New analysis suggests that the UK would raise an extra £13.5 billion a year from a global minimum corporate tax rate set at 20%. This would rise to over £22 billion a year if the rate was set at 25%. Companies like Amazon, Apple, Facebook and Google could face significantly higher tax bills.
President Joe Biden has proposed a sweeping overhaul of how big international companies are taxed. This includes a new minimum tax rate which would help crack down on corporate tax avoidance.
The public is fed up with major companies getting away with paying ultra low rates of tax. A new minimum corporate tax rate would bring in billions of pounds to support public services and would deal a blow to tax dodging. As we build back from covid we should ask big business to contribute more given the support they’ve had during the pandemic.
The Biden administration has suggested a global minimum corporate tax rate of 21%. The Independent Commission for the Reform of International Corporate Taxation has proposed a minimum rate of 25%. Rishi Sunak has pledged to increase the UK’s corporate tax rate to 25% in 2023.
So far the UK government has been silent on whether it backs the US corporate tax reform plan.
The government should stand up and support these proposals. The UK and its tax haven network have long promoted a global race to the bottom on corporate taxes - this needs to end.
A new minimum corporate tax rate would have a big impact on places like Ireland, the Netherlands and the Cayman Islands which have ultra-low corporate tax rates. The plan comes as international negotiations on global tax reform at the OECD club of rich nations gather momentum.
The analysis is contained in a soon to be published paper by international tax experts on how to implement a global minimum effective tax rate (METR) for multinational companies. The paper breaks down the expected revenue for a number of countries for different minimum tax rates based on a methodology from the OECD club of rich nations.
The METR proposal is authored by Sol Picciotto, Jeffery M. Kadet, Alex Cobham, Tommaso Faccio, Javier Garcia-Bernardo, and Petr Janský. In advance of the forthcoming study, details of the proposal are available here.
The UK’s 54 billionaires saw their wealth increase by £40 billion during the pandemic, an increase of 36%.
At the same time, the number of people who needed some form of social security jumped 98% to six million people.
Barely a day passes without fresh evidence of how this pandemic has been soft on the super-rich and hard on those on lower incomes. This is making the inequality crisis in our country even worse.
However, there are dissenting voices among the wealthy who want to see this change. Last weekend the Guardian magazine told the story of a global group of millionaires who are campaigning for higher taxes on the rich. They include Abigail Disney, granddaughter of one of the founders of the Walt Disney Company and the UK’s Gemma McGough.
She told the paper: “The economy is so damaged from Covid, I am happy to pay my share. If you’re making more than £150,000 or £200,000 a year, you should be paying more. If you’re earning £200,000, paying a higher rate of tax on earnings above that is not going to make you poor, is it?”
Wealth in the UK is woefully undertaxed compared to income and Covid has made inequality worse.
As we build back better, it’s clear that profitable companies and those with substantial wealth need to pay their fair share.
Tax Justice UK is working with Gemma and others, to make sure this happens.
We're looking across the pond for inspiration. President Biden has just announced plans for $2 trillion of investment in America’s crumbling infrastructure.
Biden wants to upgrade roads, railways and bridges. The plan includes money to green the economy, as well as investment in looking after vulnerable Americans. This is transformative amounts of money.
The infrastructure plan would be paid for by increasing taxes on companies. The President wants to reverse some of Donald Trump’s tax cuts. Biden is going after multinational companies that pay too little tax.
Biden has also said that it’s time for countries to end the “race-to-the-bottom” on how companies are taxed.
This is music to our ears.
It fits with a growing pattern of politicians making the case for higher taxes on companies. In the UK, the Chancellor, Rishi Sunak, has said that the corporate tax rate will go up to 25% from the current 19%.
At the moment we have promises. And we all know that politicians are often bad at turning their rhetoric into reality.
But it gives us hope to see President Biden setting out a vision for high quality public services backed by a more progressive tax system.
At Tax Justice UK we will work to make sure that our political leaders take notice.
If you haven't already, sign up to our weekly tax justice roundup here.
We’re a year on since the UK went into lockdown for the first time. It’s been an extremely hard time for all of us, especially those that have lost loved ones.
This weekend the Guardian reported that some wealthy tax exiles have benefited from furlough. It’s galling to see wealthy business owners who are tax exiles use state bailouts when times are tough.
