The £10 billion clampdown on tax avoidance George Osborne will announce today is largely due to public pressure.
Growing resentment has been fuelled by evidence of increasing exploitation of loopholes by the wealthy, and especially by multi-national companies, while the poorest suffer cuts in benefits and those on middle incomes are caught between wage freezes and rising prices. Among the chief culprits are Starbucks, Google and Amazon, named and shamed at Westminster last week for paying curiously small amounts of corporation tax despite their UK operations being glaringly successful.
Extra investment in HMRC is expected to help deliver an additional £2bn a year in unpaid tax. This is specifically designed to speed up work on challenging arrangements which allow profits from UK operations to be channelled through low-tax regimes in other countries.
Since the US coffee company Starbucks arrived in Britain in 1998, it has expanded to become a familiar brand in every major town. But it has paid no corporation tax for the past three years, despite sales of £1.2bn from its 700 UK outlets. This is due to an accounting system which requires the UK business to pay fees to other parts of the company, resulting in a technical loss for Starbucks UK and no liability for corporation tax.
The company's pitiful claim that it paid its fair share of UK taxes through rates and National Insurance for employees has been given short shrift by campaigning groups. Suddenly, however, Starbucks has changed its tune and is now in discussions with HMRC and the Treasury. It seems a highly unlikely coincidence that this should be announced days before plans for mass takeovers of the coffee shops next weekend. The explanation from the company that it has "listened to feedback from our customers and employees, and understand that to maintain and further build public trust we need to do more" is corporate-speak for the British taxpayer is hopping mad and won't buy any more coffee until we cough up. The Starbucks saga is a significant reminder that the individual consumer still has power against the might of global companies. It is more of a challenge for consumers to boycott Google and Amazon but the companies should consider their position.
Consumer pressure can change attitudes but, since minimising tax is legitimate, effective reform can only be achieved through legislation. That is necessary but must avoid the disastrous consequence of causing global businesses to relocate to a more benign tax climate. It is a trans-national problem that can only be tackled effectively through international co-operation. The first step was taken at the G20 meeting in Mexico last month when Mr Osborne and his German opposite number, Wolfgang Schauble, called for concerted action to tackle international profit-shifting.
The link between high-value individuals and companies exploiting the rules to legally reduce the amount of tax they pay and the depth of public spending cuts is clear. At last the Chancellor has got the message that he must ensure the wealthy, whether individuals or companies, pay their full share towards the infrastructure and services on which the whole country depends. Fairness for both the richest and the poorest has been his watchword in advance of his autumn statement this week and today's announcement is a notable step towards that. On Wednesday he must demonstrate fairness underpins his entire economic policy.
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