Britain's taxes are becoming uncompetitive

Even in high tax Europe, Britain's tax system is starting to become seriously uncompetitive.  We still, thankfully, enjoy lower taxes on labour and consumption than the high rates in the rest of Europe.  But tax on capital here is significantly higher.

Below is a graph of new data from Eurostat, it charts aggregate tax revenues as a share of the potential capital tax base.  A few countries are left off because Eurostat doesn't have data for them:

Implicit tax rate on capital, EU27, 2008


The eurozone average is 27.2 per cent, the EU27 average is 26.1 per cent.  In Britain, the rate is 45.9 per cent, the highest in the entire EU27.

Our top rates of tax on personal and corporate income are also high.  This graph shows personal and corporate income top tax rates:

Top rates of tax on personal and corporate income, EU27, 2010


The eurozone average top rate of tax on personal income is 42.4 per cent, the EU27 average is 37.5 per cent.  Britain's rate is now 50 per cent.  On corporate income, the eurozone average is 25.7 per cent and the EU27 average is 23.2 per cent.  In Britain, the rate is 28.0 per cent.

With free movement of people, goods and capital within the EU, we will really suffer if we maintain high taxes here.  People will invest and, if they are able to and earn enough for it to be worthwhile, move somewhere else.  The Capital Gains Tax hike is pretty hard to justify looking at the first graph, the second makes it very clear that we need to work at delivering a more competitive tax regime.

Even with high tax rates, we clearly aren't able to finance the massive rise in spending that we've seen in Britain over the last decade.  Getting the public finances in order and bringing taxes down over time will take serious cuts in spending to reduce the burden imposed on us all by the Government.

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