In his March budget, Chancellor of the Exchequer George Osborne announced a two per cent reduction in corporation tax, as well as a further one percent reduction per year over the next three years, bringing corporation tax down to 23 per cent by 2014 from the present 28 per cent. The initial two per cent reduction is double that previously announced. This will make UK corporation tax the lowest out of the G7 countries; 16 per cent lower than in the USA, and 7 per cent lower than in France. The corporation tax cuts will remove £2bn a year from the public purse.
It is difficult not to set this reduction in corporation tax alongside Osborne's prized bank levy. Osborne has claimed that the levy has been imposed to help make up for cuts to government spending, putting back into the public purse as the government shrinks it dramatically. However, Osborne's budget was 'fiscally neutral': meaning that as much as was cut in tax was increased elsewhere – not adding anything more to government income. So, whilst the bank levy, which was increased by a minuscule 0.03 per cent from 0.075 to 0.078 per cent, is expected to generate £2.5bn a year, it has essentially already been spent by the government by means of it's cut in corporation tax. Across the financial sector itself, the increased pay-out in the form of the bank levy is offset by the drop in corporation tax. Hardly 'making the banks pay' for the financial crisis. Proudly proclaiming that “Britain is open for business”, Osborne clearly articulated a budget focused on corporate-driven 'recovery' for the UK economy. The government would like us to believe that this is simply a shrewd application of supply side, or 'trickle down', economics – that with less to pay in tax, companies will be attracted to the UK with more cash to invest, creating jobs and stimulating somehow 'endless' economic growth. But we won't be fooled, and even the BBC's Robert Peston is noting that the budget was “likely to be particularly beneficial for big multinational companies...which some will see as the Tory members of the government unfairly rewarding their corporate pals, while millions of individuals are struggling to make ends meet.” So let's take a look... Formulating policy
It is important to examine the process by which the government has come to decisions about corporation tax. In a document published by the Treasury ahead of the June 2010 budget, titled “Tax policy making: a new approach”, David Gauke, MP Exchequer Secretary to the Treasury, set out in the forward what this 'new approach' means in the context of a government “committed to creating the best possible environment for a private sector led economic recovery.”A 'competitive' tax system is “not only about the level of taxation” but about “the way in which we make tax policy” where “Consultation on policy design and scrutiny of draft legislative proposals should be the cornerstones of this approach”. It is overwhelmingly clear which players the government considers worthy of consulting: precisely those same corporations that it is deciding how to tax. A 'liaison committee' of “representatives from businesses” was put together to provide “strategic oversight of the development of corporate tax policy” [my emphasis]. The committee was made up of: John Bartlett, from BP; Ian Brimicombe, from pharmaceutical company AstraZeneca; Brian Harris, from RWE npower; Will Morris, from GE; Rachel Morrison, from Santander; Paul Morton, from Reed Elsevier; Jean Sharp, from Aviva; and Tim Voak, from Tesco. Tesco has already come under fire from UK Uncut for its tax avoidance. Despite making profits of £3.4bn in 2010 as a result of their control of over 30 per cent of the UK grocery market, Tesco avoided £23m in stamp duty and £90-100m in stamp duty land tax in the same year. It uses a limited liability partnership, Cheshunt Overseas, to avoid £16m in tax through overseas business rules. A second element of the government's corporate-led policy creation is the Business Forum on Tax and Competitiveness, which aims to “consult with large businesses on the UK’s tax competitiveness, including the long term aims of reform of the corporate tax system”. It's members include: Andy Halford, Chief Financial Officer, Vodafone Group plc; Simon Dingemans, Chief Financial Officer, GlaxoSmithKline plc; Simon Henry, Chief Financial Officer, Royal Dutch Shell plc; John Cridland, Director-General, The Confederation of British Industry; Deirdre Mahlan, Chief Financial Officer designate, Diageo plc; George Culmer, Chief Financial Officer, RSA Insurance Group plc; Andrew Shilston, Finance Director, Rolls-Royce plc; Mark Elborne, President and CEO, UK, Ireland and Benelux, General Electric Company; Joe Greenwell, Chairman, Ford of Britain, Ford Motor Company; Andew Nelson, Finance Director, Amey plc; Richard Meddings, Group Finance Director, Standard Chartered bank; and Mike Devereux, Director, Oxford University Centre for Business Taxation
Vodaphone in particular has come under fire for its cosy relationship with the exchequer, which let the company off £6bn in tax following a long-running legal battle with HMRC to recover avoided tax (see this Corporate Watch article for more). With this kind of 'consultation' it is unsurprising that, as well as the dramatic lowering of corporation tax, reforms are being created by our corporate-government that create a wider tax system which is beneficial to corporate interests. Corporate tax avoidance
