£3.8 trillion of tax will be lost to tax avoidance globally over the next decade, Tax Justice Network estimates.
A lot of this is down to large multinational companies ‘shifting’ profits to countries where corporation tax is low or non-existent.
Our friends at TaxWatch recently demonstrated how big tech firms could be starving the UKs public purse of billions a year.
This is standard practice by many wealthy global companies, however it’s deeply unfair and deprives countries of tax revenues they need.
Let’s take Amazon for example. For two years their main UK division has paid no corporation tax in the UK, despite making hundreds of millions of pounds in profits (£222m in 2022 to be exact).
How? Firstly, Amazon has benefited from generous tax breaks for business investment in the UK.
Secondly, Amazon declares a lot of its revenue in Luxembourg, instead of the UK, where the rate of tax is generally lower than the UK.
Amazon does not have to declare where sales are made on a country-by-country basis, so the scale of tax avoided in the UK isn’t certain.
Amazon uses this arrangement in many European countries. It was claimed in 2017 by the European Commission that this means Amazon don’t pay tax on nearly three quarters of their profits in the EU.
Taking and not giving back
Companies like Amazon rely on the things taxes pay for, yet they don’t contribute in a fair way to the bill.
Roads, police and fire services, power and water networks, public transport – Amazon relies on all of these things to run an effective business.
They need the UK to have healthy, well-educated workers – so the NHS and our education system contributes to their business success too.
It’s unfair that companies like Amazon can use the UK’s public resources to generate record profits, while doing what they can to lower their tax bills.
At the same time, Amazon staff complain of poor working conditions in warehouses. Thousands of their workers recently went on strike over pay and conditions.
A historic UN vote
Things can change, however.
On Wednesday evening at the United Nations, 125 countries voted to create new global rules on tax.
It could be the next step in creating a fairer global tax system – and the next step in concerted action against international tax avoidance.
This could be a game-changer: ensuring Amazon and other corporate giants cough up their fair share.
48 countries voted against it – including the UK, US and many of the richest countries in the world. You may be wondering why.
It’s simple. Tax Justice Network estimates these rich countries enable 75% of global tax avoidance.
The rich countries voted against
The UK voted to keep the status quo, in part because the UK benefits from tax avoidance. Not ordinary people, of course, but financial and legal services – those with the government’s ear.
It’s shameful that our government voted this way.
The UN will now start discussing and negotiating a plan for new global rules on tax, a UN Framework Convention on International Tax Cooperation.
We now need to make sure that the UK government does not try to obstruct the process going forward.
We’re going to continue following the process, and campaigning in favour of strong global rules to tackle tax avoidance.
In recent months rumours swirled that Jeremy Hunt would use the Autumn Statement to abolish or at least cut inheritance tax. And we were listening.
Inheritance Tax is not an ideal tax, and it’s unpopular with some, but it’s the only real tax on accumulated wealth we have. Only the top 5% of estates pay it.
Abolishing it would fuel rampant inequality in the UK.
For this reason we support a reformed inheritance tax – you can read more about why here.
We’ve been all over the media in recent weeks pushing back.
Our Head of Advocacy and Policy, Rachael, made the case for keeping inheritance tax on GB News last week.
The super rich should be paying more tax, not less, Rachael argued on Times Radio on Monday.
The same day she was also on The Jeremy Vine show on BBC Radio 2 making the case that the public are desperate for better public services – and taxing wealth more can help us get there.
We teamed up with the Trades Union Congress and had a full-page splash in The Mirror, demanding the Chancellor prioritise public services over inheritance tax cuts.
And our polling that found only 1 in 4 supported tax cuts over public investment was featured in The Guardian.
We fought and won
When Jeremy Hunt stood up in the House of Commons to read his statement yesterday, he didn’t mention inheritance tax once.
The government backed down. There is to be no change to inheritance tax.
They were forced to abandon their rumoured plan to help the already wealthy at the expense of everyone else - for now at least. We helped do that.
He reduced National Insurance
Instead Hunt set out plans to reduce National Insurance contributions for employees.
The plan will see National Insurance contributions for many working people reduced from 12% to 10% – a saving of about £450 a year for the average person. It will affect around 27 million people.
The cut to National Insurance was by far the most eye catching announcement in the Statement. And it may help the Conservatives prospects at the next election.
He ignored the crises battering the UK
But let’s be honest, this small injection of cash into peoples’ pockets won't change the multiple crises facing the UK.
