As GSK is exposed, the government must clamp down on tax dodging

Panorama adds another company to the list of tax-dodgers

The BBC’s Panorama tonight will add to a long list of allegations of corporate tax dodging. Companies like GlaxoSmithKline, which Panorama claims has used complex offshore structures to avoid millions in UK tax, now join Barclays, Vodafone, Amazon, Apple, Boots, SABMiller and Topshop (amongst others), accused of aggressive tax avoidance.  In a time of austerity, public anger continues to grow against those companies believed to be operating under different rules to the rest of us. 

In an interview last year, GSK’s own chief executive Andrew Witty lamented that:

one of the reasons we've seen an erosion of trust, broadly, in big companies is they've allowed themselves to be seen as being detached from society and they will float in and out of societies according to what the tax regime is. I think that's completely wrong.

Recent polling by ActionAid supports this view (pdf): 79 per cent of UK citizens want to see tougher action from government against tax avoidance. This is an issue that unites voters from all parties; 74 per centof Conservative voters, 83 per cent of Labour voters and 87 per cent of Liberal Democrat voters want to see tax loopholes for big multinationals closed.

Rhetorically at least, the government has responded. George Osborne branded aggressive tax avoidance "morally repugnant" in this year’s Budget speech.  But at the very same time, tucked away in the technical detail of the Budget, are changes that would actually water down the UK’s anti-avoidance rules for multinationals, making it easier for them to avoid taxes. 

These "Controlled Foreign Company Rules" have protected the UK tax base for the last 25 years, making it less lucrative for companies to siphon profits into tax havens, as HMRC have simply topped up the company’s overall tax rate to match the standard UK rate.

While some have inevitably found loopholes in these rules, they’ve been an important tool to discourage profit shifting into tax havens. Not only have they helped protect the UK tax base – they’ve also protected developing countries from tax avoidance by UK companies.

The Government's new proposals in the Finance Bill, currently being scrutinised in parliament, will radically alter this. The Treasury's own figures show they’ll lose revenues of almost £1bn as a result.

Developing countries, meanwhile, could lose as much as £4bn a year – almost half the UK aid budget. The OECD estimates that developing countries currently lose three times more to tax havens than they receive in aid.  This means less money that can be invested in schools, hospitals and roads, keeping countries locked in the cycle of poverty. With the government staunchly (and rightly) defending its decision to spend 0.7 per cent of GNI on aid, it seems nonsensical to be making it harder for developing countries to reduce their dependency on aid by raising their own revenues.

One chink of light is an amendment to the Finance Bill tabled by the Liberal Democrats and supported by Labour, that the changes are not made without a proper impact assessment (recommended by the IMF and World Bank), and measures to mitigate the damage. Hopefully the Conservatives on the Bill Committee will join this emerging consensus.  

Another important remedy would be to open up tax haven operations to scrutiny.  Low headline tax rates – like those in Luxembourg that Panorama claims UK companies have exploited - are just one of the attractions of tax havens for tax dodging (over half of FTSE100 companies have a total of 336 subsidiaries registered in Luxembourg). The other is secrecy. As with impenetrable Swiss bank accounts, this veil of secrecy prevents effective scrutiny of deals done in tax havens. Indeed, ActionAid research has shown that 98 of the FTSE100 use tax havens, where they locate almost 40 per cent of all their overseas subsidiaries. 82 also have operations in the developing world.

If the government is serious about tacking tax avoidance, and serious about sustainably ending poverty, it needs to be putting its weight behind international efforts to break tax haven secrecy, making multinationals publish accounts of their tax haven subsidiaries. 

Right now, though, it should urgently rethink its plans to water down the UK’s anti-tax haven rules. It should be making it harder – not easier – for British multinationals to siphon their profits into tax havens, and make sure they pay their tax bills right around the world. 

Update: Response from GlaxoSmithKline

A spokesperson for GlaxoSmithKline responded to Panorama's investigation with the following statement:

GSK is very disappointed with this programme which was extremely misleading and lacking in context.  Specifically, the programme’s selective use of facts led to a misrepresentation of GSK’s actions and a failure to recognize GSK’s significant UK tax contribution.

GSK strongly refutes any allegation of wrongdoing. At all times the company proactively disclosed its tax transactions to the relevant authorities and both the UK and Luxembourg tax authorities are agreed that GSK paid all the taxes due.

GSK is a global company with 95% of its sales outside the UK however 20% of the company’s tax bill is in the UK. In total, over the period covered in the broadcast, GSK paid around £1billion in UK corporation and business taxes, plus an additional £1.3bn through income taxes of its UK employees.

The difference between UK and EU laws in this area has always created uncertainty for global organisations like GSK. GSK supports the new Controlled Foreign Company tax rules developed by the UK government related to the taxation of overseas earnings which will provide greater certainty despite the fact that they will increase the company’s UK tax bill.”

Treasure Island: Grand Cayman, which has no income tax or corporation tax. Photograph: Getty Images

Mike Lewis is a tax justice campaigner at ActionAid

Photo: Getty
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Who will win in Manchester Gorton?

Will Labour lose in Manchester Gorton?

The death of Gerald Kaufman will trigger a by-election in his Manchester Gorton seat, which has been Labour-held since 1935.

Coming so soon after the disappointing results in Copeland – where the seat was lost to the Tories – and Stoke – where the party lost vote share – some overly excitable commentators are talking up the possibility of an upset in the Manchester seat.

But Gorton is very different to Stoke-on-Trent and to Copeland. The Labour lead is 56 points, compared to 16.5 points in Stoke-on-Trent and 6.5 points in Copeland. (As I’ve written before and will doubtless write again, it’s much more instructive to talk about vote share rather than vote numbers in British elections. Most of the country tends to vote in the same way even if they vote at different volumes.)

That 47 per cent of the seat's residents come from a non-white background and that the Labour party holds every council seat in the constituency only adds to the party's strong position here. 

But that doesn’t mean that there is no interest to be had in the contest at all. That the seat voted heavily to remain in the European Union – around 65 per cent according to Chris Hanretty’s estimates – will provide a glimmer of hope to the Liberal Democrats that they can finish a strong second, as they did consistently from 1992 to 2010, before slumping to fifth in 2015.

How they do in second place will inform how jittery Labour MPs with smaller majorities and a history of Liberal Democrat activity are about Labour’s embrace of Brexit.

They also have a narrow chance of becoming competitive should Labour’s selection turn acrimonious. The seat has been in special measures since 2004, which means the selection will be run by the party’s national executive committee, though several local candidates are tipped to run, with Afzal Khan,  a local MEP, and Julie Reid, a local councillor, both expected to run for the vacant seats.

It’s highly unlikely but if the selection occurs in a way that irritates the local party or provokes serious local in-fighting, you can just about see how the Liberal Democrats give everyone a surprise. But it’s about as likely as the United States men landing on Mars any time soon – plausible, but far-fetched. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.