Monday’s economic speech by Ed Balls contained many important themes and announcements: on work and skills; on industrial policy; and on an economic strategy which depends on an internationalist outlook – not least being an active member at the heart of the European Union. It also set out the basis on which business will be taxed under the next Labour government.
Our shadow chancellor was right to say that there should be an element of competition in the rate at which corporation tax is set – but we do not want an especially high or low tax rate to be the distinctive policy element when compared to similar economies. However, the corporation tax rate is merely academic when companies are able to choose whether or not they pay it, as we have seen too many times in recent years. That’s why Balls’ pledge to tackle tax-dodging was also hugely important.
At a time of enforced cuts in vital public services, like those run by my colleagues in Fife council, it is more important than ever that everyone pays their fair share. It rightly angers voters when some companies (and individuals) are able to choose not to pay tax – and can then negotiate whether and what they pay, making tax look more like a charitable donation than the price of our common public goods. This is simply not a choice open to ordinary people, or to small businesses, which we must help compete on a level playing field.
This government has talked tough on tax-dodging but its actions have delivered the opposite. On Monday Ed Balls pointed out that the tax gap – the amount that the Treasury is supposed to collect, as opposed to what it actually does collect, and estimated to be between £25-35bn – has grown in the last year. We need to be vociferous in pointing this out.
The truth is that the coalition government has opened new tax loopholes in legislation it has passed. In April a senior banker told the BBC’s Robert Peston that the United Kingdom is becoming the world’s ‘biggest, most developed tax haven’. Cameron delivered soundbites on tax-dodging when he hosted the G8 Summit last year but he has thus far failed to keep most of the promises he made at that summit, including to the world’s poorest countries which suffer enormously from tax dodging.
It will be both right and electorally popular that the next Labour government will choose a different path. Last year I was glad to speak alongside Margaret Hodge at the parliamentary launch of Progress’ Tackle Tax Avoidance campaign. Eighteen months ago I wrote for Progress that we needed a race to the top against tax-dodging and that Labour should lead the way on a new drive for ethical tax practice.
Avoiding a race to the bottom on corporation tax is also an issue in the Scottish independence referendum that many of us are campaigning hard on. In his interventions on the subject, Ed Miliband has been robust in pointing out that, while, on the one hand, the Scottish National party is doing its best to sound like it is about to unfurl the red flag, in reality it is promising cuts in corporation tax that would start a bargain-basement race to the bottom on corporation tax with the rest of the UK.
That is why a different and long-term approach is so important. Balls was very clear about this on Monday, with talk of a race to the top, of ‘earning our way’ out of the cost-of-living crisis, and implementing an industrial strategy that is built to last. In the UK we should be seeking to compete globally on the strength of our skilled workforce and our high-quality good and services, not emulating tiny tropical island tax havens.
This is the basis on which we will see much-needed decent jobs created for the long term, and I am excited about Labour’s direction. Now it is the job of candidates like me to help get this message across on the doorstep so that we have a Labour government to vote these ideas into law.
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Melanie Ward is Labour and Co-operative prospective parliamentary candidate for Glenrothes and Central Fife. She tweets @melanie_ward
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