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Luke Pollard

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The Most Competitive Tax System in the World?

Posted: 21/03/2012 15:44

The words sounded good and the sound bites were well delivered. There is no doubting that the presentation of this Budget was one of Mr Osborne's best. Despite the heavily leaked contents the Chancellor's reoccurring theme of making Britain a competitive place to do business was well communicated and peppered throughout his hour-long statement.

Mr Osborne knows his audience well - this was a Budget as much for the ordinary voter as it was for the City. One of the dangers with the UK tax system is that few people understand what taxes they are paying unless they are accountants. For this reason it is not unsurprising that the Chancellor focussed his efforts on improving the tax system for businesses by cutting the rate of Corporation Tax. Widely known and taken by the City and the public as a measure of how business-friendly a country is, the continuing rate cuts help build the impression that the Government is serious about fostering economic growth.

However, you only need to scratch the surface to see that where the Chancellor claims a more competitive tax system with one hand he further attacks competitively on another. The UK may not be number one at many things anymore but in levying taxes on flying it is. The UK has the highest taxes on flying not just in Europe, or the G20 but of any country anywhere in the world. And today's Budget only added to the tax burden of those people who fly. The alert amongst you will spot this is not exactly consistent with making the UK the most competitive place to do business.

For those with an eye for the detail, whereas Corporation Tax was cut by a further 1%, the Budget documents show an 8% hike in taxes on flying being introduced on 1 April and yet a further increase in April next year. Whereas our close competitors, such as Ireland and Holland, have slashed their taxes on flying in order to make their country more competitive the UK perversely continues to levy higher and higher taxes on businesses and families who step on a plane. The Chancellor is gambling that the media and the average voter will focus on cuts to Corporation Tax and not hikes in Air Passenger Duty for confirmation of his business-friendly stance.

The simple message for the Chancellor coming out of this Budget from the travel industry is this: we support your efforts to make the UK the most competitive place to do business in the world, but to do this we need you to apply that logic to every tax, not just the ones voters have heard about.

A freeze or cut in Air Passenger Duty would help make every British company selling its good overseas more competitive and give relief to families taking a holiday overseas. It would also help cut the cost of visiting Britain and attract more foreign tourists to our shores. Foreign tourists, especially those from China, bring with them increased spending power than Brits have staying at home and so a boost for retail, accommodation and attractions too. The logic of cutting Corporation Tax is apparent - the logic of cutting Air Passenger Duty is also clear. The question is why does the Chancellor not see it?

 

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