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UK Firms, Economy Burdened By High Tax Rates

by Jason Gorringe, Tax-News.com, London

21 April 2015


The UK is inhibiting its economy with a tax burden 18 percent heavier than the global average and should consider setting a specific target for lowering the overall tax take, according to research by accountants UHY Hacker Young.

UHY's findings show that tax revenue in the UK represents a third (32.9 percent) of gross domestic product, a fifth higher than the global average of 27.8 percent.

The UK therefore lags behind the US, where the total amount of tax taken by the Government is just over a quarter of GBP, at 25.4 percent. The UK also lags behind Ireland (28.3 percent), and even Japan (29.5 percent). The report 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 percent (compared with 2.6 percent in the UK), and Ireland is attracting significant levels of foreign investment and is the number one destination for US foreign direct investment.

Its latest report examined 53 economies around the world, calculating what percentage of each 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 percent and 25.9 percent, respectively. The second smallest tax burden of any major economy, behind Nigeria, is the United Arab Emirates, where government levies on foreign oil producers, banks, and some hotel and leisure businesses are equal to 2.7 percent of the nation's GDP.

Nevertheless, the UK tax burden compares favorably with the average tax take across Western Europe, of 38.9 percent of GDP. Denmark has the highest tax burden, of 48.6 percent of GDP.

The report identifies that low-tax jurisdictions like the UAE and Singapore, with tax burdens of 2.7 percent and 15 percent, respectively, are enjoying significant success in attractive corporate headquarters and professional and financial services companies, bringing with them highly skilled and highly paid jobs.

In Europe, Romania, which offers relatively low tax rates, enjoyed 2.9 percent GDP growth last year, largely driven by expansion in its industrial and communications sectors. It is becoming a growing center for the auto manufacturing industry, with Daimler, Ford, and Draexlmaier all choosing Romania over Germany for new plants in recent years.

Roy Maugham, UHY Tax Partner, said: "Unless the UK addresses its weighty tax burden, the British economy could find itself under pressure from... 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."

"How much tax is too much ought to be discussed much more openly during the [UK] election campaign."

TAGS: Western Europe | tax | investment | business | Denmark | Ireland | Niger | Nigeria | public sector | financial services | Qatar | Romania | Singapore | United Kingdom | manufacturing | corporate headquarters | tax rates | Germany | Dubai | Japan | services | Europe | Tax

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