Developments in the Member States

Part II

United Kingdom U
n
Overall trends in taxation i
t
Structure and development of tax revenues
e
In 2010, the United Kingdom tax-to-GDP ratio (including social security contributions) stood at 35.6 %, an
increase by 0.8 % compared to 2009 but below its record 37.9 % of 2008 (which was marked by a sharp increase in
d
revenue from capital levies resulting from the national accounting treatment of certain financial sector
interventions, booked under "other direct taxes" (64)). The bulk of the recovery is due to a rebound in corporate K
income tax and VAT collection.
i
The tax structure shows a comparatively high weight of direct taxes (at 15.8 % of GDP, the fifth highest ratio n
amongst Member States). Direct taxes represent the primary source of revenues (44.4 % of the total taxes, the g
second level after Denmark), markedly larger than indirect taxes (36.9 %), and far outweighing social contributions
(18.7 %), the fourth lowest share of taxes in the EU after Denmark, Sweden and Malta. Revenue from personal
d
income taxes at 10.1 % was at the lower end of a range of just under 10 % to 11 % over the last decade. Corporate o
income taxes, which increased from 2.8 % of GDP to 4.0 % of GDP between 2002 and 2006, went back to 3.4 % m
and 3.6 % of GDP in 2007 and 2008 respectively but dropped to 2.8 % in 2009. The 2010 value of 3.1 % is above
the EU-27 average (2.7 %). Direct taxes other than corporate and personal income taxes were brought back to 2.8
% of GDP in 2009 and 2.6 % in 2010, a result in line with their historical levels (compared to an EU-27 average of
0.8 %). This category includes in particular council taxes on land and buildings and motor vehicle duties, but also
financial sector interventions by public sector authorities between 2007 and August 2009 referred to above.
Property taxation in the United Kingdom is high in proportion of GDP (4.2 % in 2010, of which 3.4 % is
recurrent).(65)

The United Kingdom is a highly centralised country in terms of tax collection with 94.1 % of revenues accruing to
the central government.

Finally, the overall tax burden increased by 2 percentage points from 1995 to 2000 but tended to decline between
2000 and 2003 (– 2 percentage points), and increased again between 2003 and 2006 (+ 2 percentage points). It
eased in 2007 to 36.3 % of GDP, but rose – for reasons explained above – to 37.9 % of GDP in 2008, before
decreasing to 34.8% in 2009.

Taxation of consumption, labour and capital; environmental taxation

The ITR on consumption increased to 18.4 % in 2010 (partly reflecting the increase in VAT from a temporary
15 % back to 17.5 % in January 2010). This however still sets the United Kingdom well below the EU-27 average
(21.3 %). As a result of relatively low social security contributions (6.7 % GDP compared to EU-27 at 10.9 %),
labour taxes revenue (14.3 % of GDP) is lower than in most other European countries (EU-27 17.1 %). The ITR on
labour employed is, at 25.7 %, the fourth lowest in the EU-27 and lies well below the EU-27 average (33.4 %).
This index has decreased by more than one percentage point compared to 2008.

Revenues from taxes on capital (10.1 % of GDP) dropped back to their 2004 levels but in 2010 the United
Kingdom remained the third highest in the EU-27 after Luxembourg and Italy (EU-27 average at 6.6 %). The high
contribution of taxes on capital to total tax revenue (9.9 percentage points over the 18.4 % EU-27 average) is
reflected in the relatively high implicit tax rate on capital (66) (36.9 % in 2009). Taxes on the capital stock (mainly
(64) In a number of financial sector interventions during 2008 the Financial Services Compensation Scheme (FSCS) was assigned rights over the assets of financial
institutions. The realisation of these assets of failed institutions to finance the compensation of depositors has been classified as a capital tax for national accounting
purposes (see: http://www.statistics.gov.uk/articles/nojournal/Financial-crisis.pdf page 33 and followings.). The United Kingdom is the main example of this type of
intervention. The increase in capital levies revenue in 2008 was equivalent to approx. 1.3% of GDP.
(65) The highest for the OECD countries (source: OECD Revenue Statistics, http://stats.oecd.org/Index.aspx?DataSetCode=REV )
(66) It should also be kept in mind that both the ITR on capital and capital income are biased upwards (compared to other EU countries) because the ITR base does not
capture the full extent of taxable profits of financial companies, particularly capital gains. A further reason is that the UK figures allocate all tax on occupational (second
pillar) and private pension benefits (third pillar) to capital income whilst for most other Member States the second pillar is allocated to transfer income and income of the
non-employed.

Taxation trends in the European Union 161