The UK’s International Tax Competitiveness: 2024 Update

• The UK ranks a dismal 30th out of 38 OECD countries in the 2024 edition of the International Tax Competitiveness Index, published today by the US-based Tax Foundation
• This extremely poor ranking – below countries like Hungary (7th), Czechia (8th), and Germany (15th) – undermines the UK’s attractiveness to investors, and the Government’s stated aim of attracting foreign investment
• Despite the welcome decision to make full expensing permanent in the March Budget, the competitiveness of the UK’s corporate tax regime has still fallen by 18 places since 2021
• Modelling by the Tax Foundation and Centre for Policy studies shows that mooted increases to capital gains tax and dividend tax, or the introduction of a wealth tax, would all inflict further damage to UK competitiveness. If all three were adopted, the UK would fall to 35th place overall – fourth from bottom of the Index

The latest edition of the International Tax Competitiveness Index, published today by the US-based Tax Foundation, shows the UK moving up one space to 30th out of 38 OECD countries, thanks in part to the previous government’s decision to make full expensing for plant and machinery permanent in the March 2024 Budget.

The Index is an annual ranking of 38 OECD countries based on how pro-growth their tax systems are, examining more than 40 different tax policy variables to assess how supportive each country’s tax system is of economic growth.

To accompany the publication of the Index, the Centre for Policy Studies has published a briefing note by Daniel Herring, CPS economic and fiscal policy  Researcher, which highlights how our extremely poor rating will be a barrier to Labour’s desire to attract foreign investment – and warns of the potential for us to fall further if the wrong decisions are made at the upcoming Budget.

The briefing shows that the competitiveness of the UK’s corporate tax regime has fallen sharply, with increases in corporation tax and changes to investment rules sending us falling 18 places since 2021.

We also model the impact of three tax hikes which many have been calling for Rachel Reeves is to adopt in next week’s Budget on October 30th.

• Raising capital gains tax would see the UK drop to between 32nd and 34th in the overall rankings, depending on the rate chosen.
• Introducing a wealth tax would see us would fall to 34th.
• Raising the higher rate of dividend tax to 45%, to align with income tax, would see the UK would fall two places, to 32nd.

Were all these changes implemented together, the UK could fall to 35th place overall. In this scenario, the only advanced economies with less competitive tax systems than the UK would be France, Italy and Columbia.

The report calls for the Chancellor to instead focus on fundamental tax reform to stoke economic growth, not least raising more revenue from less damaging taxes, such as VAT, and less from those which are damaging to growth, such as stamp duties on shares and property transactions.