UK Uncut unravelled

Isn't it exciting that we have the youth of the nation demonstrating in the streets about how awfully people abuse the tax system? And isn't about time that we pointed out to the youth of the nation what they seem to have missed about that very tax system?

For example, when they protest about Vodafone they seem to be saying that a UK company must pay tax in the UK on profits it made in Germany, selling things to Germans from German shops. Yet when they talk about Boots it seems that a Swiss company must pay tax in the UK on the profits it makes selling things to Britons from shops in Britain. It's very difficult indeed to see how both desires could be met: either tax should be paid where the economic activity is, or tax should be paid where the company resides.

Their protests over Philip Green seem even stranger: everyone agrees that the company, Arcadia, has paid its taxes in full, and that Philip Green does so on his wages. The complaint seems to be that his wife, Tina Green, who is a foreigner and lives abroad, should somehow be paying tax in the UK. Are we now to try and tax rich foreigners wherever they live? And Barclays? Well, one reason why Barclays’ tax bill was so low is that it used exactly the same tax law the Guardian Media Group did when it sold Autotrader - that law that Gordon Brown and Ed Balls brought in saying that when you sell a subsidiary there just isn't any tax to pay.

As if these details weren't bad enough, there is also the basic point that companies don't pay tax, ever. It's always some combination of the workers, the customers and the shareholders: and the way that the world works at present, it's mostly the workers in the form of lower wages. So the basic economics of taxation tell us that by protesting in favour of higher corporate taxes, UK Uncut are in fact demanding lower wages for all.

The paper being released today discusses these points in more detail and even manages to come up with an economically sensible suggestion: we should abolish the corporation tax altogether and replace it with a combination of property taxation and a higher VAT - or perhaps a progressive consumption tax.

Please do read it before you start criticising me, and please do try and get those in UK Uncut to do so as well. We really do want the youth of today to understand some of the complexities of the world before they take over yet more of the high street.

