingham, England, according to a text from his office. “Increasing profits through ever higher debts is not a sustainable way to build a business.”

Osborne aims to eliminate tax breaks for debt and to use the money raised to reduce corporation tax rates beyond his existing pledge. The party already has signaled it wants to reduce the rate from 28 percent to 25 percent.

He said “highly leveraged” private equity had squeezed out “real venture capital,” something he wants to reverse.

The comments sharpen the dividing lines between Conservatives and Prime Minister Gordon Brown’s Labour government as the economy tips deeper into recession. While Brown is directing the Treasury to borrow and spend more, the opposition says the U.K. is already mired in debts that will hurt the economy for generations.

Voter support for the Labour government has trickled away as the economy slid into recession and Brown announced a string of taxpayer-funded packages for banks.

Osborne said politicians should be “telling people that they can’t rely on massive increases in house prices to fund their retirement, and that they will have to save for a deposit to buy their own home.”

“It means explaining that government can’t just spend money on every worthy cause that comes knocking on the door, and that difficult reform is a necessity when money is tight, not a luxury when budgets are rising,” he said.

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