New IEA research released
In UK Uncut Unravelled the IEA examines the claims made against some of UK Uncut’s main targets and finds that they often misrepresent the facts and completely misunderstand the way that tax law operates – both within the UK and abroad.
UK Uncut misrepresenting the facts
- Vodafone has been attacked over a supposedly unpaid tax bill of £6bn, based on profits of its German subsidiaries. However, it is not – and never can be – a principle of tax law that a company should pay both UK tax and German tax on the activities of the German parts of the business. The amount under discussion is therefore much less than the £6bn suggested, and HMRC and Vodafone have come to a compromise owing to the discrepancies that exist between UK and EU law.
- Boots has also been attacked without justification. A Swiss company, it pays UK tax on its UK profits. However, the company financed its operations through borrowing, and, as a cost of doing business, the interest paid was perfectly legally written off against profits before tax. It should also be noted that those who lent money will have paid tax on the interest they received.
Philip Green and Arcadia
- Philip Green and the Arcadia Group are possibly the most high-profile targets, Philip Green standing accused of avoiding tax by paying a dividend from a company he controls to his wife who, in turn, does not pay UK tax. This allegation is wrong in three respects.
- His wife owns Arcadia through a holding company that she also owns and her husband manages the company.
- Secondly, Arcadia pays corporation tax but any dividends must be paid to the owner – Tina Green. It is only further, higher rate, tax that is not being paid on the dividends.
- Thirdly, the UK tax system now taxes husbands and wives separately. The implications of UK Uncut’s suggestion that Philip Green’s tax status should determine the tax that Tina Green pays would be to send our tax system back to the dark ages.
- Barclays, the final target, has also applied a completely reasonable principle of tax law. Barclays reduced its corporation tax bill in the last tax year by offsetting losses made in previous years. If companies were not allowed to do this, those companies involved in risky businesses where profits fluctuate would pay much more tax than companies with stable profit streams – even if they made the same amount of cumulative profits. This would be a particular problem for “start-up” firms where losses are often accrued in the early days.
UK Uncut should be supporting tax reform
Corporation tax is a very damaging tax. In a world of mobile capital, high rates of corporation tax reduce the amount of capital employed in a country and therefore reduce the productivity and wages of labour. Research suggests that the cost to workers of this effect in the UK is greater than the total corporation tax take.
Further, corporation tax is not paid by the company but by the owners of the company. Such owners are, in general, prospective pensioners, beneficiaries of savings policies and so on and have had their returns severely curtailed by other economic events and government policies.
Were UK Uncut’s recommendations to be implemented, they would cause huge injustices and would see a huge flight of capital from the UK – ultimately leading to a lower tax yield for the UK government, the very opposite to what UK Uncut want to see.
Members of UK Uncut would do better to direct their energies towards campaigning for an abolition of corporation tax. Such a move would increase productivity and investment in the UK, see more jobs created and see far better growth in the UK economy.
Tim Worstall, author of the report, said:
“The energy with which members of UK Uncut pursue their cause is both misdirected and ill-informed. Their criticisms are contradictory and their proposals unreasonable.
“They would better expend their ire campaigning for reform in the tax system – specifically an abolition of corporation tax, or at least a great reduction in it – rather than naively expecting companies to pay far more tax than they are either legally or morally obliged to.”
Philip Booth, Editorial and Programmes Director at the IEA, commenting on the report, said:
“Corporation tax is a complex and inefficient tax. We cannot extract more tax from companies without damaging further the prospects for those who are saving for their retirement. UK Uncut are shooting at entirely the wrong target.”
To arrange an interview with Prof Philip Booth, Editorial and Programmes Director at the IEA, or Mark Littlewood, IEA Director General, please contact Stephanie Lis, Communications Manager, 020 7799 8900 or 07751 717 781, [email protected].
Notes to Editors
UK Uncut Unravelled by Tim Worstall can be downloaded in full by clicking here.
Tim Worstall is a Fellow at the Adam Smith Institute and an occasional comment piece writer for the UK newspapers.
The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems. The IEA is a registered educational charity and independent of all political parties.