Hospital waiting lists are surging and staff are absolutely burnt out – while our schools literally fall apart.
A crisis in housing sees millions residing in unlivable conditions – while local councils struggle to provide even basic services, and some face bankruptcy.
The tax cut announced yesterday may even aggravate the situation. As I tweeted, the £20bn giveaway will effectively be "paid for" by £20bn of spending cuts planned for after the election. These cuts will be almost impossible to deliver, setting a trap for whoever forms the next government.
The UK isn’t working for most ordinary people, and the Chancellor had no plan to address this – the planned spending cuts will only make things worse.
How to fix our country
To properly tackle the challenges everyone in the UK faces, the government needs to invest more in the NHS and all the different public services we rely on – from schools to transport; our police and emergency services.
We don’t want taxes on working people to go up. The money can come from those who are not already shouldering their fair share of the burden: the super rich.
If we taxed the income of the super rich at the same rate as work – and if we taxed them 1% a year on their accumulated assets, we could raise £50 billion a year.
We could also raise an extra £7 billion a year by closing just a handful of unfair tax loopholes.
This could be the boost to bring new life into our creaking NHS and public services.
The wealth is here in the UK right now to fix these problems. All we need is a government disciplined enough to go out and tax it.
The government could raise over £7 billion a year for vital public services by closing unfair tax loopholes, according to new Tax Justice UK research.
The situation facing the Chancellor on the eve of his Autumn Statement is stark. The NHS is perpetually in crisis, school buildings are crumbling, and people are struggling with a severe cost-of-living crisis with another unaffordable winter looming. Public finance solutions are needed more urgently than ever, particularly with the growing demand for increased spending on public services.
Tax Justice UK analysis demonstrates that closing just five tax loopholes, which benefit wealthy individuals and multinational companies, could raise over £7 billion a year. To give a sense of the scale of this subsidy, this could pay for all nursing and teacher vacancies across the UK with change to spare*.
These revenue-generating recommendations are put forward ahead of the Chancellor’s Autumn statement to offer feasible, pragmatic solutions to mounting crises. The policies have widespread support from economists, academics and respected think-tanks - including the Institute for Fiscal Studies (IFS) and The Resolution Foundation. Considering there are multiple tax loopholes that would benefit from being closed, these five are just a snapshot of the options available to Jeremy Hunt.
These five recommendations show that there is money available to tackle the urgent issues facing ordinary people.
Instead of sinking into fatalism and apathy, the Chancellor should use his Autumn Statement to raise urgent revenues and tackle NHS waiting lists and declining living standards.
1. End fossil fuel subsidies for oil and gas companies to raise £4.4 billion a year
Despite oil companies’ record profits since the war in Ukraine, the UK taxpayer continues to fund a loophole for the industry that the IFS has characterised as a "huge tax subsidy”. This is because the ‘windfall tax’ (Energy Profits Levy) implemented by the government contains “indefensibly generous” investment allowances. This loophole enables oil companies to claw back roughly £45 for every £100 spent on new UK oil and gas projects. This costs the taxpayer approximately £2 billion a year**. Additionally, Oxfam estimates taxpayers subsidise oil and gas companies in the North Sea for activities such as exploration and decommissioning to the tune of £2.2 billion. The UK taxpayer should not be footing the bill for polluting, highly profitable fossil-fuel companies, nor their cleanups. These climate-wrecking incentives must be shut down by the Chancellor as a priority not just to boost Treasury coffers but to speed up the transition to a low-carbon economy.
2. End classic car exemption to raise £130 million a year
Vehicles constructed more than 40 years before the 1 January of any year are exempt from paying vehicle excise duty. This subsidy for classic cars is a bizarre tax break, which highlights the inequities that have crept into the UK’s unwieldy tax system. At a time when people can’t afford to make ends meet, taxpayers should not subsidise an arbitrary tax break for a polluting hobby that could pay for over 3500 new nurses’ salaries a year.
3. End video games tax relief to raise £197 million
Video Games Tax Relief (VGTR) cost a record £197 million in 2022. Despite being designed as a relief to help independent developers produce “culturally British” games, evidence shows it is large, often multinational firms that are benefitting. HMRC data shows that claims over £500,000 account for 88% of the total amount paid out. And one big company in particular seems to benefit from the lion's share: US-owned company Rockstar, who produce Grand Theft Auto, revealed it obtained almost £80 million in VGTR in 2021-2022 - 41% of all VGTR paid out in the UK.
