Monday, November 01, 2010

How do we close the tax avoidance loopholes?

Following on from yesterday's post here, which argues that tax avoidance must be addressed on a global basis, I would like to add a bit more detail today.

First, the dreaded deficit - the gap between the UK Government's annual income and expenditure. Here it is:
  • 2011-14      £39 bn p.a.
  • 2014-18      £45bn p.a.
It amounts to between 3-4% of our GDP. It is a serious problem, that needs to be addressed, not least  because a lot of it is wasted in paying off ancient debts (some there are that do say we are still paying the ransom of Richard the Lionheart, though I have been unable to confirm this).

Any fule kno that George  Osborne's plans to cut Government spending are an ideologically driven attack on the poor, and will exacerbate the recession that we are about to experience.

A definitive response to the budget deficit can be found here, Compass' "In Place of cuts". They show how tax restructure designed to bear more heavily on those most able to  afford tax increases could raise £45 bn a year, enough to neutralise the deficit and pay for a Green New Deal, which would create a million jobs in energy conservation and sustainable energy production - a pre-eminently sensible investment in jobs, energy security and climatic security.

Part of Compass' plan is to raise £10 billion through blocking tax avoidance. This is pretty modest - figure of up to £100 bn are quoted as the cost of tax avoidance to the UK. I will try to source them later.

The stock response to closing tax avoidance loopholes is "Companies will take their business out of the UK, so we will be even worse off". There is some evidence for this, as a recent Radio4 piece showed, with companies "relocating" to a tin post box in a tiny  Swiss village to avoid paying tax. (Listen here - 40 mins)

So we are driven back to the necessity of doing the tax haven thing globally and multilaterally. Which is not to say that there is nothing that the UK can do, because it, along with the USA, has pretty lax tax packs. Germany and France are much tougher. The Cleggeron is the monster holding back EU tax reform.

Still, insofar as global action is needed to close down the tax havens, the problem is that to a great extent, power has passed beyond democratically elected Governments to multinational/transnational corporations. It is going to take real political will, exerted at the highest level, places like the OECD, IMF, and UN for co-ordinated change to come about.

This is not to say that we should give up. There was a groundswell of popular sympathy  for our Vodafone demonstrations yesterday, and this sympathy is going to increase as the cuts begin to hurt, and a recession begins to rub salt into them.

We must keep on keeping on, get the people, the police and the Army on our side.

Here are some useful links:
Richard Murphy's Tax Research blog
Tax Justice Network

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