The deep levels of economic pain and austerity that are currently felt by so many people across the UK started in 2007 with the first banking crash. Many have argued that the roots of disaster were laid well before then in a mix of lax financial regulation and unsustainable levels of public spending. However, far too little emphasis has been put on the other reason why public spending became so unsustainable; Britain’s legacy of hosting tax abusing corporations, and our failure to reap the tax benefits of their profits.
The Great Tax Robbery, by former HMRC accountant and now Private Eye journalist Richard Brooks, lays bare a state of affairs that is both highly shocking and a gripping read. For an organisation like Oxfam – now campaigning for global tax reform as part of the IF Campaign – the situation he describes has a real and disturbing impact on poverty in the UK, as well as overseas.
The story is certainly one to inspire anger. Large parts of the UK’s tax system have been crafted by powerful corporations as the Government has increasingly drawn expert advice on tax from the ranks of the lawyers and accountants who advise the same big companies, despite the extraordinary conflict of interest this represents with quite predictable results.
The level of pandering to special interest groups has reached quite extraordinary levels, even to the point of stunning the lobbyists themselves. The recent introduction of tax exemptions for companies’ branches in tax havens is believed by some experts, quoted in the book, to “lead to most large multinationals paying reduced or no UK corporate tax”.
According to one accountant that Brooks quotes, this was an action that; “nobody in the private sector could believe, it was just so stupid.”
Even the lobbyists for elite interests believe Government has conceded too much.
Such a revealing quote speaks volumes. According to Brooks, we have now reached a state where even the lobbyists for elite interests believe Government has conceded too much. One starts to wonder whether we have entered the realms of Never-Never Land.
Terrorists, the Mafia – and corporate tax avoiders
The book also tells the story of how a number of small states, mostly tiny islands and many under direct British control, have been allowed to run rogue tax systems. These systems shelter corporate tax avoiders, wealthy tax evaders and even more unsavoury fellow travellers – from the Mafia to terrorist groups – from any meaningful levels of tax or transparency – and in doing so vastly reduce the tax available to Governments around the world.
And what are the consequences of this? On us; the taxpayers, and the millions of people on low incomes struggling to make ends meet in a UK that is squeezing many into poverty? Every pound dodged in tax, is a pound lost for all of us.
Tax receipts, which pay for public services, social security and, of course, those essential bank bail outs, have been slowly stagnating for years, especially those paid by the very wealthy.
Between 1999 and 2011, as corporate profits rose by a staggering 58%, corporation tax paid rose by only around 5%. Of this tax, a significantly greater percentage was paid by small companies who went from paying 15% of corporation tax to around 40% in the same period.
Sadly, this has not been a story of small business success and dynamic entrepreneurship. It was the result of changing tax regimes for larger companies who could afford to operate off shore. All this is so gruelling to hear that it is hard to decide which part of the book is worse; the part detailing how large corporations have been able to negotiate their own tax bills with the Taxman, or the part showing how they have increasingly been able to actually write the laws around tax themselves.
Undermining the principle of equality before the law
These processes have served to undermine one of the fundamental principles of democracy: equality before the law. It sends the message that a different law applies if you are rich enough to employ the right accountants or, even better, if you are deemed important enough to be asked to help write the laws yourself. As Brooks says; “when a tax system favours an elite over the majority, it is fatally undermined.”
“When a tax system favours an elite over the majority, it is fatally undermined.”
Brooks’ story of specialist interests, secret deal-making and the abuse of power is not new, although his excellent writing both brings the complexity of tax to life and gives it historical context. Much of the story has been uncovered by the work of the Public Accounts Committee and the Tax Justice Network, but the idea that politicians or businesses are recognising their errors is sadly misplaced.
Although the Government is making some small welcome steps on global tax transparency, its attempts to tackle avoidance at home are weak, with its new General Anti Abuse Rule being supervised by a corporate tax lawyer. Similarly, the Labour Party’s policy review on tax is drawing advisers from the ranks of the “Big Four” accountancy firms, who continue to promote large scale tax avoidance (and indeed urge tax havens to refuse to cooperate with the UK on transparency
This is the result of a system where laws seem too complex for government to manage, and the interests of large corporations trump our own. It may well spell the end of properly funded public services and social security for UK citizens, if the tax pot continues to be undermined so dramatically. Brooks vividly illustrates how the tax evaded by individual companies could fund large parts of the NHS, while other estimates of the missing “tax gap” put it at similar levels to the UK’s budget deficit.
As UK citizens, we can either wake up to this threat which is derailing our society and corrupting our politics, or we can slide into the squalor of a state that resembles a plutocracy as much as a democracy. What we can no longer say, however, is that we haven’t been warned.
Author: Chris Johnes
Archive blog. Originally posted on Oxfam Policy & Practice.