A Framework for the Future: Reforming the UK Tax System

Key Takeaways

• If the UK government adopted all the recommendations in our report, the UK would end up with the 9th most competitive taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. system in the OECD – up 13 places from its current 22nd place finish on the International Tax Competitiveness Index. Such a tax system would be significantly more supportive of economic growth than the current one.
• While implementing the full suite of reforms simultaneously would have the greatest impact, we appreciate that some of our proposals are more politically appealing than others. It’s therefore important to stress that each of our pro-growth reform suggestions is capable of standing alone and being worthwhile in its own right.
• Tax reform is one of the main levers the government can pull to increase the UK’s economic growth prospects. And in our view, it is impossible to maximize the UK’s prosperity – to really go for growth – without ruthlessly evaluating its tax system’s strengths and weaknesses, particularly in comparison with other developed economies that are competing with Britain for business, jobs, and investment.
• Ultimately, even if the precise measures we propose are not acted upon, we hope that politicians and other would-be reformers will take inspiration from the plans we have drawn up, and act in the spirit we suggest.

Introduction

This report is being published during a global pandemic that has wrought havoc on the British economy—as well as on the government’s balance sheet. It is too soon to say exactly where we will end up, but as things stand the OECD forecasts a 14 percent economic contraction for calendar year 2020.^[1] Tax revenues have plummeted, and the government’s debt is set to rise above 100 percent of GDP.^[2] There is not much anyone could have done to avoid this downturn, or to significantly diminish its severity, but the grim economic numbers confronting the government do throw the challenge ahead into sharp focus.

Once the public health situation is brought under control, that challenge is principally one of restoring economic growth. Only economic growth can get unemployed Britons back to work, put UK plc on a firmer fiscal footing, and give the government of the day any chance of delivering on its wider domestic agenda. But while an initial spurt of “bounce back” economic growth will surely follow any safe removal of COVID-19 restrictions, robust, long-term, and sustainable economic growth will not come from nowhere. It will take hard work and good policy choices.

After all, even before the coronavirus struck in the early months of 2020, the British economy had noticeable weakness, and faced difficult headwinds. Average GDP growth per capita averaged just 1.1 percent a year in the 2010s, compared with 2.5 percent in the 1980s and 1.9 percent in the 1990s.^[3] What growth there was rested largely on more hours being worked across the economy as a whole, with productivity growing at just 0.3 percent a year across the decade.^[4] Average wages remain lower in real terms than they were before the financial crisis,^[5] and business investment has continued to disappoint. Indeed, the Office for National Statistics estimates that from 1995 to 2015, the UK had the lowest average business investment of any OECD nation.^[6]

More recently, political uncertainty—not least around Brexit—has had a chilling effect on Britain’s growth prospects. And while the UK’s departure from the European Union certainly presents a lot of opportunities, there are economic challenges to overcome as well. In short, UK policymakers had a difficult enough task before the global pandemic; today, raising Britain’s trend growth rate looks doubly difficult.

It is vital, however, that the government does not take lacklustre growth as a given—as something they have to put up with and adapt to but cannot fundamentally affect. On the contrary: all governments have tools at their disposal that can increase economic growth. They may involve controversial policy choices and difficult political trade-offs, but they are there, if only the government is bold enough to grasp them.

Tax reform is one of the main levers government can pull in its quest to boost the economy over the long run. Improving a country’s tax system can attract business and investment, can encourage entrepreneurship and work, and can eliminate deadweight costs that hold back growth. Tax reform is not the only thing that matters, of course, but it is one of the most important and consequential things that the government has directly under its control.

Yet overhauling the tax system is not a straightforward task. We need to identify the parts of the tax system that need the most attention. We need to decide which reforms will do the most to encourage growth. And we need to work out how tax reform can be implemented when significant cuts to the overall tax burden look unlikely, if not impossible. These are all difficult issues. Addressing them is the primary purpose of this report.

