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
Getty
Show Hide image

Who will win in Copeland? The Labour heartland hangs in the balance

The knife-edge by-election could end 82 years of Labour rule on the West Cumbrian coast.

Fine, relentless drizzle shrouds Whitehaven, a harbour town exposed on the outer edge of Copeland, West Cumbria. It is the most populous part of the coastal north-western constituency, which takes in everything from this old fishing port to Sellafield nuclear power station to England’s tallest mountain Scafell Pike. Sprawling and remote, it protrudes from the heart of the Lake District out into the Irish Sea.

Billy, a 72-year-old Whitehaven resident, is out for a morning walk along the marina with two friends, his woolly-hatted head held high against the whipping rain. He worked down the pit at the Haig Colliery for 27 years until it closed, and now works at Sellafield on contract, where he’s been since the age of 42.

“Whatever happens, a change has got to happen,” he says, hands stuffed into the pockets of his thick fleece. “If I do vote, the Bootle lass talks well for the Tories. They’re the favourites. If me mam heard me saying this now, she’d have battered us!” he laughs. “We were a big Labour family. But their vote has gone. Jeremy Corbyn – what is he?”

The Conservatives have their sights on traditional Labour voters like Billy, who have been returning Labour MPs for 82 years, to make the first government gain in a by-election since 1982.

Copeland has become increasingly marginal, held with just 2,564 votes by former frontbencher Jamie Reed, who resigned from Parliament last December to take a job at the nuclear plant. He triggered a by-election now regarded by all sides as too close to call. “I wouldn’t put a penny on it,” is how one local activist sums up the mood.

There are 10,000 people employed at the Sellafield site, and 21,000 jobs are promised for nearby Moorside – a project to build Europe’s largest nuclear power station now thrown into doubt, with Japanese company Toshiba likely to pull out.

Tories believe Jeremy Corbyn’s stance on nuclear power (he limply conceded it could be part of the “energy mix” recently, but his long prevarication betrayed his scepticism) and opposition to Trident, which is hosted in the neighbouring constituency of Barrow-in-Furness, could put off local employees who usually stick to Labour.

But it’s not that simple. The constituency may rely on nuclear for jobs, but I found a notable lack of affection for the industry. While most see the employment benefits, there is less enthusiasm for Sellafield being part of their home’s identity – particularly in Whitehaven, which houses the majority of employees in the constituency. Also, unions representing Sellafield workers have been in a dispute for months with ministers over pension cut plans.

“I worked at Sellafield for 30 years, and I’m against it,” growls Fred, Billy’s friend, a retiree of the same age who also used to work at the colliery. “Can you see nuclear power as safer than coal?” he asks, wild wiry eyebrows raised. “I’m a pit man; there was just nowhere else to work [when the colliery closed]. The pension scheme used to be second-to-none, now they’re trying to cut it, changing the terms.”

Derek Bone, a 51-year-old who has been a storeman at the plant for 15 years, is equally unconvinced. I meet him walking his dog along the seafront. “This county, Cumbria, Copeland, has always been a nuclear area – whether we like it or don’t,” he says, over the impatient barks of his Yorkshire terrier Milo. “But people say it’s only to do with Copeland. It ain’t. It employs a lot of people in the UK, outside the county – then they’re spending the money back where they’re from, not here.”

Such views might be just enough of a buffer against the damage caused by Corbyn’s nuclear reluctance. But the problem for Labour is that neither Fred nor Derek are particularly bothered about the result. While awareness of the by-election is high, many tell me that they won’t be voting this time. “Jeremy Corbyn says he’s against it [nuclear], now he’s not, and he could change his mind – I don’t believe any of them,” says Malcolm Campbell, a 55-year-old lorry driver who is part of the nuclear supply chain.

Also worrying for Labour is the deprivation in Copeland. Everyone I speak to complains about poor infrastructure, shoddy roads, derelict buildings, and lack of investment. This could punish the party that has been in power locally for so long.

The Tory candidate Trudy Harrison, who grew up in the coastal village of Seascale and now lives in Bootle, at the southern end of the constituency, claims local Labour rule has been ineffective. “We’re isolated, we’re remote, we’ve been forgotten and ignored by Labour for far too long,” she says.

I meet her in the town of Millom, at the southern tip of the constituency – the opposite end to Whitehaven. It centres on a small market square dominated by a smart 19th-century town hall with a mint-green domed clock tower. This is good Tory door-knocking territory; Millom has a Conservative-led town council.

While Harrison’s Labour opponents are relying on their legacy vote to turn out, Harrison is hoping that the same people think it’s time for a change, and can be combined with the existing Tory vote in places like Millom. “After 82 years of Labour rule, this is a huge ask,” she admits.

Another challenge for Harrison is the threat to services at Whitehaven’s West Cumberland Hospital. It has been proposed for a downgrade, which would mean those seeking urgent care – including children, stroke sufferers, and those in need of major trauma treatment and maternity care beyond midwifery – would have to travel the 40-mile journey to Carlisle on the notoriously bad A595 road.

Labour is blaming this on Conservative cuts to health spending, and indeed, Theresa May dodged calls to rescue the hospital in her campaign visit last week. “The Lady’s Not For Talking,” was one local paper front page. It also helps that Labour’s candidate, Gillian Troughton, is a St John Ambulance driver, who has driven the dangerous journey on a blue light.

“Seeing the health service having services taken away in the name of centralisation and saving money is just heart-breaking,” she tells me. “People are genuinely frightened . . . If we have a Tory MP, that essentially gives them the green light to say ‘this is OK’.”

But Harrison believes she would be best-placed to reverse the hospital downgrade. “[I] will have the ear of government,” she insists. “I stand the very best chance of making sure we save those essential services.”

Voters are concerned about the hospital, but divided on the idea that a Tory MP would have more power to save it.

“What the Conservatives are doing with the hospitals is disgusting,” a 44-year-old carer from Copeland’s second most-populated town of Egremont tells me. Her partner, Shaun Grant, who works as a labourer, agrees. “You have to travel to Carlisle – it could take one hour 40 minutes; the road is unpredictable.” They will both vote Labour.

Ken, a Conservative voter, counters: “People will lose their lives over it – we need someone in the circle, who can influence the government, to change it. I think the government would reward us for voting Tory.”

Fog engulfs the jagged coastline and rolling hills of Copeland as the sun begins to set on Sunday evening. But for most voters and campaigners here, the dense grey horizon is far clearer than what the result will be after going to the polls on Thursday.

Anoosh Chakelian is senior writer at the New Statesman.