I don't speak in any way for UKuncut, though I sympathise with them more than with the IEA. Here are some reasons why I think this article is almost hilarious in it's poorly thought through arguments 1. When people protest about vodafone, it's not just about where they pay tax (I agree, even if it might not always be clear for others, that there could be a debate about whether this is in germany or the UK), it's about the revolving doors between the UK Government and big corporations. There is clearly something dodgy about negotiators for HMRC and Vodafone overlapping when they discuss tax, this is expressed through the fact that a tax bill that was £6bn magically reduced to, at present probably less than £1bn - while Vodafone has £9bn in its coffers. 2. Boots is not a swiss company. In fact, this is a key ukuncut argument - Boots became an issue because it drastically reduced it's UK tax bill simply by moving it's HQ to a swiss PO Box. Can this really be justified? 3. The issue with Arcadia is once again related to Philip Green's connection to government - his backstory and the situation with his wife receiving profits from the company while (formally, it must surely be pointed out) living in Monaco question his suitability for the role. 4. Does the fact that Barclays and the Guardian both utilise something make it OK. Does the fact that it was brought in by Brown and Balls means Ukuncut can't oppose it? No. Ukuncut are not supporting the Labour Party - they are raising questions of tax avoidance and tax policy, and protesting against the fact that rather than focussing on this area (largely utilised by the rich), the government is focussing on cutting services that will hurt the poor. 5. "It's always some combination of the workers, the customers and the shareholders: and the way that the world works at present, it's mostly the workers in the form of lower wages." True, wages for workers have stagnated since the 70's. Is this because tax collected from corporations has been going up? Are workers in these companies powerless to have their wages lowered - or can they also bargain for pay? Actually, the threat is to shareholders, which might explain why they are so keen on maintaining tax avoidance. Maybe it would mean higher prices for consumers, but how can it be fair that larger companies are able to offer lower prices because they have the wherewithal to avoid tax, when smaller companies are unable to do this? I thought the IEA believed in competition, not effectively in subsidies (which allowing tax avoidance basically amounts to) 6. "the basic economics of taxation tell us that by protesting in favour of higher corporate taxes, UK Uncut are in fact demanding lower wages for all." Entirely disengenous. Your particular brand of economics of taxation says this. Actually, UKuncut have been clear to link the raising of tax on lower-income people via via with tax cuts for rich corporations. This makes sense - if the government were to focus on collecting tax that *should be paid* from corporations (not even raising their tax rate), then they wouldn't have to raise VAT. Hence UKuncut are clearly siding with higher (effective) wages for many (saying "all" in this context is really silly, as an aside) 7. "we should abolish the corporation tax altogether and replace it with a combination of property taxation and a higher VAT". Right, because VAT is one of the most regressive taxes that'll help the poo... oh hang on, that'll help corporations and their rich shareholders, NOT the majority of people in this country. 8. "understand some of the complexities of the world" What you mean here is "accept neo-classical economic theory and neo-liberal policy". These do not necessarily correspond to reality or experience. Economics is not unified, and claiming that this is a case of uninformed young protestors against wise old economists is ridiculous. There are plenty of economists who both "understand the complexities of the world" and put forward far more sensible policies for making our tax system fairer Rather than a race to the bottom, we need to address this globally - UKuncut is now part of an international movement - a much more positive response than simply calling for lower and lower corporation tax (Ireland, anyone?) The following link doesn't make the best possible argument against the one above, but it strikes me that the above totally fails to deal with the fact that there is debate about these issues at the level of academic economics, and the IEA cannot hope to claim that all economics is necessarily on the side of the tax avoiders rather than UKuncut: http://taxjustice.blogspot.com/2011/03/ten-reasons-why-we-should-tax.html
"...everyone agrees that the company, Arcadia, has paid its taxes in full, and that Philip Green does so on his wages" Actually I don't agree with either of those statements. I'm sure you are in favour of transparency; please therefore provide details of who funded the work presented here.
Peter's response was mostly very articulate. I don't agree with it all bit it was clear, well constucted and concise. Apart from the last few sentences when we are told that there are other views on this topic that we should respect. Well that's a shock. Come to a blog like this and the understandable expectation is that you put counter arguments forward to debate them. You do not simply say that Paul Krugman for instance disagrees and we should recognise that. Such disagreement are taken for granted and we don't need to be reminded they exist. Rather cocentrate your efforts on putting forward theories and rebutting arguemnts - which, as I say, Peter does do in the better segments of his post.
