The blind alley that is tax avoidance

In the last few days, HMRC reached a deal with Google who agreed to pay £130m in corporation tax to cover the last 10 years. George Osborne called announced this on Twitter, saying:

Many people think Google has been unfairly avoiding tax and so are less than happy with George Osborne’s celebratory tone. There have been questions in Parliament today about this deal. Labour have been making a lot of noise about it, and the story could run for a bit longer. The thing is though, this payment from Google is actually an over-payment. They paid all their taxes due under the law. I don’t think anyone is saying Google have broken the law, but they have gone to the limits of what the law allows. Criticisms of this deal focus both on Google and on HMRC’s treatment of Google, but I think both are unfounded. Google is paying all the tax it is required to (or even more) and HMRC is trying to maximise the revenue it collects within the law. If it has extracted this voluntary payment from Google, it’s actually not done too bad.

So is tax avoidance OK then? No it’s not OK. It’s not fair that ordinary people and businesses have to pay more than those who can afford to pay accountants to minimise their tax bills in inventive ways. We need to be clear though. If Google paid £2 billion extra in tax rather than £130m, what would this mean for public services? Could the government then afford to spend more? No, absolutely not. The government can afford to provide public services at any level (within the constraints of inflation) whether it receives tax payments from Google or not.

Should people be able to feel the tax system is fair though? Yes, I think that is a reasonable wish. The best way to achieve this though would be to change the tax laws though, not to try to shame amoral companies into paying more voluntarily. This is why I think the issue is a blind alley for Labour (as it was in the last Parliament). It can generate some headlines, but to make a difference, you need to come up with specific changes to the tax system that would make a real difference.

This is not about how much tax is received in total, it’s about who pays that which is collected and whether that distribution is perceived to be fair. While you link cuts to tax avoidance, you will always be on the wrong side of the argument, because if you accept the link between taxation and spending you are exposed to the retort “how are you going to pay for it?” if you suggest any new spending initiative. It’s not a good strategy.

7 thoughts on “The blind alley that is tax avoidance

  1. Alex, you are right that fairness is at the heart of tax avoidance, not the government obtaining spending funding. the latter is a red herring, as you and i know. Think of it, which I am sure you have. Everyone on PAYE has no opportunity not to pay tax, which puts them at a financial disadvantage to those who have an opportunity to avoid paying tax. The same goes for companies, Writ large perhaps.

  2. Alex, if you watch Channel 4 News tonight, say on youtube, there is an interview with McDonnell, that shows that he knows nothing about the functions of tax. He said outright that taxes are needed to pay for schools, hospitals, &c, that is, to fund government expenditure. What nonsense.

  3. Too right. Although ‘tax and spend’ is so ingrained you’re immediately portrayed as a ‘radical’ or worse if you challenge it.

    For me the disappointing thing is there is NO depth to the debate. – any one can take a quick glance at Google’s UK balance sheet and see the massive expenses – expenses that primarily arise from licence payments to Google USA. Why are we not debating the deservedness of payments for property ownership (IP in this case) verses payment for actual work that produces and delivers sales? Why are we not debating to which of these transactions should be throttled by taxation?

    Clearly the free movement of capital across borders is a key issue that needs multinational consents but please lets take the debate past a nebulous moral concept of ‘fairness’.

  4. Minor quibble –

    The government can afford to provide public services at any level (within the constraints of inflation) whether it receives tax payments from Google or not.

    But still.. by collecting more taxes the govt puts a lid on inflation – pushes the inflation barrier forward – and thereby makes room for more govt spending.

    So in a way (albeit indirectly) collecting taxes enables the government to spend more.

    1. Not necessarily true. If you take £130m from Google, it depends what else Google was doing with it. If it is just savings, then you have created no extra real space. If it isn’t then you have redistributed away from whoever Google would otherwise have spent the money with.

      Do you know who they are and why they deserve to be deprived of income? Do you know what Google will do in response to the extra load on their finances. How many people will they fire? How many suppliers will they screw down to recover the loss?

      That’s why you only tax when you need to. It has knock on consequences. It is a blunderbuss technique.

      And of course the government isn’t spending more. Neither side is proposing spending more. So what Osborne has done here is depress the economy needlessly.

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