Midland business leaders have said the Government is not doing enough to make the UK truly tax competitive – and a radical programme of business tax reductions is called for.

The Institute of Directors’ (IoD) annual report on the competiveness of the UK tax system, published in conjunction with accountants BDO, says more needs to be done to stimulate trade.

John Rider, regional chairman of the IoD West Midlands, said:  “The UK should be the country of choice for international capital, and a place where the tax system is not so burdensome as to tilt the balance against enterprise and hard work. Our tax system is uninviting. It places the UK in the middle of the pack of developed countries, not out in front. We want to see a radical programme of business and personal tax reductions for the coming decade, in order to remedy that.”

Key points in the report:

* Tax competitiveness matters. If the UK’s tax system is not more attractive than other countries’ systems, international investment will go elsewhere. Even businesses that are always going to stay in the UK, and that only rely on UK capital, benefit from an internationally competitive system, because it is a system with low rates, simplicity and certainty.

* The UK remains in the middle of the pack of the 34 OECD countries on the total tax burden, and on its corporation tax rate. Things will improve a bit when the main corporation tax rate reaches 23 per cent in 2014, but only a much more ambitious target, of 15 per cent by 2020, would push the UK out in front of the pack.

* The UK is also in the middle of the pack on the total cost of employing people, taking into account not just income tax but employees’ and employers’ national insurance. If an employer wants to get a given amount of money into an average employee’s pocket, half as much again must be paid over to the state.

* The UK’s top income tax rate of 52 per cent is very much at the high end of the scale, giving the UK completely the wrong reputation. Only three other OECD countries have higher top rates.

In the report, BDO set out some clear but controversial suggestions and concludes that there is scope for progressing to a simpler, flatter taxation system which would be better understood by both business and individual taxpayers but achievable without making the system less equitable. 

Experts at BDO are urging that the pace of tax reforms and tax simplification should be accelerated within the framework of the necessary reduction in the fiscal deficit.

Richard Rose, partner and head of tax at BDO in the West Midlands, commented: “The vision we are promoting is based on the advantages for both businesses and individual taxpayers if the UK were to move in the direction of a flatter tax system, with lower tax rates but fewer overly targeted reliefs. The areas of tax law which we have highlighted show that progress can be made in the short to medium term which would be entirely consistent with the Coalition Government’s stated objectives to reduce the fiscal deficit, but which would both create a more competitive tax regime and significantly simplify taxation.”