Osborne to give massive tax break to the banks

The big banks are apparently “livid” with Osborne about the additional bank levy he announced this morning; the ensuing row has dominated the headlines.   But, hidden by the row, he is reported to be planning changes to obscure parts of the tax code that amount to a massive subsidy for the banks. 

George Monbiot describes how it works in Comment is free.

At the moment tax law ensures that companies based here, with branches in other countries, don’t get taxed twice on the same money. They have to pay only the difference between our rate and that of the other country. If, for example, Dirty Oil plc pays 10% corporation tax on its profits in Oblivia, then shifts the money over here, it should pay a further 18% in the UK, to match our rate of 28%. But under the new proposals, companies will pay nothing at all in this country on money made by their foreign branches.

Snip

 While big business will be exempt from tax on its foreign branch earnings, it will, amazingly, still be able to claim the expense of funding its foreign branches against tax it pays in the UK. No other country does this.

If this is passed, it will mean that paying UK tax is entirely optional for multinationals – all they will have to do to avoid it perfectly legally is to relocate operations to low tax locations overseas with all that implies for investment and jobs.  Any company that doesn’t do so will suffer competitive disadvantage and loose out.   Industrial firms will take some time to restructure but banks, given the ‘weightless’ nature of their products, will be able to move very quickly.  Presumably the bonuses arising from their deals would also be ‘earned’ in tax havens making a mockery of the government’s attempts to rein in the banks.

In short, Osborne is enabling regulatory arbitrage – creating the opportunity for big business (and it is only multinationals) legally to evade any sort of control or tax by ducking and diving round the regulations.  This is no more or less than a latter-day version of buccaneering – the state-licenced piracy of an earlier age.  He probably imagines this will somehow advantage the UK, but how long will it be before the US follows suit negating any benefit.

It makes sense if (and only if) you believe that giving big business whatever it wants is the way to go, that doing so creates wealth and that wealth, once created, will trickle down to ordinary people – conclusions derived from the neoclassical school of economics.  It is what used to be called Thatcherism, is sometimes called neo-liberalism and is what I originally became an activist to oppose.   Way back then (Thatcher was still PM), my opposition was based on instinct that this was somehow wrong even though I couldn’t explain exactly how. 

I see multinationals as being like toddlers in that they don’t have the internalized discipline that comes with maturity.  As with toddlers, self is everything and the competitive pressures on them soon lead to anti-social behaviour unless the state steps in to contain and channel those competitive pressures into socially useful directions.

If the last three decades have taught us anything, it is surely that my instinct was right; Thatcherism has led to a dystopia rather than utopia and doubling up on it is only going to lead to more inequality and more social collapse although some – a tiny minority – will do spectacularly well.

Advertisements

3 responses to this post.

  1. Posted by Liberal Neil on 9 February 2011 at 12:06 am

    On the other hand, if we don’t make sure our tax regime is competitive the multi-nationals might continue to leave the UK, as they have been doing, and we will end up levying a higher tax rate but noe big companies to levy it on.

    If you read the actual proposals, rather than Monbiot’s rather confused article, there is a clear rationale behind the changes which have the aim of maximising the overall tax take.

    Monbiot’s article is quite confused, on the one hand he criticises the Government for reducing Corporation Tax to attract companies and on the other claims that companies will al leave. Which is it?

    Reply

  2. Posted by liberaleye on 11 February 2011 at 4:49 pm

    If we buy into the proposition that multinationals are effectively untaxable then we are in a whole lot of trouble because once the race to the bottom on corporation tax reaches zero it will just continue in another way – probably first on payroll tax, then on wages, environmental protections and so on. The stated rationale may be reasonable but what about the unintended consequences on jobs etc? And as for our balance of payments …

    In the case of the banks, my reading is that they can, in principle, move quickly to take advantage of the new loophole. But despite their huffing and puffing there is not a cat in hells chance that they could relocate – they are totally dependent on the taxpayer teat although they pretend otherwise. We should call their bluff.

    How industrial companies can be turned from bucaneers into good citizens remains an open question but one we must find an answer to.

    Reply

  3. […] strategic decision to engage in a race to the bottom with tax on big companies which I posted on last month.   The underlying logic is impeccably neoliberal – namely that everything should be […]

    Reply

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: