Jeremy Hunt’s budget froze tax thresholds, dragging millions of working families into higher tax bands and making them more than £3,500 poorer as a result[i]. But loopholes that allow the rich to avoid paying their fair share of tax were untouched. Is that fair?

Chancellor Jeremy Hunt claimed in advance of his recent budget that, “People with the broadest shoulders will bear the heaviest burden”[ii]. But the reality is that working families are bearing the brunt of Tory policies. The Resolution Foundation said the decision to use “stealthy” freezes in tax thresholds to raise money rather than increasing tax rates meant a typical household faces a permanent 3.7% income hit from the measures[iii], costing them 20,000 over the next six years[iv].

Hunt claimed that there was a £55bn ‘black hole’ to be filled and that ‘everyone’ would have to pay more tax and make ‘sacrifices’. First of all, the majority of that figure (£30bn) was caused by KamiKwazi’s disastrous mini-budget[v] in which he tried to deliver billions of pounds of unfunded tax cuts to bankers and the super-rich. Why should working families be asked to bail out that mistake? Secondly, as I explain below, tens of billions of pounds of tax revenues slip through the fingers of this government because tackling this would mean the Tories taking money out of the pockets of their benefactors and cronies. So, no ‘sacrifices’ for the super-rich. Is that fair?

Transfer pricing 

In 2003, Google sold the intellectual property (IP) for its search technology – the same technology that would be trumpeted in its flotation prospectus a year later – for a fraction of its value. Why would it do this?

The company that bought the IP was Google Holdings, a wholly-owned subsidiary of Google based in Bermuda – where  corporation tax is zero: this entity licences the right to use the search technology to the US company that created it and to Google’s subsidiaries in the UK, France, and elsewhere. In this way, $22.7bn – in 2017 alone[vi] – which should have been subject to national taxes – was passed to the Bermudan company. This is called transfer pricing and it is a a perfectly legal practice.

Google is not alone – and nor are tech companies the only ones exploiting these loopholes. Patents, logos, even management advisors are set up in tax havens to which ‘fees’ are paid, which effectively moves profits from high-tax countries to low or zero tax countries.

As a result, 40% of all multinational revenue globally – around $800bn – is booked in low taxation jurisdictions, money which should be helping to pay for public services in the countries in which the revenue was created. Is this fair?

All wealth is not considered income

A day trader, playing the money markets to generate an income (and I don’t deny that this is a valid – if not particularly noble – way of making a living) who makes £50k per year will pay Capital Gains Tax on his investments of 28%. If you are a doctor earning the same amount in a hospital, you will be paying 40% income tax. Is that fair?

Or, let’s say you are a TV entertainer and, rather than have an employment contract with a TV company, you create a production company to provide the station with your programme. You are then free to take any resulting profits as a dividend on which you pay corporation tax of 19%. In this way, tens of thousands of people, most notably TV celebrities and footballers, pay taxes of 19% on revenues that, in some cases, run into the millions. Is that fair?

Tax Evasion

The tax evasion system works very effectively, allowing the super-rich to ‘shelter’ their earnings from the tax man. In fact, tens of billions of pounds – perhaps as much as £35 billion according to this report – is  lost in the UK to non-payment, fraud and avoidance.

The UK’s tax agency (HMRC) said it received information from foreign banks showing that British residents held some £849bn in 6.4 million foreign accounts in 2019: two-thirds of it – an amount similar to the GDP of Luxembourg – is held in tax havens. But HMRC said it had not carried out any assessment of how much tax had been evaded by cross-checking with individuals’ annual returns.[vii] Why not?

As recently as 2018, one in five of the UK’s largest companies paid no corporation tax[viii] and, while demands for greater transparency have had some impact, we still have a situation where a company like Amazon can pay direct taxes of £648 million – or around 3% – on revenues of £23 billion[ix]. Is that fair?

