Last week’s celebrity tax storm has ratcheted up the government’s rhetoric against tax dodging like never before. David Cameron and Treasury Minister David Gauke repeated George Osborne’s budget sound-bite about the ‘moral repugnance’ of tax avoidance. Danny Alexander raised the rhetorical heat a notch further on Tuesday, calling tax avoiders the "moral equivalent of benefit cheats".
Strong words are one thing. But tackling tax avoidance can’t just rely on moral censure – it requires fundamental changes of law. And here the government’s resolve is less clear. By coincidence, as government ministers were commenting on Jimmy Carr’s tax affairs on Tuesday, their colleagues in Parliament were holding up a major opportunity to crack down on tax dodging.
The Bill Committee currently working through this year’s Finance Bill discussed a new tax loophole (the ‘CFC rules reform’) that will water down the UK’s key rules against UK multinationals using tax havens. The Treasury has calculated that this will cost the UK nearly £1bn a year, and which ActionAid estimates will also cost developing countries around £4billion annually in avoided taxes – equivalent to just under half the UK overseas aid budget. Despite the political firestorm now raging over tax dodging, and the expected damage to public finances in the UK and internationally, Treasury Minister David Gauke said he remained unconvinced of the need to mitigate the loophole’s impact, or even to assess the effect it will have on developing countries. The Liberal Democrats had proposed an amendment to do just this, but withdrew it at the last minute on Tuesday, and then voted down a similar Labour one.
Meanwhile Tuesday was also a big day for Cameron and other G-20 leaders meeting in Los Cabos, Mexico, where they pledged to fight globally against ‘base erosion’ (meaning ‘tax avoidance’). As the G20 statement recognised, tax avoidance is morally repugnant not only because it allows some not to pay their dues in the UK, but also because the same schemes and dodges are leaching revenue from the poorest countries in the world. The OECD estimates that developing countries lose more than three times more to tax havens than they receive in aid. Comedians’ salary arrangements and music investment schemes are just the tip of an iceberg threatening public finances and hindering the fight against poverty in the UK, Europe, as well as in Africa and Asia.
Tax avoidance is ingenious, fast-moving and internationalised. To tackle it, the government needs every tool it can lay its hands on. There’s a last chance for MPs to bring back this vital amendment to the CFC rules when the Finance Bill comes back for discussion in the House of Commons early next week. With public purses desperately overstretched not just in the UK but around the world, now is not the time to be opening up new tax haven loopholes. ActionAid supporters and campaigners have already taken over 33,000 actions asking the Government to close the loophole. Join the campaign!