A central hypocrisy in Osborne's budget was his pathetic nod to the problems of corporate tax avoidance, whilst formulating policy which makes it easier for corporations to avoid tax. Whilst he cited a loss of £14bn through tax avoidance in 2008, and claims to be “doing more today to clamp down on tax avoidance than any Budget in recent years", this sits at odds with the overall reduction in corporation tax and the ideologically driven, 'fiscally neutral' budget, which has no intention of increasing the government's income from tax, and thus ability to spend money on public services. More worrying are the changes to how cash held by corporations in other countries, and profits made by their foreign branches, are taxed. Interim announcements made with the budget, included: 1) Changes to 'controlled foreign company' (CFC) rules. This determines how the UK government taxes cash stored by UK registered multinationals in “non-trading entities overseas” - i.e. subsidiaries set up in tax havens. In November the government announced an 8% rate on such profits, but following lobbying by business, Osborne set the rate at a much lower 5.75% in the budget. This makes it much cheaper for a UK registered company to store profits abroad than in the UK, worryingly incentivising tax-avoiding activities which amount to multinational corporations extracting wealth from the UK. It has been estimated that this lower rate will result in the loss of £840 million in tax revenue per year. Fuller CFC reform will be announced in the Finance Bill of 2012. 2) Taxation of profits made by UK based companies in foreign branches. Previously, when bringing profits made through foreign branches to the UK, a UK based company would have had to pay the difference between the UK rate of tax and the rate of tax they had already paid on those profits in the country of origination. The government's changes apply no tax onto such profits, meaning that money which passes through tax havens will remain untaxed upon arrival in the UK. The only other country to do this is Switzerland. It is feared that this will make it even more competitive for corporations to funnel profits through tax havens. In addition, the government itself has said that it expects “large financial services companies to make the greatest use of the exemption regime”. Perhaps a back-handed way to 'give back' to the banks after Osborne's imposition of the bank levy? In attempting to attract corporations to do business in the UK, the government is making changes that legitimate and ease tax avoiding activities. Throwing open the doors even wider to big business means opening up our economy to wealth extraction without any plans for improving public spending, , whilst relying on long-debunked arguments about the 'trickle down' effect of corporate activities. Relying on corporations for job creation, for example, often means low wages, limited job security and reduced employment rights. Relying on corporations for economic growth means plans such as the 21 new 'enterprise zones' across England – in which tax breaks are granted (including a freeze on business rates for 25 years) and planning processes 'simplified' (which risks 'development' of an area without community consent and not in a community's best interests). As David Frost, of the British Chambers of Commerce, put it: “The chancellor has prioritised business growth and private-sector expansion alongside deficit reduction”. We get the reduction, they get the growth.
It is difficult not to set this reduction in corporation tax alongside Osborne's prized bank levy. Osborne has claimed that the levy has been imposed to help make up for cuts to government spending, putting back into the public purse as the government shrinks it dramatically. However, Osborne's budget was 'fiscally neutral': meaning that as much as was cut in tax was increased elsewhere – not adding anything more to government income. So, whilst the bank levy, which was increased by a minuscule 0.03 per cent from 0.075 to 0.078 per cent, is expected to generate £2.5bn a year, it has essentially already been spent by the government by means of it's cut in corporation tax. Across the financial sector itself, the increased pay-out in the form of the bank levy is offset by the drop in corporation tax. Hardly 'making the banks pay' for the financial crisis. Proudly proclaiming that “Britain is open for business”, Osborne clearly articulated a budget focused on corporate-driven 'recovery' for the UK economy. The government would like us to believe that this is simply a shrewd application of supply side, or 'trickle down', economics – that with less to pay in tax, companies will be attracted to the UK with more cash to invest, creating jobs and stimulating somehow 'endless' economic growth. But we won't be fooled, and even the BBC's Robert Peston is noting that the budget was “likely to be particularly beneficial for big multinational companies...which some will see as the Tory members of the government unfairly rewarding their corporate pals, while millions of individuals are struggling to make ends meet.” So let's take a look... Formulating policy
It is important to examine the process by which the government has come to decisions about corporation tax. In a document published by the Treasury ahead of the June 2010 budget, titled “Tax policy making: a new approach”, David Gauke, MP Exchequer Secretary to the Treasury, set out in the forward what this 'new approach' means in the context of a government “committed to creating the best possible environment for a private sector led economic recovery.”A 'competitive' tax system is “not only about the level of taxation” but about “the way in which we make tax policy” where “Consultation on policy design and scrutiny of draft legislative proposals should be the cornerstones of this approach”. It is overwhelmingly clear which players the government considers worthy of consulting: precisely those same corporations that it is deciding how to tax. A 'liaison committee' of “representatives from businesses” was put together to provide “strategic