A recent Eurostat report on comparative tax rates in the EU offers some interesting insights into how our tax system compares with those of our European neighbours, and in general how the UK’s taxes are neither extremely high nor extremely low in a European context.
Specifically, our top income tax, corporation tax and VAT rates are all fairly middle-of-the-road in EU terms, avoiding both the particularly high rates of some, particularly Scandinavian, countries. and the very low rates of some Eastern European members. The government’s drive is clearly to move us down the corporation tax and income tax ‘league tables’ with a view to enhancing our competitiveness as a business destination.
A couple of interesting issues do arise from the linked article, one of which casts an interesting light on George Osborne’s professed objectives for reducing the additional rate of income tax from 50% to 45%. Readers will recall that Mr Osborne’s justification for the reduction in this rate was that it was highly ineffective in raising tax, and that cutting it would not be expensive in terms of impact on the tax take.
So it is therefore more than a little surprising to see the 2020 Tax Commission (see my earlier post re: their report’s detailed conclusions) claiming that “Britain’s tax revenues were heavily dependent on a small number of high earners who are subject to very high tax rates”. To be perfectly frank, both Mr Osborne’s justification and that claim cannot be true.
Whilst I am not a great George Osborne fan, I am not sure he would wilfully set out to mislead Parliament and the UK public on a matter that can be so readily checked, so I suspect this is another example of the faulty logic with which the 2020 Report is riddled, but it does raise questions about the rationale behind one of the government’s key fiscal policies.
The other interesting issue is that the UK comes out top on revenue from property taxes, although this has nothing to do with stamp duty land tax increases in the recent Budget, as the article appears to imply. Far from having the highest rates of property taxes, in fact our stamp duty land tax regime is relatively benign, which means that the reasons for the high tax take are our (still) over-inflated property market, particularly in the South East of England, and the fact that we have a highly unusual element of private residential property ownership, which means a greater volume of property transactions taking place than in many other EU countries, where rental of residential property is still the norm.
So again our SDLT regime is not extreme, but the government is simply taking advantage of the unusual nature of our property market to raise much needed funds.