Chancellor's budget decisions could worsen UK's economic growth prospects

Labour now makes a big thing out of economic growth - and rightly so. It's growth that boosts incomes, reduces the cost of living and creates a brighter future for our children.

It's also growth that generates the tax revenue we need to pay for better schools, hospitals and railways.

But unfortunately for Labour, a key ingredient in economic growth is a competitive, pro-growth tax system - and there the news is very far from good.

Every year the US-based Tax Foundation publishes an index of how well different countries' tax systems compare - the International Tax Competitiveness Index. In the 2024 edition, published today, the UK ranks a dismal 30th out of 38 OECD countries.

This extremely poor ranking - below countries like Germany (15th) - undermines the UK's attractiveness to investors, and the Government's aim of attracting foreign investment.

Yet in her first Budget, it looks like the Chancellor could make things even worse for Britain.

Modelling by the Tax Foundation and Centre for Policy Studies shows that mooted increases to capital gains tax and dividend tax, or the introduction of a wealth tax, would all inflict further damage to UK competitiveness.

If all three were adopted, the UK would fall to 35th place overall. The only advanced economies with less competitive tax systems than the UK would be France, Italy and Columbia.

If Rachel Reeves really wants long-term economic growth, she needs to get serious about fundamental tax reform. Tax cuts as soon as possible, yes.

But more importantly, changing the way we raise tax to lessen damaging incentives like taxes on investment and transactions.

The Chancellor should make this a reforming budget, not a burdensome budget.

Karl Williams is research director at the Centre for Policy Studies