This week is parliament's last chance to amend the 2012 budget: a budget entrenching a strategy for the UK and the global economy that has already failed. Time is short. The Commons will have just three days to debate and scrutinise the finance bill – 670 pages of complex legislation, much of which poses threats to jobs, public services and fiscal stability in the UK and abroad, not least by opening up a major new area of tax avoidance for large multinational companies. Parliament must find its voice, and do what it can to soften the blow.
George Osborne's message is clear: the wealthiest individuals and corporations will be further rewarded, despite clear signs that they are neither creating jobs nor helping to reduce public borrowing. Meanwhile the growth of a finance-driven economy vulnerable to the twin storms of financial crisis and climate change will be further incentivised.
The chancellor's unfair and regressive decision to cut the 50p top rate of tax may have stolen the headlines, but at the heart of the budget there is another tax giveaway to multinational companies. These are the proposals to change the tax rules covering "controlled foreign companies" (CFCs). By redrawing the scope of taxes on large UK companies' overseas subsidiaries, the proposed changes will make it far easier for multinationals to shift profits into tax havens. While Osborne claims to find aggressive tax avoidance "morally repugnant", his budget gives the green light for big business to step up their tax dodging.
A glimpse at some typical British companies shows quite how much potential tax revenue they generate in developing countries. Barclays makes almost £1bn profit in Africa alone; the brewing company SABMiller makes £1.9bn across Africa, Asia and Latin America; mining giant Anglo American declares profits of £2.8bn in Africa and Latin America. At the 2011 average global rate of 23%, the corporation tax on these three companies' profits alone would contribute well over £1bn to government revenue in developing countries.
These changes will undermine the UK's public finances. Bizarrely trailed as a measure to "[protect] the UK tax base against avoidance", in fact the Treasury itself estimates that the CFC rule changes will cost the exchequer nearly £1bn a year: part of a £20bn package of corporation tax cuts over the course of this parliament.
The government's current proposals simply ignore the vast majority of ordinary taxpayers who want big business to pay its fair share of taxes. According to a YouGov poll conducted for the development agency ActionAid, just 14% of UK voters support proposals to weaken the UK's rules against tax havens. By contrast an overwhelming 79% want stronger tax avoidance action from the government, including 73% of Conservative voters and 87% of Liberal Democrat voters.
But the impact of these tax changes will also go well beyond the UK. Because they effectively reward UK multinationals who shift their profits from the global south into tax havens, this charter for profit shifting will also damage the public finances of poor countries where UK multinationals operate.
ActionAid has estimated that watering down the UK's anti-tax haven rules is likely to cost exchequers in the global south £4bn a year. Just as health services and education are being attacked in the UK, so the budget's new CFC rules are also effectively an attack on developing countries' ability to fund their own public services. Anti-poverty campaigners and concerned voters – many in my constituency – have raised concerns over the proposals. The government's response has been predictably muted. The Treasury says simply that it hasn't considered the impact on developing countries because the rules are "designed to protect the UK tax base".
Setting aside the fact that the Treasury itself expects an erosion of the UK tax base from these rule changes, it makes no sense to ignore the effect of multinational tax breaks that may deny poor countries revenue equivalent to nearly half the UK aid budget.
Taking account of the budget's impact on revenues at home and abroad isn't a radical ask: the World Bank, the OECD, the UN and the IMF all called on G20 countries last year to undertake precisely this kind of "spillover" analysis to ensure that changes to their tax regimes don't damage the fiscal efforts of developing countries. The government has thus far ignored this advice, just as it has ignored the UK public's overwhelming distaste for multinational tax dodging. It's time to make it listen.
Written by Caroline Lucas, Green Party Leader
First published at The Guardian here
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