Tax and the elite multinationals

Lord Lawson

It is not often I find myself agreeing with a Conservative ex chancellor of the exchequer and especially not Lord Lawson. Let me not start on the way he led us through several years of boom and bust in the 1980's. Many people of slightly older vintage than myself still see the Thatch years as "the good times" and it has to be said if you were a city banker or stock broker you could be right. If you were a state employee you had little to cheer about even if we in the NHS had a pretty prescriptive job description. However as a direct result of his financial meddling and moneterism the country encountered a couple of "slowdowns" and one of the most violent properety bubbles of living memory. The term "negative equity" was first heard in 1987 as his meddling in interset rates scuppered many households and left some with debt problems that lasted well into the 1990's. 

However I believe he has a point, when you consider the recent tax deal Google have negotiated for themselves not to mention the way multinationals shuffle their money to legally avoid tax. Starbucks springs to mind.

This is a major issue for many sovereign governments in amongst all this globalisation. Large multinationals just find ways of only paying taxes in the countries that have lowest tax regimens. Although a lot of them do a significant amount of business in places like the UK they can run that money out of the country in a way that does not entitle the taxman a slice. The argument for Starbucks is that the government does get a lot of VAT through Starbucks sales but that is a cost borne by the consumer and has not impinged or affected the company one jot.   

As Lord Lawson says this action by multinationals unfairly hits the smaller business which cannot move money around like Google can.

Is Lord Lawson's approach the correct one? I am hesitant to follow his advice. Any taxation should be applied fairly across the whole business world. To make up too many rules may even prevent business in the first place. It is also morally correct for companies that benefit from our economy to also contribute to it. The UK did not become the economy it is by accident but by good governance, democracy, rule of law etc. For a company or individual to benefit from that long process, with out recognising that the only reason it can trade in the UK is down to those facts and that it costs to maintain the economy in such a way, should therefore be willing to make a contribution out of gratitude if nothing else.

so how do we tax?

Well there is a theory that you actually lower taxation. So the theory goes, that if you lower the tax levels to such an extent the companies find it is far easier and less onerous just to pay up and be done with it. An economist I heard on the radio some months ago was extolling just this view for personal taxation.. That lowering taxes, counter intuitively, raises income. The tax is so low no one bothers to "tax avoid" because there is little saving and therefore you actually collect more taxation because the economies big earners pay up rather than invest in schemes to lower their taxes.

This at least would be fair. A profit tax would have been fair if only multinationals acted in a more honest fashion.

Perhaps a trading license? The government in question can evaluate the markets value and charge a fixed fee for the companies right to compete in that market.

I am sure that would run foul of competition law but you could waiver all further company taxation so then the company can decide if trading in the UK is worthy and it would know it's tax deductions for the full financial year

Well it might not be better than Lord Lawson's idea but it is an alternative