4. Close capital gains tax loopholes to raise £1.1 billion a year
‘Business Asset Disposal Relief’ is a tax break that lowers capital gains tax from 20% to 10% on the first £1 million of gains, when a person sells their company. This loophole has come under repeated criticism, including from think-tanks The Resolution Foundation and the IFS. There is little evidence that this tax break affects entrepreneurial activity, and the prospect of slightly lower taxes at the end of a person’s involvement with a business is not well-targeted in a business’ lifecycle, according to The Resolution Foundation. Considering there is an extremely strong consensus amongst economists and think-tanks around bringing capital gains tax in line with income tax at 40% (this is also one of Tax Justice UK’s six wealth tax policies), it is indefensible that a loophole further enables a carve out to a mere 10%. There is no sound reason why a person earning their income from selling a profitable business should pay a far lower tax rate than a person paying tax on their wages.
5. Close inheritance tax loopholes to raise £1.7 billion a year
Inheritance tax has a multitude of loopholes that enable wealthy estates to engineer their finances to avoid paying their fair share. This is evidenced by the fact that estates worth over £10 million pay an effective average tax rate of just 10% despite a headline IHT rate of 40%.
The Chancellor should also reform ‘business’ and ‘agricultural property’ inheritance tax reliefs, which could raise £1.5 billion a year. Evidence shows a small minority of very wealthy estates use these loopholes to avoid paying their full rate of inheritance tax. While abuse of agricultural property relief is pushing up the price of agricultural land, pricing poorer farmers out of the market. The Resolution Foundation, IPPR and the IFS have all put forward alternative policy designs, most recently with the IFS’s suggestion to cap business relief at £500,000, which we have used to calculate our revenue figure.
The Chancellor should remedy the fact that pension wealth is exempt from Inheritance Tax, which could raise £200 million a year. This enables heirs to receive a ‘defined contribution pension’ tax-free if the deceased dies before they are 75. This creates a bizarre imbalance, with inherited pensions benefitting from more favourable tax treatment than when they are used to fund retirement. It also distorts behaviour, creating an incentive for wealthy individuals to avoid drawing down on their pension, if they have other resources available. Economists have also raised particular concerns since pensions already receive significant tax advantages.
These recommendations sit alongside Tax Justice UK’s more ambitious policies for long term tax reform, outlined in our six wealth tax policies to raise £50 billion.
To see full citations and calculations, please click here.
Our climate is changing before our eyes. Flooding has killed seven people and forced hundreds more from their homes in the UK in recent weeks. While Italy braces for yet more extreme weather.
Torrential rain has become a regular occurrence for many of us. And another storm is already wreaking havoc in the south of England as I write.
This is just a taste of what’s to come. Our climate is changing and our weather is becoming increasingly unpredictable – and hostile, in many cases. Do we really want to accept this as our future?
More bumper profits for oil companies
In the context of climate breakdown, it’s deeply frustrating to see it’s simply business as usual from big oil companies.
Today Shell announced another round of huge profits: they made £5 billion profit between July and September alone.
On Tuesday BP posted a £2.7 billion profit in the same period of time.
It’s not only that the big fossil fuel companies are making huge profits in a time of climate breakdown – but also what they are doing with these profits.
BP, for example, has invested nine times more into new fossil fuel extraction than they have in developing renewables over the past two years, research from the IPPR shows.
While Shell will use half of its £5 billion profits announced today to buyback shares, to boost their stock price.
It can’t be business as usual
Meanwhile the government and the Labour party have both rowed back on their commitments to reduce the UK’s emissions.
We can’t accept business as usual. We demand our politicians take action before it is too late.
That’s why we’re pushing for a bigger windfall tax on oil companies profits – and a tax on share buybacks.
This money could be used to invest in green energy, better public transport and, overall, a fair green transition.
Taxing excess profits of fossil fuel companies can only go so far. To achieve more systemic change, we need a wider transformation of our tax system to tackle environmental and climate breakdown.
Tax the super rich and big polluters
Those who emit the most carbon – generally super rich individuals and fossil fuel companies – must also be incentivized to reduce their impact.
Taxing their carbon emissions would do this and would raise significant sums that could, again, be invested in a fair green transition.
We saw a big success in this campaign recently, when Oxfam came out in favour of taxing polluters fairly.
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