A Pro-Growth Approach to UK Tax Policy

So what does a pro-growth tax system look like? Fundamentally, there are three distinct ways to answer that question. The first is to look at marginal tax rates. All things being equal, lower marginal tax rates are better for economic growth than higher ones, because they do less to discourage economic activity. Put simply, the less you tax something, the more of it you tend to get, and vice versa.

Marginal tax rates are also an important determinant of a country’s tax competitiveness—of how attractive it is to businesses and investors relative to other countries. In today’s globalized world (notwithstanding the impact of COVID-19), capital is highly mobile, and businesses can choose to invest in any number of countries to maximize their after-tax rate of return. If marginal tax rates are too high in the UK compared to other developed economies, investment is likely to go elsewhere, and economic growth is likely to suffer.

Another way to approach pro-growth tax reform is to focus on neutrality—on the extent to which the tax system lets businesses and individuals make decisions based on their economic merits, rather than for tax reasons. Absolute neutrality might not be a practical objective: all taxes affect behaviour to some degree, and sometimes that is actually the point (as with an environmental tax designed to discourage pollution). Nevertheless, you generally want a tax system that does not distort the way people choose to work, save, or spend. The economy will do better, and consumer welfare will be higher, when those decisions are left to the market, instead of being unduly influenced by government.

In practice, neutrality often means combining lower tax rates with broader tax bases. Taxes should apply as equally as possible across the economy, without targeted tax breaks (or special tax regimes) for particular products, sectors, or groups of individuals. There is an important qualification here though: in a few cases, a broader tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. can actually cause economically damaging distortions of its own. For example, a corporation tax base that does not allow the deduction of investment costs creates a bias against capital-intensive industry. Similarly, a personal income tax that does not distinguish between ordinary earnings and investment income is likely to be biased against saving. In other words, “broaden the base, lower the rate” is a useful rule of thumb but is not an iron-clad guide to a neutral, pro-growth tax system.

The third way of approaching pro-growth tax reform is by looking at the balance among different sources of revenue. This is important because we know that some taxes are much worse for growth than others. A pro-growth tax system would therefore seek to maximize revenue from the least distortive taxes, while minimizing reliance on the most harmful ones.

For example, widely cited research by the OECD suggests that corporate income taxes are the most damaging type of tax in terms of GDP per capita, followed by taxes on personal income.^[7] Recurrent taxes on immovable property are the least economically damaging source of revenue, followed by consumption taxes and other forms of property tax.

Needless to say, the devil is very much in the detail. Another study, this one by the Australian Treasury, suggests that a particular type of property taxA property tax is primarily levied on immovable property like land and buildings, as well as on tangible personal property that is movable, like vehicles and equipment. Property taxes are the single largest source of state and local revenue in the U.S. and help fund schools, roads, police, and other services. —“stamp duty on conveyances”—is considerably more harmful than corporation tax (its other findings are very much in line with those of the OECD).[8] Moreover, it is quite possible to design income taxes so that they function a lot like consumption taxes—Estonia offers one real-world example.

Nevertheless, it is fair to say that shifting the tax burden away from corporate and personal income taxes and towards well-designed property and consumption taxes will make the tax system as a whole more supportive of economic growth. Put this together with competitive marginal tax rates and a neutral tax structure and you have a good recipe for a programme of pro-growth tax reform.

Audit“>An AuditA tax audit is when the Internal Revenue Service (IRS) conducts a formal investigation of financial information to verify an individual or corporation has accurately reported and paid their taxes. Selection can be at random, or due to unusual deductions or income reported on a tax return. of the UK’s Tax Competitiveness

For the last seven years, the Tax Foundation—one of the world’s leading tax policy think tanks—has been assessing every tax system in the OECD against more than 40 policy criteria. It has used the results to develop a comparative ranking of how pro-growth each national tax system is.

Alongside the development of its latest International Tax Competitiveness Index,[9] researchers at the Tax Foundation and the Centre for Policy Studies have worked together on a comprehensive study of Britain’s tax system. This report is the result of that effort.

