The government's "patent box" is the tax avoidance package companies have been begging for

It might incentivise innovation, but it definitely incentivises paying far less tax.

The Conservative party back-benches are seething with rebellion. Not only do ministers deplore David Cameron for an un-Tory like attitude toward gay marriage, in recent weeks he has further upset them with a positively radical spiel directed against those super-corporations the conservative leader suspects of tax avoidance:

Any businesses who think that they can carry on dodging their fair share ... need to wake up and smell the coffee.

However. Refreshing though the rhetoric certainly is, the actions of the Government seem to tell a different story. Corporation tax will have fallen from 28 per cent to 21 per cent toward the end of the Government’s first term in 2014 — and this will translate into a loss of roughly £5 billion in tax revenues each year as those cuts are enacted (according to 2011 estimations by the Treasury).

The buck doesn’t stop there. In order to better facilitate corporate needs, HM Revenue and Customs is set to introduce a new form of tax relief for businesses due to begin in April this year. It’s called the Patent Box. Ostensibly, it means that a company which shows sufficient innovative nous by patenting innovations will be entitled to a tax break of 13 per cent, applied to the value of the product. In theory this should provide impetus for companies to conceive fabulous new technologies, and give a spurt to growth and development thereby. Right?

Well not quite. The first problem is that said companies are not actually required to own the patent themselves in order to attain the tax break. They can simply lease a patent from the original patent owner; consequently there is no real incentive to invent stuff creatively and in-house, so to speak. But the most salient fact about the Patent Box is that it does not apply to the patent in isolation. A company could, for instance, produce a tractor, and if that tractor was possessed of a patented right view mirror, the revenue from the whole vehicle itself — not only the mirror — would be subject to same overall and significantly larger cut in tax.

In other words, a measure which appears to contain a degree of legitimacy, in fact becomes yet another way for big corporations to achieve massive, unwarranted tax slashes on their products. And this is ironic. The Conservatives always pride themselves on encouraging small business development, perhaps because this provides a highly effective propaganda sheen — allowing their PR initiatives to be expressed in terms of hard working individuals and entrepreneurs rather than faceless corporate monoliths. But the Patent Box will only serve the latter. Small businesses do not have the purchasing power to buy in bulk the products which will benefit from the tax cut, nor can they afford to gamble with new technological innovations, nor can they divert money into buying up the patents of others.

Part of the whole problem lies in the way in which the government develops Controlled Foreign Companies (CFCs) regulations. One of the lead advisors who helped the government to devise the Patent Box was one Jonathan Bridges — a tax advisor for KPMG, an accountancy company which has no remit outside ensuring the lowest tax returns for its corporate clientèle; it has, therefore, no commitment to any notional "national interest".

The use of the representatives of corporate power to provide advice on the means by which that power should be channelled in socially effective ways makes about as much sense as employing a local war lord to advise on the committee of Amnesty International. But despite its connotations, the practise of employing huge corporations to help devise precisely the laws which are supposed to regulate them is one which both the current and the previous Government have engaged in. At the time of the transition to the coalition government, Labour had already set up working groups for consultations regarding CFC reforms; panels which included representatives of HSBC, Vodafone and Shell — all major multi-nationals and all involved in controversies regarding tax evasion.

The current Government has an objective rationale for its position which isn’t simply an expression of neo-liberal ideology and partisan politics. These super-companies have genuine power — and the ability to decamp to another country taking thousands of jobs with them. Like petulant, spoiled children, they are always on the verge of tantrum, should their desires not at once be met. In the midst of an economic crisis there is a cogent argument that any single Government must of necessity make their tax rates as favourable as possible in order to attract those companies and secure those jobs.

But the problem with such an argument lies in its generalisation. If every government follows suit, slashing corporate tax over and over in order to remain competitive, and if all governments adhere to the strictures of such competition, we are at once locked into a downward spiral, a race to the bottom in which the benefits gained from corporation tax are increasingly illusory.

