The shambolic appearance this week by Starbucks, Amazon and Google executives in front of the public accounts committee has rightly heated public anger over tax dodging to boiling point.
As the Starbucks CFO attempted to claim that the company’s UK operations were unprofitable, despite announcing plans to open 300 new UK stores, the feeling that these companies are playing us all for fools was inescapable.
From trade unions to the Daily Mail, voices across the political spectrum are united in their fury that ‘something must be done’. Yet there is less clarity about what this something is – indeed tax dodging is an area where the Westminster politics is way behind the public debate. There is much rhetoric from the coalition about tax dodging being as bad as benefit fraud but little in the way of concrete proposals for serious solutions. In this lies an opportunity for Labour.
Unlike tax evasion, avoidance is legal – but as Margaret Hodge said this week, ‘we are not accusing you of being illegal, we are accusing you of being immoral.’ The truth is that during the plentiful economic era, governments across the world were willing to turn a blind eye to tax avoidance. As the good times rolled, few questions were asked about whether multinational companies were paying what they should be. Big companies employed armies of tax accountants to take advantage of every possible loophole and create increasingly complex corporate structures. Research by ActionAid found that between them, FTSE 100 companies have an enormous 8492 companies registered in tax havens. As with so many other economic issues, regulation has failed to keep pace with globalisation.
It would be wrong to think that this is an anti-business agenda, as John Lewis showed when they spoke out this week. Few small- or medium-sized businesses have the means to get out of paying their dues by creating a tangled web of shell companies based in rented office space in a tax haven where they have no staff or business operations. Instead, this is about fairness and levelling the playing field to end the infamous idea that ‘only the little people pay taxes’.
The scale of public revenue losses is staggering. Even HMRC’s own conservative estimate totals £35 billion per year. And this is very much a global problem, with poor countries losing more to tax dodging each year than they receive in aid.
Labour needs to step forward with a muscular narrative about combatting tax dodging and, as part of the policy review, radical new proposals to tackle the problem at its very roots. This means working at our progressive, internationalist best with other like-minded countries such as the US, France and Germany to bring about global change through fora like the G8, the G20 and the OECD. It means applying serious diplomatic pressure to tax havens, including those linked to the UK, to force them to open up. It means changing international accounting rules so that companies can no longer hide the true source of their profits behind a veil of secrecy. And it means ensuring the UK’s own tax rules – from our anti-tax-haven legislation to the tax disclosures required by big companies – are making international tax dodging harder, not easier.
Labour has form in this area. In the eye of the global financial crisis at the London G20 Summit in 2009, Gordon Brown drove through new global measures to clamp down on tax dodging, including a blacklist of tax havens and action by the OECD. But the coalition dropped the baton and now progress has stalled. Douglas Alexander, as international development secretary, spoke out about tax losses to the world’s poorest countries and brought forward new policy ideas in a 2009 DFID white paper which Ivan Lewis is now set to build on. Contrast that with DFID’s feeble response this week to the House of Commons international development committee’s inquiry into tax which offered welcome new aid in this area, but nothing in the way of action either on the UK’s own tax rules or on the global stage.
The race to the bottom where those who can, dodge their tax responsibilities, must end. A new drive for ethical tax practice should be at the very core of the responsible capitalism that Ed Miliband is promoting.
The starting gun on the race to the top is about to be fired and Labour should lead the way.
Melanie Ward is treasurer of the Labour Women’s Network