Progress | Centre-left Labour politics

Minding the gap

We have made progress on tax evasion, but we must do more – and it needs a chancellor with fire in their belly, says Jack May

The Panama Papers, The Paradise Papers, stump speeches and rallies, prime ministerial addresses and chancellor’s statements from the despatch box – tax evasion and tax avoidance have been on people’s minds, even as questions over Brexit and our fiscal spending reign supreme.

But though the amount of tax that escapes clinking into the national piggy bank is a cause for concern, it is not as easy to fix as politicians of many colours proclaim. Tory leaders argue that we need not raise general taxation and that some, such as corporation tax, could be lowered if only we tackled evasion. Labour’s left dodges any question related to paying for its grand schemes by citing numbers anywhere between a few million and £200bn supposedly lost to evasion that would be easy pickings on day one of a Jeremy Corbyn government.

Would that it were so. We are in murky waters at best. It is often claimed that we have one of the lowest tax gaps in the world, and relative to a lot of other advanced countries, we do pretty well for ourselves. By the Treasury’s estimates, the difference between what tax was collected and what tax should have been collected in 2014-15 was £36bn, or six and a half per cent of revenue.

This is good news, but the unfortunate reality of the situation is that it is not the full story. Too many multinationals are able to shuffle profits around and avoid paying their dues, and we still have a long way to go to ensure that we receive what is owed to us. We should not be unrealistic and pretend that we can close that gap to zero – no system is ever perfect, no plumbing without its leaks, but we can certainly eke a little more fiscal blood out of that stone.

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According to a Financial Times investigation published on Monday, firms’ effective tax rates – the proportion of profits they expect to pay – have slumped by nine per cent, a drop of two whole percentage points, since the financial crash a decade ago.

By poring through these firms’ publicly declared accounts, the FT was able to find that on average they are accounting for paying vastly less in tax than they were ten years ago. While much of this can be attributed to lower headline rates of corporation tax, this only covers about half of the drop.

Furthermore, deals like Google’s £130m tax bill, negotiated with HMRC through private accountancy firms, may have seemed like a huge short-term boon to the Treasury’s coffers at the time, but they damage the credibility of the system over the longer term.

In an era of increasing international threats, this global problem needs a global solution – one that works to improve the situation for everyone. The United Nations World Institute for Development Economics Research estimates that, worldwide, $500bn in international corporation tax is lost annually. The good that could be achieved if this money were in public hands is endless.

We need someone with the sense of urgency that Gordon Brown had on his visits to world leaders as the financial crash unfolded. Britain will have to make concessions in many areas – such as offering a firm hand in tackling loopholes provided by the crown’s own territories – but should lead the way in crafting a package that makes serious inroads on the issue. This includes shutting down the easiest evasion routes, building an international consensus for how tax can be collected across borders, and establishing robust dispute resolution frameworks both to tackle companies fiddling the system and to negotiate between countries with differing interpretations.

📖 Mike Katz on why tackling tax evasion is not enough

Obviously, such an international undertaking is a huge ask, and will take a chancellor with charisma and drive, or even the mere benefit of a personality – something clearly lacking in the incumbent occupant of the post.

But politically, even a small sense of tangible progress built on a supranational level is a huge win. Being seen to tackle big multinational corporations is precisely the kind of anti-elite approach that will score political points; taking on the ‘citizens of nowhere’ that May so derides, while also giving Britain a renewed purpose on an international stage where it appears an ever shrinking violet.

We are now running a budget surplus, in large part thanks to healthier than expected tax receipts, and we must build on this foundation. While Philip Hammond’s Spring statement is wisely no longer being used as a de facto second budget, it could have provided the perfect platform to do something a little more imaginative – to secure the supply of incoming cash, and make some headway against an increasingly challenging landscape of international corporate players.


Jack May is a Progress columnist. He tweets at @JackO_May



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