Robert Palmer: To support the levelling up agenda, the Government should follow Biden’s plan to tackle corporate tax avoidance

19 Apr

Robert Palmer is the Executive Director of Tax Justice UK.

Few issues annoy Conservative voters more than Facebook, Google and other global companies paying ultra-low levels of tax in the UK.

Whether it’s pensioners, Brexiteers, Red Wallers, people with degrees or those who failed to get a single GCSE, polling shows that they all unite in frustration at companies that avoid their obligations on tax.

Conservatives like Kevin Hollinrake, the MP for Thirsk and Malton, and Anthony Browne, who represents South Cambridgeshire, understand these frustrations. Companies like Netflix have been hauled over the coals in parliament, with MPs across parties demanding it explain why it paid so little UK tax.

Netflix, famous for box sets like The Crown, hit boom times during the pandemic. Even before Covid, the entertainment tech giant booked £860 million in subscriptions from UK customers alone via its Amsterdam-based subsidiary, but paid very little tax here. MPs are understandably concerned to make sure the likes of Netflix pay a fair share in the UK.

In a parliamentary debate last year, Browne said: “What any fair-minded person objects to is aggressive tax avoidance which results in companies or people paying less tax than is clearly their fair share.”

In its 2019 manifesto, the Conservative Party pledged to continue to lead “the international fight against aggressive tax avoidance and offshore tax havens”.

Last week President Joe Biden announced a plan that could end the “race to the bottom” on corporate tax. It comes just a month after Rishi Sunak pledged in the March Budget to increase corporation tax to 25 per cent by 2023.

The US President is proposing that companies should pay at least 21 per cent on their profits as part of a package of global reforms. This would make it much harder for global companies, like Amazon, to get away with paying very low rates of tax by stashing their profits in offshore tax havens.

Far from stifling UK businesses, the Biden plan would give companies a chance to compete fairly against the global giants and their clever accounting.

Areas of the UK that lost out under globalisation, could reap the rewards from the overdue reform of the way global multinationals are taxed. There’s nothing buccaneering about keeping our antiquated global tax system in place.

Research shows that the plan for a global minimum corporation tax could raise £13.5 billion a year in the UK.

Raising corporation tax is popular among Conservative voters and the rest of the voting population. Bringing in more money from companies is also compatible with the levelling up agenda.

The centre-right think tank Onward, recently called for the Government to level up the tax system. Its research highlights that corporation tax receipts are concentrated in the wealthy South East of the country. This is partly skewed by the fact that many companies are headquartered in London. However, even with this factored in, over the last decade the corporate tax take has declined in the North and Scotland, while it has risen in the South.

Red Wall voters are desperate to see investment in their communities. The £13.5 billion that could be raised through adopting Biden’s plan, much of it likely to be paid by tech giants, would help us invest in things like broadband to bridge the gap between rural and urban areas.

It’s clear that the Conservatives’ new electoral coalition is more left wing on economic issues. This is in part driven by increasing support in the Red Wall constituencies in the North and Midlands. These voters want to see higher levels of public investment and support tax increase to help deliver this.

So far there’s been some indication that the UK government is interested in the idea of a global minimum corporate tax rate, but won’t yet sign up to Biden’s proposed 21 per cent rate.

On Wednesday, the Treasury Minister Lord Agnew responded to a question in the House of Lords about Biden’s plan from the Green Party’s Baroness Bennett. The Minister said that “the UK was at the forefront of initiating global action on international tax”. He backed global efforts to reform the global corporate tax rules and said that the Treasury was looking at the US proposals.

In June, Johnson will show leadership to the world as the UK plays host to the world’s richest countries at the G7 summit. Getting global agreement for a global minimum corporation tax will be near the top of the agenda for the US President.

The 2013 G8 summit in Northern Ireland saw a Conservative-led government push through a global agreement to tackle tax evasion and avoidance. Those changes have made a real difference and ended some of the more egregious practices.

A G7 summit in our own backyard will be front page news in the UK. It’s in this government’s interests to support President Biden’s plans to tackle corporate tax avoidance. This would be good politics given the popularity of cracking down on tax loopholes and the billions that could be raised to support levelling up.

Daniel Hannan: A tribute to Jens-Peter Bonde. A devastatingly able campaigner and giant of the Eurosceptic movement.

14 Apr

Lord Hannan of Kingsclere is a Conservative peer, writer and columnist. He was a Conservative MEP from 1999 to 2020, and is now President of the Initiative for Free Trade.

A giant of the Eurosceptic movement died last week, unreported and largely unremarked. Jens-Peter Bonde, who spent 29 years in the European Parliament and was, for much of that time, the closest thing it had to a Leader of the Opposition, passed away at his home near Copenhagen, aged 73.

There has, of course, been a more newsworthy death grabbing our attention. But, even without the passing of the Duke of Edinburgh, we would not have heard much about the cheerful, detail-obsessed Danish campaigner.