In her response to the Autumn Statement, Shadow Chancellor Rachel Reeves said of Non-Doms, “If you make Britain your home, you should pay your taxes here too.” I think the same should apply to companies trading here – and enforcing this is one of the few real benefits of leaving the EU that I can think of.

What are the Tory party going to do about this?

The short answer is absolutely nothing.

We have people like Jacob Rees-Mogg, until recently a cabinet member, who has spoken out in favour of tax havens and who failed to disclose £6m of loans he took out from his own company (based in a tax haven)[x]. We have Tory candidates receiving hundreds of thousands of pounds in campaign contributions from tax havens[xi]: this includes the current (as of time of writing) PM, Rishi Sunak[xii]. We have three former Conservative MPs and six members of the House of Lords implicated in the leaked Panama Papers scandal[xiii]. We have Zac Goldsmith, ennobled by Boris Johnson, being investigated by the Spanish authorities over tax evasion charges relating to the villa where Boris Johnson recently holidayed[xiv]. We have Geoffrey Cox, a former Attorney General, earning hundreds of thousands of pounds working on behalf of a tax haven.

So, this Tory party won’t be joining with the EU[xv] to tackle the issues highlighted above by addressing the misuse of shell entities in tax havens. (In fact, escaping the progressive, interventionist approach of the EU to addressing the worst excesses of unfettered capitalism was one of the prime motivations for the whole Brexit movement). They won’t be treating all wealth as income, so that the disparities of the tax system are addressed. And they aren’t backing President Joe Biden’s call for an international minimum corporation tax[xvi] – in fact, in giving Labour’s backing to Biden’s plan, Rachel Reeves said, “The Conservatives have a choice: they can join Labour in tackling large-scale tax avoidance or they can allow billions of pounds to leave Britain.[xvii]” The Tories did the latter and blocked the motion.

The last Tory reference to tax evasion that I can find is a reference in a Guardian article on the Tory manifesto of 2017 that devoted eight lines – and no detail – to the topic[xviii]. (This same article claims that, under the Tories, the HRMC has been “colonised by the tax avoidance industry and [by] major corporations involved in tax avoidance” – even to the extent of helping to draft taxation law. And that the resources available to the HMRC to address tax evasion have been steadily denuded under this Tory administration.) So, not a massive priority then.

And this despite the fact that the overwhelming majority of voters – across the political spectrum – find tax avoidance morally wrong[xix]. They are right to think that: the opacity and obfuscation created by the shell companies, tax havens and dodgy accounting firms that enable tax evasion also facilitate money laundering for the world’s organised crime cartels.  If you want to tackle people trafficking and drug dealing, then you have to address tax evasion – the source of the funds may be very different, but the processes of tax evasion and money laundering are identical.

Trickle-down economics

The argument from the Tory right is that you must enable the wealth creators because they create the profits that sustain tax revenues. That was the premise behind the Truss/ Kwarteng mini-budget to which the markets gave a rousing two fingered-salute. Try this simple test: say the following to the person next to you – “By allowing rich people to keep more of their money, poor people will benefit!” – and see what happens.

All that the trickle-down economic theory beloved of Thatcher and Reagan in the eighties has done is to reverse the steady reduction in social equality that was achieved since the war, so we now have a situation where the richest 1% own half of the world’s entire wealth[xx]. Don’t you think these wealth creators have been enabled enough? Meanwhile, almost one third of UK children live in poverty[xxi] and ten percent of parents are turning to food banks to feed their families[xxii]. Is that fair?

Taking Action

Ask yourself if the Conservatives are serious about reducing the billions of pounds leeching from the exchequer through these practices? Or whether this is a party that does too well from the status quo – and whose members will benefit from lucrative directorships once they have left office (providing they don’t ask too many questions) – to want to rock the boat? Put simply, it is more expedient for the Tory party to hammer working families than to hold their cronies and benefactors to account.

