Cicero Policy Briefer

Issue 9, February 2007

The Competitiveness of the UK: How to best meet the challenge?

By Mark Prisk MP, Conservative Shadow Minister for Business and Enterprise

Getting to grips with Gordon Brown’s statements on the economy’s performance can be a frustrating experience for the uninitiated. It is often what he doesn’t say that matters.

For example, the Chancellor cited last year’s inward investment figures as a real boon for the UK economy. But what he didn’t say was that over half of our annual inward investment, £50 billion, came from one company—Shell—and the only reason they feature is because they’ve just moved their headquarters from Britain to Holland.

The Chancellor also likes to talk about strong growth. But what he doesn’t like to say is that current rates put Britain behind 21 of the 25 members of the European Union, including Germany.

There is a real concern that we have passed the tipping point, and that government intervention has begun to hinder UK plc’s ability to compete. For example, the proportion of our population starting businesses is now lower than in Italy, Canada and the USA, while the number of new registration with Companies House actually fell last year.

There is however, no panacea for meeting the competitive challenge. A whole host of issues come into play including reducing the regulatory burden, overhauling skills provision and investing in transport.

However, a good place to start is tax reform. Tax law in this country has developed in a piecemeal fashion over a long period of time, without any systematic or overall review. Tolley's Tax Handbook of the British Tax Code was 4,555 pages in 1997. Nine years later it has doubled to over 9,800 pages.

At the same time, a survey of British businesses carried out for the Tax Reform Commission found that more than three quarters of businesses thought the tax system had become more complex in the last five years. And the number saying the tax system had become less complex? Only two per cent.

According to a Government report, the administrative burden alone of tax regulation on our businesses is over £5 billion every year, nearly half a percent of GDP. The burden falls hardest on smaller businesses, who can't afford to employ professionals to steer them through the tax maze.

Rising complexity is also at the root of the increasingly antagonistic relationship between government and business over tax avoidance. I believe a simpler tax system would sharply reduce the endless game of cat and mouse.

Therefore, tax reform has to be a priority for a future Conservative administration. We will focus on creating a simpler, fairer and flatter system.

When it comes to business tax, by removing exemptions and broadening the base on which tax is charged, the system can be simplified and headline rates reduced. By making tax user friendly, Britain can remain business friendly.

Mark Prisk MP is Conservative Shadow Minister for Business and Enterprise and can be emailed here.