Why the Tax Justice debate is pointless

June 14, 2013

The News is one of my favourite shows, but over the last few years it’s been replaying the same old story with slightly different characters. Every week, some new evil big company will be accused of paying beancounters to manufacture complex legal frameworks in order to avoid paying the ‘correct’ amount of tax, as defined by a group of angry protestors. Google and Apple are the latest villains of the piece, and have variously protested that they’re forced to pay the minimum amount of tax by law and that if we don’t tax them less they’ll just keep all the money.

If this was any other show, reviewers would be complaining about recycling tired old plotlines, but somehow the real world is immune to tedium. The political debate in the UK over this issue can be summarised thusly:

AGAINST TAX AVOIDANCE – The Government needs money to deliver vital social services, and everyone should play their part. Attempting to avoid playing your part, as tax avoidance is interpreted as, is therefore immoral. If countries compete to attract multinational companies by offering very low tax rates, then there will be less money available for social services in all countries, particularly developing ones.

NOT AGAINST TAX AVOIDANCE – Tax avoidance is different to tax evasion, which is breaking the law to evade paying tax. Tax avoidance works within the law to minimise the tax liability to companies, which companies are obligated to do in order to deliver returns for shareholders. ‘Moral’ doesn’t mean anything when it comes to tax, as you can only pay your tax in accordance with the law, and if the law is immoral then it’s up to politicians to change it. If we tighten up our tax code too much, we’ll drive companies away.

Political debate is only meaningful if the public actually pay attention, because only then can one side ‘win’. This debate is entirely pointless, as both sides are talking only to themselves . Tax avoidance as an issue has traction with the British public, but not for the reasons that anti-avoidance campaigners would want and not for reasons that avoidance defenders can admit. This is because the debate as characterised above is tribal: it’s a re-run of social democracy versus liberalism. The public don’t see the debate in those terms, as some helpful polling by Christian Aid reveals.

It’s true that over half of the population – 56% – does see tax avoidance by multinationals as morally wrong. It’s also true that 37% of the population would use the same avoidance methods as corporations if they knew how. The latter statistic is highest in my age bracket (25-34) at 54%, while 47% think it’s morally wrong, implying that there are people my age who both think avoidance is wrong and that they would do it themselves if they knew how. What a charming generation we are. Two thirds of those who think it’s morally wrong think so because it reduces money available for services.

However, while the above would indicate at least a plurality of people who tax avoidance as morally wrong, an astonishing 71% of people think that low rates of tax help attract investment and deliver economic growth, and 70% think that countries being able to set their own tax rates helps them compete for investment. 47% think that if the Government were to collect more taxes from corporations, there may be no benefit to the public. The public seem to simultaneously believe that tax avoidance is morally wrong and that low tax rates are good for growth. Both sides apparently win.

To explain this paradox, consider one of the highest levels of agreement found by the polling: 75% of people agree that corporations receive much more lenient treatment by the taxman than individual taxpayers. This reveals that this issue is seen as more a question of fairness than a question of ideology. The public see corporations as having an easier time of avoiding tax than they do.This feeling of unfairness will contribute to the feeling that tax avoidance by multinationals is immoral, as ‘fairness’ and ‘morality’ are often conflated, but doesn’t necessarily tell us anything about peoples’ attitudes towards tax avoidance per se. Indeed, of the over 60% of people who wouldn’t offshore their accounts, it would be interesting to find out how many have an ISA.

This result is useless to the tax justice crowd, who want peoples’ feelings about the unfairness of corporate tax avoidance to translate into support for the State. They can’t admit that the public appeal of this particular issue is a question peoples’ sense of fairness rather than ideology. It’s similarly dangerous to the avoidance enablers, because if they accept that tax planning on the corporate rather than individual scale is unfair then this implies that corporations and the rich are able to buy special access to the law. If a law is complex and access to the facilities it offers (in this case, lower taxes) is only possible through the purchase of specialist knowledge about an area, then it is tantamount to bought privilege. Admitting that money can buy privilege is anathema to the majority of this side of the debate, who believe that the restrictions on the rich it would imply in order to secure a level playing field for all are morally wrong in themselves. The closest they come are the rather disingenuous calls from the likes of the Taxpayer’s Alliance, which involve simplifying the tax system to make it easier for everyone to engage with. While this is not without merit, it only works as an answer on this issue if you forget that the avoidance under discussion has to do with the setting up of legal frameworks in order to get money away from the UK tax system, regardless of how simple it is.

As a result of the above this debate is necessarily interminable, as neither side can talk to the public directly without compromising their own position. Tax avoidance is not morally wrong, but it is socially corrosive. It diminishes the bonds of trust between different sections of society, and trust is the fundamental thing we require in order to make this thing where we all get along on our small island work. It would be wonderful if both sides could sit down and work out how to organise things so that they could both win without losing face, but instead I suspect we’re in for many more re-runs yet.


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