Conservatives to cut company tax by 2011 if elected

Britain's leader of the Conservative Party, David Cameron, speaks at the launch of his party's new poster campaign ahead of the general election, London February 15, 2010.

BRIGHTON, England (Reuters) - Britain's opposition Conservatives will cut company taxes for big firms to 25 percent from 28 percent with full effect from April 2011 at the latest if elected this year, a party source told Reuters Saturday.

The decision to announce a cut at an emergency budget within 50 days of a possible Conservative election victory was later confirmed by the party's economic spokesman George Osborne.

Although its once-sizeable opinion poll lead has narrowed, the opposition is still tipped to end 13 years of Labour rule at an election expected on May 6.

"We will cut the corporation tax rate ... We will reduce the small companies tax," Osborne, likely to be finance minister if the Conservatives win, said in a speech to party activists. "Together these will help power an enterprise revolution."

Business spokesman Ken Clarke said the party would reduce the small companies' tax to 20 percent, from the current 21 percent.

The Conservatives have a long-held pledge to cut company taxes as part of an ambition to make Britain one of the most competitive countries to do business, but the timing of the announcement and when it would come into force are new.

A high level party source told Reuters the measure was revenue neutral and part of a fully-funded package, saying the "full effect may have to wait until April 2011."

The cut to the taxes firms pay on their profits must be costed into the Conservative's fiscal strategy of slashing Britain's record budget deficit faster than Labour, which has pledged to halve the deficit over four years.

"CON NOT A CUT"

A spokesman for Labour finance minister Alistair Darling said the corporation tax pledge was a "con not a cut." The Conservatives say they will scrap certain tax relief's and allowances for businesses to fund the measure.

"It is paid for by a huge tax hike on business investment that hits manufacturing hardest," the spokesman said.

The manufacturing organisation EEF has said reducing tax allowances that encourage investment would be a "disaster."

The opposition, traditionally business-friendly, has said its fiscal tightening would be biased towards big spending cuts, but has not ruled out tax hikes to rein in a deficit set to top 12 percent of gross domestic product this year.

Osborne wants to start bringing down the deficit this year to restore investor confidence and to keep interest rates low.

The party has started to give more definition to its economic policy, mindful that Prime Minister Gordon Brown's Labour party is eating into the Conservatives' poll lead.

Signs that Britain's frail economy emerged stronger than thought from an 18-month recession at the end of 2009, a Labour media blitz and Brown's warning that early Conservative spending cuts would damage the recovery appear to have had an impact.

Brown attacked the Conservatives stance on the deficit again at a Labour party gathering in Wales Saturday, urging voters to take a second look at his party, in power since 1997, and a long hard look at what the Conservatives are offering.

Political commentators say the election race is getting so close that a hung parliament could be on the cards, where no one party has a majority -- the scenario most feared by financial markets looking for reassurance on the deficit.

Opposition aides admit the party has struggled to get its message right on the deficit so far, with leader David Cameron appearing to tone down the rhetoric while economics spokesman George Osborne has held firm on the need for tough action.

Osborne made his most convincing case for early deficit cuts in a speech this week which impressed many of the economists in attendance, but there are still plenty of experts who disagree.

(Additional reporting by Adrian Croft and Kylie Maclellan, Editing by Ron Askew/Keith Weir)