The aim is not to set out recommendations for the overall size of the tax burden in Britain. Rather, it is to evaluate how you could restructure the tax system to generate the greatest amount of economic growth, while raising roughly the same amount of revenue as now.

Some of the resulting proposals will be more politically acceptable than others. But we hope that even if politicians are unable to act on every suggestion here, they will take inspiration from the measures we propose, and act in the spirit we suggest.

It is impossible to maximize the UK’s prosperity, we argue, without ruthlessly evaluating its tax system’s strengths and weaknesses—particularly in comparison with other developed economies that are competing with Britain for business, jobs, and investment. It is easy to talk about pro-growth tax reform in the abstract, to imagine what you might design if you were starting with a blank sheet of paper, but the real challenge is to take the tax system as it actually exists and come up with practical ways to improve it.

Crucially, the Tax Foundation’s annual Index is not just a comparison of marginal tax rates. It also involves a detailed examination of the underlying structure of different tax systems, to see how neutral they are, or how much they distort economic decision-making. The Index covers five main categories—corporation tax, personal income taxes, consumption taxes, property taxes, and international tax rules—with numerous sub-categories and individual pieces of data included under each heading.

In essence, what we have done in this report is use the Index to audit the UK tax system from an economic growth perspective, to see where in particular the UK lags its international competitors, and to identify the most promising avenues for reform.

As will become clear across the chapters that follow, Britain’s current tax system leaves plenty of room for improvement. Overall, the UK ranks 22nd out of 36 OECD countries in the latest edition of the Index; but while it finishes in first place for its international tax rules, it comes in 17th for corporation tax, 22nd for consumption taxes, 24th for personal income taxes, and 33rd for property taxes.

Yet even these broad category ranks conceal considerable variation in the pro-growth qualities of different parts of the UK tax system. For example, while the UK has the fourth-lowest corporation tax rate in the OECD, on measures of cost recovery (how the tax system treats investment costs, losses, and so on) it ranks second from last. And while Britain has one of the better capital gains tax regimes in the OECD (for now at least), its top tax rate on dividends is among the highest in the developed world.

The Index also highlights the problematic nature of England’s property tax regime, with its reliance on distortionary stamp duties and poorly structured business rates, and reveals the deficiency of the UK’s consumption taxA consumption tax is typically levied on the purchase of goods or services and is paid directly or indirectly by the consumer in the form of retail sales taxes, excise taxes, tariffs, value-added taxes (VAT), or an income tax where all savings is tax-deductible. base. Huge carveouts undermine the efficiency of VAT and mean that much more revenue must be raised from other taxes that have a worse impact on economic growth.

These findings flow naturally from the International Tax Competitiveness Index, and they give us a framework within which to develop a realistic set of pro-growth tax reform proposals for the UK. The Index also offers a tool with which we can assess the proposals we come up with. In straightforward terms, the more pro-growth our recommendations are, the more the UK’s standing on the Index will improve—both within and across categories.

A Road Map for UK Tax Reform

Taken together, the reform proposals set out in this report would move the UK from 22nd to 9th on the International Tax Competitiveness Index—giving Britain one of the 10 most pro-growth tax systems in the OECD.

Our core set of recommendations is summarised in the following section, and each individual policy is examined in detail later in the report. Nevertheless, it is worth setting out here a few of the main principles underlying our approach.

First, as mentioned above, we decided not to assume any reduction in public spending to “pay for” tax reform. Instead, our goal has been to come up with recommendations for a tax system that would raise roughly the same amount of revenue as the current one, but do so in a way that was much more supportive of economic growth.

That is not to say that a lower overall tax burden would not have economic benefits of its own, or make the whole task of reform easier by ensuring there were far more winners than losers. But the truth is that there are good and bad ways for governments to raise any given amount of revenue—and that means you can dramatically improve the structure of a tax system without leaving the government short of funds.