Their employees deserve the right to go on furlough. Workers shouldn’t be punished for the behaviour of their bosses.
But it’s not fair that some very wealthy individuals can move offshore to pay less tax, but still benefit from UK government spending.
This is just another example of how the financial impact of the pandemic hasn’t been even.
Wealthier people have on average saved money during lockdown.
Whereas poorer people have lost their jobs in greater numbers. They are also more likely to have gone into debt or dipped into their savings.
As we build back from this crisis we need a fairer tax system. Our Executive Director, Robert Palmer, has written what this should look like here. We need to start with profitable companies and really wealthy people paying more in tax. This would support the high quality public services we deserve. Fairer taxes would also help tackle inequality.
Along with our allies we will be campaigning to make this vision a reality. There’s all to play for.
The government released 30 consultations on tax reform on what it had dubbed as “tax day”. However, this has turned out to be a bit of a flop. The Treasury has announced some worthy tinkering around the edges. But the big issues in the tax system - how to tax wealth properly, what to do about property taxes and tackling the climate crisis - have been largely punted to another day.
At Tax Justice UK, we have set out an ambitious set of proposals for progressive tax reform as we build back from the pandemic. It’s likely that the government will announce further tax changes at the autumn budget. We will campaign to ensure that these are as progressive as possible.
The government has proposed some small changes to tackle professionals who enable tax avoidance. This is a big problem. Often the promoters of tax dodging schemes get away with no punishment for helping clients slash their tax bills. The Treasury is planning to require all promoters of tax schemes to get insurance and is consulting on giving HMRC extra powers, including the ability to freeze the assets of promoters to ensure any penalties can be paid.
However, this doesn’t go nearly far enough to tackle the problem. TaxWatch has recently highlighted how lightly tax fraud is treated compared to benefit fraud. Instead, what is needed is a big infusion of money into HMRC enforcement; prosecutions for tax dodgers and their professional enablers; and giving HMRC the data it needs to target those not paying their fair share.
Already heavily trailed, the government is planning to slash Air Passenger Duty on domestic flights. To compensate, it’s looking at increasing the levy on long haul flights.
In the face of the climate crisis, it seems foolish to be cutting the cost of flying. The government should have followed France’s approach, where the French government bailed out Air France on the condition that the airline scrapped short haul domestic flights that could be made by high speed train.
Disappointingly, the Treasury also effectively ruled out a Frequent Flier Levy. This was a proposal for a progressive way of taxing flying - with every extra flight a person takes being taxed at an increasingly higher level.
Tax Day was another opportunity for the government to begin the task of tackling the historic under-taxing of wealth in the UK. There are several opportunities to make the tax system fairer. As our research shows, the public wants to see a fairer tax system.
For example, the Fairer Share campaign, which we support, is calling for the government to replace the broken council tax and stamp duty with a proportional property tax. At the moment, poorer households pay much of their income in council tax than richer ones.
Or the Chancellor could close the loophole that leaves unearned wealth taxed less than income from work. Aligning capital gains tax rates with income tax would make economic sense. A recent poll found 61% support for this measure. The Office of Tax Simplification estimates it could raise up to £14bn a year.
We’ll have to wait till the autumn budget to see potential action on these areas.
Last weeks’ budget did little to move the dial on gender equality. Our friends at the Womens’ Budget Group (WBG) highlighted that the £14bn a year in planned public service cuts will hit women and the poorest hardest. At the same time, the so-called ‘super deduction’ to capital allowances will give business the ‘biggest tax cut in modern history’.
Importantly the Treasury failed to publish a comprehensive Equality Impact Assessment of the budget. This makes it impossible to judge whether they have met their obligation under the Public Sector Equality Duty to have ‘due regard’ to equality. This is particularly concerning given that Covid-19 has worsened the situation for many women in terms of health, employment and unpaid work, resulting in increased levels of poverty, debt and mental health deterioration.
We know that the financial impact of the Covid-19 pandemic has not been even. Wealthy people have increased their wealth by saving while poorer people are more likely to have borrowed money in order to get through this crisis. This potentially makes a bad situation worse.