if the paper really was hilarious, Peter, then I am sure it would be easy to make points against it that were self evident. However, none of your points really do much other than restate arguments that are rebutted in the paper. £6bn has not been magically reduced to £1bn - it is a hotly contested aspect of tax law and it is quite possible that, if HMRC took Vodafone to court, they would lose (and have a precedent set). This is EU law and not UK government law but the principle is quite simple: companies should not be taxed twice on their profits. Regarding Boots, the point is that it is largely debt-financed. The holders of that debt pay tax on the interest - the company cannot be taxed on its trading profits before interest and then the recipients of that interest taxed again (and, by the way, if we did unilaterally start taxing debt interest as if it amounted to company profit, it would throw the whole tax system into chaos in many other respects). The argument in favour of Barclay's position is not that the Guardian did it but that a corporation tax system that levied an arbitrary tax on corporate restructuring and did not allow losses in one year to be offset against profits in another would lead to very serious problems - would you ever set up a business on that basis? On workers versus shareholders, it was an empirical not a normative point that was made. Corporation tax rates are higher than income tax rates and if capital is mobile this has an effect on wages and that effect can be considerable and has been quantified - I should add that over the last many years, as any pensioner on their increasingly meagre private pension incomes will tell you, equity returns have been more or less zero too. I take it you would change the corporation tax system so that interest costs were not deductible before calculating profits and interest was also taxable; so that profits made in Germany were taxed in Germany and then again in the UK; and so that a company that made a loss one year and a profit the next would be taxed only in the years it made a profit with no relief for losses. If you did that, there would be a boom for self employment!
Nic - as the person who takes the editorial decisions, let me say that our funding policy is so strict that had any corporation (not just the ones involved) had offered us money to publish this we would have turned it down: flat. We want arguments to be considered only on their academic merits.
Focusing for a moment on the broader issues here, as I think that we need to undermine UKUncut from two perpectives: i) What UKUncut seems not to realise is that taxation beyond a certain very low (actually indetermined, but it's way below what the total tax take is) is extremely destructive of economic growth. As economic growth favours the poorest in society the claim that UKUncut is aiming to help the poorest is a nonsensical position. Unlike UKUncut I'm not basing that on assertion or the fallacy of redistribution - there is a raft of well-supported theory and evidence. But just think of it like this - would one rather be poor now, or in the 17th century, say, and then tell me that economic growth isn't beneficial! ii) It seems to me that UKUncut seems to believe that taxation is actually good in and of itself - almost regardless of the 'services' the taxation is used to pay for - the clue is in the name. Unfortunately, this is in itself a highly contestible position. Most of the services that the state provides are actually destructive of economic activity and harm the poorest by creating welfare traps and so forth - they would be better provided by free enterprise and/or volutary charity. iii) As Tim Worstall rightly points out, most of the cases are contradictory or simply untrue. But ask yourself (especially Peter, above) - why did, say, Boots move to Switzerland? Simply because it was being overtaxed here in the UK. Tax competition drives up economic performance and keeps a check on the kind of oppressive tax regimes that UKUncut seem to desire, contrary to an economic or moral justification. Personally I see tax avoidance as morally beneficial, because it avoids resources being forcibly transfered from those who them to special interest and rent-seeking groups. Although tax evasion is illegal, at present I'd also see it as morally acceptable, given the current level of state interference in the economy and confiscation of private property. iv) Many shareholders in this country are institutional shareholders from insurance and pensions and so forth. I'd say that's pretty much everyone in this country benefitting from lower taxes!? Moreover, it is hard to see a good justification for discriminatory taxation anyway - essentially, why discriminate against an individual simply because they happen to have been successful and earned more? Taxation should be proportional, not discriminatory. v) Tim, I largely agreed with you up to the point after 'abolish corporation tax'. There ought just to be a full stop there. Why replace one tax with more taxes, which are all destructive of wealth and growth and are being used to fund services which the government ought not be providing anyway?
While it is delightful and enjoyable to indulge in a debate as to the merits/equitable nature of different elements of taxation, it is clear that the debate above has started from the wrong place. Tinkering - if I can call it that, on the basis that any move on corporate taxation by HMRC or the government will lead to a counter-move by the corporates which will, inevitably, dilute the original proposal - is not the place to start. Regarding all taxation as theft is a better starting point. Now, having said, obviously I recognise that engendering a "decent" society will always involve some element of re-distribution via a central body, hence some taxation will always exist. What I do not recognise is that the position we are in with the government being involved in more than 50% of the economy, is a tenable position for beginning any debate about how the tax take is spread across different taxpayers. As far as I can make out from the debate above, everyone seems to regard the current level of taxation as acceptable, with the arguments being about who should pay the most. That is not a debate about economics; it is not even a debate about strategy. It is merely a dinner-party level discussion about what the individuals involved believe to be "fair", a subjective and, for the most part, un-definable concept. I wholly support an objective of lifting those earning less than £10,000 out of the tax net; I do believe there are some who pay less tax than they ought to. The issues raised here, and the debate that has ensued, however, are merely a pleasurable distraction for the likes of UKUncut, giving them a hobby horse to ride for a populist cause. What is ignored is the bigger debate of building a strategy to increase the size of the UK cake for all, not just taking slices of the existing one from one to give to another.