Indeed, if you make a tax system more pro-growth without cutting the overall tax burden, the chances are that in the long run, tax receipts will be much higher than they otherwise would have been. Right now, the UK needs more revenue and more growth: over time, our proposals are designed to deliver both.

Second, we have taken a resolutely long-term view in our analysis and recommendations. The goal of our proposed reforms is not simply to boost the economy in the short term—this is not meant as a “fiscal stimulus”—but rather to improve the UK’s underlying economic fundamentals over the long run. We want to permanently remove economic distortions, make the tax system as a whole more efficient, and sustainably boost investment within and into the UK.

One side effect of this approach is that, while we would love for our recommendations to be adopted by government straight away, nothing we propose in this report will go out-of-date any time soon. This is a long-term plan and, as such, we hope that policymakers and would-be reformers will be able to review and rely upon it in the years ahead.

Third, one of the goals of this project has been to develop a comprehensive package of reforms, cutting across personal, corporate, property, and consumption taxes, while keeping an eye on the international side of things.

British tax policy is usually made piecemeal, budget by budget, with little sense of any overarching strategy. And that is part of the problem: it is easy for economic distortions to accumulate, and for short-term revenue considerations to trump all else, when no one involved in running the tax system has the opportunity to take a broader view. We therefore hope that our research can help kickstart a wider conversation about thoroughgoing tax reform. It is long overdue.

None of that means, of course, that our individual recommendations cannot stand alone. On the contrary: everything we suggest in this report represents a step towards a better and more pro-growth tax system in its own right. We are aware, too, that some of our proposals (like abolishing stamp duty) would be more popular, and more in line with current political thinking, than others. So be it. Our point is simply that the greatest rewards in terms of economic growth will come from a comprehensive approach; that does not preclude incremental reform that moves things in the right direction.

Finally, it is worth stressing that while this report is an entirely independent piece of research, we also believe that the policies we set out here are consistent with the current government’s broader economic programme. Our business tax reforms would be a significant boon to the “levelling up” agenda, boosting manufacturers, easing the tax burden on struggling areas, and incentivising greater private infrastructure investment. Our uncompromising stance on abolishing transaction taxes, meanwhile, would make Britain’s housing market less dysfunctional, and give many more people a chance to own a home that really suits their needs.

More fundamentally, our whole objective of making the UK more internationally competitive is at one with the government’s vision of post-Brexit Britain: of a dynamic, confident country that is open for business and committed to genuine, broad-based growth and widespread economic opportunity.

In the end, that is what this report is really all about: getting the British economy growing again, faster and more sustainably than before the global pandemic. If we are serious about going for growth—about creating jobs, boosting wages, and driving investment—then ambitious tax reform is the perfect place to start.

Key Findings

Economic Situation

• The UK economy is forecast to contract by as much as 14 percent due to the COVID-19 crisis.

• Capital investment has been a declining contributor to GDP growth in recent years.

• To overcome headwinds from COVID-19 and Brexit, the UK must work to build and maintain an internationally competitive tax system.

Competitiveness and Sources of UK Tax Revenue

• Overall, the UK ranks 22^nd out of 36 OECD countries on the 2020 International Tax Competitiveness Index.
• Nearly half of UK tax revenue is raised from individual income taxes and national insurance contributions.
• Tax revenues have fallen significantly due to COVID-19, with VAT receipts falling the most.

Personal Income

• The UK ranks 24^th out of 36 OECD countries on the 2020 International Tax Competitiveness Index’s measure of personal income taxation.
• The piecemeal approach that governments have taken to reforming personal income taxes has resulted in a system with little overall coherence and efficiency.
• To improve the competitiveness of the UK’s personal tax system, policymakers should abolish the additional rate of income tax and reduce tax rates on dividends to reflect taxes already paid at the business level.

