April 2011 - Centre for Civil Society - University of KwaZulu-Natal

A Corporate Coup d’Etat
George Monbiot 14 February 2011
“I would love to see tax reductions,” David Cameron told an interviewer at
the weekend, “but when you’re borrowing 11 per cent of your GDP, it’s
not possible to make significant net tax cuts. It just isn’t.”(1) Oh no? Then
how come he’s planning the biggest and crudest corporate tax cut in living
memory?
If you’ve heard nothing of it, you’re in good company. The obscure
adjustments the government is planning to the tax acts of 1988 and 2009
have been missed by almost everyone(2,3). They are, anyway, almost
impossible to understand without expert help. But as soon as you grasp the
implications, you realise that a kind of corporate coup d’etat is taking
place. Like the dismantling of the NHS and the sale of public forests, no
one voted for these measures, as they weren’t in the manifestos. While
Cameron insists that he occupies the centre ground of British politics, that
he shares our burdens and feels our pain, he has quietly been plotting with
banks and businesses to engineer the greatest transfer of wealth from the
poor and middle to the ultra-rich that this country has seen in a century.
The latest heist has been explained to me by the former tax inspector,
now a Private Eye journalist, Richard Brooks and current senior tax staff
who can’t be named. Here’s how it works.
At the moment tax law ensures that companies based here, with branches
in other countries, don’t get taxed twice on the same money. They have to
pay only the difference between our rate and that of the other country. If,
for example, Dirty Oil PLC pays 10% corporation tax on its profits in
Oblivia, then shifts the money over here, it should pay a further 18% in the
UK, to match the corporate tax rate of 28%. But under the new proposals,
companies will pay nothing at all in this country on money made by their
foreign branches.
Foreign means anywhere. If these proposals go ahead, the UK will be only
the second country in the world to allow money that has passed through
tax havens to remain untaxed when it gets here. The other is Switzerland.
The exemption applies solely to “large and medium companies”(4): it is
not available for smaller firms. The government says it expects “large
financial services companies to make the greatest use of the exemption
regime”(5). The main beneficiaries, in other words, will be the banks.
But that’s not the end of it. While big business will be exempt from tax on
its foreign branch earnings, it will, amazingly, still be able to claim the
expense of funding its foreign branches against tax it pays in the UK. No
other country does this. The new measures will, as we already know,
accompany a rapid reduction in the official rate of corporation tax: from
28% to 24% by 2014. This, a Treasury minister has boasted, will be the
lowest rate “of any major Western economy”(6). By the time this
government is done, we’ll be lucky if the banks and corporations pay
anything at all. In the Sunday Telegraph David Cameron said “what I want
is tax revenue from the banks into the Exchequer, so we can help rebuild
this economy.”(7) He’s doing just the opposite.
These measures will drain not only wealth but also jobs from the UK. The
new legislation will create a powerful incentive to shift business out of this
country and into nations with lower corporate tax rates. Any UK business
which doesn’t outsource its staff or funnel its earnings through a tax haven
will find itself with an extra competitive disadvantage. The new rules also