Sweden Warns U.K. Against Aggressive Tax Cuts Amid Brexit Talks

(Bloomberg) -- The U.K. should avoid any drastic steps to cut corporate taxes, or similar measures, as it prepares to start talks on leaving the European Union, Swedish Prime Minister Stefan Loefven said.

The premier of the largest Nordic economy also said the U.K.’s exit from the 28-nation bloc “shouldn’t take longer than necessary.”

“But if the U.K. wants some time to think about the situation, this will also give EU countries some time,” Loefven told Bloomberg after giving a speech in Stockholm on Sunday. “On the other hand, you hear about plans in the U.K. to, for example, lower corporate taxes considerably. If they, during this time, begin that kind of race, that will of course make discussions more difficult.”

U.K. policy makers are now dealing with the fallout of the June vote backing a Brexit and are looking at the first part of next year to start formal talks. Prime Minister Theresa May has delayed starting Britain’s exit as she puts together a team and prepares for what will inevitably be tough negotiations.

At the same time, U.K. Chancellor of the Exchequer Philip Hammond has expressed readiness to “reset” fiscal policy through corporate tax cuts, among other measures, to support the economy.

“Tax policy is a matter for member states,” said Helen Bower, spokeswoman for the U.K. premier. “I haven’t seen those specific remarks, but since 2010 the government has been taking forward measures to reduce corporation tax while in the European Union.”

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Loefven, who is traveling to Germany to meet with Chancellor Angela Merkel on Friday, said any “aggressiveness from Britain in those types of issues, that doesn’t improve the relationship.” 

For Sweden, there will be more room to maneuver once it emerges from its budget deficits, Loefven said. He announced plans on Sunday to train an additional 3,600 teachers.

Sweden’s previous center-right government lowered the corporate tax rate in successive moves to 22 percent, compared with the U.K.’s current 20 percent rate.

The Social Democratic government, which came into power in 2014, has raised income taxes to boost spending. The Nordic country’s economy may expand 3.4 percent this year, compared with the U.K.’s 1.8 percent, according to forecasts from the European Union.

“We will continue to invest, because that’s the future,” Loefven said. “Tax cuts are not the future. We need to continue to invest, and, for example, make sure our children get a good education.”

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