Even before the pandemic wealth in the UK was deeply unevenly distributed. As our Executive Director, Robert Palmer, wrote on openDemocracy, this is a feminist issue, as women typically own fewer assets than men. Gendered wealth inequality has real world consequences, including shorter lives, poorer health and a more precarious existence. This problem is exacerbated by the tax system, which treats wealth much more generously than consumption or income from work. Addressing wealth inequality, and in particular ensuring that women have better access to resources, should be a government priority.
Our submission to the Commision for a Gender Equal Economy set out evidence illustrating how wealth inequalities disproportionately affect women. For example, once women have children, they are much more likely to have little, or nothing, in the way of savings. This means that ownership of wealth is fairly even between men and women until people reach their 30s, when men start to pull away. Overall women have only 40% of the UK’s stock of personal wealth.
There are particularly stark differences in wealth when it comes to the ownership of financial assets, which are often lightly taxed. For example, women are less likely to have private pension pots, and if they do, the size tends to be much smaller. By the time a woman is in her early 60s, her average pension pot is a fifth the size of that of a man her age. Women also receive significantly less income from property, interest, dividends and investments than men.
So what can politicians do about this?
The government could invest in the care-led recovery WBG and many others are calling for. Investing in care would create 2.7 times as many jobs as the same investment in construction. 50% more can be recouped by the Treasury in direct and indirect tax revenue from investment in care than in construction. And investment in care is greener than in construction, producing 30% less greenhouse gas emissions.
One thing the government is considering and might decide to do is to tax income from wealth at the same level as income from work. The current approach, where capital gains are taxed at a lower rate than income tax, is regressive. It also favours men, since they are much more likely to receive income from capital gains. Increasing the tax rates on capital gains to the same level as income tax could raise up to £14bn a year according to government estimates. Our own research found that 74% of people want the wealthy to pay more tax.
Other options include curbing the very generous tax reliefs on pension savings. Higher earners receive the bulk of pension tax relief, despite making up a small proportion of the working population. The Resolution Foundation suggests a flat rate of relief at 28%, which would be revenue neutral.
While neither of these were in the budget, we expect to hear more announcements from the government on tax on 23 March and a further budget is due to take place in the autumn.
We will be discussing gender justice and tax justice in more detail together with the Women’s Budget Group on Friday, 19 March. Please join us here for this free event.
The event is part of the global days of action to make taxes work for women by the Global Alliance for Tax Justice.
You can watch the event on gender and tax here.
A well trailed increase to corporation tax dominated the headlines in the wake of the budget.
However, businesses will benefit from a massive tax giveaway before any tax rises take effect.
The UK has long been a frontrunner in the corporation tax “race to the bottom”. At first glance the promised hike in the rate from 19% to 25% looks like a major win for tax justice. We’ve long argued that an ultra-low corporation tax rate does little to stimulate investment.
But the rise in 2023 comes just ahead of a planned 2024 general election. The pressure on the Chancellor to cave and drop the tax rise will be immense.
Big business was also given a whopping £25 billion tax giveaway in the shape of a “super-deduction” for investment. The Chancellor described it as the “biggest business tax cut in history”.
It wasn’t the only cut announced. For all the Prime Minister’s promises that there would be no return to austerity, the budget included £15 billion a year of cuts to public services.
Meanwhile “a tsunami of jobs” was the spin promised to Teeside as one of eight locations awarded freeport status. Freeports are low tax, low regulation zones meant to encourage investment. But as we have argued before, it’s hard to see how freeports will amount to more than glorified business parks with a smattering of low skilled, poorly paid jobs.
There was nothing on capital gains tax or other potentially progressive changes to the way we tax wealth. All eyes will now focus on the Treasury’s planned “Tax Day” due to take place on the 23 March, where it’s possible more may emerge.
It’s important to claim victory when it happens. The corporation tax rise ends a decade of ideology that the only way for business tax is down. But we still have a long way to go before we see true tax justice.
A small club of ultra wealthy Londoners scooped a tax break equal to every northerner in the country combined according to figures unearthed by Tax Justice UK.
The finding emerged ahead of next week’s budget when the Chancellor is rumoured to be considering equalising capital gains - the profits made when selling shares, investment property and other assets - with income tax. The policy could raise £14bn a year according to government estimates.
