George Osborne’s tax haven
Paul Johnson of the Institute for Fiscal Studies is full of righteous frustration over George Osborne’s plan to allow workers to trade their employment rights for shares in their employer. Writing in the Financial Times (subscription) today Johnson points to small print in the Autumn Statement document that shows the Office for Budget Responsibility’s view that this gimmick could turn into a tax loophole costing the Treasury £1bn a year by 2017-18.
This is madness, says Johnson, when ministers say they are trying to make sure that individuals and companies pay their proper share of taxation. As he puts it:
“They fulminate against tax avoidance and then create the very complexities and loopholes that allow the avoidance industry to flourish in the first place. They then create reams of additional legislation to control the avoidance, or face the embarrassment of having to withdraw the policy altogether.”
Quite right. But it seems to me that there’s another, even more screaming, contradiction in the Government’s behaviour on tax avoidance.
The Chancellor and other Cabinet ministers have recently been denouncing multinationals such as Starbucks and Google who avoid UK Corporation Tax by registering their profits in tax havens like Luxembourg and Ireland. George Osborne says he wants G20 action to prevent firms doing this.
Yet in the Autumn Statement the Chancellor announced yet another cut in Corporation Tax, taking it down to 21% in April 2014.
If “shares for rights” is madness this is howling-at-the-moon lunacy.
Osborne justified the rate cut to the Commons by saying it would make the UK tax regime more internationally competitive:
“This is the lowest rate of any major western economy. It is an advert for our country that says: come here; invest here; create jobs here; Britain is open for business.”
But that’s precisely the economic strategy that Ireland has been following. Dublin has reduced its Corporation Tax to 12.5% to persuade multinationals to set up their headquarters there. And that’s why Google pays its profit taxes on the eastern, rather than the western, side of the Irish Sea.
We have a Chancellor who complains about tax shopping by multinationals while at the same time slashing UK corporation tax to encourage multinationals to shop around and choose Britain.
A generous description of this behaviour would be confused.
Others will conclude that George Osborne’s complaints about tax avoidance by multinationals are disingenuous and that the Chancellor’s actually happy to see an international race to the bottom on corporate tax rates that will inevitably see global firms steadily paying less into national exchequers.
This from the Autumn Statement document shows how that particular race is developing:george osborne, tax avoidance
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