"1. When people protest about vodafone, it's not just about where they pay tax (I agree, even if it might not always be clear for others, that there could be a debate about whether this is in germany or the UK), it's about the revolving doors between the UK Government and big corporations. " Sorry? Where did that come from. There are very few revolving doors between Vodafone and government. "There is clearly something dodgy about negotiators for HMRC and Vodafone overlapping when they discuss tax, this is expressed through the fact that a tax bill that was £6bn magically reduced to, at present probably less than £1bn - while Vodafone has £9bn in its coffers." Again, wrong. Large corporates will have many issues outstanding with HMRC at any time. There may be disputes/negotations on many fronts. The tax bill was not "magically reduced". HMRC claimed one figure based on assumption that the Luxembourg company was not exempt from UK CFC rules. Vodafone claimed a different figure on the basis that itt was. HMRC conceded the point. "2. Boots is not a swiss company. In fact, this is a key ukuncut argument - Boots became an issue because it drastically reduced it's UK tax bill simply by moving it's HQ to a swiss PO Box. Can this really be justified?" Boots is a UK companyy and always will be but it was bought by a Swiss company that transferred all of Boots shares in foreign subsidiaries to the Swiss parent and changed the management and control of those subsidiaries to Switzerland. Things like this happen. Get over it. The Boots shareholders in the UK got a lot of up front cash and taxable gain instead of future profits. That's life. "3. The issue with Arcadia is once again related to Philip Green's connection to government - his backstory and the situation with his wife receiving profits from the company while (formally, it must surely be pointed out) living in Monaco question his suitability for the role." So any connection with government is an invitation to protesters to interfere with your business? The Arcadia dividend was paid years before Green had anything to do with government (and paid during the previous government) so your argument holds no water. "4. Does the fact that Barclays and the Guardian both utilise something make it OK. Does the fact that it was brought in by Brown and Balls means Ukuncut can't oppose it? No. Ukuncut are not supporting the Labour Party - they are raising questions of tax avoidance and tax policy, and protesting against the fact that rather than focussing on this area (largely utilised by the rich), the government is focussing on cutting services that will hurt the poor" This isn't even tax aboidance. The Labour Party brought in a specific provision to enable the sale of trading subsidiaries. Barclays are not at fault if they sell a subsidiary and pay no tax if that is what the law says they should do.
Tim's paper is an excellent piece of work with which I am broadly in agreement. I would just like to echo Philip's response to NIc. The IEA is, if not unique, highly unusual in not accepting money to support particular pieces of research, It possibly ought to put this on a banner at the top of this website and clearly on its publications as I am sure other people may be under a similar misapprehension to Nic's.
I'd like one of these sanctimonious buffons to look me in the eye and tell me they think that anyone, be they an organisation or an individual, should pay more tax than their legally required to. No one's going to pay more than their obliged to, and anyone who claims otherwise is a bare faced liar.
There are certainly some long winded and complicated arguments being offered above, by various "commenters" all to try to justify what is no more than a further manifestation of the deeply distasteful politics of envy and hate. And of course none of them address the tax avoidance of their ideological mates at the Guardian and there is certainly something dodgy about that. UK Uncut are nothing more than the same old, economically ignorant, ranting Trot nutters with a propensity to violence and an addiction to self publicity. There that's settled that one nicely then.
So because Phillip Green's empire pays their corporate taxes, National Insurance, etc, he is therefore able to pay someone that patently doesn't actually work for the company (seeing as the author admits she lives in the South of France, not TopShop, Oxford St) the majority of his wages? Thus dodging income tax? And this is moral? Is this dodge used by the Bransons of this world, too? If Simon Cowell had his girlfriend of the week ensconced in the Bahamas, could he then pay her all his ill gotten gains from ITV and pay no income taxes, as long as she then paid all his living expenses and spending money? Does this mean that it's perfectly acceptable to have a relative in a low-tax haven if you yourself would otherwise be earning a bundle. That way, you pay said relative a Kings Ransom, pay zip personal taxes, and have all your expenses paid for you by your benefactor?
@anonymous - the company is not paying her wages they are paying her dividends. Most people argue that returns on capital should be taxed at a lower rate than wages because capital is accumulated out of income that is already taxed. However, as it happens, we tax profits at a higher rate than wages - so the profits from which the dividends are paid are taxed. She does not pay further UK tax because she does not live in the UK. In the same way, if I held shares in a French company I would not expect to pay French income tax on the dividends. Your suggestion would seem to be that because she is married to someone who lives in Britain either she should pay British tax or the husband should pay tax on the wife's earnings.

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