Our research shows that by focusing tax rises on wealthy taxpayers in the south, such a move would support the government’s levelling up agenda.
Based on HMRC statistics, we found that people who live in London and the southeast of England receive half of all capital gains, despite only making up a quarter of the population. In contrast, people in the north of England and the midlands receive just a quarter of capital gains despite making up 40% of the UK’s population.
For the very highest earners, the figures are even more skewed. The 1,586 individuals in London with capital gains of over £1.6 million a year take home more in gains (£9bn) than all individuals in the north of England (£8bn of gains). Gains of £1.6 million a year million puts you in the top 0.01% of earners.
Recent research from LSE and the University of Warwick found that high earners can use capital gains to slash their total tax bills. For example, the average tax rate of someone netting £10m is just 21%. Capital gains are also highly concentrated, with 62 percent of capital gains going to just 9,000 people with gains of over £1m.
A review from the Office of Tax Simplification commissioned by the Chancellor suggested taxing capital gains at the same level as income tax and removing loopholes such as wiping out gains on death. Rumours in advance of the March budget suggest that Rishi Sunak is seriously looking at increasing capital gains tax.
Our breakdown of how CGT is distributed regionally can be viewed here. It is based on publicly available HMRC statistics and a freedom of information response to Tax Justice UK.
We would like to thank Dr Andy Summers (LSE) and Dr Arun Advani (University of Warwick) for their support with this research. All errors remain our own.
This article by our Head of Advocacy, Tom Peters, first appeared in Labourlist
The government has received up to 40 bids for ‘free port’ status from across the UK, including several from Labour authorities. The ten successful bidders will be offered a mix of deregulation, cuts to tariffs, land and business taxes and employee National Insurance by the Chancellor Rishi Sunak.
After a decade of unprecedented budget cuts, local Labour leaders may feel tempted by the promise that jobs and investment will follow these tax breaks. But they should be cautious. Free port status is a Faustian pact, signing away sustainable local development for a reheated Thatcherite race to the bottom.
The Chancellor’s promise that free ports will deliver 86,000 new jobs doesn’t withstand scrutiny. There is little evidence that similar areas in other countries have created new activity. The Organisation for Economic Co-operation and Development believes most jobs are simply relocated from other places, as businesses move to benefit from the tax cut. The reduced employer responsibilities are also of concern; the TUC has labelled free ports a “Trojan horse” that could water down workers’ rights.
The projected costs of tax cuts in Teeside alone could be £400m over 25 years, but the UK Trade Policy Observatory believes the economic benefits to the UK will be “negligible at best“. Perhaps that’s why David Cameron scrapped eight free ports in the UK back in 2012, replacing them with ‘enterprise zones’. Even the zones delivered only a quarter of the promised jobs and, according to the Centre for Cities, these were overwhelmingly low-skilled and poorly paid.
The dubious benefits come with high risks that ‘sleaze ports’ will become entangled with money laundering and criminality. The OECD found “clear evidence that free ports are being used by criminals to traffic fake goods”. The EU parliament’s study of a similar model in Luxembourg found it to be “high risk in relation to money laundering”. RUSI has called on the UK government to “assess existing criminal risks in the geographical locations where free ports will be established”.
The core justification for introducing low tax zones is weak. There’s limited evidence that tax levels are holding back economic growth. At 19%, the UK corporate tax rate is one of the lowest in the developed world. The Treasury recently conceded that the last decade of business tax cuts has done little to stimulate inward investment. Meanwhile, the free port model risks spilling into the rest of the economy, stoking competition from other areas for similar tax cut treatment. This is not a path to the healthy and inclusive economy that Labour politicians should wish to see.
Bridget Phillipson, the Shadow Chief Secretary to the Treasury, has rightly written that free ports are no “silver bullet” for the economy. But Labour should go further: at both a local and national level, leaders should refuse to introduce mini tax-havens on their doorsteps.
There are alternatives. The government should keep its promises to develop an industrial strategy, invest in infrastructure and support a green transition. The sums spent in tax cuts could be repurposed as direct capital investment in port infrastructure. The government-funded ORE Catapult Centre believes that ports are essential building blocks for the expansion of offshore wind. Additional investment would develop stronger domestic supply chains for clean energy, driving our ambitions for net-zero carbon and creating skilled, green jobs locally.
