Britain is closing the corporate tax gap with rivals such as Ireland and Luxembourg by slashing a further 1% off corporation tax.

George Osborne announced the cut, bringing the rate of corporation tax to 21% in April 2014, in the same week that he joined the debate over multinationals dodging payments to the Treasury on their UK operations.

It also means the chancellor has further accelerated business tax cuts flagged in the March budget. Instead of cutting corporation tax from 24% to 22% by April 2014, as announced earlier in the year, he is now reducing it to 21%.

Announcing the latest reduction, Osborne compared it favourably to headline rates elsewhere, including the 40% levy in the US, 33% in France and 29% in Germany. "This is the lowest rate of any major western economy. It is an advert for our country that says: come here; invest here; create jobs here; Britain is open for business." The headline UK rate has already been reduced from 26% to 24% this year.

The latest move brings the UK corporation tax rate in line with Luxembourg, which also charges 21% on business profits. Luxembourg's tax regime is viewed by many companies – such as Amazon – as more appealing than Britain's. The UK will still levy a higher rate than Ireland, which has a rate of 12%.

Osborne added that banks would not benefit from the move, as he announced a simultaneous increase in the bank levy. "We will not pass the benefit of this reduced rate on to banks, and to ensure that we meet our revenue commitments, the bank levy rate will be increased to 0.130% next year," he said.