Coalition fails in tax competition stakes

The coalition government has failed its promise to make the UK the most competitive tax regime in the G20, according to a report by the Oxford University Centre for Business Taxation (CBT)

According to the report, tax reforms pushed through the coalition government “have only marginally improved the UK’s competiveness”.

The news will come as a blow to both Conservative and Liberal Democrat MPs who have begun their election campaign by focusing on their perceived better record of supporting British businesses since 2010.

Despite pledging to make the UK more competitive than rival G20 countries, since 2010 the coalition government has only succeeded in moving the UK from seventh to fifth place in the rankings.

The report said, “The key indicator used by economists to identify the incentive to locate economic activity in a country is the effective average tax rate, which takes into account other elements of the tax system, including allowances for capital expenditure.

“Although this measure has also fallen, from 26% to 18.5%, this is still only the fifth lowest in the G20.”

While competitiveness has increased only slightly, the overall cost of implementing the reforms has been high, with the CBT describing costs caused by foregone tax revenue as “significant”.

The report continued, “The government’s own estimates indicate that the total cost of its reforms to corporation tax will come to around £7.5bn in 2015/6 alone, equivalent to 21% of corporation tax revenue.”

On the effective marginal tax rate – another measure that affects the size of investment products undertaken in the country – the UK has performed even worse, rising from only 14th to 10th place.

“These measures apply to investment by relatively large business,” the report said. “Smaller companies receive a benefit from the Annual Investment Allowance (AIA) which substantially reduces both measures of effective tax rates.

“However, since most investment is undertaken by large companies, the AIA is unlikely to have a large effect on aggregate investment.”