The Daily Telegraph

Hunt saddles UK with one of least competitiv­e tax systems in world

Government U-turn on growth plans will harm the economy after Britain falls to 33rd in global rankings

- By Tim Wallace

THE abandonmen­t of Liz Truss’s growth plans will saddle Britain with one of the least competitiv­e tax systems in the world, economists have warned.

The UK is set to tumble in the rankings from 26 to 33, its worst performanc­e since the Us-based Tax Foundation think tank began compiling an index in 2014.

The Centre for Policy Studies (CPS), which also backed the research, said the decision to reinstate Rishi Sunak’s corporatio­n tax increase from 19 per cent to 25 per cent next April removed one of the UK’S biggest potential attraction­s as a place to do business.

It was among a series of mini-budget about-turns, worth around £32 billion per year to the Exchequer, that was announced by Jeremy Hunt on Monday to calm markets and bring down the Government’s cost of borrowing.

Tom Clougherty, of the CPS, said the Government had little choice but to raise taxes given conditions in financial markets, but warned it would harm the economy’s prospects.

He said: “They have been thrown into crisis mode by the reaction of the markets – they had to do whatever it took to stop gilt yields from climbing and climbing. That is what they have done, it is understand­able and appropriat­e.

“But when the fog of crisis clears, you have got to take stock of the position you are in relative to all of your competitor­s, and the research shows on tax we are not going to be in a very happy position.”

Mr Clougherty added that ministers should be on the lookout for future opportunit­ies to cut taxes again, as well as chances to simplify the system and reform the over-regulated economy.

“As and when any fiscal headroom or opportunit­ies for reform appear, it is going to be important to take them,” Mr Clougherty said, suggesting “regulatory and supply-side measures on housing and infrastruc­ture, in energy and childcare” would help boost the economy even without tax cuts.

Estonia has the most competitiv­e system in the Organisati­on for Economic Co-operation and Developmen­t (OECD), according to the Tax Foundation, ranking highly for corporate, individual and property taxes, with its broad-based VAT system particular­ly simple to operate.

The think tank said Latvia – which recently adopted a similar corporatio­n tax system to Estonia – is in second place, followed by New Zealand, which won praise for its “relatively flat, lowrate individual income tax”.

Among larger economies, Australia is the 11th most competitiv­e, Germany the 15th and the United States 22nd. In the 2021 rankings, France, Italy and Portugal were the worst performers.

The report found France’s “multiple distortion­ary property taxes” are particular­ly damaging, as are its high taxes on incomes.

In his mini-budget last month, former chancellor Kwasi Kwarteng said it was crucial to keep corporatio­n tax at 19 per cent as “every additional tax on business is ultimately passed through to families through higher prices, lower pay, or lower returns on savings”.

But Mr Hunt, his successor in charge of the Treasury, was forced to push the levy up to 25 per cent as part of a plan to satisfy financial markets after they were spooked by fears of excessive government borrowing.

Warning of further “decisions of eyewaterin­g difficulty” to come, Mr Hunt said: “We are a country that funds our promises and pays our debts. And when that is questioned, as it has been, this Government will take the difficult decisions necessary to ensure there is trust and confidence in our national finances.”

A Treasury spokesman said the headline corporatio­n tax rate would still be relatively competitiv­e after next year’s increase.

He added 25 per cent “is still the lowest rate in the G7, so the UK will remain internatio­nally competitiv­e, while incentives such as the £1 million Annual Investment Allowance and Seed Enterprise Scheme will continue to support businesses investment and growth.

“Businesses with profits below £250,000 will be protected from the full rate rise, with those making less than £50,000 – the vast majority of UK companies – not facing any corporatio­n tax increase at all.”

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