Tax avoidance: a case of their morals and ours

Do some global corporations behave “immorally” when they set out to reduce their tax bill to a minimum through a variety of dodgy but apparently legal devices? Or are they simply acting out their own morality play?

We ask the question in the light of the accusation made by the Commons public accounts committee against transnationals like Starbucks and Amazon. A PAC report launched today accuses corporations that minimise tax of “outrageous” and “immoral” behaviour.

Chair Margaret Hodge said its report showed that corporations had been allowed to get away with "ripping off" taxpayers because of a weak tax authority, poor legislation and a lack of international co-operation.

"The inescapable conclusion is that multinationals are using structures and exploiting current tax legislation to move offshore profits that are clearly generated from economic activity in the UK."  

Is this former Labour minister Hodge genuinely surprised? This has been going on for years. She bemoans the fact that the revenue from corporation tax has fallen. Two things account for this: the recession and the fact that during the 13 years of New Labour, corporation tax rates fell sharply from 33% to 28%.

New Labour cheered the fact that they had reduced the tax on corporations to among the lowest of the developed economies. It made Britain an attractive place to invest in, so the argument went.

Naturally, the ConDems have pushed on and the rate is heading for 23% next year. At the same time, the burden on taxpayers and consumers has of necessity risen to finance public spending at central and local level.

In 2010-11, corporation tax accounted for just 8% of the UK government’s tax revenue. By contrast, national insurance and income tax accounted for a massive 49% while VAT – a tax on consumption – brought in another 17%.

Those who do the work, who labour to create commodities and services (and profits), also carry the greatest tax burden. So where, you may ask, is the “morality” in this arrangement? Search as hard as you want and “morality” doesn’t figure anywhere. Nor will you hear Hodge or any other MP complaining about this totally immoral situation.

Which brings us to our main point: absolute morality is conditional, evolving with successive periods of history. And within this absolute is the relative morality of different social classes. For capitalism and the global corporations, the moral imperative can only be the bottom line.

Corporate-driven globalisation of the world economy freed the transnationals from territorial jurisdictions and facilitated the creation of subsidiaries, joint ventures, special purpose entities and trusts to benefit from low taxes and subsidies.
  

Professor Prem Sika, of the Centre for Global Accountability, Essex University, points out that “taxation is targeted by financial engineers who regard it as an avoidable cost, rather than a return to society on the investment of social capital (education, security, healthcare, legal system, etc.).”

In other words, for the corporations the whole issue of taxation (or how to avoid it) is an essential aspect of capitalist accumulation itself and not some form of aberrant, “immoral” behaviour.  

Take the case of food and drinks giant Cadbury-Schweppes. It set up a shell company in Ireland with no office and no employees but with £500 million in cash, which was allocated to different parts of the group. The incentive was a simple one. Corporation tax in Ireland is 12.5% - less than half the rate in Britain.

Under what are known as the Controlled Foreign Company rules (CFC), HMRC tried to collect the missing taxes. But after a series of cases, the European Court of Justice found in favour of the company on the grounds that member states could not block corporations from operating in different parts of the European Union.

Appealing to corporations to behave more “responsibly”, to pay more tax will produce a few, marginal concessions. But it will leave the main issues unchallenged and unquestioned. This because the argument about their morals and ours is in reality about class and power.  

Paul Feldman
Communications editor

How 'queue-jumping' myth is reinforced

The report by the Equalities and Human Rights Commission (EHRC) that confirms that social housing allocation does not favour new arrivals to the country nails a myth, although it won’t stop it being repeated. Our question is, however, is who perpetrated this legend and why?

All the evidence points to the New Labour government and the right-wing press like the Daily Mail, which have been courted for their prejudiced middle-class, middle-England voters.

So when you ask how the neo-fascist British National Party is able to use lies about queue-jumping immigrants to stir up opinion, you need look no further than the governments led by Blair and Brown, as well as statements by former ministers like Margaret Hodge.

The figures and facts produced in the EHRC report have always been available. Many of them are held by the Office for National Statistics, others by local authorities.

Yet for more than a decade, the government decided to reinforce prejudice and myth rather than counter it. As the report itself points out, one of the early acts of the New Labour government was to change the rules on the housing entitlements of asylum-seekers.

In 2000, after the implementation of the Immigration and Asylum Act 1999, all existing rights to housing and all types of benefits were removed, and a new housing and subsistence scheme for asylum-seekers based on dispersal and the use of private landlords, was created. The EHRC report says these policies “fuelled misconceptions” about “queue jumping”.

A notorious voucher scheme was introduced before being abandoned, while the courts eventually had to step in to declare that a refusal to give destitute refugees any help breached human rights law. This made sure that the story repeatedly made its way into the tabloid press.

The report also points the finger at urban renewal policy since 2001, where “community cohesion” has taken on new meanings that place “greater focus on migrants and minorities themselves, and less on all residents of a neighbourhood”. In other words, migrants are made the problem and not part of the solution. It is scapegoating in the name of “integration” and the acceptance of so-called British values, an approach that has marginalised sections of Muslim youth and driven some of them into the arms of sectarian Islamists.

These perceptions were highlighted in May 2007, when Margaret Hodge, MP for
Barking and then a member of the government, suggested in The Observer that new migrants should have less right to social housing than “established British families”. Hodge had said the year before that eight out of ten of her Barking constituents might vote for the BNP because “no one is listening to them”. The BNP made huge gains in the following month’s council elections and sent Hodge a bunch of roses as thanks.

And so it goes on. Government proposals, published as a Green Paper in 2008, proposed amending migrants’ restricted entitlement to social housing even further. Settled status may in future be abolished and instead replaced with a status termed “probationary citizenship”, with no entitlement to social housing and most benefits.

Then last week, in a desperate bid to outdo the BNP, prime minister Brown announced that the government would "reform social housing allocation - enabling local authorities to give more priority to local people whose names have been on waiting lists for far too long". Or British homes for British people. No wonder gullible voters are led to believe that these are major problems in society, when the cause lies somewhere quite different.

Since it came to power in 1997, the number of new homes built for social rent has fallen dramatically, as the report points out, while council homes continue to be sold off. Public investment has been directed towards encouraging “shared ownership” schemes instead. There is an absolute shortage of social housing and this is entirely the responsibility of a government, as is the myth of queue-jumping.

Paul Feldman
Communications editor