A fair tax system means that the costs of contributing to tax revenues are shared in a way that takes into account the ability to pay.
WHERE WE ARE NOW
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The UK government has generally justified its policy of corporate tax cuts by the ideology of ‘competitiveness’. The idea that cutting taxes stimulates economic activity, leading to greater tax receipts, is demonstrably wrong. By the government’s own estimation, the increase in tax collection generated by economic growth stimulated by tax cuts will mean that the Treasury will only recoup around half the tax losses that it has incurred through corporate tax cuts over the next 20 years.
The second argument for corporate tax cuts is the ‘tax incidence’ case that the cost of increased business taxes will be passed on to workers or consumers, or both. But there is no evidence that this is the case. On the contrary, many companies are building up huge cash piles, and it is unlikely that increasing them through reduced taxes would suddenly induce them to share the proceeds with their employees and their customers, especially when many companies enjoy increasing market power, with little or no effective union influence. In fact, numerous independent studies have shown that the burden of corporate taxation largely falls on the owners of capital — that is, predominantly wealthy people. Meanwhile, a recent report by the Resolution Foundation suggests that income inequality is likely to increase during the next four years by the greatest amount since Margaret Thatcher was Prime Minister. |
In January the Chancellor, Philip Hammond, threatened to turn the UK into a low-tax, low-regulation tax haven if Brexit negotiations did not go the UK’s way. But the truth is that the UK, with its economy dominated by the finance sector and its network of overseas secrecy jurisdictions, is already the world’s biggest tax haven.
Having an oversized finance sector unbalances the British economy, creating huge wealth in London and the south-east while impoverishing other sectors and other parts of the UK. According to the Tax Justice Network, the domination of the finance sector in the UK has ‘crowded out manufacturing and non-financial services, leeched government of skilled staff, entrenched regional disparities, fostered large-scale financial rent-seeking, heightened economic dependence, increased inequality, helped disenfranchise the majority and exposed the economy to violent crises’. The film below, published by the Tax Justice Network, explains how the UK suffers from a 'finance curse' . |
WHAT NEEDS TO BE DONE
Reform the tax code to reduce inequality and boost opportunity, raising enough revenues, predominantly from those with the greatest ability to pay, to support strong public services, and increasing the degree of redistribution as measured by both the Gini index and the Palma ratio. Reject the spurious and harmful notion that the UK should ‘compete’ with other countries to attract investment and wealthy companies and individuals by reducing tax rates and offering tax reliefs.
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CORPORATION TAX
Increase the amount of tax revenues raised from company profits, by increasing the corporation tax rate. |
SUBSIDIES
Reduce unnecessary and harmful subsidies to companies (for example, by restating the petroleum revenue tax and reviewing all corporate tax reliefs). |
WEALTH TAXES
Increase taxes on wealth and unearned income (such as capital gains tax, investment income taxes and inheritance tax), and introduce a land value tax. |
INDIRECT TAXES
Reduce regressive taxes such as VAT (unless they serve an explicit social purpose, like for example a sugar tax to reduce childhood obesity). |
DIRECT TAXES
Ensure that income tax continues to be a progressive tax and resist any attempts to cut income tax rates for high earners. |
ACT NOW
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