It is calculated that every £1 spent on enforcement yields £97 in additional tax revenue from large companies, so what stops the government from recovering an estimated £119 billion lost every year, asks WILL SNELL
TEN years after the financial crisis, the British economy is still being run in the interests of a small financial elite based in the City of London, to the detriment of the rest of the British population and of many other people across the world.
In November 2008, the Queen visited the London School of Economics and asked why no-one had foreseen the largest financial crisis since the 1920s. In reality the warning lights had been flashing for years, but people in power chose to ignore the signals and failed to represent the public interest. The subsequent breakdown in trust has caused an unprecedented crisis of social cohesion that threatens our democratic institutions.
In 2016, the Tax Justice Network looked back at the financial crisis and argued convincingly that economic growth and equality in Britain are still held back by a “finance curse” — “the crash… and growing inequality cast doubt on the idea that finance is a boon to the host economy… beyond a point, a growing financial sector can do more harm than good.”
The glib politicians’ assumption that the interests of the British people are aligned with those of the City of London could not be further from the truth.
None of the main political parties is seriously talking about grappling with the choke-like grip that the City of London exerts on Britain’s economic and fiscal policy, which, to quote the Tax Justice Network, has “crowded out manufacturing and non-financial services, leeched government of skilled staff, entrenched regional disparities, fostered largescale financial rent-seeking, heightened economic dependence, increased inequality, helped disenfranchise the majority and exposed the economy to violent crises.”
Ten years after the crash, little progress has been made. Household debt is at record levels. Air pollution levels are hazardous in our cities; climate change is unaddressed. Investment in productive jobs has not materialised. Market power has become concentrated in the hands of multinational companies who extract wealth without paying taxes on their vast profits. The majority of new jobs pay low wages and provide little or no job security. Housing is unaffordable. Wealth and income is unevenly distributed between a tiny minority and vast numbers who are “just about managing.”
Britain’s financial system remains opaque, unaccountable and rigged to serve the interests of the 1 per cent, not the 99 per cent. The status quo is neither equitable nor sustainable and it will only get worse if the threats to turn Britain into a “Brexit tax haven” become reality.
The government should take it upon itself to run the country and the economy in the interests of the whole population, not just those at the top of society.
Instead, like many countries, Britain is pursuing a misguided policy of “competitiveness” in an attempt to stimulate economic growth. This has exactly the opposite effect. Tax cuts and subsidies attract the wrong kind of business to Britain (predatory, dependent capital, and unproductive sectors like real estate).
They do not increase tax revenues by stimulating economic activity, instead, they reduce tax revenues. Higher company taxes and lower subsidies do not hurt workers and consumers; they reduce large companies’ unproductive cash reserves. Low corporate taxes and high subsidies undermine public trust in the willingness of politicians to run the economy in the interests of its people, and pose a threat to democracy itself.
This extreme tax-cutting is ideologically driven and privileges the interests of the wealthiest in society over everyone else.
The problem is made even worse by the failure of the government to seriously address the problem of tax avoidance by the wealthiest companies and individuals in our society.
HMRC estimates that the total amount of tax uncollected in 2013/14 (the “tax gap”) was £34 billion, but other sources suggest that the real figure is more like £119bn.
Tax avoidance can only be fixed in the long term by reforming the global financial system (at the centre of which are many of Britain’s institutions). Britain can also bring in key reforms unilaterally and increase funding for HMRC enforcement (yielding £97 for every £1 spent, for large companies). At the same time, many companies undermine the current system, exploiting loopholes to reduce their (or their clients’) tax bills in Britain.
Experience has shown that pressure from customers and the wider public will make them behave in a more socially responsible way. We need to apply this pressure more strongly and more often.
Tax avoidance is not inevitable. Public pressure on the government and on the key instigators can consign it to history. At the same time, there is an urgent need for ordinary Britons to make their voices heard and to call on the government to end the fallacious and self-defeating “race to the bottom” on tax and regulatory policy.
Countries are not like companies; competition is not a healthy dynamic for nation states. Unless governments recognise this error and put renewed effort into collaboration, not just on tax but on the full range of global issues from climate change to trade to security, then the vast majority of the world’s population face a bleak and uncertain future.