THE UK’S tax system is so complicated and expensive that it undermines economic growth and drives firms abroad, a leading business group said yesterday.
Hitting back at allegations of firms dodging taxes and abusing the system, the Confederation of British Industry’s (CBI) report into tax argued firms pay a very large share of total government revenues, put up with a heavy regulatory and administrative burden, and contribute enormously to the economy.
However, the level and structure of taxation damages the UK’s competitiveness, warned CBI boss John Cridland.
While the government is committed to cutting the headline rate of corporation tax to 22 per cent in 2014, the CBI noted the effective tax rate paid would still leave the UK “in the middle of the G20 pack.”
Cutting corporation tax to 18 per cent, it believes, would stimulate economic growth more effectively than raising government spending, cutting VAT or increasing the personal allowance for income tax.
Keeping firms interested in the UK is vital, Cridland said, as they paid £163bn in taxes in 2010-11 – almost 25 per cent of total government revenues.
In particular, the top one per cent of firms were responsible for 81 per cent of corporation tax receipts.
The group also launched a robust defence of “tax management,” where firms use reliefs and allowances – given deliberately by the government – to reduce their overall tax bill.
“For the tax system to be healthy, and for the public to have confidence in it, it’s essential that tax management is clearly distinguished from illegal tax evasion or abusive avoidance schemes,” said CBI boss John Cridland.
“It’s a dangerous – if sometimes convenient – myth some people peddle that all tax management is abusive, and amounts to evasion. It doesn’t.”
Treasury minister David Gauke agreed the debate over tax “has to an extent been confused by speculation, accusation and misinformation,” and said “it is vital that the business sector continues to contribute, and is transparent about the tax it pays.”