Property Taxes

• The UK ranks 33^rd out of 36 OECD countries on the 2020 International Tax Competitiveness Index’s measure of property taxation.
• Compared with other nations, property taxes in the UK are relatively high.
• Property taxes that are ripe for review and reform include business rates, which should be based on site values, and stamp duty (on land and shares), which should be abolished.

Consumption Taxes

• The UK ranks 22^nd out of 36 OECD countries on the 2020 International Tax Competitiveness Index’s measure of consumption taxation.
• The UK has a very narrow base for its VAT which leads to distortions and complexity.
• Expanding the VAT base to the OECD average would yield significant revenue to support pro-growth reforms.

Corporate Taxes

• The UK ranks 17^th out of 36 OECD countries on the 2020 International Tax Competitiveness Index’s measure of corporate taxation.
• Despite a low headline rate, the structure of the UK’s corporationAn S corporation is a business entity which elects to pass business income and losses through to its shareholders. The shareholders are then responsible for paying individual income taxes on this income. Unlike subchapter C corporations, an S corporation (S corp) is not subject to the corporate income tax (CIT). tax increases the costs of new investments and creates a bias towards debt financing.
• Capital allowances should be made more generous to improve incentives for investment, and limits on loss carry-forwards should be abolished.

International Tax Rules

• The UK ranks number 1 among 36 OECD countries on the 2020 International Tax Competitiveness Index’s measure of international tax rules.
• The UK has a broad network of tax treaties, which can add certainty when businesses are making cross-border investments.
• Narrow and discriminatory policies like the digital services tax should be removed to avoid sparking an economically harmful tax and trade war.

Menu of UK Tax Reform Solutions

Individual Income Taxes

Taxes on individual income from wages and dividends should be reformed to minimize complexity and double taxation. Current individual taxes are embedded with high effective marginal tax rates due to the introduction and withdrawal of various reliefs that make it difficult for individuals who are moving up the earnings ladder to realize the benefits of higher wages.

Lowering and Flattening Rates. The current Additional Rate should be abolished to improve competitiveness and remove negative incentives for individuals as they earn higher wages.

Adjusting Dividend Tax Rates to Reflect Corporation Taxes. Dividend taxes are a second layer of tax on business profits, and the rate should be adjusted to reflect this reality. The combination of corporation tax and dividend taxes should not be higher than the top rate on individual income. With a two-band system, the top Dividends tax rate should be 26 percent.

Addressing Effective Rate Cliffs. Britain’s personal tax system is shot-through with complicated provisions that cause effective marginal tax rates to spike to punitive levels at various “pinch points” in the earnings distribution. Short-sighted measures like the high-income child benefit charge, the withdrawal of the personal allowance, and the tapering of pension tax reliefs should be reviewed and reformed.

Property Taxes

A property tax can be a simple and efficient way for a government to raise revenue. The UK, however, relies on property and transaction taxes, which distort markets and create double taxationDouble taxation is when taxes are paid twice on the same dollar of income, regardless of whether that’s corporate or individual income. . By shifting toward taxing the value of land and removing transaction taxes, the UK property tax system can move toward efficiency.

Base Business Rates on Underlying Site Values. The current Business Rates system is both outdated and inefficient. Businesses should not face a tax hike when they improve their properties through renovations or new construction. A reformed tax base should reflect the value of the underlying site given its permitted use, but should exclude buildings, plant and machinery, and any other improvements a business might make.

Repeal Stamp Duty Land Tax (SDLT). Transaction taxes inhibit transactions and can lead to serious distortions in markets. The SDLT creates an extra burden at the time of sale of one’s home and can result in homeowners choosing not to sell their properties. Reduced turnover in the housing market means that the SDLT is likely raising less revenue than previously thought, and removing this distortion could increase the dynamism of the UK housing market.

Repeal Stamp Duty on Shares. The stamp duty on shares equates to a financial transaction tax which directly increases the costs of buying and selling equities in the UK. The burden of the tax accumulates as shares are traded. Portfolio rebalancing thus becomes an exercise in increasing the taxes on one’s savings.