This is partly because Brexit has short-circuited the arguments about the decentralisation of power. I have written more than my share of papers on how a looser, more flexible EU might have worked. But all that is over now. Eurocrats responded to Britain’s withdrawal by pushing ahead with the integrationist schemes that had previously been held up by our veto – tax harmonisation, an EU army, the lot. A country can either get with that programme or leave. A Europe of nations is no longer on the agenda, if ever it was.

There is another reason, though, that Bonde faded from public consciousness. He might have been the moving spirit behind the Euro-critical movement, but he does not fit the popular image of the anti-Brussels campaigner. Thoughtful, polite and Left-of-Centre, he was the Eurosceptic whom federalists found it hardest to dislike. He worked on various projects with Romano Prodi, Guy Verhofstadt and Jean-Claude Juncker, who remarked on hearing of Bonde’s death that their clashes over the burgeoning EU budget “didn’t take away from the friendship I had with him”.

Bonde began as a revolutionary and ended as a reformer. He had campaigned against EEC membership in Denmark’s referendum in 1972 – a campaign at that time dominated, like its British equivalent, by the Bennite Left – and was elected as an MEP for the People’s Movement Against the EEC in 1979. After Denmark voted against the Maastricht Treaty in June 1992, he established the June Movement, reaching out to those Danes who had been happy enough with the EEC, but who disliked the new push for political and economic amalgamation.

That made him the de facto head of something that had not existed until that moment: a Europe-wide anti-federalist movement. As the leader of the tiny Eurosceptic bloc in Brussels, Bonde had the time and the resources to co-ordinate the efforts of new allies: Philippe de Villiers’ souverainiste movement in France, the successors to the various Scandinavian “No” campaigns from 1994 and, in Britain, Jimmy Goldsmith’s Referendum Party and Alan Sked’s UKIP.

I remember asking him, when I was first elected in 1999, whether he thought it was acceptable to use EU money that way. Then, as now, the European Parliament made resources available to individual MEPs and their parties for political projects. The idea, of course, was that the moolah would translate into greater support for the EU. But there was no way to draw up the rules so as explicitly to exclude Eurosceptics. Did he think it was okay to finance his projects with Brussels cash?

“I used to wonder the same thing when I arrived here 20 years ago, Daniel. In the end, I asked a man who had been one of my mentors. He was a partisan leader in the war, and he told me, ‘Jens-Peter, when we siphoned gas off German vehicles during the occupation, it wasn’t an act of theft – it was an act of legitimate resistance.’”

I laughed out loud at the mental picture the mild-mannered, bespectacled Bonde stealing petrol by moonlight. In truth, by then, he was already more interested in making the EU less intrusive than in taking his country out of it. But he remained a devastatingly able campaigner.

The following year, he and I worked together on the “No” campaign in Denmark’s single currency referendum. We started more than 20 points behind in the polls, but Bonde knew how to appeal to waverers. He block-booked advertising space with bus companies all over the country. A week before polling day, a question appeared on the side of almost every Danish bus: “Do you know enough to abolish the Crown forever yet?” It was the “yet” that did it, rallying undecideds to the status quo and carrying us to a surprise victory.

For all that they found him personally agreeable, the EU’s leaders could not forgive such behaviour. Had they been a bit cleverer, they would have treated Bonde and his allies as a kind of loyal opposition, engaging with his ideas on democracy and transparency, and using his presence to show that the EU was not an intolerant monolith. But, subject to their federalist purity-spiral, they could never bring themselves to do it.

As the EU pushed ahead with deeper and deeper union – Maastricht was followed by Amsterdam, Nice and Lisbon – the idea of devolving power fell away, leaving withdrawal as the only alternative. Bonde was replaced by Nigel Farage as leader of his group and, more broadly, as the voice of Euroscepticism. While he was shifting from secessionism to constructive criticism, the Eurosceptic movement was going the other way.

Bonde’s idea of a Europe of nations now survives only as a counterfactual, a might-have-been, like Gladstone’s Home Rule proposals or Pitt the Elder’s plan to conciliate America. The EU’s leaders may soon wish they had taken the well-mannered Dane more seriously.

Nick King: London is unlikely to have another “Big Bang” moment – but here’s how we can boost its potential post-Brexit

15 Jan

Nick King is a Research Fellow at the Centre for Policy Studies

When Rishi Sunak was recently asked whether the UKs departure from the European Union meant we should revisit the Big Bang Playbook for the City of London, what choice was there but to agree? After all, what self-respecting neo-Thatcherite Chancellor of the Exchequer could say anything else when such an enticing proposition is dangled in front of them by a newspaper editor (in this case, Andy Silvester, of CityAM)?

But the world were living in is not that of the mid-80s. The EU, for all its faults, does not have the equivalent of the Restrictive Practices Act which Nigel Lawson – another political hero of the Chancellors – worked so hard to overturn. The idea of another Big Bang moment, the kind of sudden, overnight liberation which occurred on October 27, 1986, is unlikely to materialise.

