CBI calls for tax plan to turbocharge green investment and boost UK competitiveness

• The UK lags far behind OECD and G7 competitors in business investment in people, innovation and capital.
• Reform of the business tax landscape is critical to raising living standards and bolstering sustainable, public finances.
• Simplifying the rules and streamlining the administration of the tax system can make the UK a better place to set up and build a business – some UK firms spend over 2% of their turnover on tax compliance – the third highest in Europe.
• The UK should digitalise its business tax system smartly and look again at how they use data to cut red tape.

The CBI is today (Thursday) calling for an ambitious tax roadmap – a plan for how to deal with business tax over the next few years to drive growth, incentivise green investment and keep the UK internationally competitive. This comes at a critical time for the economy as it continues to grapple with low productivity, inflation and a cost-of-living crisis made worse by the pandemic and war in Ukraine.

The reforms the CBI is calling for will make the business tax system competitive, simple, certain, and proportionate – so the cost of compliance for businesses is reasonable compared to the revenue raised.

As the world responds to ageing populations, shifting work patterns and the net zero challenge, government must work with business to boost confidence and investment. The tax system is a fundamental part of how this can be done. Now is the time to set out a business tax roadmap.

RAIN NEWTON-SMITH, DIRECTOR GENERAL, CBI:

“This is a critical time for the UK economy. It’s suffering from stubbornly high inflation, rising borrowing costs and anaemic growth. This is impacting businesses and households alike. Firms need help to get their companies growing and investing for the future. This doesn’t rely on the corporation tax headline rate in isolation. To get business investment out of the doldrums we need holistic, long-term reform of the entire tax landscape to unlock its true potential and the UK’s competitive edge.

The proposed reforms in detail include:

Addressing the challenges of a changing world

In order to compete with the US Inflation Reduction Act and the EU, the UK needs to work smarter to encourage investment in net zero projects. Replacing piecemeal legislation with a strategic plan for business tax to support net zero could supercharge business investment and help the UK maintain its position as a global leader in green growth.

The tax system should support – not distort – choices in the world of work. Whether that’s providing equal support for those working from home as those in an office, making it easier for businesses to train staff at all stages of their career or addressing inconsistencies between employed and self-employed people, real reform is needed.

The UK has one of the highest rates of property taxes in the OECD – in part because of business rates. Looking again at how businesses contribute locally could boost UK competitiveness and support healthy sustainable communities across all regions.

Creating a simpler, more proportionate tax system

With the abolition of the Office of Tax Simplification, everyone in government is now responsible for tax simplification – and it is desperately needed, with the UK tax code one of the longest in the world. Businesses care as much about the time and money they spend on compliance, as the tax itself. In 2022, UK businesses spent as much as 2% of turnover on tax compliance – the third highest in Europe. Cutting compliance costs could make the UK much more competitive.

Policy makers need to be transparent about their objectives when designing tax policy. They also need the tools to simplify the system across the board, with reviews built in throughout the design and implementation of policy to help them understand its impact.

Building a system fit for the 21^st century

The UK is slowly digitalising its tax system – it needs to speed up this process, and it needs to do so in a smart way.

Like any data, taxpayer data should be collected and stored in an ethical and transparent way. It should also be used smartly: to avoid duplication of data requests and make it easier for taxpayers to speak to HMRC. This could have real benefits for businesses: better, digital administration of taxes could lead to productivity gains of as much as 11.8%.

The CBI’s Business Tax Roadmap 2024 is a call to action for government to set transparent objectives, against a clear timeline for implementation of an overarching tax framework. One that will incentivise business and enable government to create sustainable revenue streams for the public purse and critically raise living standards as we continue to face an unprecedented cost of living crisis.

ALICE JEFFRIES, HEAD OF TAX POLICY, CBI:

“Over the next decade, changes to the tax system should be strategic and comprehensive, aimed at addressing the key challenges the UK faces and adapting to keep up with – and support – encouraging trends in business and individual behaviours. The changes should ensure the system strikes the right balance between ensuring sustainable government revenues and incentivising these behaviours”.