I had a rather odd – and rather loud – phone call earlier today from Derek Draper, who runs the LabourList blog, about the issue of large companies who are moving to other countries to take advantage of their lower tax rates.
The fact that Draper should call us at all is a bit odd, but rather more odd was the way he decided to go about it. Having first got one of his LabourList bloggers to phone a TPA colleague of mine purporting to be a journalist to obtain a media quote on the issue, Draper then called her back and began shouting down the phone at her. Understandably, she passed the call over to me and Draper proceeded to demand, over and over, whether the TPA “supports tax avoidance”.
When asked to make clear whether he was talking about tax evasion (illegally dodging tax) or tax avoidance (an emotive term designed to sound like the illegal practice of evasion, but in fact meaning legally choosing to live or work in such a way as to minimise your tax bill), he confirmed he was talking about the legal practice.
In response, I explained that we think it is a serious loss to this country that companies are leaving the UK because of its higher tax rates and complex tax codes – and that one of the main reasons the TPA supports lower, simpler taxes is that it would reduce the incentive for companies to do so.
Corporate tax avoidance is a rational response to an overly complex and burdensome tax code. With Britain having fallen behind other OECD countries, and now imposing a higher than average corporate tax rate, companies face a significant incentive to avoid that burden if they can within the law. We now also have the most complicated tax code in the world, having recently overtaken India, which encourages and enables firms to find loopholes. With that in mind, Draper’s approach to the issue misses the point. If we want businesses to stop avoiding the tax system we need to make it less onerous and simpler so there are fewer loopholes and fewer incentives to try and find them. As I pointed out to Derek – when he wasn’t shouting at me – there is physically nothing that you can do to force companies to register in Britain rather than abroad, so the best thing to do is to cut taxes and simplify the rules to entice them back.
In practice, the TaxPayers’ Alliance is out to reduce the amount of corporate tax avoidance by campaigning for the only practical solution - lower and simpler taxes - whilst Draper is apparently content to complain about companies avoiding tax but refuses to countenance the only practical way to combat it.
The point at which the call got really weird was when he announced “right, I’m going to write on my website that the TaxPayers’ Alliance wants individuals to pay more tax”. When I pointed out that that clearly was not my view, or the view of the TPA, and it was a lie to suggest so, he got pretty shirty, saying that he had “a history of taking legal action against people that slander me”. Bizarrely, he seems to think that threatening legal action is an appropriate way to silence people who object to him misrepresenting their position.
Apparently, he thinks that because we want lower taxes on companies in order to make Britain more inviting for their business, thus boosting the economy and thus increasing the amount of tax revenue generated by the Exchequer, that must mean we want individuals to pay more. It is a bizarre logical leap which defies the rules of economics, logic and indeed maths. Cutting corporate taxes wouldn’t come at the expense of lower taxes on individuals – just as putting money into an ISA to keep your tax bill down isn’t an evil act that hurts your neighbour. Of course, if like Derek you think that public spending cannot be reduced then you are trapped into a cycle of desperately trying to square a circle: you raise corporate taxes to fund your unaffordable spending plans, driving companies abroad; your corporate tax take falls as companies leave and the economy slows, so you increase tax on individuals; individuals have less to spend, so the economy slows further. And so on, ad nauseam.
However, the TaxPayers’ Alliance doesn’t believe that government spending at its current level is right or sustainable (the dire state of the public finances despite years of tax rises attests to that). If spending is reduced then, over time, that should allow for cuts in individual and corporate taxation: Cuts in corporate tax can bring more prosperity and employment. Cuts in personal taxes like council tax can ease the burden on ordinary people, and particularly the vulnerable elderly. We want both, and our research into the poor organisation of government, wasteful spending and the dynamic benefits of tax cuts shows that that is achievable.
Beyond that, it is important to remember that, in the end, companies don’t pay taxes – the cost is simply passed on. Labour List’s current quote of the day is from Vince Cable, but in the same article Cable says:
“Companies are, of course, not individuals but legal entities. Any corporate tax is ultimately passed on somewhere else - in reduced dividends or wages or in higher prices.”
Reduced dividends will hurt your pension, reduced wages can mean fewer people in work or workers not paid as well as they could be and higher prices have to be paid by ordinary people at the till. Companies don’t pay taxes, people do. It is frankly bizarre that a Labour politico like Draper apparently wants corporate tax levels to stay high, or even rise, and thus reduce the job prospects for British workers.
The TaxPayers’ Alliance doesn’t believe that punishing companies helps ordinary taxpayers. Equally, we don’t think the best way to reduce tax avoidance is to go on legal or moral crusades against directors just trying to do the best by their shareholders. Instead, we need to restrain public spending and deliver more stable public finances and lower taxes for businesses and individuals.
That aside, there is a worrying question mark in my mind about Draper’s phone call. Given his underhand attempts to misrepresent my views, it struck me to ask whether he had recorded the conversation. The only response he would give was “To my knowledge, to do that would be illegal.” Despite repeated questions as to whether that meant he hadn’t recorded the conversation without notifying me, or whether he had done so despite the possible illegality, he wouldn’t say.
There is one, final irony about Draper’s angst on this issue. According to Wikipedia:
"In 1998, he was working as a lobbyist for GPC Market Access(as their Director of Progress) and as an Express journalist when he became embroiled in the first major scandal of Blair's government. He was caught on tape, along with Jonathan Mendelsohnboasting to Greg Palast- an undercover reporter from The Observerposing as a businessman - about how they could sell access to government ministers and create tax breaks for their clients (Ref 1 http://www.gregpalast.com/tony-blair-and-the-sale-of-britain/)"
How far this dogged campaigner against…erm…corporate tax breaks has come!