Osborne said Britain needed a sign over the economy that said “Open for Business”, prompting him to cut corporation rates.
He said: “Corporation tax rates are compared around the world, and low rates act as adverts for the countries that introduce them. Our current rate of 28 pence is looking less and less competitive.”
Osborne promised to cut the tax by 1% next year to 27 pence in the pound.
He said there will be four annual reductions in the rate of corporation tax that will take it down to just 24%.
“It will give us the lowest rate of any major Western economy, one of the lowest rates in the G20, and the lowest rate this country has ever known,” he said.
The reason for this cut was to “have a sustained, job-creating recovery” and “growth not just in one corner of our country, nor in just one sector.”
Osborne also said the government will reduce the small companies tax rate to 20%, a reversal of the previous government plan to increase this tax rate next year to 22%.
Osborne said 850,000 companies would benefit from the proposed cut. He also announced the extension of the Enterprise Finance Guarantee Scheme, which supports SME access to lending, which he said would benefit at least 2,000 small businesses.
Tony Bernstein, tax partner at HW Fisher & Company chartered accountants, said: "The reduced rates of corporation tax will undoubtedly be welcomed by the business community but are likely to have a limited impact, as many companies have reduced profits or realised losses in recent years.
"Self-employed people who do not need to draw all their income for living may consider running their business through a company in order that the profit that is not needed for spending is only taxed at the lower, corporate rate."
Will Morris, chair of the Confederation of British Industry (CBI) Taxation Committee, said: "The coalition’s plan for corporate tax sets a very positive course for the future direction of tax policy. This policy framework, combined with a strong process for business input, will reassure companies in the tough times ahead.
"It is clear that, despite the talented people involved, the tax policy-making process is simply not working as it should, from formation through to final legislation. We welcome the government's decision to consult on this in order to produce a better system for every stage of that process."
