Progress’ Tackle Tax Avoidance charter is an important step

—Well done Progress for launching an anti-tax avoidance campaign. This is a hugely important issue for Labour and resonates strongly with the public. In short, it matters and is a vote-winner.

It matters to Labour because we too will have to tackle the deficit in government, so getting in every pound of tax due is critical to our ambitions for maintaining public expenditure. We believe in the importance of public spending to equalise life chances, but, as we will face fiscal constraints, we need to maximise the government’s income by making sure we get control of the appalling tax avoidance and evasion that appears endemic among global corporations and wealthy individuals.

We are talking big numbers. HMRC admits to a tax gap of £32bn. That is a very conservative estimate and does not, for instance, include the monies we should be collecting from the Googles and Amazons of this world, because their avoidance schemes are deemed legal.

In 2012 Amazon earned £4bn in sales in the UK, yet paid only £2.4m in corporation tax while claiming £2.5m from the UK government in grants.

In 2011 Google’s revenue from its UK business was $4bn and its global profits were $9.7bn, but it only paid £6m in corporation tax to the UK government.

And last year HMRC wrote off £5bn in tax as being uncollectable with another £10bn projected to be written off in the future.

The hearings on tax we have held at the public accounts committee, which I chair, have focused the spotlight on what has been happening for years. The response I have had from the public shows how strongly people feel and how angry they are.

When times are hard and living standards are being squeezed, people think it is completely unfair and wrong that they should be paying their fair share of tax while wealthy individuals and global corporations avoid paying theirs.

This is not just a legal issue; it is a moral issue. As citizens of Britain we all have obligations, according to our means, to contribute to the common good which benefits us all.

This is not an anti-business agenda; it is a pro-fairness crusade. Indeed, small- and medium-sized UK businesses are riled that tax avoidance by the multinational corporations puts the UK-based businesses at a competitive disadvantage.

If Starbucks can cut its prices because it pays no corporation tax, it forces the high street coffee shop that is hounded for the last penny by HMRC out of business, because it cannot compete. If Amazon avoids corporation tax – and perhaps VAT – by artificially constructing its business in Luxembourg, it puts John Lewis and the community bookshop at a competitive disadvantage.

I am particularly fed up with the plea from multinationals that they pay other taxes, like business rates and national insurance contributions, so can choose not to pay corporation tax. We all pay our council tax and VAT on the goods we buy. That does not mean we can choose to avoid paying our fair share of income tax.

There is real fear at the heart of government that if it gets tough on business, businesses will flee the UK. But as the chief executive of Google, Eric Schmidt, himself admitted in an interview: ‘Google will continue to invest in the UK no matter what you guys do because the UK is just too important for us.’

Tackling tax avoidance will be tough but it needs real political commitment which is why the Progress campaign is so important. You only have to see the size of the tax avoidance industry to understand how unfairly the scales are balanced against HMRC. The big four accountancy firms make nearly £2bn a year from their tax advice business in the UK and they all have big offices in the tax havens. These same four accountancy firms alone have 250 highly paid transfer pricing specialists while HMRC employs only 65 people to challenge the transfer pricing claims of global businesses. No wonder HMRC is always forced into playing catch-up.

So we need action under four pillars. First, the government should enable HMRC to be much tougher at challenging the big companies on their artificial structures. Why have we never taken one internet company to court to test its interpretation of the law? Why do we not staff HMRC properly? For every £1 spent on staffing we get £9 back in tax.

Second, we need to have much greater transparency. The government hides behind taxpayer confidentiality so that nobody can see how judgements are being made. That lack of accountability will no longer do. The days of sweetheart deals with powerful corporations have to be over if trust in our tax system is to be restored. Naming and shaming those who aggressively avoid tax would provide a powerful deterrent, as most of these businesses care deeply about any reputational damage.

Third, we have to simplify our tax code so that it becomes much more difficult to find loopholes. We have a ridiculously long and complex tax code and, although this government promised a radical simplification, the fact that only six people are working on this is evidence that it is only tinkering at the edges.

Finally, we have to work through international institutions, at European, G8 and OECD level, so that we stop corporations moving their profits across national borders simply to avoid tax. And we should certainly work to close down the tax havens that claim a link to the UK as dependencies. That is why this campaign to toughen up our government’s resolve before the G8 summit is so important. So, support the campaign and do your bit for building a fair tax system in the UK.

—————————————————————————————

Margaret Hodge MP is chair of the public accounts committee

—————————————————————————————

Photo: taxbrackets.org

—————————————————————————————

Join Margaret to discuss Tackling tax avoidance: How can the government get a grip? at 6pm, Monday 3 June in the House of Commons.

Margaret Hodge MP Chair, Public Accounts Committee
John Woodcock MP Progress vice chair
Melanie Ward ActionAid
Chair Oona King Progress vice chair