Politicians need to stop moralising – and reform our taxes

LIKE many people, I loathe the UK tax system. It fails to treat everyone equally and is either extraordinarily punitive or pathetically soft. Scandalously, some big companies pay huge amounts of corporation tax while other similar businesses don’t. The aim must be revolutionary tax reform – all streams of income from labour and capital generated in the UK ought to be taxed once, with no loopholes, restoring equality in front of the law.

Where I part company with others is that I believe a good and fair tax system is also a low tax system. I see tax as a necessary evil, not a good in and of itself; all extra cash raised by shutting loopholes (and hence hiking the bill for some) should be allocated to across the board tax cuts, making the changes overall revenue neutral.

The idea that there is a David and Goliath struggle between HMRC and multinationals is misleading. Firms have better lawyers. But MPs have drastic powers of coercion when they can be bothered to exercise them. They can jail or seize the property of those that don’t follow their diktats. Firms can only game the rules as long as they are allowed to do so.

The only reason Amazon or Google legally pay less in corporation tax than some would like is faults in the tax system set up by governments. Most of the loopholes are actually deliberate. They allow companies such as Amazon to put sales through a subsidiary based in a lower tax jurisdiction – very much a purposeful feature of the way the European Union works – or Starbucks to make large royalty payments to a similar subsidiary based overseas, helping to eliminate UK taxable profits. None of this is new. It has all been codified for many years in the tax system and accepted by HMRC.

Yet some MPs have only just noticed – even though those in office for long enough probably voted for the legislation or EU treaties that allowed this nonsense. Yet instead of trying to convince George Osborne to change the rules, they are pretending to be powerless and blaming companies that are duty bound to legally seek to maximise post-tax profits for their shareholders. The government, needless to say, is joining in the nonsense.

We live in an increasingly irresponsible society where nobody wants to accept that the buck stops with them. The shameless refusal by some politicians to acknowledge that they are in charge of our rules is sickening.

This is an excellent time to tear up a faulty tax system and replace it by something much better. I would scrap our useless corporation tax and replace it instead by a tax on all net distributions to investors (including the HQs of multinationals) when they leave the UK corporate system, including dividend and interest payments and share buy-backs. There are other possible reforms, of course, and now is the time to hear them.

My big worry is that not only will we blow the opportunity to change for the better – but actually end up with something worse. Starbucks is offering to pay more tax voluntarily as a PR exercise, part of its marketing budget. Down that road lies an arbitrary, unpredictable and illiberal way of raising revenues, with media savvy firms and individuals paying little while the small guy, the powerless or those who fall foul of “public opinion” are forced to hand over more. It smacks of a return to medieval, pre-democratic, unscrutinised tax collection: anybody the ruler didn’t like saw his or her assets seized, while those that curried favour were rewarded.

We need a compulsory but pro-growth tax system. Mr Osborne, over to you – and no more excuses, moralising or demagogic rabble-rousing from politicians, please.

allister.heath@cityam.com
Follow me on Twitter: @allisterheath

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April 22, 2014, 2:25pm