The UK has ranked 32nd out of 38 OECD countries for overall tax competitiveness.
US-based Tax Foundation released the latest edition of its International Tax Competitiveness Index which found the UK is trailing behind its G7 counterparts, ranking ahead of only Italy and France.
The index is an annual ranking of 38 OECD countries based on how pro-growth their tax systems are, examining more than 40 different tax policy variables to assess how supportive each country’s tax system is of economic growth.
The UK’s ranking is unchanged from last year and up one rank since 2014, the first year the index was published.
However, analysis by the Centre for Policy Studies found there was a sharp fall in the UK’s position in terms of personal taxation following the tax rises in the 2024 Budget.
The UK ranked second in terms of its cross-border taxation regime but ranked poorly in all other categories.
Reeves should resist the urge to crank up pressure on businesses and instead learn from our international competitors
Other categories included corporate income tax, individual taxes, consumption taxes and property taxes.
In the corporate category the UK placed 28th, due to its complexity, low allowances and a relatively uncompetitive corporation tax rate.
Following the Labour administration’s increases in CGT and employer’s national insurance, the UK’s ranking on personal taxation fell from 20th to 25th.
Meanwhile the UK’s consumption tax regime (ie VAT) was 33rd and finally, its property tax system was judged the second worst in the world, as a result of its high rates and bad design.
Head of economic and fiscal policy at the Centre of Policy Studies, Daniel Herring, said: “Plenty of ideas have been proposed ahead of the Budget that would make things even worse.
“However, there is also an opportunity for the chancellor. Britain’s tax system is so terrible that simply removing a few bad taxes or altering rates could lead to outsize economic growth.”
Policy changes
The think tank suggested three changes the government could make however noted they were likely “well beyond the government’s price range”.
Thee included:
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Abolishing stamp duty on land and shares, which would improve the UK’s property ranking by six places and lift the UK’s overall rank to 31st
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Lowering corporation tax to 19 per cent, which would give the UK the fourth lowest rate in the OECD. While its rank for business taxation would improve 16 places to 12th
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Introducing full expensing for all capital investment would lift the UK’s rank in the corporate category from 28th to 17th
According to the think tank, if these changes were implemented together, they would raise the UK’s overall ranking from 32nd to 20th.
Speculation continues to be rife on whether Reeves will introduce a wealth tax but the Centre of Policy Studies believes this would push the UK even further down the tax competitiveness rankings.
“The UK’s continued lack of tax competitiveness would be a concern for any Chancellor ahead of a Budget where tax hikes are widely mooted.
“Reeves should resist the urge to crank up pressure on businesses and instead learn from our international competitors.
“Our current tax system is already uncompetitive and anti-growth – the country cannot afford for things to get worse,” Herring added.
alina.khan@ft.com
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