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UK’s corporate tax deals put ideology before financial necessity

by Clare Speak

Tough talk from the British government on corporate tax avoidance has no credibility as long as multinationals negotiate their tax bills while most people suffer austerity cuts.

The Panama Papers reveal the depth of hypocrisy in the UK government’s talk on tax fairness, and remind us how empty their rhetoric is.

Last week was a tough one for Prime Minister David Cameron. After four weasel-worded statements throughout the week, he finally admitted to profiting from an offshore UK tax-avoiding fund set up by his father.

The admission only came once evidence from the Panama Papers leak made such a step unavoidable.

Cameron knew it was the worst possible time for him to be personally linked with tax avoidance, with the government’s credibility on the issue already sinking and public anger growing.

The government claims that a new range of measures on tax avoidance announced in the budget will save the Exchequer some £12billion (US$17 billion). But the public has heard it all before.

In budget announcements past, Chancellor George Osborne has talked tough on tax avoidance. But we haven’t yet seen any real action – instead, we’re seeing big corporations virtually dictating their tax bills to the treasury. The public mood around the topic grows more toxic with every sweetheart deal announced.

The purpose of a modern welfare state is to impose taxes in order to redistribute wealth from the richest to the poorest. Yet increasingly, ordinary taxpayers feel the system is not working. And in some circumstances, the poor are paying more tax than the rich.

In 2014 the average British worker earning £26,500 (US$37,500) paid around £5,400 (US$7,600) in personal tax. In the same period, Facebook paid just over £4,300 (US$6,000) in UK corporation tax. The fact that a corporation making £1bn (US$1.4 billion) profit every year in the UK alone was allowed to pay less tax than an individual on an average salary, unsurprisingly, caused public outrage.

The recent announcement that Facebook has now deigned to pay more tax than the average worker in the UK was hardly greeted with celebration, since the move was prompted less by the UK tax authorities and more by the company’s own PR department. Knowing its image was fast being becoming one of corporate greed, Facebook volunteered to up the amount it pays in tax in an attempt at damage control.

 

A political choice

It looks like multinational corporations are finally waking up to the idea that massive tax avoidance is seriously bad PR. This is victory of sorts for campaign groups like UK Uncut and 38 Degrees, who have successfully roused and channelled much of the enormous public anger over corporate tax avoidance.

But it shouldn’t be down to corporations to decide what tax they do or don’t feel like paying, simply to protect their public image. It shouldn’t be down to angry members of the public to make sure corporations pay even the most negligible amount of tax.

The amount Google agreed to pay this year amounts to loose change for the corporation. Google’s negotiated payment, tax experts agree, represents an effective corporation tax rate of no more than five per cent. Maybe less. Other UK businesses meanwhile pay corporation tax on profit at 20 per cent (although that figure is going down to 19 per cent next year, and then 18 per cent in 2020).

Instead of placating the UK’s taxpayers – at a time when millions were filing their own tax returns – such corporate sweetheart deals only cement the public perception that multinational corporations call all the shots, and that the government is happy to let them do so.

It’s hard to believe that this corporate-friendly government will ever stand up to the multinationals, preferring as it does to take money from softer targets – those who can’t afford expensive legal teams – like small businesses and individuals. Or the disabled people, unemployed people, and low-income workers who are reeling from the devastating impact of austerity cuts.

Richard Murphy, founder of the Tax Justice Network and Director of Tax Research LLP, calculates that £120 billion (US$170 billion) is missing from the UK economy due to corporate tax avoidance – a far higher figure than the official £36 billion (US$51 billion) estimate, as it takes into account the tax saved by multinationals making use of legal loopholes and mind-bogglingly complex tax arrangements. Meanwhile, our political leaders are forever hammering the message home about the supposedly unavoidable necessity of cuts to social security and services.

 

Austerity rampage

The government last month continued its austerity rampage by forcing through a cut to disabled people’s benefits, cutting £30 (US$42) from a weekly payment which was already a barely-adequate lifeline for disabled people. The savings made to the budget are tiny, yet the impact on disabled people’s lives will be devastating.

This is just the latest in a long line of cuts hitting the poorest. Also last month the government pledged to continue its never-ending – and undoubtedly astronomically expensive – legal campaign against the disabled social housing tenants protesting against what is arguably the least popular of all the UK’s austerity policies: the bedroom tax.

Ruthlessly squeezing money out of some of the poorest people in society, the hated policy’s only discernible effect has been to drive vulnerable people deeper into poverty. It has been widely criticised, frequently challenged and campaigned against, especially for its effect on the families of disabled people, who may need more space in their homes than the government believes they should be allowed.

The Department for Work and Pensions (DWP) had repeatedly refused to admit its policy is faulty. When the Court of Appeal ruled in February that the bedroom tax was unlawful and discriminatory, because of its effect on a severely disabled teenager and a domestic violence victim, the DWP immediately said it would appeal.

Opposition ministers pointed out that the cost of an appeal would be higher than the cost of exempting domestic violence victims from the policy.

Freedom of Information requests about the department’s legal budget for such cases are flatly refused, and questions on the topic in parliament are ignored. But it’s clear that this policy is being defended at any cost: it has little to do with saving money.

The government’s relentless, costly pursuit of such obviously damaging policies is striking proof that these cuts are not made out of financial necessity but ideology.

Campaigners point out that if all of the unpaid corporation tax were collected, there would be more than enough money available for the government to fill the gaps in funding. Yet it’s doubtful that this government would allocate those funds to reversing its cuts to the country’s vital social security system, housing, education, and healthcare.

It’s just as doubtful that there will ever be any real action taken on tax avoidance by a government led by a man who benefitted from it himself.

The allowance of corporate tax avoidance, like austerity, is a political choice made willingly by the UK government. And as long as it spends its time hounding the poor and disabled, while giving corporations a free pass to dictate their own tax payments, the tough talk remains meaningless.

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