Socialists have long argued that the international austerity regime of the last ten years has been designed with the express purpose of shifting income and wealth from the working class to the rich and super-rich. Lest we are accused of just making this up, we can cite an authority no less than the Financial Times, whose researchers have demonstrated precisely what we have argued.
The Financial Times researchers have looked at the last 25 years’ worth of financial statements for the ten biggest international companies by market value, in each of nine economic sectors. They found that multinationals are paying “significantly lower” rates of taxes now compared to the period before 2008. Their effective tax rate – the proportion of taxes they would expect to pay from their declared profits – has fallen to only 9 per cent. (Financial Times, March 12, 2018)
This means that the squeeze on welfare benefits, on education and health and on many other elements of public expenditure can be explained by the failure of these giant corporations to pay the taxes they previously paid. According to the Financial Times survey, the long-term trend is “even more striking”, showing corporation tax rates falling by one third since the year 2000. As the paper explains, this has been going on “while taxes on consumers and workers were rising.” (Financial Times, March 12, 2018)
The tax hand-outs given to big business by Donald Trump have given an enormous wind-fall to US companies. For years, big US multinationals like Apple, Google and Microsoft have simply ‘sat’ on vast piles of cash earned overseas, because repatriating the money to the USA would have incurred taxation. This cash pile amounted to the eye-watering sum of $2.1tr in 2016. Trump is now allowing an amnesty on this cash pile, provided the companies agree a one-off tax of just over 15 per cent. While it means that the big companies concerned will have to cough up something like $400bn, it is still far less than the $500bn they would have been due by the corporation tax rate that existed when the profits were originally made.
There are a thousand and one ways that these big companies dodge taxes both here and elsewhere. Taxes on company earning are usually deferred in any case and are therefore paid, if at all, two or three years after being earned.
Avoiding the payment of taxes really is a huge business in itself. Businesses are serviced and ‘audited’ by big accountancy companies – huge firms in their own right – who have armies of tax experts, accountants and lawyers to find ways and means of avoiding tax. The top four big accounting companies – KPMG, PwC, Deloitte and EY – make billions of pounds in fees by helping their business clients avoid taxes, often by elaborate corporate restructuring and the use of offshore holding companies. While these companies do their best to avoid taxes for their clients, in their role as ‘auditors’ they somehow always seem to overlook the fact when big holes develop in workers’ pension schemes, as was the case with BHS and Carillion, both of which went bust to the ‘shock and surprise’ of their auditors.
To make sure that the top companies are always one step ahead of the tax-man, there is a revolving door between the tax authorities and public accountability watchdogs and the big companies they are supposed to be keeping an eye on and it is particularly notable with the big four accounting companies. Top officers and post-holders at HMRC and the Financial Conduct Authority regularly switch to top jobs in the City or in big business. It is a case of gamekeeper one year, poacher the next. It is not unknown for top tax officials – on one occasion it was the head of HMRC – to switch to ‘the dark side’ (as it was jokingly referred to) by going to work for one of these companies.
Likewise, top figures from business are appointed to jobs at the FCA and HMRC. An article in the Financial Times three years ago illustrated absolutely clearly this incestuous relationship between the top accounting companies and HRMC:
“Of the six non-executive directors of HMRC, two of them are former big four partners. One of them, Ian Barlow, was the former senior partner at KPMG, who was in charge of the firm when in 2005 KPMG agreed to pay $456m in fines for aggressively selling tax avoidance schemes. John Whiting, a former PwC partner, also serves on the board, which is meant to challenge HMRC’s management on the department’s performance. Over at the UK accountancy watchdog, the Financial Reporting Council (mission: “to promote transparency and integrity in business”), six of its 14 board members are former partners of the big four, three of whom were at PwC. One of these three, Mark Armour, is also currently a non-executive director of Tesco. PwC is being investigated by the FRC for its audit of Tesco’s financial statements after the retailer overstated its profits by £263m last year.” (Feb 24, 2015)
When Labour comes to power, its ability to determine policies in the interests of working class people will be challenged by these very same big companies that are today avoiding paying tax. There will be no limit to the obstruction, opposition, lack of cooperation and outright sabotage of Labour’s economic programme when Corbyn is Prime Minister and John McDonnell is Chancellor. The interests of the real ‘nation’ – who are in our opinion, the overwhelming majority of the population who are working class – will count for nothing alongside the profit, power and privileges of the shareholders of the giant companies that dominate the economy. When that sabotage becomes evident and there is a furious debate inside the labour movement as to the way forward, it will be the socialists around Left-Horizons who will be arguing for thorough-going socialist change as the only way out of the impasse.
The answer to tax-dodging by the big companies is not simply to ask them to pay their ‘fair share’ of taxes, because left to their own devices that is something they will never do. We will be arguing instead for a planned and socialised economic model, in which the huge reservoir of wealth, machinery and know-how in industry and the economy is organised and planned rationally to meet the needs of the whole of society. As socialists have always said, it is impossible to plan what you do not control, and it is impossible to control what you do not own. Labour must set itself the task of a genuine socialist transformation. That does not mean taking over every corner shop and small business but taking into public ownership the giant corporations which dominate the economy – and if truth be told, also dominate the state – and using their resources for the benefit of the many, not the few.
In the final analysis, socialism is about bread and butter issues: homes, jobs, education, health, pensions and living standards. None of these needs can be even defended, let alone improved, as long as the economy is in thrall to a tiny handful – no more than 1 per cent of the population – who own and control its great wealth. These basic needs can be met and will easily be met by fundamental socialist change. The answer to tax-dodging by the big companies is to make them truly accountable to the whole population – the 99 per cent – and not to a tiny and insignificant minority.
March 13, 2018
