'Strong UK growth' is raising tax revenues

The tax burden on the UK economy posted the sharpest rise of any major economy other than the US last year, while several eastern European nations saw a fall, a global think-tank said yesterday.

The report from the Organisation of Economic Co-operation and Development came days after the CBI warned the "unsustainable" rise in the tax burden was forcing companies to move out of Britain. The annual survey showed the share of economic growth taken up in tax rose to 37.2 per cent last year from 36 per cent in 2004.

While the rising trend is clear from the Chancellor's Budget forecasts, the report shows how the UK is falling behind against its rivals. The OECD said only two countries - Iceland and the US - had a larger rise in the tax burden. The UK has a higher tax burden than Germany, Spain and Ireland.

The OECD said the large rises in the UK and US tax burden had come out without any rise in corporate or personal tax rates. "This suggests the higher tax rations are a result of stronger economic growth in these countries," it said.

"Stronger growth increases both the profitability of companies and the level of personal incomes, leading to an increase in the level of taxes that they pay."

The Treasury said the report showed the higher tax ratios were the result of stronger economic growth in the UK economy, not tax rises. "Thanks to reforms introduced by this Government, the UK economy continues to experience an unprecedented period of growth and stability, and the OECD recently described the UK as 'a paragon of stability'," a spokesman said. He added the UK tax-to-GDP ratio continued to rank well below the €15 average and "substantially below" its peak of 39.1 per cent in the 1980s.