And it is important to recognise that this is exactly the type of cycle which got us here in the first place. We were sold on the need to slash regulations in the finance industry, and look what happened. By playing this game the government are not responding pro-actively to the crisis, they are adopting the very logic which led to it.

How can these companies be regulated? By people putting pressure on their governments for sure. But also by directly targeting the companies themselves through grass-roots activity and customer boycotts. Following mass protest, Starbucks was recently "persuaded" to agree to pay £10m in corporation tax in the UK for each of the next two years. A drop in the ocean certainly. But nevertheless an indication that, ultimately, it is the consumer who has the ability to make or break a company.

Innovate on the mirror, profit on the tractor. Photograph: Getty Images
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Want to beat child poverty? End the freeze on working-age benefits

Freezing working-age benefits at a time of rising prices is both economically and morally unsound. 

We serve in politics to change lives. Yet for too long, many people and parts of Britain have felt ignored. Our response to Brexit must respond to their concerns and match their aspirations. By doing so, we can unite the country and build a fairer Britain.

Our future success as a country depends on making the most of all our talents. So we should begin with a simple goal – that child poverty must not be a feature of our country’s future.

The Institute for Fiscal Studies projects that relative child poverty will see the biggest increase in a generation in this Parliament. That is why it is so troubling that poverty has almost disappeared from the political agenda under David Cameron, and now Theresa May.

The last Labour Government’s record reminds us what can be achieved. Labour delivered the biggest improvement of any EU nation in lifting one million children out of poverty, transforming so many lives. Child poverty should scar our conscience as much as it does our children’s futures. So we have a duty to this generation to make progress once again.

In my Barnsley constituency, we have led a campaign bringing together Labour party members, community groups, and the local Labour Council to take action. My constituency party recently published its second child poverty report, which included contributions from across our community on addressing this challenge.

Ideas ranged from new requirements on developments for affordable housing, to expanding childcare, and the great example set by retired teachers lending their expertise to tutor local students. When more than 200 children in my constituency fall behind in language skills before they even start school, that local effort must be supported at the national level.

In order to build a consensus around renewed action, I will be introducing a private member’s bill in Parliament. It will set a new child poverty target, with requirements to regularly measure progress and report against the impact of policy choices.

I hope to work on a cross-party basis to share expertise and build pressure for action. In response, I hope that the Government will make this a priority in order to meet the Prime Minister’s commitment to make Britain a country that works for everyone.

The Autumn Statement in two months’ time is an opportunity to signal a new approach. Planned changes to tax and benefits over the next four years will take more than one pound in every ten pounds from the pockets of the poorest families. That is divisive and short-sighted, particularly with prices at the tills expected to rise.

Therefore the Chancellor should make a clear commitment to those who have been left behind by ending the freeze on working-age benefits. That would not only be morally right, but also sound economics.

It is estimated that one pound in every five pounds of public spending is associated with poverty. As well as redirecting public spending, poverty worsens the key economic challenges we face. It lowers productivity and limits spending power, which undermine the strong economy we need for the future.

Yet the human cost of child poverty is the greatest of all. When a Sure Start children’s centre is lost, it closes a door on opportunity. That is penny wise but pound foolish and it must end now.

The smarter approach is to recognise that a child’s earliest years are critical to their future life chances. The weight of expert opinion in favour of early intervention is overwhelming. So that must be our priority, because it is a smart investment for the future and it will change lives today.

This is the cause of our times. To end child poverty so that no-one is locked out of the opportunity for a better future. To stand in the way of a Government that seeks to pass by on the other side. Then to be in position to replace the Tories at the next election.

By doing so, we can answer that demand for change from people across our country. And we can provide security, opportunity, and hope to those who need it most.

That is how we can begin to build a fairer Britain.
 
 

Dan Jarvis is the Labour MP for Barnsley Central and a former Major in the Parachute Regiment.