Charlie Elphicke: Tax avoidance culture is part of Labour’s toxic legacy

Labour leader Ed Miliband has now joined the ranks of the concerned, saying of the abuse of our tax system: “As so often under this Government, I think it is evidence of one rule for those at the top and another rule for everyone else.”

Except Miliband has a problem. The problem is that the culture of industrial-scale tax avoidance grew up under 13 years of Labour government.

During their time in office, income tax receipts rose 81 per cent while corporation tax receipts hardly rose just six per cent. In financial terms, income tax receipts went from £76.8bn a year in 1997-98 to £139.3bn a year in 2009-10. Meanwhile corporation tax (leaving out oil tax levies) went from £28.6bn a year in 1997-98 to £30.2bn in 2009-10 – a rise of just six per cent.

During this time Ed Miliband was either advising Gordon Brown’s Treasury or a Minister in the Labour government itself.

Labour’s Margaret Hodge, now the chairman of the Public Accounts Committee laying into Google as “doing evil”, was also a Minister in that administration – a Labour government asleep at the wheel when it came to tackling tax avoidance by multinationals.

They were too busy snuggling up to big businesses like these with their prawn cocktail offensive. They failed to keep tax law up to date for the internet age. The result is a culture that is unethical, unacceptable and irresponsible. It is part of Labour’s toxic legacy.

Tackling tax avoidance is something people are seriously concerned about. A recent YouGov poll found that 62 per cent of the public considered (legal) tax avoidance unacceptable. A ComRes poll found that 84 per cent agreed that the Government should crack down on tax avoidance by businesses operating in the UK.

Indeed 60 per cent were prepared to call the bluff of every large corporation that threatens to disinvest from the rich UK market saying the Government should crack down on business tax avoidance even if it causes unemployment or some companies to leave the UK.

My own calculations have 
found large profits are being made in the UK while little tax is actually paid here by large foreign owned multinationals – the average effective tax rate was around three per cent when the headline corporation tax rate was 24 per cent or higher.

This matters first because it’s unfair that these companies are paying less in tax than the person cleaning their plush offices. It also matters because it skews the competitive playing field. These large international enterprises get a competitive advantage from avoiding tax while businesses in the UK pay their taxes. Furthermore, the state of the national finances means that we need the money these companies are avoiding paying.

There is a real need for reform. The Government has made real efforts to tackle the problem. These include a tax general anti-avoidance rule, anti tax haven measures and seeking international action to change the tax rules. These will make a difference.

The key changes needed short of a radical rework of the entire business tax system include reforms to tax the rules governing presence and transfer pricing.

On tax presence, it’s laughable to hear Amazon claim to be in Luxembourg when you can see their warehouses from the motorway. And in another insult, they paid less in tax than they received in government grants last year. On transfer pricing, it just doesn’t wash that Starbucks can have a large mark-up on coffee beans shipped into the UK and pay no tax here.

Amazon, Google and Starbucks are just the very small tip of a very, very large iceberg. The problem is deep set and it is systemic. There needs to be radical action on tax reform.

Yet Labour’s years of inaction give them little right to campaign on the issue, let alone criticise a government that has been making real efforts to tackle the tax avoidance culture.