A more certain tax system needed to increase UK productivity and drive investment, according to new report

7 November 2023, London – New research by AICPA & CIMA finds that that tax paid by individuals, including income tax and stamp duty, could be acting as a brake on productivity growth.

The Tax and Productivity Report examines the link between taxation, productivity, and wider economic growth. It compared tax policy in the UK to a set of other developed countries with a range of fiscal and social models.

The report found that the UK has the least certain tax environment of all the countries examined. This means that it is harder to plan investments in the UK, which could be holding back the rate of productivity growth. Countries with stronger, longer-term productivity growth than the UK appear to have more stable taxation environments.

Andrew Harding, FCMA, CGMA, Chief Executive – Management Accounting at AICPA & CIMA, together as the Association of International Certified Professional Accountants, said:

“Tackling the poor rate of productivity growth is the most important economic issue facing the United Kingdom today. AICPA & CIMA’s new research indicates that the tax system and a lack of tax certainty is contributing to the problem. Corporation tax is set at an uncompetitive rate, while workers are being deterred from moving to locations where their skills are needed by high levels of and complicated stamp duty. The burden of tax and constant tinkering, coupled with the global political-economic situation, do little to grow confidence and drive investment in the UK. I hope the Chancellor’s Autumn Statement will include measures to address these issues.”

The report highlighted the need for competitive rates of business taxation. The UK has the second highest headline corporation tax rate (25%) of the countries in the study. Australia currently has the highest at 30%, but Australian policy makers have discussed plans to reduce their rate to 25%. A more competitive corporation tax rate could encourage the investment required to increase the UK’s productivity rate.

The report also examined how personal taxes can act as a brake on productivity. The UK has the highest level of stamp duty of all the countries surveyed, which could prevent workers from moving to locations with better career prospects.

In addition, some UK taxpayers face a high marginal income tax rate. For example, those receiving the child tax benefit and earning between £50,000–£60,000, face a marginal tax rate of nearly 70%. This high marginal tax rate acts as a disincentive to improving productivity, because workers look to reduce their hours, not accept promotions, or save money in pensions to offset the effects of the high rate.

Notes to editors

The report compares taxation policies in the UK to those of the Republic of Ireland, Australia, Singapore, Sweden, Denmark, Norway, and Finland. These countries were chosen because they have highly productive economies, and each has its own unique fiscal model. The Nordic countries have historically had high levels of public spending and taxation. A similar model would be difficult to develop in the UK due to different economic, social, and political structures.