In the lead-up to the impending General Election, tax policy remains a hot topic in the UK.

According to projections by the Institute of Fiscal Studies, the country’s tax revenues are anticipated to reach approximately 37% of GDP by 2024, a notable increase from the 33% recorded at the time of the last election.

This mirrors a broader international trend, as highlighted by a recent report from the OECD, which indicates a consecutive rise in the tax-to-GDP ratio across the globe.

Historical trends

Taking a closer look at the historical tax trends of the G7 countries and the OECD average over the past two decades, the UK’s tax revenue to GDP ratio has shown relative stability.

However, the retrospective nature of OECD data leaves uncertainties about whether the UK has continued this trajectory.

Examining the composition of tax revenues, the UK stands out for its heavy reliance on income, profits, and goods and services taxes, with a notable uptick in contributions from social security.

Recent data from the Office for Budget Responsibility reveals an increase in taxes on income, profits, and capital gains, signalling a potential shift in the tax policy landscape.

The OECD notes that tax policy decisions in 2022 were heavily influenced by the challenges presented by elevated inflation levels, ongoing structural changes, and country-specific circumstances.

Personal tax

Looking specifically at personal taxes, many countries responded to the cost-of-living crisis by indexing personal income tax thresholds, allowances, and credits for inflation.

In contrast, the UK seemingly deviates from this approach, having frozen its income tax allowances until 5 April 2028, with the aim of supporting the government’s objective to put public finances on a sustainable and fair path.

The OECD’s measure of the tax wedge, highlighting the difference between labour costs to employers and corresponding net take-home pay for employees, shows an average increase in 23 OECD countries, with the largest reported increase in the United States due to the withdrawal of COVID-19 support measures.

Corporate income tax trends reveal a moderation in the global downward trend of tax rates. More countries are favouring measures that narrow the tax base, particularly focusing on incentives for innovation and research and development.

Energy

Additionally, windfall taxes on sectors with high profits, such as the UK’s energy profits levy, have become a common strategy.

In the realm of taxes on goods and services, most European countries employed temporary VAT rate reductions to mitigate the impact of rising energy prices. The OECD observes a global trend towards using VAT systems to encourage the transition to lower carbon economies. However, the efficacy of reduced VAT rates in achieving equity and environmental goals is questioned, particularly regarding their regressive impact on non-essential items.

Addressing the imperative of transitioning to a low-carbon economy, various countries took different approaches, including temporary cuts in environmental taxes to support households and businesses. Simultaneously, some high-income countries implemented or increased emissions trading systems and carbon taxes. The EU’s announcement of a carbon border adjustment mechanism (CBAM) in October 2023 further emphasises the global commitment to environmental sustainability.

Tax incentives for the adoption of low-emission vehicles are gaining popularity in low- and middle-income countries, while some high-income countries reconsider or limit longstanding tax incentives for electric and hybrid vehicles.

Property tax

Furthermore, property tax reforms have seen a significant uptick, with twice as many recorded in 2022 compared to the previous year.

These reforms include taxes on net wealth, vacant property, and crypto transactions, driven by governments seeking revenue, addressing housing affordability, and combating inequality.

As the UK navigates these global tax trends, valuable lessons can be learned from international counterparts.

The evolving tax landscape presents a complex puzzle for policymakers in the run-up to the General Election, demanding a nuanced and strategic approach to align with both domestic challenges and global shifts in taxation dynamics.

How we can help

At Williamson & Croft, we recognise the complexities and challenges posed by these shifting global tax dynamics.

With our team of seasoned tax professionals, we stand ready to provide comprehensive insights and strategic solutions tailored to the unique needs of your business.

Whether it’s navigating changes in personal taxes, adapting to corporate income tax trends, or leveraging incentives for sustainable practices, our expertise extends to a wide range of areas.

In conclusion, our commitment is to equip businesses with the knowledge and strategies necessary to not only weather these changes but to thrive in them.

As the UK approaches the next General Election, our expertise becomes a valuable resource for navigating the complexities of international tax trends, enabling businesses to make informed decisions, and stay ahead in a rapidly evolving financial landscape.

Contact us today for more information.