Tax: what's a fair share?

The Public Accounts Committee is back on the tax trail.

And so the Public Accounts Committee (PAC) is back on the tax trail. Although did it ever really stop? Certainly, despite the upbeat assessments of the economy made by outgoing Bank of England governor Sir Mervyn King, the pressures on public and private purses haven’t eased. This explains the strength of public feeling that everyone should contribute a fair share of income in taxation. The tricky bit, as the PAC is discovering, is that working out exactly what constitutes a fair share isn’t as straightforward as it might seem.

Having previously called in the tax partners of the Big Four accountancy firms and the heads of companies already publicly called out for not coughing up as much to Treasury coffers as they might (step forward the apparently unholy trinity of Google, Amazon and Starbucks), this round of committee sessions will see some of the same faces hauled back in to answer many of the same questions.

Earlier this week I was at an event where one senior member of the committee was less than positive about the current direction the committee is taking.

He didn’t seem to agree that this fixation on the effective corporation tax rates of firms who decide to base their head quarters overseas was the best use of the committee’s time and resources.

Elsewhere this week tax campaigners UK Uncut Legal Challenge failed in their bid to bring HMRC to book for what UK Uncut claimed was an unlawful deal struck between HMRC and Goldman Sachs.

In dismissing the case the judge agreed that the deal had not been HMRC’s finest hour but he found nothing unlawful about it. To some extent UK Uncut has achieved some of its objectives by bringing the issue of the way big business deals with HMRC into the spotlight and raising the profile of the Goldman’s case in particular. For its part, HMRC continues to deny claims that it is soft on big business.

But getting money out of most large organisations and wealthy individuals is tougher than it should be. And it is certainly tougher than chasing small business owners. In reality, striking a deal with wealthy corporations or individuals might end up being the quickest, simplest and most cost-effective approach to collecting revenues. Ideally this agreement would be one that displeases the entity paying tax more than it does HMRC (although one that displeases both sides a little is probably the most likely outcome). While such an approach may well be cost effective, without the disinfectant of greater transparency such deals will always stink a bit.

Two phrases that have been bandied around so much in the last 18 months that they are rapidly becoming cliché are that we need greater transparency, and that we need a simpler tax system.

Whether Google, Amazon, Goldman Sachs or anyone else with tax affairs complex enough to involve a potential settlement with HMRC has anything to hide or not, the mere fact that details are kept out of the public eye raises suspicions.

The tax affairs of individuals and corporates are between them and HMRC, but if they opt out of the system that the small business owner or the proverbial hard-working family has to settle for then they should do so in the knowledge that the details of the settlement will be made public.

This article first appeared on economia

Photograph: Getty Images

Richard Cree is the Editor of Economia.

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Theresa May gambles that the EU will blink first

In her Brexit speech, the Prime Minister raised the stakes by declaring that "no deal for Britain is better than a bad deal for Britain". 

It was at Lancaster House in 1988 that Margaret Thatcher delivered a speech heralding British membership of the single market. Twenty eight years later, at the same venue, Theresa May confirmed the UK’s retreat.

As had been clear ever since her Brexit speech in October, May recognises that her primary objective of controlling immigration is incompatible with continued membership. Inside the single market, she noted, the UK would still have to accept free movement and the rulings of the European Court of Justice (ECJ). “It would to all intents and purposes mean not leaving the EU at all,” May surmised.

The Prime Minister also confirmed, as anticipated, that the UK would no longer remain a full member of the Customs Union. “We want to get out into the wider world, to trade and do business all around the globe,” May declared.

But she also recognises that a substantial proportion of this will continue to be with Europe (the destination for half of current UK exports). Her ambition, she declared, was “a new, comprehensive, bold and ambitious Free Trade Agreement”. May added that she wanted either “a completely new customs agreement” or associate membership of the Customs Union.

Though the Prime Minister has long ruled out free movement and the acceptance of ECJ jurisdiction, she has not pledged to end budget contributions. But in her speech she diminished this potential concession, warning that the days when the UK provided “vast” amounts were over.

Having signalled what she wanted to take from the EU, what did May have to give? She struck a notably more conciliatory tone, emphasising that it was “overwhelmingly and compellingly in Britain’s national interest that the EU should succeed”. The day after Donald Trump gleefully predicted the institution’s demise, her words were in marked contrast to those of the president-elect.

In an age of Isis and Russian revanchism, May also emphasised the UK’s “unique intelligence capabilities” which would help to keep “people in Europe safe from terrorism”. She added: “At a time when there is growing concern about European security, Britain’s servicemen and women, based in European countries including Estonia, Poland and Romania, will continue to do their duty. We are leaving the European Union, but we are not leaving Europe.”

The EU’s defining political objective is to ensure that others do not follow the UK out of the club. The rise of nationalists such as Marine Le Pen, Alternative für Deutschland and the Dutch Partij voor de Vrijheid (Party for Freedom) has made Europe less, rather than more, amenable to British demands. In this hazardous climate, the UK cannot be seen to enjoy a cost-free Brexit.

May’s wager is that the price will not be excessive. She warned that a “punitive deal that punishes Britain” would be “an act of calamitous self-harm”. But as Greece can testify, economic self-interest does not always trump politics.

Unlike David Cameron, however, who merely stated that he “ruled nothing out” during his EU renegotiation, May signalled that she was prepared to walk away. “No deal for Britain is better than a bad deal for Britain,” she declared. Such an outcome would prove economically calamitous for the UK, forcing it to accept punitively high tariffs. But in this face-off, May’s gamble is that Brussels will blink first.

George Eaton is political editor of the New Statesman.