Trust in tax, not its avoidance

 

Tax avoidance is not just an economic issue, but a moral one that goes to the heart of public trust and confidence in our governments and institutions.

 

Tax is a basic part of the social contract. Wherever you stand on the political spectrum, most people agree with the principle that everyone should make a fair contribution to the common good in order to fund the public goods and services on which we all rely.

 

This holds more resonance than ever in the wake of the financial crisis, when governments are cutting public spending in order to reduce their deficits and ordinary people are struggling to cope with the impact of cuts and the rising cost of living.

 

That is why there has been such a huge public outcry over the tax practices of multinational companies such as Google, Starbucks and Amazon. Their behaviour has offended the basic sense of fairness of the British people.

 

Opinion polls show that the British public is now more concerned about this than any other issue of corporate conduct. People are furious that while they are working hard and paying their fair share, big corporations are cheating the system to avoid paying theirs. These companies enjoy the benefits of our public services and infrastructure, so they should make a fair contribution towards funding them – yet Amazon pays less corporation tax on its UK profits than it receives in government grants.

 

Small businesses are furious, because they cannot compete with the likes of Starbucks and Amazon who can keep their prices low because they pay little or no corporation tax. It infuriates me when people accuse campaigners against tax avoidance of being anti-business. We are not. We are pro-fairness! Tax avoidance by global companies is anti-competitive and puts domestic businesses at an unfair disadvantage.

 

All this has not just shaken public confidence in our tax system. It causes people to question whose side the politicians who design that tax system are really on. Corporations and individuals who shift profits or exploit loopholes for no purpose other than to avoid tax are seen to be allowed to get away with it while the rest of us pay our taxes unquestioningly – it feels like one rule for them, another for everyone else. And in an era of deficit reduction, failure to maximise government income by tackling aggressive avoidance means deeper cuts to public services and benefits than might otherwise have been the case.

 

It is not just that governments have been too slow to respond to the changing nature of the global economy. For too long government has run scared, fearful that businesses will abandon the UK if we stand up to them on tax. I simply do not believe that is true; Eric Schmidt himself admitted, “Google will continue to invest in the UK no matter what you guys do because the UK is just too important for us.” Of course global problems require global solutions, and through the various OECD and G20-led initiatives we are starting to make real progress. But I have always believed that this cannot be used as an excuse by politicians for inaction at home.

 

There are things national governments could and should do now to show they are serious. Transparency has always been at the top of my list – for example, “naming and shaming” of companies the UK tax authorities find to be engaging in aggressive tax avoidance. There is also consumer action. For example, I am encouraging the UK Government to endorse a “fair tax mark” to empower the public to direct their custom towards responsible businesses that pay their fair share of tax.

 

While at the OECD’s Parliamentary Days conference on tax matters in February 2014, someone said to me, “if we don’t tackle this now, we’ll never do it”. Across all our countries, people are demanding greater fairness in our economy and in our tax systems. If we can start to deliver, then we can start to rebuild public trust in democratic institutions. Otherwise, the gulf between people and their elected representatives will continue to grow.

 

Visit www.parliament.uk/business/committees/committees-a-z/commons-select/public-accounts-committee

http://margaret-hodge.co.uk

 

OECD work on Tax

OECD Forum 2014 Issues

OECD Better Life Index

 

Margaret Hodge

Margaret Hodge, Chair, Committee of Public Accounts, British House of Commons, UK Parliament

© OECD


©OECD Yearbook 2014