Looking at new ways to end corporate tax avoidance

A new parliamentary group on responsible tax hopes to stimulate a debate which includes all voters


The issue of tax: who pays, and how much, touches a raw nerve with people of all ages, from all parts of the country and from every socio-economic grouping. Many people who are struggling to meet their daily bills but unquestioningly pay their taxes are rightly enraged when they see huge multinational companies like Google, Starbucks and Amazon, or very rich individuals like Jimmy Carr, cheating the system to get out of paying their fair share.

During my five years on the Public Accounts Committee (PAC), the issue of tax has moved from an obscure topic only discussed by an elite group of tax professionals to a conversation people have at the pub, at the school gates and around the dinner table.

The PAC has lifted the veil on secret tax practices shrouded in obscure technical language. By shining a light on this area we exposed the murky world of tax avoidance, revealing how large companies – assisted by armies of accountancy firms, tax advisers, banks and lawyers – were able to set up artificial structures to move profits out of the UK and avoid paying the right amount of tax on the profit that was created in this country.

This is not a topic that is going to go away any time soon. Every week we hear how another multi-national company is avoiding corporation tax. I want the focus on tax to be maintained, which is why I have teamed up with respected colleagues from across the House, and indeed from both Houses, to launch our All-Party Parliamentary Group on responsible tax.

As chair, I am delighted to have Rt Hon David Davis MP, Lord Stewart Wood, Richard Bacon MP, Lord John McFall and Stewart Jackson as the officers. We may have profound political differences on other issues. But on this we agree: parliament should play a role in ensuring that we build an efficient, fair and transparent tax system which creates sustainable growth, shares prosperity, and commands the confidence of all tax payers.

We want to stimulate an open debate on responsible taxation which includes everyone.The group will hold seminars and debate in public, and sometimes outside parliament. We have launched a website where anyone can comment on our terms of references and submit evidence.

We have chosen three important areas to explore in 2016. Firstly, we will look at the current proposals on how to rewrite the international tax rules. The OECD is working hard to build international consensus, and their proposals focus on greater transparency. If we can see across the world where assets are held and profits are made, it will be easier to ensure that global companies pay their corporation tax contribution in the jurisdictions where they make their money.

But the heart of the debate on the effectiveness of the OECD’s proposals is the crucial question of whether corporation tax is now fit for purpose. The contribution corporation tax makes to the UK is dwindling – it  raised 7.7 per cent of all UK taxes last year, less than the OECD average of 8.5 per cent and the lowest share since 1994.

If we all agree that we want a progressive and fair tax system, is corporation tax the best way of taxing businesses? Some experts are looking at alternative ideas such as allocating global profits to different tax jurisdictions on the basis of sales or turnover.

As a group we also want to look at whether the government is trying to face both ways – signing up to new international rules on the one hand, yet on the other hand developing tax reliefs that are simply designed to allow global companies to shift their profits to the UK- not to create jobs or real growth, but simply to avoid tax.

Our next investigation will focus on whether HMRC has the capability to deliver. At a time when the government wants to cut back on taxes and spending, getting every pound owed into the exchequer becomes ever more important. The tax gap for 2013-14 – HMRC’s assessment of the difference between what it thinks it should receive in revenues and what it actually receives, was a staggering £34bn.

Collecting just half of that would pay for thousands of much needed doctors and nurses. Yet the complexity of our tax system and resource constraints make collecting this money a real challenge. Between 2008 and 2014 the number of staff at HMRC fell by 24,600, yet we know that investment in HMRC pays for itself, with a minimum return of £10 for every £1 invested in staffing.

Finally, we will look at tax reliefs. The UK has a ridiculously complex tax system, made so in part by the 1,128 tax reliefs. Every year the chancellor uses his budget speech to produce more tax reliefs. Yet each one becomes an opportunity to avoid tax as the professionals interpret the rules and identify loopholes; even gift aid for charities is being exploited.

Many tax reliefs are what is known as ‘expenditure and reliefs’, often brought into change behaviour. For example, a film tax relief was introduced by Labour to encourage film making in the UK. It was ruthlessly exploited to avoid tax and cost the exchequer cost £225 million alone in 2013-14. We spend £100 billion a year on expenditure tax relief. We need to look at whether this is the best way for a country to spend its money.

This is an important all-party parliamentary group. As a strong cross-party team we will seek to engage as many people and interests as we can in what is a vital debate that touches a chord with all of our voters.

Margaret Hodge is Labour MP for Barking and was the chair of the Public Accounts Committee between 2010 and 2015

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