oversight of the development of corporate tax policy” [my emphasis]. The committee was made up of: John Bartlett, from BP; Ian Brimicombe, from pharmaceutical company AstraZeneca; Brian Harris, from RWE npower; Will Morris, from GE; Rachel Morrison, from Santander; Paul Morton, from Reed Elsevier; Jean Sharp, from Aviva; and Tim Voak, from Tesco. Tesco has already come under fire from UK Uncut for its tax avoidance. Despite making profits of £3.4bn in 2010 as a result of their control of over 30 per cent of the UK grocery market, Tesco avoided £23m in stamp duty and £90-100m in stamp duty land tax in the same year. It uses a limited liability partnership, Cheshunt Overseas, to avoid £16m in tax through overseas business rules. A second element of the government's corporate-led policy creation is the Business Forum on Tax and Competitiveness, which aims to “consult with large businesses on the UK’s tax competitiveness, including the long term aims of reform of the corporate tax system”. It's members include: Andy Halford, Chief Financial Officer, Vodafone Group plc; Simon Dingemans, Chief Financial Officer, GlaxoSmithKline plc; Simon Henry, Chief Financial Officer, Royal Dutch Shell plc; John Cridland, Director-General, The Confederation of British Industry; Deirdre Mahlan, Chief Financial Officer designate, Diageo plc; George Culmer, Chief Financial Officer, RSA Insurance Group plc; Andrew Shilston, Finance Director, Rolls-Royce plc; Mark Elborne, President and CEO, UK, Ireland and Benelux, General Electric Company; Joe Greenwell, Chairman, Ford of Britain, Ford Motor Company; Andew Nelson, Finance Director, Amey plc; Richard Meddings, Group Finance Director, Standard Chartered bank; and Mike Devereux, Director, Oxford University Centre for Business Taxation
Vodaphone in particular has come under fire for its cosy relationship with the exchequer, which let the company off £6bn in tax following a long-running legal battle with HMRC to recover avoided tax (see this Corporate Watch article for more). With this kind of 'consultation' it is unsurprising that, as well as the dramatic lowering of corporation tax, reforms are being created by our corporate-government that create a wider tax system which is beneficial to corporate interests. Corporate tax avoidance
A central hypocrisy in Osborne's budget was his pathetic nod to the problems of corporate tax avoidance, whilst formulating policy which makes it easier for corporations to avoid tax. Whilst he cited a loss of £14bn through tax avoidance in 2008, and claims to be “doing more today to clamp down on tax avoidance than any Budget in recent years", this sits at odds with the overall reduction in corporation tax and the ideologically driven, 'fiscally neutral' budget, which has no intention of increasing the government's income from tax, and thus ability to spend money on public services. More worrying are the changes to how cash held by corporations in other countries, and profits made by their foreign branches, are taxed. Interim announcements made with the budget, included: 1) Changes to 'controlled foreign company' (CFC) rules. This determines how the UK government taxes cash stored by UK registered multinationals in “non-trading entities overseas” - i.e. subsidiaries set up in tax havens. In November the government announced an 8% rate on such profits, but following lobbying by business, Osborne set the rate at a much lower 5.75% in the budget. This makes it much cheaper for a UK registered company to store profits abroad than in the UK, worryingly incentivising tax-avoiding activities which amount to multinational corporations extracting wealth from the UK. It has been estimated that this lower rate will result in the loss of £840 million in tax revenue per year. Fuller CFC reform will be announced in the Finance Bill of 2012. 2) Taxation of profits made by UK based companies in foreign branches. Previously, when bringing profits made through foreign branches to the UK, a UK based company would have had to pay the difference between the UK rate of tax and the rate of tax they had already paid on those profits in the country of origination. The government's changes apply no tax onto such profits, meaning that money which passes through tax havens will remain untaxed upon arrival in the UK. The only other country to do this is Switzerland. It is feared that this will make it even more competitive for corporations to funnel profits through tax havens. In addition, the government itself has said that it expects “large financial services companies to make the greatest use of the exemption regime”. Perhaps a back-handed way to 'give back' to the banks after Osborne's imposition of the bank levy? In attempting to attract corporations to do business in the UK, the government is making changes that legitimate and ease tax avoiding activities. Throwing open the doors even wider to big business means opening up our economy to wealth extraction without any plans for improving public spending, , whilst relying on long-debunked arguments about the 'trickle down' effect of corporate activities. Relying on corporations for job creation, for example, often means low wages, limited job security and reduced employment rights. Relying on corporations for economic growth means plans such as the 21 new 'enterprise zones' across England – in which tax breaks are granted (including a freeze on business rates for 25 years) and planning processes 'simplified' (which risks 'development' of an area without community consent and not in a community's best interests). As David Frost, of the British Chambers of Commerce, put it: “The chancellor has prioritised business growth and private-sector expansion alongside deficit reduction”. We get the reduction, they get the growth.