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Artful Tax Dodgers: The Backroom Scandal of Evasion and Avoidance which Harms us All

Submitted by on 13 Sep 2011 – 15:43

Caroline Lucas MPCaroline Lucas, MP for Brighton Pavilion and leader of the Green Party of England and Wales

In the wake of the terrible violence and disorder which erupted onto our streets in August, thousands of column inches were devoted to analysis of the potential causes – and what the riots and looting told us about the social fabric of the UK.

Yet while many commentators focused their efforts on the alleged ‘sickness’ at the bottom of British society and the vacation of responsibility by some of our poorest citizens, rather less attention has been afforded to those at the other end of the scale who routinely loot the public purse with impunity.

Tax avoidance and evasion may not be as visible as criminals kicking in shop windows and stealing pairs of trainers, but the ability of the rich and powerful to exploit loopholes in the tax system deprives Her Majesty’s Treasury of more than £100 billion a year in revenue.

Thanks to organisations like the Tax Justice Network, the scourge of tax avoidance and evasion is finally becoming part of the mainstream of political debate. Spirited and impactful campaigns like the one waged by UK Uncut have done a huge amount to raise awareness amongst politicians, the media and the public.

This is important because, through lost jobs, declining incomes, gathering inflation and cuts in public services, it is ordinary people who are bearing the costs of the economic crisis – one caused by a collapse in Government revenue and unregulated financial sector recklessness.

It is worth noting that since the 1970s, the share of wages and salaries has dropped from a high point of 65% in 1975 to just above 50% now. By contrast, the share of profits has risen to almost half.[1] We need a fairer balance between what households pay and what corporations pay.

But tough and meaningful action from the Government to address tax evasion and avoidance remains elusive. For example, a new deal struck between the UK and Switzerland to tackle the exploitation of the Swiss banking system sounded good at first, but closer analysis reveals serious weaknesses – with campaigners fearing it could undermine negotiations towards a stronger, EU wide deal.

Furthermore, the Government is actually reducing corporation tax gradually, from 28% in 2010-11 to 24% in 2014-15[2]. This is lower than the current rate in most of the EU[3] and will cost an estimated £5.2 billion by 2015/16 – a sum not much short of the £5.9 billion the Government hopes its tax avoidance, evasion and administration measures will raise.

In other words, the half hearted clamp down on tax evasion is being used not to support disabled people facing cuts to their mobility allowances, or to provide realistic levels of housing benefit, but instead to fund a lower rate of corporation tax for companies to dodge in future.

Under the previous Government we did see some positive steps taken, especially in relation to tax avoidance. For example, direct tax avoidance schemes being required to disclose to the revenue departments. But Labour fell short of a full GAAR – a general anti-avoidance rule – nor was enough done to clamp down on tax havens.

My Private Member’s Bill, which proposes measures to create a tax system in which everyone pays what they owe, is one way to push for change. An estimated 500,000 companies every year are not paying tax or filing their accounts in the UK because of regulatory failures by H M Revenue & Customs and Companies House.  A great many are simply struck off the Register of Companies as a result, never to be heard of again. According to a report by Richard Murphy of Tax Research UK, around £16 billion worth of tax a year might be lost to the country this way.

My Bill would specifically ensure that banks have to provide details on all accounts they maintain for companies operating in the UK, so that those companies who do not file their obligatory returns can be chased for the missing information – and the tax they owe. This simple law could recover billions of pounds of lost tax.

The Bill would also force companies to ‘publish what tax they pay’. I want all companies filing accounts in the UK to be required to include a statement on the turnover, pre-tax profit, tax charge and actual tax paid for each country in which they operate, without exception. If they only trade in the UK, this would have no impact on them.

However, it would mean that Britain’s biggest companies, with large numbers of offshore subsidiaries, would be unable to dodge questions about where they earned their profits, how much profit was recorded in tax havens, and where they pay their taxes.

A small number of wealthy individuals and large companies have the means to use tax havens. That’s the richest and most comfortable people in society, taking advantage of the poorest and most vulnerable – who don’t have the luxury of choosing how much tax they pay.

Ultimately, even if it’s legal, tax avoidance is unethical. And what’s needed are tighter laws and better enforcement for the tax dodgers to be held to account.

Over the coming months, I will be lobbying the Government to back my Bill, and building cross party support for the measures proposed. And at the Greens’ autumn conference in Sheffield, I will chair a panel debate on the issue in order to further challenge the gap between Government rhetoric and action.

Because as the Daily Telegraph’s Peter Oborne noted in his remarkably insightful commentary on the summer riots, “the culture of greed and impunity we are witnessing on our TV screens stretches right up into corporate boardrooms and the Cabinet.”

[2] Institute for Fiscal Studies, Green Budget, February 2011, p. 7: http://www.ifs.org.uk/budgets/gb2011/gb2011.pdf

[3] Institute for Fiscal Studies, Green Budget, February 2011, p. 7: http://www.ifs.org.uk/budgets/gb2011/gb2011.pdf