Consumption Taxes

The UK’s Value-Added Tax (VAT) is a critical source of revenue, but it underperforms relative to VAT systems in other countries. The VAT has carveouts for large swaths of consumption; this undercuts potential revenues and is an extremely inefficient way of addressing concerns about regressivity. Broadening the VAT base would allow for lowering the standard rate while generating revenue to reform other parts of the tax system.

Broadening the VAT base. The UK has one of the narrowest tax bases for consumption taxes among OECD countries. Broadening the base by limiting the amount of consumption that qualifies for reduced and zero rates would be a move toward a more neutral tax system.

Corporation Tax

Though the corporation tax rate is quite competitive among other developed countries, the UK has a corporate tax base that is ripe for reform. The UK should work to eliminate biases against investment, reinforce countercyclical policies, and evaluate targeted tax reliefs that can introduce a variety of distortions in behavior and economic activity.

Improving Treatment of Capital Investment. Capital investment is a central driver of long-term growth, higher wages, and better jobs. The UK tax code is biased against new investment and particularly against equity-financed investments. A more neutral tax code would allow corporations to fully deduct the cost of their investments in the first year.

Building a Countercyclical Corporation Tax. During times of economic stress, businesses can run serious losses. Limits on loss carryforwards increase the taxes that businesses pay when they become profitable again. Tax policy should not exacerbate the challenges that businesses face as they return to generating profits, and loss carryforwards should be uncapped.

Reviewing Targeted Business Tax Reliefs. The UK has numerous targeted tax reliefs embedded in its corporation tax code. These programs should be periodically reviewed to assess whether the return on investment is advisable relative to other uses of revenue.

International Tax Rules

The UK international tax system is broadly competitive given its territorial nature and the UK’s broad network of tax treaties, the broadest among OECD countries. However, the government’s approach on the Digital Services Tax (DST) runs counter to global cooperation on efforts to reform international tax rules. The UK risks being part of a harmful tax and trade war with the DST as part of its efforts to raise tax from foreign multinationals. Narrow policies are ripe for distortions and the DST introduces several by both selectively taxing certain business models and basing the tax on gross revenues rather than profits.

Repeal the Digital Services Tax (DST). The UK should reverse course on the DST and focus its work on an internationally agreed-upon solution for taxing multinational businesses rather than a narrow, distortive policy.

Comprehensive Reform

The UK has an opportunity to make reforms that will dramatically improve its competitiveness relative to its major competitor countries. Most of our proposals can stand on their own, providing policymakers with discrete ways of improving the competitiveness of each element of the UK’s tax code. Often, however, successful tax reform is more comprehensive in nature, which is not only good policy but often good politics, including additional stakeholders and facilitating a broader rebalancing of the tax system.

In some cases, moreover, comprehensive reform may be strictly necessary: reduced reliance on a counterproductive tax may require offsets elsewhere in the system. Therefore, while we intend this report to facilitate conversations about priorities within each tax type, it is also important to illustrate the ways that they can complement each other. A broader VAT base, for instance, would raise additional revenue, which could be used to pay for reforms to other taxes.

Below, we offer a comprehensive package of reforms—an aggressive overhaul of the country’s tax system—with ideas drawn from the pages that follow. This is only one of many possible permutations, but it illustrates how a comprehensive plan could come together. We offer projections for how the plan would improve the UK’s ranking on our International Tax Competitiveness Index. Our reforms can be adjusted to be roughly revenue neutral although that neutrality will depend significantly on willingness to expand the VAT base.

The key theme running through these proposals is that they would improve the ability for businesses to take on new investments, individuals to keep more of what they earn, eliminate inequalities in the VAT system, and introduce new efficiency in UK property markets.

Policies for a More Competitive UK Tax System

Our preferred approach is a radical one that would require significant political will. It contemplates making business investment costs immediately deductible, making the UK the most competitive country in the G7 on its corporate tax base. It also simplifies and cuts the individual income taxAn individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source of tax revenue in the U.S. while lowering dividend tax rates. These reforms would be paid for by substantial VAT base broadening. This plan would also include a serious reform of the UK property tax system by removing distortive transaction taxes and shifting business rates to a site value basis.

