Prof. Philip Booth is Editorial and Programme Director at the Institute of Economic Affairs.When it comes to the debate on tax avoidance, the coalition seems to struggle in two respects. The first problem is that the government seems unable to articulate the idea that the main contribution of businesses to welfare is not the taxes they pay but the goods and services they provide to consumers. Amazon, for example, makes tiny profit margins on huge sales and has transformed the value we are able to obtain across many retail sectors: the BBC regularly quotes Amazon’s corporate tax figures as a percentage of its huge turnover and not as a percentage of its small profits and the government does nothing to counter the left-leaning bias in this debate.
The second problem is that the government is hypocritical – this is noted in a new paper published by the IEA. On the one hand, the government likes to criticise tax havens as “sunny places for shady people”, a phrase regularly used by one senior minister. Simultaneously, the government is building Britain up to be a tax haven itself. The following three statements, for example, come directly from George Osborne (in the latter case from a Treasury document rather than from his mouth directly):
“We are building the most competitive tax system in the world.”
“I am delighted that Star Wars is coming back to Britain. Today’s announcement that the next Star Wars film will be shot and produced in the UK is great news for fans and our creative industries, and it is clear evidence that our incentives are attracting the largest studios back to the UK. I am personally committed to seeing more great films and television made in Britain.”
“The Patent Box will encourage companies to locate the high-value jobs and activity associated with the development, manufacture and exploitation of patents in the UK. It will also enhance the competitiveness of the UK tax system for high-tech companies that obtain profits from patents.”
The government is doing precisely what it is accusing “shady places” of doing. It is not only – quite justifiably – reducing corporation tax, it is creating deliberate tax avoidance schemes so that mobile international businesses – such as film making and those involving technical patents - will move their activities to Britain in order to avoid tax in other countries.