And what would Labour do? In its last election manifesto, Labour published its ‘Fair Tax Programme’ setting out a 35-point plan to ‘end the scourge of tax avoidance and evasion’, raising more than £6 billion a year with measures including an Offshore Property Company Levy, scrapping non-dom status and trebling the number of audits carried out by HMRC[xxii].

A future Labour government will deliver on these plans, enduring that those with the broadest shoulders will indeed carry the heaviest weight – and that working families are not punished for a decade of Tory failure and inaction.

Citations 

[i] https://www.thetimes.co.uk/article/how-will-stealth-tax-affect-me-finances-savings-9vrtxw2b9

[ii] https://www.theguardian.com/politics/2022/nov/13/jeremy-hunt-everyone-will-be-paying-more-tax-after-autumn-statement#:~:text=In%20an%20interview%20with%20the%20Sunday%20Times%2C%20Hunt%20said%20Britain,heaviest%20burden%2C%E2%80%9D%20he%20said.

[iii] https://www.theguardian.com/business/2022/nov/18/how-the-autumn-statement-brought-back-the-squeezed-middle

[iv] https://www.thetimes.co.uk/article/jeremy-hunts-autumn-statement-will-cost-middle-englanders-20-000-lsc063kbj

[v] https://www.theguardian.com/politics/2022/nov/12/revealed-the-30bn-cost-of-liz-trusss-disastrous-mini-budget

[vi] https://www.wob.com/en-gb/books/emmanuel-saez-university-of-ca/triumph-of-injustice/9780393531732?gclid=CjwKCAiApvebBhAvEiwAe7mHSH1kSnIUx25DSC3j3n1KOx5TvI0vfPfdqROSh2NxV8VyWsfo_pnBYBoCgKkQAvD_BwE#NGR9780393531732

[vii] https://www.thenationalnews.com/world/uk-news/2022/05/30/uk-f ails-to-assess-scale-of-tax-evasion-from-offshore-accounts/

[viii] https://www.derby.ac.uk/blog/big-business-tax-evasion/

[ix] https://www.independent.co.uk/news/uk/amazon-vat-b2127013.html

[x] https://www.cityam.com/jacob-rees-mogg-may-have-broken-parliamentary-rules-by-not-declaring-6m-in-loans/

[xi] https://theferret.scot/tax-havens-conservatives-libdems/

[xii] https://www.mirror.co.uk/news/politics/rishi-sunak-accepted-60000-donors-28417493

[xiii] https://www.theguardian.com/news/2016/apr/04/tory-donors-links-to-offshore-firms-revealed-in-leaked-panama-papers

[xiv] https://www.theguardian.com/politics/2021/nov/12/boris-johnson-holiday-villa-linked-to-zac-goldsmith-firms-accused-of-tax-evasion

[xv] chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.pwc.com/gr/en/pwc-ec-draft-directive-to-prevent-the-misuse-of-shell-entities.pdf

[xvi] https://www.mirror.co.uk/news/politics/boris-johnson-warned-must-back-24163746

[xvii] https://labour.org.uk/press/rachel-reeves-response-to-the-chancellors-autumn-statement/

[xviii] https://www.theguardian.com/commentisfree/2017/may/22/tories-promise-tough-tax-evasion-manifesto-tax-avoidance

[xix] https://www.theguardian.com/news/2021/oct/21/almost-all-tory-voters-agree-company-tax-avoidance-morally-wrong-poll-finds

[xx] https://www.theguardian.com/inequality/2017/nov/14/worlds-richest-wealth-credit-suisse

[xxi] https://www.jrf.org.uk/data/overall-uk-poverty-rates#:~:text=The%20latest%20data%20tells%20us,of%20those%20in%20couple%20families.

[xxii] https://www.theguardian.com/society/2022/apr/18/almost-one-in-10-parents-very-likely-to-use-uk-food-bank-in-next-three-months

[xxiii] https://www.tax.org.uk/blog-labour-set-out-35-point-plan-to-end-scourge-of-tax-avoidance-and-evasion