Taxation: dodging the real issues

‘Starbucks “plans tax changes”‘, ran the lead headline on the BBC News website. Fortunately, this is not an indication of the type of journalism we should expect in these chastened, post-Leveson times. No, the unusual prominence given to a coffee-shop company’s tax arrangements is ostensibly due to the fact that UK politicians have, over the past few weeks, decided to turn their hyperbolic attentions to the relatively low rates of corporation tax paid by certain well-known companies.

For Amazon, Google and Starbucks – to pick the companies everyone else has singled out – the publicity has not been good. As the House of Commons Public Accounts Committee announced yesterday, the level of tax taken from multinational firms with large UK operations was ‘outrageous and an insult to British businesses and individuals who pay their fair share’. The MPs also accused Starbucks et al of behaving legally but immorally, declaring that they used ‘the letter of tax laws both nationally and internationally to immorally minimise their tax obligations’. And where the politicians went, so the pundits have followed with even the business-friendly Financial Times sticking the boot in: ‘Societies have norms and ethics that extend beyond tax law. To function well they demand more of individuals and companies than that they avoid breaking the letter of the law.’

If all this sounds familiar, then that is because it is. Tax avoidance – and singling out prominent culprits, be they individuals or companies – has developed into one of the main obsessions of the political class since the financial crisis broke properly four years ago.

Back in March, for instance, chancellor of the exchequer George Osborne followed up the budget with the declaration that ‘aggressive tax avoidance is morally repugnant’. Labour’s Ken Livingstone chose similarly intemperate language when attacking the ‘rich bastards’ who ‘just don’t get it’. ‘No one should be allowed to vote in a British election, let alone sit in parliament, unless they pay their full share of tax’, he said. And then, in July, when it emerged that comedian Jimmy Carr wasn’t paying that much tax, prime minister David Cameron decided to take time out of a diplomatic trip to Mexico to issue some words of warning ‘particularly [to] Jimmy Carr’: ‘some of these [tax avoidance] schemes we have seen are quite frankly morally wrong’.

More striking still has been the enthusiasm with which those on the left have taken up the taxman’s cudgels. Campaign group UK Uncut (founded in 2010), which acts like a youth-training scheme for Her Majesty’s Revenue and Customs, has spent the best part of two years attacking tax-avoiding types like Arcadia’s Sir Philip Green or Vodafone, largely by supergluing themselves to the windows of well-known fashion outlets or occupying mobile-phone shops.

So what is it about taxation that is currently exciting politicians, pundits and assorted activists? After all, up until 2008, taxation and tax law was not a particularly inflammatory issue. Yes, there were murmurings of discontent about various tax-based incentives for big businesses and financial-sector companies, but little more than that. It took the financial crisis of four years ago, for what looked like boom-time complacency to give way to the tax-aware vigilance of today. As the Financial Times put it: ‘In hard times, societies are prone to take a broader view of corporate responsibility.’

But there is more to it than that. Not only has economic growth, once bolstered by the financial-services sector, long since evaporated, the political belief that it can be revived seems to have withered, too. And it is this, the absence of any will to invigorate the wealth-producing parts of the economy, that underlies the increasing political focus on taxation. Rather than seeking to increase society’s wealth, the government seems set on finding ever new ways to tax it. Taxation, then, and not economic growth, is now being presented as the ideal way to tackle any number of problems, from deficit cutting to welfare spending.

In other words, there is this vague hope among left and right alike that if all these wealthy individuals, these big companies, with their tricksy lawyers, gave the state more money, everything would be alright. Calling it a ‘national crisis’, one broadsheet columnist even points to the holy grail of anti-tax avoidance obsessives: the tax gap. ‘This is the difference between what [HMRC] think they ought to be collecting and what they’re actually collecting. That is an astonishing £32 billion. That’s more than the cost of all the state spending on local government. It’s not far short of the entire defence budget, and about half of what we spend on education. There’s a big, bubbling row about our overseas aid budget. Well, you could fit four of those into the tax gap.’

Given the total tax revenues for the UK amount to just under £470 billion, £32 billion of so-called uncollected tax does sound like a significant amount. Yet just how much of that £32 billion is attributable to tax-avoidance? Well, not that much, as it turns out. In fact, the amount that HMRC estimates as a ‘theoretical liability’ is aggregated from a whole host of behaviours. For example in 2009-10, ‘hidden economy, evasion, error, failure to take reasonable care, legal interpretation and criminal attacks’ accounted for £26 billion of a £35 billion tax gap. Tax avoidance, the cause of the hour, the evil in our midst, amounted to £5 billion. It’s a lot of course. It could pay for half an Olympic games. But in the grand scheme of economic stagnation, with the government forced to borrow an extra £27 billion in the past three months alone, it is less so. Even if it was possible to shut down every legal loophole – which comes at a considerable cost itself – for those wanting to pay a bit less tax, the financial benefits would be negligible.

But then, as spiked has argued before, the current focus on how much tax individuals and companies pay has never had much to do with seriously addressing the economic problems we as a society face. In fact, it has more to do with accepting the economic situation as it is rather than improving it. And that’s because the focus on people’s and companies’ tax arrangements has always been driven by something more moralistic than economic, a sentiment captured in that fuzzy, oft-repeated phrase ‘fairness’. That is, in an era of austerity, we as a society are all being urged to behave in a certain way, to accept less rather than demand more. And yet while being assured that we’re all in this brave new financially straitened world together, the vagaries of tax law suggest that some are more in this together than others. Starbucks and Jimmy Carr are not guilty of anything illegal, they are guilty of violating austerity etiquette, of setting a bad example. ‘As this ghastly, endless economic squeeze goes on’, writes one columnist, ‘it’s hard to think of another aspect of domestic policy [other than taxation] that is potentially more damaging’. Damaging, that is, to the idea of a society cohered around austerity-era values.

Little wonder that just as Jimmy Carr did, Starbucks has since repented and promised to review its tax arrangements. After all, when how much tax one pays is seen as an index of one’s virtue, a right-on coffee brand can ill afford the bad publicity. Indeed, so pervasive is the conviction that paying high rates of tax is morally virtuous, one commentator even suggested companies should be given the ‘fair tax’ equivalent of the Fairtrade logo.

All of which is more than a little absurd. While paying high rates of tax may make some feel morally virtuous in these straitened times, the real economic problems, the sources of austerity and austerity etiquette, remain unaddressed.

Tim Black is senior writer at spiked.