This week the Labour Party announced plans to provide free broadband to everyone in the UK. This big election promise has been generating lots of headlines and debate. However, what hasn’t been discussed enough is how the party plan to fund this policy.
According to Labour, the ongoing costs will be paid for by changing the way in which global companies, including the tech giants, are taxed. The party wants to get rid of the existing system under which companies can slash their bills though playing clever accounting games.
The status quo means that big companies often pay peanuts in UK tax, while making billions of dollars in profit. At the heart of this problem is that the international tax rules are over a century old and were created for the movement of physical goods and services. The current tech-based economy allows companies to manipulate their activities and stash profits in places with low tax rates.
While the current approach is in place, regulators and tax authorities are playing a cat and mouse game with well paid tax lawyers and accountants who can reduce the amount a company pays.
Labour plans to replace this with a “unitary tax system”. Under this approach companies would pay the UK a proportion of their global profits. The UK’s take would be worked out in relation to the UK’s share of a company’s overall sales, staff and assets. Ideally this reform would happen at a global level, but experts argue that the UK could adopt this approach by itself.
Tax Justice UK technical advisor Sol Picciotto worked on Labour’s proposal. He estimates that it could raise £6 - £14 billion a year more than the current system. The idea is backed by economic heavyweights such as Joseph Stiglitz and Thomas Piketty. It also features as one of the 33 policies in our Manifesto for Tax Equality and our friends over at TaxWatch have laid in more detail how the change would work.
While these tax changes have got drowned out in the debate about whether free broadband is a good idea or not, it’s a big deal. The public are sick of seeing major companies like Amazon and Google paying so little in tax. It’s time for tax justice.