The loss of the UK's competitive advantage on taxation should place tax reform at the top of the next government's agenda. In previous years, the UK blazed the trail for low and simple tax rates, for example through the reduction in the top rate of personal income tax to 40 per cent. Now the pace is being set elsewhere, in particular in eastern Europe and the US. There will be big benefits in enterprise, productivity and investment if the UK's leading position can be regained.

The UK's previously competitive stance on corporation tax has been eroded to the extent that the rate is now no better than the average for member countries of the Organisation for Economic Co-operation and Development. Other developed countries have reacted to a global economy in which companies can shift activity to the lowest tax jurisdictions in the world. In effect, globalisation has made high corporation tax rates obsolete. The OECD countries reduced top corporation tax rates on average by 9 percentage points between 1985 and 2000. The top rate of corporation tax in Ireland fell from 38 per cent to 12.5 per cent between 1996 and 2003, a period in which growth averaged 9 per cent a year.