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The Disraeli Room

Blog Post

The next government needs to keep up the pressure on tax avoiders

19th March 2015

This Chancellor has used successive budgets to go after tax dodgers. Whoever is in office next will have to finish the job.

George Osborne has delivered what may be his last Budget Speech, so it’s apt to pause for a little retrospective.

He’ll probably be best remembered for the budget he’d most like to forget, the so-called ‘Omnishambles’. The normally sure-footed chancellor appeared to wander into a minefield of obscure tax reforms, each subsequent U-turn unearthing another media-friendly tax land mine.

But amid much guffawing about pasty taxes and granny taxes, the Chancellor had also set his own time-bomb ticking. Osborne reserved the strongest sections of this speech for what would become a familiar bogeyman in this parliament.

With growing public anger at those not willing to pay their fair share, the Chancellor labelled the behaviour of those engaging in tax evasion and aggressive tax avoidance as ‘morally repugnant’ and promised tough action to follow. Anti-poverty campaigners pricked up their ears.

Advocates for tax justice long rallied against the morally socially and economically corrosive effects of tax dodging, driving inequality and starving government of vital resources to invest in equitable growth and public services. Small and ethical companies suffer a competitive disadvantage against the sharp tax practice of big business.

Internationally, tax dodging hits hardest in some of the poorest countries in the world where many UK multinationals are making huge profits and paying little or no tax. A lack of tax revenue leaves states aid-dependent. The poor, as ever, take the hit.

Exposés of the tax affairs of the likes of Starbucks, Amazon, Google, Associated British Foods, and the cross-party ire of the Public Accounts Committee, have driven the agenda onward. Public attitudes have hardened. Politicians from all parties have struggled to keep pace.

The recent HSBC scandal has ratcheted up the political imperative like never before. And so the Chancellor returned for the final budget of this Parliament to once again square off against those who would seek to avoid the Revenue’s reach.

Campaigners, among them my organisation, ActionAid UK, are calling for all parties to commit to a comprehensive Tax Dodging Bill in the next parliament to make tax fair and raise funds in the UK and in developing countries to fight poverty. With all parties likely to use the budget to position for the election and next government, we watched closely.

The centrepiece of the Chancellor’s plans, the Diverted Profits (read as ‘Google’) Tax, was trailed in his conference speech in the autumn. Yesterday we received confirmation of its imminent enactment in law along with new reporting requirements and other reforms including Danny Alexander’s new penalties for tax advisers.

The Google tax itself is a bold idea – some minds in the tax community thought it technically possible but perhaps not politically feasible. The principle behind it is simple – sniffing out artificial arrangements in companies designed to shift profit away from where the economic activity happens to a more tax friendly location. So far, so good.

But there’s a massive loophole in the proposals for loan arrangements, even though it’s well-known that some big companies lend large sums to themselves in order to cut their tax bills. And there’s a danger that companies – furious at its announcement – will seek to chip away at any teeth in the legislation. Already some of its parameters have been narrowed.

Whatever the colour of the government that will end up implementing this law, it must hold firm to the principles and resource its enforcement so that it is a sufficient deterrent.

Elsewhere, despite the crying need for more scrutiny on tax, the government has opted for a halfway-house proposal that falls short of making multinational companies publish their tax affairs publicly on a country-by-country basis, denying the public information that is so clearly needed to sniff out foul play, especially in developing countries.

Finally, none of the measures proposed in the Budget will reverse this government’s previous changes to the UK’s anti-tax haven (or “Controlled Foreign Companies”) rules that made it easier for British companies to avoid billions in tax in the world’s poorer countries, even though polling shows most people support this.

By common consensus, this Budget will have been the last act of government by the Coalition. This parliament, and this Chancellor, has focused on tax dodging like never before.

Yet at times it has felt that the solutions proposed, from all sides, have been drawn up more with an eye on heading off (or feeding on) the latest media headlines than taking on the problem of tax avoidance from first principles.

As campaigners, we will work to ensure that the issue is top of the next Chancellor’s in-tray, and continue to push to make tax fair.

Find out more about the campaign for a Tax Dodging Bill.

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