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Economics

Published on July 4th, 2013 | by Jack Cowell
Image © Brighton photos

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Tax Witch Hunt

It was reported around a week ago that Thames Water paid no corporation tax for the year despite recording over £500 million in profits. The head of the company received a £500,000 bonus and a pay rise of over £200,000. This story probably caused a great deal of head-shaking over many a breakfast table and would have justifiably fell heavily on the heads of those who had allowed this to happen. The injustice is not due to the lack of tax payments however but from the fact that tax was not paid despite costs going up and flood damage being significant in the Thames area that year due to poor maintenance. That is appalling but the assumption that no tax equals guilt is indicative of the misled blanket pursuit of corporate tax receipts. The public have been transformed into an HMRC zombie hoarde by the press, and fed by the government who have seen some serious point scoring to be made here.

I will make it clear now. Everyone should pay their taxes. Especially corporations who by their activities have a debt to society or whose unbelievable profits come from their operation in our society and whose untaxed wealth is completely unjustifiable. I will also make this clear. Taxes do not generate wealth, they redistribute it. Understanding this fact will lead one to conclude that corporation tax avoidance is nowhere near as important as those who avoid income tax, National Insurance contributions or VAT.

A rundown of the figures will be helpful here. For 2012-2013, Income tax appropriated around £154bn; National Insurance gathered £104.1bn; VAT gathered £101.1bn; Fuel Duties around £26.2bn; Corporation tax collected around £39.8bn for the Treasury. Business tax revenue was very similar in amount to corporation tax. A recent (impartial) study by the Tax Justice Network found that tax avoidance costs the UK £69.9bn annually, half of health spending in the UK. This was on average true of every country surveyed. Exactly how much of this is lost via income tax avoidance, say through the use of employer financed retirement benefit schemes is unclear, but can be assumed to be substantial. This is a serious problem given that the paper cites the “shadow economy” of Europe to be something in the region of 1 in every 5 Euros.

In many cases I do not subscribe to the distinction between tax evasion and tax avoidance; the latter being legal. The prudent investment of some income in an ISA is not the same as using instruments to make it appear you have earned less than you have. Indeed, it is assumed the money you have chosen to invest in instruments as an individual has been taxed. What some companies do is therefore morally repugnant. Yet if a company has chosen to invest prudently in infrastructure and in schemes which benefit the nation then they should rightly receive tax breaks for doing so, as was the case with Thames Water. My aim is not to defend the company. It is merely to suggest  that before we demonise a company, who pay no tax while trying to invest a huge amount in infastructure, we should punish income tax cheats who hoard private wealth, which is of relatively little value to the economy, or who evade tax through other instruments to the direct detriment of society.

Corporate responsibility is tricky ethically. Individual responsibility is clear, so lets start from there and make more of an example of transgressors in the press rather than joining in the witch hunt for corporate profits.

Sources:

http://www.tackletaxhavens.com/Cost_of_Tax_Abuse_TJN_Research_23rd_Nov_2011.pdf

http://www.newstatesman.com/blogs/the-staggers/2011/11/tax-avoidance-justice-network

http://www.independent.co.uk/money/tax/exclusive-now-water-companies-are-caught-avoiding-tax-8496162.html

http://www.guardian.co.uk/news/datablog/2010/apr/25/tax-receipts-1963

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About the Author

Jack Cowell

Jack is from Liverpool and has a Politics degree from Sheffield University. He is mainly interested in domestic politics but also has a keen interest in Africa and Latin America. He also like Formula One, Everton FC, films and ska, reggae and metal music. He is currently spending his time working his way through Asia (the Continent, not the 1980's Prog Rock Band).



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