When something radical is proposed by an American president the idea stops being “leftwing” and soon becomes blindingly obvious common sense. Of course the world should agree a minimum corporation tax rate to stop a race to the bottom in which countries undercut each other, depriving themselves of tax revenues, needed now more than ever.
Never waste a good crisis: there’s no better time for change than following this global disaster when every country needs to repair its economy. Adopting a universal tax floor ends once and for all the scandal of tax havens where apparently respectable companies, pretending to all kinds of bogus corporate social responsibility, hide their money from the citizens that sustain them.
Joe Biden’s plan for an international agreement on a 21% minimum rate has gathered phenomenal support, including from Germany, France, Canada, Italy and Japan. Ángel Gurría, the head of the Organisation for Economic Co-operation and Development (OECD), the club of 37 rich nations, says a “once in a lifetime” deal is within striking distance and could be signed this summer.
Here’s our national shame, yes, yet another one: Britain is the only G7 country not to back it. Yesterday, Labour tabled an amendment to next Monday’s finance bill demanding a review of the impact that applying this tax rate would have over the next few years. How much tax would it bring in, how much evasion and avoidance would it prevent, and what is the true size of the tax gap for the next two years?
The government will refuse, of course. The figures would be as embarrassing as Britain’s refusal to back the Biden plan. Here’s the puzzle: why should Boris Johnson and Rishi Sunak balk at this when they claim their own plan is to raise the UK corporation tax even higher, to 25% in 2023? It’s highly popular and it seemed one of the few measures that might give some substance to “levelling up” spending. Labour suspects, as do tax campaigners, that it will be quietly dropped under strong Tory business pressure. What other reason could there be for blocking a tax rise lower than the one they claim they will impose?
Here’s one clue. Answering questions for the government in the Lords, the Treasury minister Lord Agnew, gave the game away: “Lower corporation tax rates are broadly a good thing. Personally, I do not like to see tax on productive activity, employment or any of the things that make a country prosperous … we should always aspire to lower tax rates, particularly on corporation tax.” What’s more he wanted to undercut other countries: “We will try to set it still at a competitive rate, so the US, Canada, Korea, Japan and Germany will all have higher rates than the one to which we are moving.”
Analysis by the campaigning group Tax Justice UK says that the tax rise would have brought £13.5bn into the Treasury last year. This would rise to £22bn if the government did set it at 25%. A report from Church Action on Tax Justice, signed by a group of bishops and former archbishops, calls on the government to promote the Biden plan, saying it could raise $640bn globally, more than 27 times what it would cost to vaccinate the whole world.
The government has made various excuses, including that Biden is not doing enough to see that the big tech companies are taxed in each country where they earn their profits. The UK introduced its own digital services tax (DST) ahead of any international agreement, but Robert Palmer, the head of Tax Justice UK, points out that our DST raises a puny £500m a year. Tory tax phobia is a more likely explanation, and a refusal to be prevented from undercutting others in future.
But another reason is Britain’s responsibility for so many tax havens. This would end that archipelago of British-sponsored tax avoidance in places such as the Cayman Islands and Bermuda. Britain itself is a money-laundering centre, with far laxer implementation of rules and lower fines than the US imposes on its banks.
Britain is blocking what the Tax Justice Network calls “the best opportunity for a generation to curb corporation tax abuse across the board”, standing against the world in defence of tax havens. Inflicting this shame on ourselves is odd: this is highly popular and would yield fat sums for whatever else Johnson wants to spend money on – a few more bridges, perhaps.
No one knows with this government who is influencing ministers, who has their ear, what deals are struck or what winks and nods point to post-ministerial lucrative careers. With emails, texts and WhatsApps zinging about unseen by their officials, we may never know why. But Labour’s shadow chancellor, Rachel Reeves, rightly sees this as prime territory – a popular tax to raise urgently needed funds, which Labour would spend better. Labour’s 2010 corporation tax rate was 28%, now it’s 19%. Returning to that old rate will feel right if Biden succeeds in raising the US tax to 28%, as he plans, yielding $2.5tn over 15 years for his great spending programme.
For those who think Labour is done for, just count the ways this government is accumulating own goals.