Does tax avoidance really ‘do evil’?

At the end of last year, it was coffee-shop chain Starbucks in the UK’s tax-avoider stocks. Now it appears to be the turn of geeky behemoth Google (with close competition from everything-sellers Amazon) to take a pelting from assorted politicians and commentators for their corporation-tax arrangements.

Not that Google, or indeed Amazon or Starbucks, are doing anything illegal. No, what they have been doing is effectively conducting business within the UK, but invoicing from outside the UK, and therefore legally avoiding certain UK tax liabilities. This means that although US bosses of Google and Amazon told investors they took sales from UK customers in 2012 of £3.2 billion and £4.2 billion respectively, published accounts show they paid UK taxes of just £3.2million and £3.4million.

And this, it seems, is just not cricket. So last week, the chair of the House of Commons Public Accounts Committee, Margaret Hodge, was busy lobbing some of the most rotten foodstuffs at Google. She told its northern Europe boss, Matt Brittin, that his company’s behaviour on tax was ‘devious, calculated and, in my view, unethical’. No doubt thinking she was the first-ever person to do so, she then played upon Google’s daft motto. ‘You are a company that says you “do no evil”. And I think that you do do evil’, she harrumphed.

Over the weekend, others took up Hodge’s left-over stash of righteous tomatoes. Even Labour’s sodden blanket of a leader, Ed Miliband, launched something that approximated a strong opinion. Google’s behaviour, he said, ‘is part of a culture of irresponsibility’. Tory prime minister David Cameron, while not attacking Google directly (Google chief Eric Schmidt is a senior business adviser to the government), also found time to strike a pose mid-chuck: ‘I have made fighting the scourge of tax evasion and aggressive tax avoidance a priority for the G8 Summit which the UK is hosting next month.’ And all this came against the background of shrilling broadsheet op-eds, replete in condemnation of Google’s ‘immoral’, ‘unethical’ and ‘irresponsible’ behaviour.

What’s curious about the current political-class focus on individuals’ and companies’ tax arrangements is that, believe it or not, there was a time when the technicalities of taxation were considered about interesting as, well, the tax code. It was a minority concern, at best. But something happened. And that something was the financial crisis of 2008. Since that moment, when the relative boom times no longer vaguely boomed, how much tax the wealthy paid suddenly began to matter. Some of us, it seemed, were all in it together rather more than others.

In 2010, the campaign group UK Uncut, best thought of as an apprenticeship scheme for Her Majesty’s Revenue and Customs, started targeting the shops of companies paying relatively low tax for a spot of direct action (mainly involving superglue, activists and windows). Picked up and celebrated by certain sections of the media, UK Uncut’s campaign seemed to find itself on the moral high ground. It was at this point that the political class, in search of any sort of ground, began to turn tax avoidance into the cause of the hour.

Such has been the political focus on tax avoidance that chancellor George Osborne even made it a central part of his 2012 Budget, declaring ‘aggressive tax avoidance’ to be ‘morally repugnant’. Later that year, Cameron himself took time out of his diplomatic trip to Mexico to condemn the tax affairs of comedian Jimmy Carr, calling ‘some of these [tax avoidance] schemes’ ‘quite frankly morally wrong’. And in December, the Public Accounts Committee announced to much broadsheet joy that 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’.

Yet, what’s puzzling about this obsession with tax is that it simply does not address the problems to which it is deemed to be a response: namely, the post-2008 economic situation. In fact, the energy currently being invested in hunting down the ‘evil’ of tax avoidance looks increasingly like a form of political displacement activity. Unable to face up to the ways in which the conditions of economic growth might be restored – unable, that is, to invigorate the wealth-producing parts of economy – the political class is determinedly peering at how much tax is paid on existing wealth instead. Hence taxation, and not economic growth, is now being presented as the ideal way to raise state revenue and tackle any number of problems, from deficit cutting to welfare spending.

Of course, one can, as this commentator does, suggest that tax avoidance constitutes a huge missing £25-30 billion chunk of existing total tax revenues of nearly £500 billion. Yet even this is misleading. So while in 2009-2010 HMRC estimated that on top of total tax revenues of £470 billion, there was £32 billion of uncollected tax, only £5 billion of this figure was attributed to tax avoidance. Which, in the grand economic scheme of things, won’t do much to bolster state coffers.

Moreover, is it really so morally reprehensible to minimise tax liabilities? After all, what on earth do the tax obsessives think Google et al are doing with the cash. Hoarding it? Having sex with it? Not quite. While a portion will no doubt be paid out as dividends to shareholders, a significant amount will be ploughed back into the economy. As Eric Schmidt himself argued, it is necessary to remember that ‘many corporations reinvest their profits in research and product development, which in turn tends to lead to job creation, further economic growth and, ultimately, more tax’. Schmidt even provides an example from Google itself: ‘[We have] just announced plans to invest more than £1 billion in new offices in London’s King’s Cross. It’s been estimated that this investment will generate some £80million a year in new employment taxes and £50million in stamp duty.’ Schmidt’s point is valid: if the state is serious about raising revenues, the best way to do this is to set about increasing wealth, not levels of taxation.

But then, it is not at all clear that those concentrated on tax avoidance are serious about the economic issues, let alone wealth creation. Instead they seem all too content to pursue a PR-friendly crusade against tax avoidance, as myopic as it is futile, rather than face up to the real economic problems in our midst.

Tim Black is senior writer at spiked.