Free ports offer the promise of a buccaneering post-Brexit Britain, trading its way to prosperity. But in reality they are glorified business parks, offering bad jobs and undermining our tax system. Believing in the false promises of free ports will leave us all worse off.
This article by our Executive Director, Robert Palmer, first appeared in Tribune magazine.
Last year saw middle class Brits squirrelling away cash at record levels with savings piling up in the bank accounts of the so-called “sourdough savers.”
If like me, you have spent the majority of the pandemic working from home, not commuting, unable to go out and not travelling, then it’s likely that the state of your household finances are a rare chink of light in hard times. For many, 2020 was a bumper year financially, with the Bank of England stating that extra savings were concentrated in the wealthiest households.
For others the financial impact of covid has been bleak.
Despite various government support schemes, for example furlough, nine million people have had to take a loan out because of the pandemic. The Resolution Foundation reported serious financial stress, with 54% of families on the lowest incomes being forced to borrow to pay for food and housing.
This deep division is not new. Last week it emerged that the UK was already at a decade long high in terms of income inequality.
The incomes of the poorest fifth of households were in freefall before covid, down 4.8% since 2010. For “just about managing families” on average earnings, wages grew by an average of just 0.8% between 2011 and Spring 2020.
Before the pandemic a household on the average wage would have had to save every penny, for 96 years, to reach the wealth of the top 10%. The economic fallout from the pandemic will doubtless have delivered a hammer blow to those, admittedly abstract, prospects.
Those who entered the crisis struggling have been hit the hardest, while the bank balances of many wealthier families have done well.
An economy that fails to guarantee good health and prosperity for the most vulnerable - whether in the midst of a global pandemic or not - is an economy that is fast running out of road.
The big political question this year will be how to recover from the pandemic in a way that’s fair and sustainable. The Shadow Chancellor of the Exchequer, Anneliese Dodds, spoke recently of her fear that a form of austerity and tax rises will be imposed in the next 12 to 18 months to give the government space to offer fresh tax cuts before the next general election.
With tax rises on the cards, politicians are already asking “who will pay?”
For me, it’s clear that the answer has to be profitable companies and those with substantial wealth. Our tax system currently focuses too much on taxing consumer spending and income from work.
There’s growing economic consensus that we need to do a much better job of ending the unfair advantages for the wealthiest in society. These include reforming capital gains tax so that income from wealth is taxed at the same as income from work. This would end the spectacle of hedge fund managers getting away with paying lower tax rates than nurses.
Other ideas include reducing the cushy pensions tax relief that higher earners get compared to lower earners, reforming our wildly dated and unfair council tax system and raising corporation tax.
All these ideas were backed by a group of 18 organisations, including Oxfam, Jubilee Debt Campaign and the Institute for Public Policy Research, who joined us last summer in calling for progressive tax reform post-covid.
Another idea floated toward the end of last year was for a one off wealth tax for millionaire couples. It’s unlikely this government would introduce such a policy, but the fact that think tanks, academics and lawyers agreed such an idea is technically possible has made a lot of people sit up and think.
All these well thought out proposals show that there are options for the government other than slapping a VAT or income tax hike on people who are already struggling to get by.
Increased taxes on wealth are a no brainer electorally too, especially in the so-called “red wall,” where communities are crying out for better public services and investment after years of economic loss.
Tax Justice UK’s own polling and focus groups from last year found significant support for taxes on wealth, with 74% of people wanting to see wealth taxed more, including 64% of Conservative voters and 88% of Labour voters.
We found strong Conservative voter support for increases to capital gains tax and corporation tax. Conservative support for higher corporation tax actually leaped from 61% to 74% between our March and June polls last year.
All of this should make it a political no brainer to close the loopholes that allow wealth to be under-taxed. Those with the broadest shoulders must pay their fair share.
The pandemic has put into stark relief our broken economy. But inequality is entrenched as a consequence of long term political and economic decisions.
If our achievement in turning around this pandemic teaches us anything it is surely that we need to raise the bar on what is achievable in other areas too. We cannot continue with an economic system that fails so many people. Tax justice must be at the heart of any reform package.