There's a darker story behind the tax scandal

Need for transparency.

Until recently, tax has rarely been tabloid fodder. Apart from the occasional scandal, tax is just not particularly sexy or newsworthy. Or at least it wasn’t. If you’ve turned on the TV or looked at a newspaper recently, you will have noticed that while it still may lack something in the sex department, austerity has placed tax at the top of the business, political and news agendas.

Governments everywhere are keen to chase every potential pound of revenue and most are equally keen to reinforce the idea that this means everyone bearing an equal share of the burden. The chorus in the UK (and elsewhere) remains that we are “all in it together”. This in turn has led to a sharper focus on fairness and more scrutiny of the contribution made by wealthy individuals and big business.

Even though the vast majority of tax revenue comes from these sources (large firms contribute the bulk of corporation tax and the wealthiest few contribute more income tax than anyone else), there is still a feeling that those wealthy enough to be able to invest in legal means of minimising tax are not contributing as much as they should.

In such an atmosphere, it has been easy to find support for campaigns to “expose” those playing by the rules but not perhaps the spirit of all being in it together. The problem is that such schemes jar with prevailing public notions of the impacts of austerity, fairness and morality. Popular campaign groups, the press and even several senior politicians (most surprisingly including the business secretary) have weighed in to the debate with a wave of naming and shaming businesses in the same way that wealthy individuals were picked out for attention by the Times earlier in the year.

This approach led to the Public Accounts Committee summoning companies such as Starbucks, Amazon and Google to face tough questions about alleged tax avoidance with the result that all potentially face reputational damage. The potential for financial harm through subsequent lost sales has apparently been enough to push Starbucks to make the extremely unusual announcement of a voluntary £10m contribution this year with another £10m next year. This will be seen by some commentators as a capitulation to blackmail and by others as a poor attempt to buy back public favour. Conor Delaney, tax lawyer at Milestone International Tax Partners says the coffee giant has been “publicly embarrassed and blackmailed” into the payments.

So it is into this lively arena that PwC has launched a new report into the total tax contribution made by businesses at the smaller end of the spectrum. Produced on behalf of Prelude Group, an entrepreneurial support and training business that has been described as a “do tank rather than a think tank”, it uses PwC’s Total Tax Contribution methodology to work out the long-term contribution of seven fast-growth businesses.

The unsung heroes of business: entrepreneurs and their total tax contribution, highlights just how much these businesses contribute to the UK economy, through a combination of direct and indirect tax payments. Importantly it also dismisses the increasingly popular notion that all businesses and all entrepreneurs are obsessed with avoiding tax. As Alex Cheatle, co-founder of lifestyle management business Ten Group, and one of the entrepreneurs who opened his books for the report, says, “Like most entrepreneurs I am obsessed with creating high quality products and services and building a team; I am not obsessed with reducing the rate of corporation tax”.

He claims that £34 of every £120 he gets from a customer goes in tax. According to calculations in the report, over the last five years his business has made a tax contribution of equivalent to 789 entry-level nurses, while Instant Offices (another business featured) has contributed the equivalent of 920, and (appropriately enough) Health Management has contributed the equivalent of 1,170. All together the seven businesses analysed in this report have generated a total tax contribution of £104.2m over the last five years.

This report represents a laudable attempt to place a more positive spin on the contribution made by business. And it is essential that the message gets out that just as the vast majority of individual taxpayers at all income levels are paying their way, so most businesses make a huge contribution to the wealth of the economy.

But there is a darker, unspoken story here. None of the entrepreneurs mention it, but surely they must baulk at the fact that they are not operating on a level playing field when it comes to tax. Those with the international operations and the resources to do so can apparently avail themselves of systematic, informal tax breaks, those that don’t have the wherewithal can’t. While many business owners appreciate the government’s efforts to reduce the UK’s corporation tax rate to one of the lowest in Europe, many more would appreciate greater resource being given to HMRC and greater emphasis on closing loopholes.

The Starbucks case shows the importance of business reputation, but what it really highlights is the need for greater tax transparency.

Starbucks was “publicly embarrassed and blackmailed”. Photograph: Getty Images

Richard Cree is the Editor of Economia.

Photo: Getty
Show Hide image

The campaign to keep Britain in Europe must be based on hope, not fear

Together we can show the world a generous, outward-facing Britain we can all be proud of.

Today the Liberal Democrats launched our national campaign to keep Britain in Europe. With the polls showing the outcome of this referendum is on a knife-edge, our party is determined to play a decisive role in this once in a generation fight. This will not be an easy campaign. But it is one we will relish as the UK's most outward-looking and internationalist party. Together in Europe the UK has delivered peace, created the world’s largest free trade area and given the British people the opportunity to live, work and travel freely across the continent. Now is the time to build on these achievements, not throw them all away.

Already we are hearing fear-mongering from both sides in this heated debate. On the one hand, Ukip and the feuding Leave campaigns have shamelessly seized on the events in Cologne at New Year to claim that British women will be at risk if the UK stays in Europe. On the other, David Cameron claims that the refugees he derides as a "bunch of migrants" in Calais will all descend on the other side of the Channel the minute Britain leaves the EU. The British public deserve better than this. Rather than constant mud-slinging and politicising of the world's biggest humanitarian crisis since the Second World War, we need a frank and honest debate about what is really at stake. Most importantly this should be a positive campaign, one that is fought on hope and not on fear. As we have a seen in Scotland, a referendum won through scare tactics alone risks winning the battle but losing the war.

The voice of business and civil society, from scientists and the police to environmental charities, have a crucial role to play in explaining how being in the EU benefits the British economy and enhances people's everyday lives. All those who believe in Britain's EU membership must not be afraid to speak out and make the positive case why being in Europe makes us more prosperous, stable and secure. Because at its heart this debate is not just about facts and figures, it is about what kind of country we want to be.

The Leave campaigns cannot agree what they believe in. Some want the UK to be an offshore, deregulated tax haven, others advocate a protectionist, mean-hearted country that shuts it doors to the world. As with so many populist movements, from Putin to Trump, they are defined not by what they are for but what they are against. Their failure to come up with a credible vision for our country's future is not patriotic, it is irresponsible.

This leaves the field open to put forward a united vision of Britain's place in Europe and the world. Liberal Democrats are clear what we believe in: an open, inclusive and tolerant nation that stands tall in the world and doesn't hide from it. We are not uncritical of the EU's institutions. Indeed as Liberals, we fiercely believe that power must be devolved to the lowest possible level, empowering communities and individuals wherever possible to make decisions for themselves. But we recognise that staying in Europe is the best way to find the solutions to the problems that don't stop at borders, rather than leaving them to our children and grandchildren. We believe Britain must put itself at the heart of our continent's future and shape a more effective and more accountable Europe, focused on responding to major global challenges we face.

Together in Europe we can build a strong and prosperous future, from pioneering research into life-saving new medicines to tackling climate change and fighting international crime. Together we can provide hope for the desperate and spread the peace we now take for granted to the rest of the world. And together we can show the world a generous, outward-facing Britain we can all be proud of. So if you agree then join the Liberal Democrat campaign today, to remain in together, and to stand up for the type of Britain you think we should be.