BoJo will continue showering corporations with money without an economic return

Boris Johnson and some members of his cabinet have held ministerial office since 2010 and are directly responsible for the failures that have inflicted austerity and wage freezes.

Business people holding money

The new Prime Minister Boris Johnson has clung-on to the failed policy of corporation tax cuts and promised even more reductions, following his Conservative predecessors’ actions since 2010, despite little evidence that it will have a positive impact on the economy. 

The UK investment in productive assets and research and development is well below the average in the European Union. But, of course, businesses will not invest unless there is a good prospect of being able to sell their output. 

The Tories have inflicted austerity and wage freezes and that has reduced the purchasing power of a large mass of the population. At the end of 2018, workers’ share of the gross domestic product in the form of wages and salaries was 49.4% compared to 65.1% in 1976.

Johnson has promised to “change the tax rules to provide extra incentives to invest in capital and research”, but he has been part of a government which failed to evaluate the economic impact of its tax policies. A major reason for that is the staffing cuts and lack of investment in HMRC.

The government support to businesses is provided through tax reliefs and expenditures. They are essentially a mechanism for wealth transfers, supporting economic growth and influencing behaviour. The UK has over 1,140 tax reliefs and many of these provide support for businesses by reducing designated costs. 

They include tax reliefs to support research and development, enterprise investment scheme; entrepreneurs’ relief, support for the film and TV industry, orchestras (not pop concerts), £24 billion for energy companies to decommission oil and gas infrastructure, and much more. The favouring of some industries depletes the possible support for other sectors and help for vulnerable individuals. HMRC has stated that in 2017-18, it administered 424 different tax reliefs, totalling over £400 billion. This list is still incomplete.

To develop any effective policy, governments need to know whether the tax giveaways achieve the assumed economic objectives rather than simply boosting corporate profits, executive pay and dividends. The National Audit Office has said that “all tax reliefs create opportunities to misuse and avoid tax”. An army of accountants and lawyers is ever ready to exploit tax laws. 

Without information, parliament cannot hold ministers to account and government cannot know whether the assumed economic benefits have materialised. Moreover, the government has shown little inclination to collect and analyse the relevant data. 

An earlier report published by the House of Commons Public Accounts Committee said that HRMC and HM Treasury “often show a worrying lack of curiosity about the cost of tax reliefs.”

“The costs of R&D tax relief increased from around £100 million in 2001 to over £1 billion in 2011-12, whilst the actual amount of business expenditure on R&D stayed more or less the same.

“HMRC does not effectively monitor changes in the cost of tax reliefs, so is slow in identifying instances where a relief is being exploited for a purpose Parliament did not intend.”

In 2015, the Public Accounts Committee added that HM Treasury and HM Revenue and Customs were not transparent enough in their conduct because they “do not keep track of those tax reliefs intended to influence behaviour”, nor do they “adequately report to Parliament or the public on whether reliefs are working as intended and what they cost and whether they represent good value for money”.

Little has changed since 2015, with the Office for Budget Responsibility’s (OBR) fiscal risks report, published in July 2019, providing a damning assessment of the government’s failures. The OBR said:

  • The Government does not know the overall cost even of the tax reliefs and expenditures it can identify. HMRC only publishes the costs of around one in six of them, although these would be likely to account for the majority of the overall cost if that were known.
  • It is not clear that the Government gives tax reliefs and expenditures adequate scrutiny to control their cost. 
  • There is a lack of transparency around tax reliefs and expenditures. HMRC’s annual data release contains many numbers, but almost no commentary on them.
  • The Government does not seem to have a systematic way of evaluating the effectiveness of those tax reliefs and expenditures with a stated policy objective.
  • Tax reliefs and expenditures add complexity to the tax system, which may encourage more avoidance activity as taxpayers are given the opportunity to exploit new boundaries or to challenge legal interpretations.

Boris Johnson and some members of his cabinet have held ministerial office since 2010 and are directly responsible for the above failures. Remember, the principle of collective cabinet responsibility. They have showered money at corporations, and wealthy individuals, without any effective public accountability or a way of knowing whether the policy objectives are achieved. 

In the absence of effective evaluation and accountability of the tax giveaways, new promises by Johnson amount to the same old thing – shower more money on corporations and wealthy elites for little economic return.

Prem Sikka is a Professor of Accounting and Finance at the University of Sheffield.

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5 Responses to “BoJo will continue showering corporations with money without an economic return”

  1. Tom Sacold

    British industry must be supported in the interests of British workers. That is what socialist economics is all about.

    Unfortunately we cannot support British industry in any meaningful or impose any basic economic and social control over British industry due to the Single Market rules and regulations.

    To impose socialist reforms over British industry we need to exit all EU Single Market rules and regulations.

  2. Julia Gibb

    An interesting argument above – socialists should support Rightwing greedy capitalists in the hope that they invest in companies. Meanwhile we should leave the EU which ensures those workers will have their rights guaranteed.

    Dyson anyone! One of the biggest contributors to the Leave campaign.

  3. Tom Sacold

    A socialist economy is one where the workers, through the state or cooperatives, own and control the agencies of wealth creation not the capitalists.

    The prerequisite for that social control is to be beyond the rule of the EU’s Single Market and the ECJ.

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