Government squeezing UK plc dry, say businesses

2006

British businesses are being squeezed by a combination of stealth taxes, cost pressures and ever fiercer international competition, putting the country's competitiveness at risk, captains of industry have warned.

The Confederation of British Industry has told Chancellor Gordon Brown ahead of his Budget next week that the UK is losing its competitiveness as it slips down the international tax table.

Rising government consumption is also crowding out business investment, it has complained.

Too many "stealth taxes" were being introduced under the cloak of tax revenue protection or "anti-avoidance" measures, it added.

At a time of intense cost pressures and fierce international competition, the government is adding to business costs when it should instead be reducing the burden, it said.

It has called for an easing back of the rate of growth in public spending and for a modest reduction in business taxation.

British businesses have been funding a disproportionate share of rising Government spending, the CBI has calculated, with the cumulative effect of post-1997 business tax rises expected to hit £80 billion by 2010.

Its analysis has estimated that Government consumption as a percentage of gross domestic product rose from 18 per cent in 1998 to almost 22 per cent in 2005.

This increase of a fifth is mirrored by an almost exact percentage fall in business investment as a share of GDP over the same period.

John Cridland, CBI deputy director-general, said: "With a staggering £80 billion in extra tax expected to have been levied on companies and their investors by 2010, plus spiralling energy and pension costs, it is hardly surprising that business investment has hit a record low.

"The problem for government is that lower investment by firms spells lower growth and prosperity, and eats into the very wealth which public services depend on for funding over the long term."

The overall tax burden in the UK has risen from 34.7 per cent in 1996, to 36.1 per cent in 2004, and is expected to grow further to 38.5 per cent by 2008, it added.

This has seen the UK slip from 12th out of 30 in the Organisation for Economic Co-operation and Development's international tax comparison table in 1996 to 16th by 2004, with an anticipated slide to 19th by 2008.

Britain now lags behind most of its major competitors, including the US, Japan and Germany – with its share of tax as a proportion of GDP half as much again as that in the US.

Every one of the UK's G7 competitors cut its overall tax take between 1996 and 2004, whilst the UK burden rose, said the CBI.

Business taxes also compare increasingly less favourably with the UK's top five trading partners.

The UK burden is already higher than that of the US and Ireland, and is set to overtake Germany and the Netherlands in the forthcoming tax year.

Only France, which has also been reducing its corporation tax rate, will then have a higher business burden, it added.