How tax avoidance became the new ‘evil’
MPs are falling over themselves to talk tough on tax. But with Google claiming tax avoidance is merely capitalism in action, lawmakers are now coming under scrutiny in the Great British tax debate.
Remember the days when criticism of tax avoidance was confined to left-wing protest groups?
But that was before the cuts began to bite and austerity measures became the medicine du jour. And politicians have since realised talking hard on tax is an easy way to win the hearts of the public.
Labour leader Ed Miliband has become the latest politician to enter the fray. Speaking at a Big Tent event hosted by Google on Wednesday, he came down hard on the internet giant and its chairman, Eric Schmidt, who said the company’s tax methods were merely “capitalism”.
“I’m sorry that Eric Schmidt isn’t here this morning to hear me say this directly,” said Mr Miliband, said to an audience at the Google event. “But when Google does great things, I will praise you, but when Eric Schmidt says that its current approach to tax is ‘just capitalism’, I disagree.
“And when Google goes to extraordinary lengths to avoid paying its taxes, I say it’s wrong.”
See more: Ed Miliband's speech (video excerpt)
His speech follows Chancellor George Osborne’s assertion that the G8 would prioritise tackling tax avoidance under Britain’s presidency. And David Cameron’s call for companies such as Starbucks to “wake up and smell the coffee”.
Fatal flaw?
The way the debate is framed with big business as the bad guys, shows just how far public opinion has come.
But it also exposes a fatal flaw: it may be astounding that Starbucks paid no UK income tax since 2009; that Jimmy Carr paid just 1 per cent tax; and that Amazon paid around 5.3 per cent tax over the past five years.
When Google goes to extraordinary lengths to avoid paying its taxes, I say it’s wrong – Ed Miliband
However it is more surprising that politicians appear so angry about it, while presiding over the rules that allow it to happen.
“There is not a shadow of a doubt that companies are arranging affairs to get around the law,” tax expert Richard Murphy told Channel 4 News.
“These companies are able to operate outside the spirit of national accountability… What’s being challenged is right of democracy to collect tax from companies that operate in that country.”
‘Political point-scoring’
This flaw is one that business leaders are now putting their heads above the parapet to point out. After months of being held at the dock in the public theatre of the public accounts committee (PAC) hearings, chaired by Margaret Hodge, business leaders are starting to be less humble.
Google’s Matt Brittin told MPs on Monday: “No money changes hands in the UK… In the UK, we cannot sell what we don’t own, we cannot agree a price, we cannot agree on volume discount and we can’t close a deal in Britain.”
The head of the CBI, which represents some of Britain’s biggest employers, also warned the prime minister against “moralising” on tax before changing policy.
In a speech before a meeting with the prime minister, Sir Roger Carr accused the government of “political point-scoring”.
“First, avoid the moral debate – it’s all about the rules,” he said. “Second, fix the rules internationally, not unilaterally – independent action can cost competitiveness and cause confusion.”
MPs ‘power to change’
UK Uncut has been credited with kick-starting the debate on the issue, since they protested back in 2010 about Vodafone managing to avoid a £6bn tax payment – as the government made cut the budget by the same amount.
Spokesperson Murray Worthy told Channel 4 News that the companies themselves, as well as HMRC, still have a lot to answer for.
“But the government, they’re the ones who ultimately have the power to change this,” he said. “On the one hand, it’s incredible that the government feels the need to speak on these issues and that they need to address it.
“However, we don’t believe that George Osborne’s talk is actually going to change reality on the ground. Fundamentally, they’re not even talking about the same thing – what we, and the average person on the street considers tax avoidance – they’re talking about the very fringes of what is legal.”
And while Margaret Hodge accused Google of doing “evil” in its UK tax affairs, it will take more than words to satisfy the public outcry.