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
Nicola Sturgeon. Photo: Getty
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Nicola Sturgeon's half-hearted "reset" is not enough to win back voters to the SNP

Election campaigners report that the doorstep feedback suggests the First Minister is now seen as aloof, with little interest in the average voter’s concerns.

In Scots law, under a charge of robbery, theft, breach of trust, embezzlement, falsehood, fraud or wilful imposition, the accused may be convicted of "reset". It’s not clear which of these particular terms Nicola Sturgeon had in mind this week when she used that word to describe her reformed plans for a second independence referendum. Fraud seems a little too strong. Breach of trust or wilful imposition are perhaps closer to the mark.

It’s been many, many years since the SNP has seemed this unsure of its footing. Fair enough: who in politics isn’t, these days? But the slow-motion car crash that is Scotland’s governing party deserves a prime-time slot all of its own. "The SNP has squandered what was an extraordinarily strong position," says a thoughtful observer from the opposition benches.

If Sturgeon’s authority hasn’t gone – and she continues to rule Scotland’s most popular mainstream party, both at Holyrood and Westminster – it has undeniably taken a shellacking. The aura of invincibility that surrounded the First Minister’s early years in power is no more, both within and without the SNP. "What struck me as she announced her 'reset' was that a woman who was often listened to in respectful silence in the past found herself being shouted at by Labour, the Lib Dems and the Tories," says a source. "There was giggling and mockery, which is new. She seemed diminished."

My own judgement is that the reset proposal, which amounts to little more than extending the deadline for a second indyref by six months to a year, will do almost nothing to woo back the half-million voters who deserted the Nats between the 2015 and 2017 general elections. In my experience, these people don’t want the referendum delayed for six months, they want it off the table. They also want the SNP to shut up about it, and they want to see the public services and the economy given full attention. That is the challenge they have set the First Minister in the four years left of this Holyrood parliament. In an enlightening article in the Guardian this week, Severin Carrell quotes voters from the "Tartan Tory" areas that recently unseated Alex Salmond and Angus Robertson. "Fed up with the SNP, simple as."

Fed up. Sturgeon’s greatest error – a charge levelled by internal critics – was to force and win a vote at Holyrood on the holding of another referendum, after the Brexit decision but before Article 50 was triggered. In the minds of voters already worried about leaving the EU and looking for what we might call strong and stable leadership, this merely confirmed the SNP’s monomania: that it saw literally everything as a pretext for independence. The step looked cynical, it looked rushed, it looked, well, desperate.

To be fair to the First Minister, she was playing a double game. Obviously, she supports breaking up the UK and needs to continually feed the beast that is the separatist movement, but she also hoped the looming threat of another referendum would give her leverage as the UK negotiated Brexit, perhaps to secure a distinct deal of some kind for Scotland. She was wrong. "Theresa May would show up for meetings with the various leaders of the UK’s nations, read from a script and then refuse to take questions," says an SNP insider. "The whole thing has been a shambles. The British government just isn’t interested."

This deliberate mutual misunderstanding is a problem not just for the SNP, but for the smooth running of the UK. Pre-devolution, a deal such as that struck with the DUP would have been discussed in Cabinet where powerful Scottish and Welsh secretaries would demand and usually emerge with some goodies for back home. Now, each nation is run by a different tribe, the relationships are oppositional and antagonistic, and no side wants to make things easier for the other. Britain has stopped talking to itself, and stopped trading with itself. We have spiralled off into our own mini-cultures, which often bear little resemblance to each other.

Ultimately, though, Sturgeon looks like the author of her own misfortune. Her tone in Holyrood as she announced the ‘reset’ was unapologetic and belligerent. There was no real humility or admission of error, and no sense that an indyref was in any way off the table. Election campaigners report that the doorstep feedback suggests she is now seen as aloof, with little interest in the average voter’s day-to-day concerns or in listening to them. Her team seem unable or unwilling to absorb this. "They’re still pushing far too hard," says one Tory source. "The only way I can make sense of it is that they’re playing it like a poker hand. They’ve come too far and feel they have no choice but to go all-in. But it’s a losing hand."

There are only two routes I can see that might, perhaps, make something of a difference. The first is a comprehensive reshuffle that brings some of the smarter, younger MSPs into the government. Many of them, as newcomers to the cause, speak differently about independence and their reasons for joining the SNP than do the generation of Sturgeon, Salmond, John Swinney and Mike Russell.

The second is to return to the debate about devo max or federalism. Again, in conversation with the new generation of Nats you are more likely to discuss these options. A number of them are technocrats who have a view of the way Scotland should be governed. They might see independence as the best way to achieve this, but they are also open to a looser relationship within the UK, one that might involve greater powers around taxation, spending and borrowing. With every UK region outside London running a chunky deficit, Scotland could set its own deficit-reduction target and develop a plan to get there. Not only would that be good for the UK economy, it would also allow the SNP to demonstrate that a separate state could work - and indeed, would work.

In short, the SNP will not whine its way to independence. Its best option now is to do what the Scottish people are asking it to do: make a better job of running the place, and stop talking about independence for a while. First, though, that requires the party to listen.

Chris Deerin is the New Statesman's contributing editor (Scotland). 

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