Three ways a better tax system can help the UK

Increasing business investment is the only way to unlock the UK’s potential. And although CBI surveys show there are signs of recovery in businesses’ investment plans, tax reforms could go a long way towards boosting confidence.

The CBI is calling for political consensus behind a long-term, holistic business tax roadmap in the run up to the General Election – because businesses and households are facing too many challenges right now not to take advantage of this opportunity. And because there are three areas where a better tax system can help the UK face the challenges of a changing world. 

The transition to net zero

The UK can support the transition to net zero by ensuring the right tax framework is in place. We’re already having conversations about the investments that need to happen in people, innovation and infrastructure. The Government now needs to make sure the business tax system helps, not hinders, that investment.

Balancing short-term incentives with long-term revenue is going to be key to funding the public services we rely on. That's why the Government also needs to publish a plan, for consultation by the public and business, for sustaining revenues as tax receipts from the fossil fuel economy decline. 

The future of work

To achieve and maintain an active and productive workforce, policy makers need to look at how the tax system can help:

• deliver a model of training that supports people to learn throughout their working life – with a review of the Apprenticeship Levy and other tax support for training
• keep the UK a leader in the global labour market, attracting mobile workers across all industries
• ensure the tax system reports – not distorts – flexibility at work, with a comprehensive review of employment benefits to make sure they work for hybrid, remote, and flexible working, and looking again at differences between taxation of self-employment and employment models

Sustainable local spending

Many businesses play an essential role in supporting healthy, sustainable local communities – both as the tax collector and as the taxpayer – but the business rates system is broken.

To ensure fair redistribution between authorities, government needs to review the business rates model that currently places a disproportionate tax burden on retail and hospitality businesses, undermining the UK’s competitiveness.

A simpler, proportionate tax system that'sfit for the 21st century

In 2022, UK smaller businesses spent an average of more than 2% of their turnover on tax compliance – the third highest in Europe. The last time the UK tax code was consolidated was nearly 15 years ago, and it has doubled in length since then.

That's why the roadmap suggests ways to simplify and digitalise the tax system to reduce compliance burdens and free up business time. Done right, the benefits of this could be huge - as much as 11.8% productivity gains for some businesses.

This starts with better tax policy design and consultation, so taxpayers can understand the aims of policymakers and help them design systems that work for all. It also requires HMRC to think hard about the data they collect and who they collect if from to make sure this is as efficient as possible.

It’s clear that there is plenty of scope for reform, not only of the tax businesses pay, but also how business taxes are designed and administered. Businesses need a system that provides certainty, that’s simple, proportionate and internationally competitive.

Together, we can generate the investment the UK needs to strengthen productivity, ease pressures on firms and households, and drive sustainable growth for all.

Find out more about the business tax roadmap, and what our members are asking for.