The call was made on the back of a report on the
UK ’s tax competitiveness published today by EEF, ‘Blurred vision – The need for a clear strategy on business taxation’. It includes a major survey of manufacturing companies who were asked their views on the current UK tax system and its impact on their businesses.
Commenting, EEF Chief Economist, Steve Radley, said:
“Manufacturers have laid the foundations for a sustained upturn in their fortunes. However, we cannot take this for granted in the face of intense international competition. Consequently, the UK needs a business tax system that attracts investment and supports manufacturers’ efforts to move up the value chain.
“As other countries move to improve the competitiveness of their tax systems, manufacturers feel that the UK is heading in the wrong direction. Repeated changes to taxation rates, rules and allowances, with new measures sometimes reversed rapidly have created the impression of a lack of a proper, consistent strategy on business taxation. Government urgently needs to set out a more coherent and comprehensive strategy to develop a competitive business tax regime.”
EEF’s report suggests that the government’s first priority should be to reduce the tax business tax burden and encourage investment through a lower headline rate of corporation tax.
According to the survey, 54% of companies said that their tax burden had risen in the last five years, with one in eight describing the increase as significant.
Furthermore, smaller companies with between one and fifty employees were more likely to say that their tax burden had risen. And, given the competitive environment, almost 90% of companies reported little or no ability to pass on the cost of tax rises.
The report also found that business needs a simpler tax system. As a result of over 200 changes to the tax system since the 1997 Budget, almost 75% of firms thought either the volume of new legislation or, the frequency of changes, were to blame for complexity in the tax system. Consequently, almost half of the firms said that the number of personnel and time required to deal with tax matters has risen.
The survey also sought companies’ views on the role of environmental taxation. Only one in six companies surveyed favoured using environmental taxes to change behaviours, a distant second behind the 56% in favour of better information and advice on how to improve energy efficiency. This may reflect that more of them disagree than agree that current measures have been effective in influencing behaviour.
Indeed, almost three-fifths thought environmental taxes hurt competitiveness while almost two-thirds thought they were complex. In contrast, research by EEF shows that companies are more likely to improve their energy efficiency in response to greater information and advice and positive incentives.
Manufacturers can choose between a wide range of business-friendly locations, with developments in information technology making it much easier than in the past to spread their operations across the globe. In response, EEF believes the government needs to develop a clearer strategy on business taxation and communicate it appropriately. The report makes the following recommendations:
Key recommendations
· The government should cut the headline rate of corporation tax to 25% by 2010-11. A lower headline rate is vital for competitiveness, would reduce the business tax burden and encourage investment. A 25% rate should be prudently financed through public spending restraint and the tax revenues generated by economic growth.
· Reduce burdens of tax system through simplicity and certainty. A key part of developing a more consistent strategy should involve better relationships with business, with more transparency and consultation over changes in policy. This would reduce the risk of unintended consequences and the need for heavy-handed anti-avoidance legislation.
In addition Sir David Varney’s review of links with large firms has generated improvements, though there is still some way to go. A similar approach needs to be taken to address the relationship with small and medium-sized businesses.
· Green taxes should focus on changing behaviour, not raising revenue. Any environmental taxes on business should a part of a package of measures based around progress made in increasing energy efficiency and reducing carbon emissions. As such, revenues should not be used to pay for tax cuts or simply disappear into the Exchequer, but to reinforce these outcomes.
ENDS