Tax avoidance is a stain on our global reputation and a drain on our public services
The Treasury needs to work with HMRC to plug the holes in our leaky tax system, fast, writes Anneliese Dodds MP
Last week it was revealed that the UK has risen 11 places up the ranks of the Tax Justice Network’s Financial Secrecy Index. We now stand as the 12th worst jurisdiction in the world for financial secrecy. The kind of secrecy measures examined in the index did not arise by accident. Instead, they were created to protect the minority of extremely wealthy people, and powerful firms, who are determined to avoid as much tax as they can- and in some cases, to wash dirty money clean.
The UK has a thriving tax avoidance and evasion industry, which sadly has been aided and abetted by recent governments. It goes without saying that not all of the ‘big four’ accountancy firms’ £25 billion in profits from tax advice has resulted from promoting tax avoidance. However, a study by HMRC concluded that the ‘big four’ were responsible for around half of all known avoidance schemes. I have seen up-close how new proposals to shut down avoidance have been progressively watered down following lobbying by the enablers of tax dodging. Indeed, the ‘big four’ and others have been sought out by Conservative governments to comment on proposals- without any attempt to listen to the voices of smaller taxpayers, or those reliant on tax-funded services.
The UK also continues to facilitate avoidance and evasion in a number of British Overseas Territories and Crown Dependencies. The Cayman Islands, British Virgin Islands, Guernsey and Jersey all feature in the top twenty most secretive jurisdictions according to the Tax Justice Network.
Rather than honouring promises to speedily require open registers of company ownership in these jurisdictions, the UK Government has backtracked on the timetable. Not only has this allowed tax secrecy to continue; it has also frustrated those jurisdictions sick of being described as ‘tax havens’, because of the lack of resolute action by other UK-associated jurisdictions.
The Conservatives have also failed to sufficiently address profit shifting by multinational companies. The new Digital Services Tax in the coming Finance Bill is apparently intended to tackle this issue in the tech sector. Yet, the measure is only set to produce up to £440m in revenue annually by the Government’s own estimate. In contrast, TaxWatch UK has suggested that the UK is losing £1.3bn in corporation tax from five of the biggest US technology firms each year. The Digital Service Tax would make less than half of this, and also fails to sufficiently deal with the actions of companies which blend digital with other commercial activities, like Amazon.
Tax dodging is often portrayed as a ‘victimless’ activity, abstract and detached from everyday life. However, the £1.3bn mentioned above could pay for 52,000 nurses, care home rooms for 42,000 people, or almost double school funding in the North East.
And this is just a fraction of what is being avoided. The Government claim the UK tax gap stands at £35 billion, but Tax Research UK believe the figure is around £90billion due to the Government's failure to recognise profit shifting as avoidance.
Tax avoidance and evasion is now a stain on our country’s global reputation, and a drain on our public services. The Treasury needs to work with HMRC to plug the holes in our leaky tax system- and fast.