But that doesn’t mean that there isn’t huge scope to use Brexit to boost the City, and the British economy – especially if we learn the right lessons from those Thatcher-era reforms.

As well as sweeping away anachronistic, inefficient practices, the Big Bang served to introduce three vital new operating principles to the City of London, turning it from a relatively sleepy, parochial industry into a global powerhouse. Those principles remain as valid today as they were in the 1980s.

The first was to open the City up to the world. For generations, the institutions of the City had been highly clubbable places, populated mainly by members of the British establishment. The Big Bang introduced competition – and global competition at that – which led to drastic changes in attitude and performance. In time, that led to London becoming one of the important financial hubs in the world alongside New York, in either first or second place for insurance, investment banking, asset management, FX trading and more.

Some worry that leaving the EU risks this preeminence. Certainly, ever since the Brexit vote, it has been clear that Paris, Amsterdam and Frankfurt (among others) have had more than one eye on the opportunity to knock London off its perch. Fortunately, for all the reports of 100,000+ jobs going, the impacts thus far have been limited. As one industry player put it to me, not even the Germans want to go to Frankfurt.

But the ability to access, and deploy, capital across the continent is clearly vital, and jeopardised by the fact we have left the European Single Market without a deal on services. It certainly does not make sense for the City to be regulated by Europe: given the relative size of our financial services industries, that would be the tail wagging the dog. But the Chancellor and the Treasury need to negotiate a Memorandum of Understanding that allows us to continue to operate in, and cooperate with, the EU as soon as possible.

Yet we must also turn that challenge into an opportunity – to not just maintain but enhance the UKs status as a global centre for capital and financial services.

Our equity markets are already some of the deepest in the world. But we need to remain world-class and be able to finance the industries of tomorrow. The Listings Review, being undertaken by Lord Hill, is fully focused on achieving precisely that by making the regime more competitive.

Already it is estimated that the UK investment management industry manages some £10 trillion of assets. But again, we need to work harder to attract more capital from South America, the Middle East and South East Asia.

Attracting more capital – and talent – while continuing to build our reputation as a global centre for financial services should a central pillar of the Global Britain agenda.

The second principle from the Big Bang is proportionate regulation. Just as those reforms were predicated on, and driven by, regulation that works, we now need to make sure that our regulatory regime is one which supports rather than stifles our financial services industry – and which is tailored to our needs.

Coming out of the Single Market there are few voices clamouring for a bonfire of regulations in financial services. But at the same time, there is no point in sticking rigidly to a set of rules which dont necessarily work for us or our markets. Other authors on this site have, rightly, pointed to changes which should be made around the Alternative Investment Fund Managers Directive and the Markets in Financial Instruments Directive II. The collapse of the financial advice industry, in particular, has been entirely been driven by overzealous, anti-competitive regulation.

Another set of regulations we should put in the crosshairs are the Basel capital requirements, which can treat a small bank or a building society in the same way as a large investment bank – which also damages competition by making it much harder for the new challenger banks to compete. By taking a more proportionate approach, and freeing up domestic lenders’ capital, UK regulators can create a more competitive market and immediately unlock more funding for domestic priorities like sustainability, net zero and levelling up. It is also striking that Britain’s regulators rarely have a duty to consider the growth impacts of their decisions: as George Osborne once said, we do not want the financial services industry to have the stability of the graveyard.

Proportionate regulation is linked to the third pillar that drove the Big Bang’s success: our absolute reliance on innovation. The reforms of the Thatcher era brought in new players, new instruments and new ways of doing things. That same willingness to embrace innovation is imperative if we are to thrive in the future.

Today, despite our world-leading fintech industry, much of the pioneering innovation in financial services happens in Singapore, Shanghai and other Asian markets. Industry insiders claim that an abundance of caution prevailsat the FCA. For all the successes of its innovation “sandbox” (a concept some claim was forced on it by Osborne), it is still not doing enough to support innovation or to open up new markets. These are issues I have written about before but those in the fintech industry tell me FCA authorisation still takes too long.

The tone for the regulators is set by the Treasury, of course – and the Treasury needs to back innovation now like never before. It must ensure its regulators lose the “gold plating” mentality of old, which has put us at a competitive disadvantage, and use the Future Regulatory Framework Review to help us capture the global opportunities which abound.

The fundamentals of our financial services industry remain strong, as the Chancellor himself said, but they cannot be taken for granted. Despite the fact we are blessed in our language, timezone, history and rule of law, the forces of competition are ever stronger – on the continent and beyond. To maintain London and the UKs preeminent status will take hard work and determination.

And that, I would argue, is the most important lesson of the Big Bang. The new entrants, innovation and subsequent global success came about because we had a government that was ready to back the industry as required. It was a Government that recognised that financial services, the profit motive and shareholder interest were fundamental goods – and spoke out on their behalf.

We might not be in line for another Big Bang but to help us make the most of Brexit we need the Government to be pro-business, pro-City and to offer financial services enduring political support. If those principles are in the Chancellors “Big Bank Playbook”, then sign me up.