The Tax Foundation’s annual International Tax Competitiveness Index, published this week, shows just how far behind we have fallen. Out of 38 OECD countries, Britain ranks just 30th. That’s not good enough, says Andrew Griffith
Two weeks ago, I told the Conservative Party Conference that lower, simpler, and fairer taxes would be my personal “North Star”. The “lower” part isn’t particularly new, politicians have said they want lower taxes for years (even as the tax burden has continued to creep up to record highs). What Britain has been missing, and what I want to put front and centre of the Conservative economic plan is taxes that are simpler.
The Tax Foundation’s annual International Tax Competitiveness Index, published this week, shows just how far behind we have fallen. Out of 38 OECD countries, Britain ranks just 30th. As if that were not bad enough, when the report was first published in 2014, we were 21st — not great by any standard, but proof that while other countries have improved their tax competitiveness by simplifying, we have not.
If you’re wondering what exactly is going wrong, the report offers some clues. While countries further up the ranking do poorly in one or two areas, they generally have a few areas of strength in their tax system to balance things out. The first place in this ranking has long gone to Estonia, which has a fantastically competitive corporate and individual tax system, and yet ranks only 24th for consumption taxes like VAT. It’s one sin is more than made up for by the merits of its often-flat tax system.
By comparison Britain’s tax system ranks poorly in every single category but one: cross-border tax rules. That’s essentially a function of Britain having more cross-border tax treaties with other countries around the world than anyone else (a win helped by us having been around for longer). It should still be no comfort that our only advantage is thus being able to escape our own terribly complicated tax system: a solution to a problem that needn’t exist.
Lowering taxes
So, what could lower taxes look like? The tax boffins give us some ideas by flagging our high marginal rates and cliff-edges, our infamous VAT rules running to many hundreds of pages, and our high property tax burden caused by stamp duty and business rates. All are tractable problems and some of them already have proposed Conservative solutions.
Scrapping stamp duty on primary residences and abolishing business rates for thousands on the high street would go a long way toward a lower and simpler tax system. Equally, our announcement at Conference that we will end the childcare cliff-edge, which can see families tens of thousands of pounds worse off if they earn just £1 over £100,000, will also be scrapped under a Conservative government. It’s a start, but it’s not enough.
I will ensure that every Treasury minister makes tax simplification their mission. For too long, we have sought to fix one problem in a complex tax system by layering on yet another complexity rather than going to the source and fixing the cause. And as Kemi writes in The Right Way, “A simpler system in which is reliably collected is fairer to honest taxpayers than high nominal rates riddled with exceptions and avoidance opportunities”. Lower, simple, and fairer taxes are the right way.
Until then, however, it’s not all doom and gloom. The new tax index does praise Britain for one more strength aside from our network of tax treaties: full expensing. It calls this a strength, and rightly so. It’s also proof that when we set our mind to it, our tax system can be improved considerably.
As Chancellor, I will set my mind and that of the entire Treasury toward lower, simpler, and fairer taxes that will finally take Britain to the top of the competitiveness league tables.
Andrew Griffith is shadow Chancellor