Charlie Elphicke is the Member of Parliament for Dover and Deal. Follow Charlie on Twitter.
Everyone is disgusted by the industrial scale tax avoidance culture of big
multinational companies. Last week, Labour Leader Ed Miliband joined the ranks
of the concerned, saying of the abuse of our tax system, "As so often
under this Government, I think it is evidence of one rule for those at the top
and another rule for everyone else."
Except Miliband has a problem. The problem is that the culture of industrial
scale tax avoidance grew up under 13 years of Labour Government. Income tax
receipts rose 81% while corporation tax receipts hardly rose just 6%. So income
tax receipts went from £76.8 billion a year in 1997-98 to £139.3 billion a year
in 2009-10. Meanwhile corporation tax (leaving out oil tax levies) went from
£28.6 billion a year in 1997-98 to £30.2 billion in 2009-10 – a rise of just
During this time Ed Miliband was either advising Gordon Brown's Treasury or a
Minister in the Labour Government itself. While Labour's Margaret Hodge, now
the Chairman of the Public Accounts Committee laying into Google as "doing
evil", was also a Minister in that Government. A Labour Government that
was asleep at the wheel when it came to tackling tax avoidance by
multinationals. They were too busy snuggling up big businesses like these with
their prawn cocktail offensive. They failed to keep tax law up to date for the
Internet age. The result is a culture that is unethical, unacceptable and
irresponsible. This is not a culture that has anything to do with the current
Government. It is part of Labour's toxic legacy.
Tackling tax avoidance is something people are seriously concerned about. A
recent YouGov poll found that 62% of the public considered (legal) tax
avoidance unacceptable. A ComRes poll found that 84% agreed that the Government
should crack down on tax avoidance by businesses operating in the UK. Indeed
60% were prepared to call the bluff of every large corporation that threatens
to disinvest from the rich UK market saying the Government should crack down on
business tax avoidance even if it causes unemployment or some companies to
leave the UK.
My own calculations have found large profits are being made in the UK while
little tax is actually paid here by large foreign owned multinationals – the
average effective tax rate was around 3% when the headline corporation tax rate
was 24% or higher. This matters first because it's unfair that these companies
are paying less in tax than the person cleaning their plush offices. It also
matters because it skews the competitive playing field. These large
international enterprises get a competitive advantage from avoiding tax while
businesses in the UK pay their taxes. Furthermore, the state of the national
finances means that we need the money these companies are avoiding paying.
There is a real need for reform. The Government has made real efforts to tackle
the problem. These include a tax general anti-avoidance rule, anti tax haven
measures and seeking international action to change the tax rules. These will
make a difference. The key changes needed short of a radical rework of the
entire business tax system include reforms to tax the rules governing presence
and transfer pricing. On tax presence, it's laughable to hear Amazon claim to
be in Luxembourg when you can see their warehouses from the motorway. And
insulting they paid less in tax than they got in Government grants last year.
On transfer pricing, it just doesn't wash that Starbucks can have a large mark
up on coffee beans shipped into the UK and pay no tax here.
Amazon, Google and Starbucks are just the very small tip of a very, very large
iceberg. The problem is deep set and it is systemic. There needs to be radical
action on tax reform. Yet Labour's years of inaction give them little right to
campaign on the issue, let alone criticise a Government that has been making
real efforts to tackle the tax avoidance culture.