Tax avoidance: indignation only gets us so far...

There has been a huge shift in public opinion in the UK on big corporations and rich individuals avoiding tax. How best to build on this?

Margaret Hodge MP, chair of parliament’s Public Accounts Committee (PAC), asked David Cameron at Prime Minister’s Questions last week, whether he would endorse a policy of “naming and shaming” businesses and individuals guilty of tax avoidance.  There followed a masterly example of political avoidance – a fulsome tribute for her campaign against tax avoidance, a modest reference to his own intervention over Jimmy Carr’s conduct, and of course not a word on removing the confidentiality behind which tax avoiders shelter.

Mrs Hodge, who has transformed the PAC, deserves all the tributes going, especially after her theatrical coup that highlighted tax avoidance by major corporations. Her committee’s arraignment of executives from just three of them - Amazon, Google and Starbuck - elicited evasive responses to robust questioning, revealed the scale of their unpaid tax and shocked the country. Starbucks, for example, had sales of £400 million in the UK last year, but paid no corporation tax through transfer pricing, royalty payments and other devices. Amazon with £3.35 billion sales in the UK in 2011, reported only a “tax expense” of £1.8 million; Google's UK unit paid just £6 million to the Treasury in 2011 on a turnover here of £395 million.

But it was civil society organisations, especially UK Uncut, and individuals such as Richard Murphy, the campaigning accountant who formed Tax Research UK, who created the major shift in public concern that made Mrs Hodge’s campaigning, and the work of the committee, so resonant.  Public protests and direct action that the media at first played down and denounced, especially after the partial occupation of Fortnum and Mason in Piccadilly, actually worked in alerting the public to what was going on. The UK Uncut direct action campaigns against Vodafone stores in 2010 and 2011, with protesters in Santa suits closing down the company’s Oxford Street store; similar direct action against Philip Green’s Top Shop over his tax dodging; and the targeting of more than 35 branches of Barclays with pickets, poetry readings and colouring (the bank paid just £113 million in corporation tax in 2009 on a record £11.6 billion profit), cumulatively built up public understanding that they, the “little people”, were being ripped off. Murphy himself persistently published his own calculations of the scale of tax that HMRC was failing to collect, in the face of official denials and no little derision.

The shift in public opinion is a healthy phenomenon, encouraged by the growing realisation that the country is losing billions of pounds that could have and still could mitigate the damaging cuts in public services the coalition government is pursuing – and hopefully that could lead on to a fuller appreciation of the contribution that public spending makes to our quality of life. There is profound resentment that while ordinary people pay tax, big corporations and rich individuals can avoid it; and once again, that “something is really not right with the current system”.  But this is part also of a shift in moral perspective towards a sense of distributive justice and a socio-economic understanding and solidarity based on an old-fashioned belief in ‘paying one’s dues’. Those that avoid tax are shirking their duty of contributing to the commonwealth – and are thereby behaving ‘immorally’. The Prime Minister felt the effect, criticising Jimmy Carr for his use of the K2 tax avoidance scheme. (There is a joke among tax lawyers that Carr’s descent from K2 was the fastest on record.)

Discussions of the ethics of tax avoidance are now everywhere. But where do we go now?  Indignation and outrage only get us so far. Yes, Starbucks has buckled in response to the public outrage, but the coffee house chain is by its nature vulnerable to public boycott.  Google, Amazon and hundreds of other corporations are not.  Besides, a voluntary gesture, unrelated to a genuine tax liability, only goes to show how far ‘paying their dues’ is a discretionary matter for major global enterprises. The government has accepted tax lawyer Graham Aaronson QC’s scheme for a General Anti-Abuse Rule (GAAR), which he was asked to produce (in the words of a Treasury press release), to “deter and counter tax avoidance, whilst providing certainty, retaining a tax regime that is attractive to businesses, and minimising costs for businesses and HMRC.”  

GAAR, which is likely to be enacted next year, is “targeted at artificial and abusive tax avoidance schemes [to] improve the UK’s ability to tackle tax avoidance.”  But GAAR is pitched at a very modest level of abuse. Its limited scope and the  timid approach of HMRC means that it will hardly deter the hundred or so specialist tax advice firms that are “running rings round” the Revenue, as MPs on PAC claimed at a session with officials last week. (Out of hundreds of tax avoidance schemes that have arisen in the last four years, HMRC has taken only 11 to court.) Besides which, GAAR doesn’t touch the Googles, Amazons and other global players.  Such players operate in a global realm, where international law and procedure belong in the early 20th century, long before the advent of multi-national corporations able to shift their activities between numerous locations and to take advantage of tax havens. 

We hear that George Osborne, the scourge of benefit scroungers abed across the country, is seeking remedies at the OECD and G20.  But he is not exactly scourge-like in Europe.  The EU is promoting a Common Consolidation Corporate Tax Base for Europe that recognises that “around one trillion euros is lost to tax evasion and avoidance every year in the EU.”  Algirdas Šemeta, the EU commissioner for taxation, says: "While member states must toughen national measures against tax evasion, unilateral solutions alone won’t work. In a Single Market, within a globalised economy, national mismatches and loopholes become the playthings of those that seek to escape taxation. A strong and cohesive EU stance against tax evaders, and those that facilitate them, is essential.” The Commission’s Action Plan sets out a set of measures, for now and for the future, to help member states protect their taxbases, beginning with a strong EU stance against tax havens, going beyond the current international rules. Using common criteria, member states are being encouraged to identify tax havens and place them on national blacklists.  Non-EU countries are being asked to apply the same EU governance standards.  

As I understand the position, the UK is against this initiative. The government is also against Mrs Hodge’s proposal to “name and shame” tax avoiders, which could establish a firm foundation for further anti-avoidance action. David Cameron and Danny Alexander, the Lib Dem Chief Secretary to the Treasury, have ruled this idea out, saying it would breach taxpayer confidentiality.  It is likely that most people would agree that it would be wrong to divulge the actual incomes and tax arrangements of individuals – which is the reason why confidentiality is one of the cornerstones of tax law. But the same case does not apply to releasing the proportions of tax that businesses and individuals pay – the kind of information that came out of the PAC hearing with Google, Amazon and Starbucks, but more of the same.  A more transparent process of negotiation would greatly strengthen HMRC’s hand in dealing with such companies and further public understanding of what is going on. Keep it up, Margaret!

About the author

Stuart Weir is founder of Democratic Audit at the Human Rights Centre, University of Essex, and co-founder of Charter 88. He is a consultant to the Joseph Rowntree Reform Trust on the State of the Nation polls.