UK economy saddled with tax burden a fifth higher than the global average –Campbell Dallas

The UK is inhibiting its economy with a tax burden 18 per cent heavier than the global average, and should consider setting a specific target for overall tax take, according to Scottish accountancy firm Campbell Dallas.

A survey by Campbell Dallas’ membership network UHY found that tax revenue in the UK represents a third (32.9 per cent) of GDP, a fifth higher than the global average of 27.8 per cent.

These figures suggest that the UK would struggle to match a lower cost regime such as the US, where the total amount of tax taken by the Government is a just over a quarter of GDP at 25.4 per cent.

The UK also lags close neighbour Ireland, where the Government’s tax ‘take’ from the economy is 28.3 per cent, and even Japan 29.5 per cent.

The research examined 53 economies around the world, calculating what percentage of that country’s GDP is taken by the Government in tax.

Emerging economies generally have the lightest tax burdens, in the BRIC economies and in Eastern Europe the proportion of the economy claimed by the Government is 21.7 per cent and 25.9 per cent respectively.

The second smallest tax burden of any major economy, behind Nigeria, is the UAE’s, where government levies on foreign oil producers, banks and some hotel and leisure businesses account for 2.7 per cent of the Emirates’ combined GDP.

Cambpell Dallas points out that the ‘Old European’ economies of Western Europe, tend to have the highest tax burdens: the UK’s tax take compares favourably with the average tax take across Western Europe of 38.9 per cent of GDP*.

The highest tax burden in the study was in Denmark, where the total amount of tax revenue taken equates to nearly half of the country’s GDP at 48.6 per cent.

Campbell Dallas explained that the UK’s relatively high taxes on businesses, individuals, investors and consumer spending could all inhibit growth. Higher taxes reduce incentives for investment and wealth creation, and prompt larger businesses to maximise returns for their investors by seeking out lower tax bases for their operations.

In particular, the UK could be vulnerable to international rivals that are increasingly able to offer a combination of stable legal systems and highly skilled workforces.

For example, the UAE and Singapore with tax burdens of 2.7 per cent and 15 per cent respectively are enjoying significant success in attracting corporate headquarters and professional and financial services companies, all creators of high skill, highly paid jobs.

The Dubai International Financial Services has grown in the last 10 years to 1,100 companies, 70 per cnet of which originate from outside the Middle East, while Singapore is now home to over 200 banks and has growing expertise in other high value sectors including pharmaceuticals and medical technology.

Eastern European and Balkan countries are focussing on developing their industrial and manufacturing industries, offering lower taxes and lower costs than traditional Western European centres. For example, Romania enjoyed 2.9 per cent GDP growth last year, largely driven by expansion in its industrial and communications sectors. It is becoming a growing centre for the auto manufacturing industry, with Daimler, Ford and Draexlmaierall choosing Romania over Germany for new plants in recent years.

Aileen Scott, Tax Partner at Campbell Dallas said: “Unless the UK addresses its weighty tax burden, the British economy could find itself under pressure from both, lower tax Eastern European countries that are able to offer equally strong manufacturing skills bases, and global cities like Singapore, Dubai and Qatar, that are consciously targeting the industries that create the most wealth.”

“While our tax burden compares favourably with some of our Western European neighbours, increasingly, that is not where the most intense competition is coming from. It needs to be a clear ambition to make our economy globally competitive by keeping a close eye on the overall tax take – perhaps even setting a specific target.”

“That will need to be balanced by greater efforts to ensure that spending on the public sector delivers the best results for its customers.”

“How much tax is too much ought to be discussed much more openly during the election campaign.”

Campbell Dallas points out that Ireland, which has the lowest tax burden in Western Europe, is also enjoying the fastest growth rate in Europe. Last year, the Irish economy grew by 4.8 per cent (compared to 2.6 per cent in the UK), and Ireland is attracting significant levels of foreign investment – it is the number one destination for US foreign direct investment.