Personal tax:

• Eliminate the Additional Rate of Income Tax, returning to the two-band system that existed prior to 2010.

• Reduce dividend tax rates to fully reflect corporation tax. Basic-rate taxpayers would pay no tax on dividends; higher-rate taxpayers would face a 26 percent rate.

Property tax:

• Overhaul Business Rates so that they are based on underlying site values.
• Abolish Stamp Duty Land Tax.
• Abolish Stamp Duty on Shares.

Consumption tax:

• Reform the UK’s VAT base so that it is as broad as the OECD average.

Corporate tax:

• Remove the 50 percent limit on loss carryforwards.
• Either make the Annual Investment Allowance unlimited while introducing “neutral cost recoveryCost recovery is the ability of businesses to recover (deduct) the costs of their investments. It plays an important role in defining a business’ tax base and can impact investment decisions. When businesses cannot fully deduct capital expenditures, they spend less on capital, which reduces worker’s productivity and wages. ” for structures and buildings.
• Or make the temporary £1m Annual Investment Allowance permanent while introducing neutral cost recovery for all other capital expenditure.

International tax:

• Repeal the Digital Services Tax.

The above options would result in the following changes to UK’s rankings in the Tax Foundation’s International Tax Competitiveness Index, compared to the current system.

Our Objective

We hope these solutions contribute to the tax conversation in the UK by providing a framework upon which lawmakers and citizens can base future decisions. The reform options we present would ensure that the country builds a tax system for a diversified economy and positions itself as a destination for investment, entrepreneurs, and talented individuals in the years ahead.

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^[1] OECD, “Economic Outlook No 107 – June 2020 Double Hit Scenario: Gross domestic product, volume, growth,” https://stats.oecd.org/Index.aspx?DataSetCode=EO.

^[2] Office for Budget Responsibility, “Fiscal sustainability report,” July 2020, https://cdn.obr.uk/OBR_FSR_July_2020.pdf.

^[3] Data from World Bank, “GDP per capita growth (annual %),” https://data.worldbank.org/indicator/NY.GDP.PCAP.KD.ZG. The 2000s saw average GDP growth per capita of 1.2 percent, despite the impact of the financial crisis.

^[4] Royal Statistical Society, “RSS announces Statistics of the Decade,” Dec. 23, 2019, https://rss.org.uk/news-publication/news-publications/2019/general-news-(1)/rss-announces-statistics-of-the-decade.

^[5] Office for National Statistics, “Annual Survey of Hours and Earnings time series of selected estimates,” Oct. 29, 2019, https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/earningsandworkinghours/datasets/ashe1997to2015selectedestimates. The data have been adjusted for inflation using the Consumer Prices Index, including owner occupiers’ housing costs (CPIH).

^[6] Office for National Statistics, “An analysis of investment expenditure in the UK and other OECD nations”, May 3, 2018, https://www.ons.gov.uk/economy/grossdomesticproductgdp/articles/ananalysisofinvestmentexpenditureintheukandotherorganisationforeconomiccooperationanddevelopmentnations/2018-05-03.

^[7] Asa Johansson et al., “Tax and Economic Growth”, OECD, Jul. 11, 2008, https://www.oecd.org/tax/tax-policy/41000592.pdf.

[8] Liangyue Cao et al., “Understanding the economy‑wide efficiency and incidence of major Australian taxes,” Apr. 7, 2015, https://treasury.gov.au/publication/understanding-the-economy-wide-efficiency-and-incidence-of-major-australian-taxes.

[9] Daniel Bunn and Elke Asen, 2020 International Tax Competitiveness Index, Tax Foundation, Oct. 14, 2020, https://taxfoundation.org/publications/international-tax-competitiveness-index.

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