Labour’s five steps to tackle tax avoidance

David Cameron has failed to bring forward the changes which are needed to bring transparency. Labour would develop a robust and effective corporation tax system.

In tough times it’s more important than ever that everyone plays their part and pays their fair share of tax.

People and businesses who pay their fair share have been shocked by how little tax some companies seem to pay in Britain. Sometimes there are good reasons why, such as because they are investing in research and development. But all too often companies that pay low taxes in Britain are doing so because they can bend the rules to their advantage.

As Ed Miliband says in his interview with today’s Observer, businesses need to act in a responsible way, but the government sets the rules of the game, so they too have a responsibility to act. David Cameron and George Osborne are not just cutting taxes for millionaires, they are also doing far too little to tackle tax avoidance. And they are pushing through deep cuts to HMRC, which risk being a false economy if they make it even harder to enforce the law. 

At the start of the year, we set down a challenge to the government: that they should end the era of tax secrecy. Some companies have not been paying their fair share of tax, hiding behind complex networks of companies and using tax havens to shift their profits out of tax. We said that the government needed to show leadership, bringing forward measures for the G8 that started with the requirement to publish a simple statement for the tax which companies pay in the UK.

But the government has failed to bring forward the changes which are needed to bring transparency. They have also failed to grasp the need to reform of the Corporate Tax system to close the loopholes which are being used by some companies.

This isn’t good enough. David Cameron must deliver real action at the G8 meeting next month, starting with Labour’s five steps to tackle tax avoidance:

i. Labour supports a form of country-by-country reporting. Agreed internationally it would mean large multinational companies should have to publish the key pieces of information which people need to properly assess the amount of tax they pay. This would cover their revenues, profits and taxes in each country that they operate. As well as meaning that multinational companies pay the right level of tax in the UK, this change would be a boost for developing countries. It would stop profits being stripped out from those countries, increasing their tax revenues and reducing their reliance on aid.

ii. Labour would extend the Disclosure of Tax Avoidance Schemes regime, which Labour introduced, to global transactions. The IF campaign have said this would be an effective way of tackling avoidance in developing countries.

iii. Labour would open up tax havens, with requirements to pass on information about money which is hidden behind front companies or trusts. Labour is backing the IF's campaign's calls for the UK to Launch a Convention on Tax Transparency at the G8 to deliver this.

iv. Labour will continue to challenge the government on the impact of their changes to Controlled Foreign Company Rules on the UK and developing countries. Labour has repeatedly tabled amendments in Parliament to introduce a proper assessment of the rules, which have been rejected by the government.

v. Labour also wants to see fundamental reform of the corporate tax system, because the shifting of profits and use of tax havens to avoid tax is also a symptom of a system which is failing to keep up with global economic developments.

That is why Labour is today publishing an update on its review into the full Corporation Tax system. The aim of Labour’s review is to develop a system which is robust and effective in the modern world; supports investment and job creation; deals effectively with the complexities of international business; is fair to all; and is transparent and can be better understood by the public.

Families and businesses who are paying their fair share want to see tax avoidance properly tackled. If David Cameron fails to deliver, then it will fall to the next Labour government to act.

Ed Balls MP is the shadow chancellor and Catherine McKinnell MP is the shadow exchequer secretary to the Treasury

A visitor passes the Google logo on September 26, 2012 at the official opening party of the Google offices in Berlin, Germany. Photograph: Getty Images.

Ed Balls is the shadow chancellor; Catherine McKinnell is the shadow exchequer secretary to the Treasury

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Forget gaining £350m a week, Brexit would cost the UK £300m a week

Figures from the government's own Office for Budget Responsibility reveal the negative economic impact Brexit would have. 

Even now, there are some who persist in claiming that Boris Johnson's use of the £350m a week figure was accurate. The UK's gross, as opposed to net EU contribution, is precisely this large, they say. Yet this ignores that Britain's annual rebate (which reduced its overall 2016 contribution to £252m a week) is not "returned" by Brussels but, rather, never leaves Britain to begin with. 

Then there is the £4.1bn that the government received from the EU in public funding, and the £1.5bn allocated directly to British organisations. Fine, the Leavers say, the latter could be better managed by the UK after Brexit (with more for the NHS and less for agriculture).

But this entire discussion ignores that EU withdrawal is set to leave the UK with less, rather than more, to spend. As Carl Emmerson, the deputy director of the Institute for Fiscal Studies, notes in a letter in today's Times: "The bigger picture is that the forecast health of the public finances was downgraded by £15bn per year - or almost £300m per week - as a direct result of the Brexit vote. Not only will we not regain control of £350m weekly as a result of Brexit, we are likely to make a net fiscal loss from it. Those are the numbers and forecasts which the government has adopted. It is perhaps surprising that members of the government are suggesting rather different figures."

The Office for Budget Responsibility forecasts, to which Emmerson refers, are shown below (the £15bn figure appearing in the 2020/21 column).

Some on the right contend that a blitz of tax cuts and deregulation following Brexit would unleash  higher growth. But aside from the deleterious economic and social consequences that could result, there is, as I noted yesterday, no majority in parliament or in the country for this course. 

George Eaton is political editor of the New Statesman.