Here Is What The Next Prime Minister Of England Needs To Do

 The next government needs to reduce taxes as a share of GDP,The supply-side revolution we have seen with corporation tax needs to be extended to income tax, national insurance, capital gains tax and stamp duty.

For once, some good news on the tax front – if you are an entrepreneur or a wealth creator in business, that is. George Osborne’s tax reforms have paid off in one crucial way: British companies now pay far less tax than their rivals in almost all the other main economies. That is one of the findings in the latest analysis from the National Institute for Economic and Social Research (NIESR).

Remarkably, as a result of repeated cuts to corporation tax, the effective corporate tax rate is set to fall from 16.3pc last year to only 13.3pc next year.

This will be substantially lower than the 29.1pc in the US, 29.6pc in Japan, 32.7pc in France or 19.4pc in Germany. Excluding Greece, which has a broken tax system, only Ireland (at 9.8pc) and the Netherlands (8.4pc) have a lower effective corporate tax rate – and the gap has shrunk dramatically. The UK still has high indirect business taxes, not least the ridiculous business rates, and nasty levies on bank balance sheets. But when it comes to direct tax on profits, we are now competitive.

By contrast, it is much less good news if you are an employee: the overall average tax rate on labour income, including both kinds of national insurance, is rising. It will reach 23.6pc in 2015, higher than in the US (19.1pc), Canada (21.8pc), Australia (a mere 14.2pc), Ireland (21.4pc) and Japan (23pc). Our performance is more middling than dire; we are a better base for the average worker than France, Italy, Spain or Germany.

There is a caveat: companies are merely legal constructs – a collection of people that contract together to co-operate, with some providing money and others their time – and don’t really exist in any meaningful way. They cannot pay tax, which is something only people can do. Levies on dividends and capital gains are thus another kind of “corporate tax” as they hit the proceeds of corporate activity.

Cutting corporate taxes helps workers, by boosting productivity and hence wages, and owners of capital, by increasing their wealth. There is much disagreement about the relative importance of these two effects, with some studies showing that workers, over time, grab all the gains from a cut in corporate tax, and others suggest the benefits are shared out more equally.

What really matters is the overall tax burden, not so much the distribution between “companies” and individuals. The next government needs to reduce tax as a share of GDP, and that means accelerating cuts to public spending as a share of national income to ensure that the deficit can also be shrunk. It means picking and choosing the most damaging taxes to cut first: the supply-side revolution we have seen with corporation tax needs to be extended to income tax, national insurance, capital gains tax and stamp duty.

Britain, for all its red tape and other frustrations, is a good place to set up and operate a business, at least when it comes to taxation. The next government needs to focus on liberating and unleashing individual workers, too.