Summary

Summary

Fairness and tax

Taxes are the price we pay for living in a fair and civilised society with a dynamic economy. They raise revenues, redistribute wealth, correct market distortions, and strengthen democracy.

Businesses have a moral obligation to repay society for the social infrastructure (hospitals, schools, roads, police) that they depend on in order to generate profits, and should not be simply maximising returns for their shareholders and ignoring this.

When a tax system favours an elite over the majority it is fatally undermined. The costs of contributing to tax revenues should be shared in relation to ability to pay and as laid down by Parliament.

Tax law is complicated, but the basic principle is simple. Everyone who lives, works or owns a business in this country gets something out of our society. It therefore follows that everyone who lives, works or owns a business here needs to pay their share back into the nation’s coffers at a rate that is proportional to their income. This is an idea that most people understand perfectly well, but that some big companies and individuals don’t seem to get. It’s a view that has to change.

Julian Richer, The Ethical Capitalist

A progressive tax system

A progressive tax system means that the costs of contributing to tax revenues are shared in a way that takes into account the ability to pay. Companies and the wealthiest should pay their fair share to ensure trust in the system, tax should increase in proportion to a person’s wealth and income, a sustainable tax system needs to look beyond increasing taxes on just those at the top and companies, and the poorest should be protected from tax rises.

An effective tax system

An effective tax system means that everyone (individuals and organisations alike) pays the amount they are asked to pay, with minimal opportunities for avoidance or evasion and a strong enforcement regime to deter, detect and deal with both (with a better-resourced HMRC), so that the 'tax gap' between the amount of tax that is owed to HMRC and the amount of tax that is actually collected is minimised. The law should be applied in its totality, and enforcement should be applied comprehensively, consistently and proportionately to the scale of the misdemeanour.

Taxes are what we pay for a civilised society.

Oliver Wendell Holmes, Jr., U.S. Supreme Court Justice

What needs to change

Tax avoidance is morally wrong, in that it fails to contribute to the cost of the social infrastructure that enabled profits to be made in the first place, but it is also dishonest, which equates to fraud. In most cases it is unlawful, because it is breaking the rules to gain an advantage that parliament never intended. Although limited progress has been made on tax avoidance in recent years, the tax gap (the difference between the amount owed to HMRC and the amount that it collects) is still unacceptably high.

The tax code needs to be simplified, to make life easier for everyone and to reduce opportunities to game the system. As part of this, all tax reliefs should be assessed, and those that are not delivering their intended outcomes should be reformed or removed.

Putting more money into HMRC will generate many times as much in tax revenue; this needs to happen now and needs to be accompanied by a more aggressive approach both to tackling tax avoidance and to prosecuting tax fraud, with more transparency around deals with large companies and more accountability of HMRC to parliament.

We need to build on recent progress in beneficial ownership transparency for companies by boosting the regulatory and enforcement capacity of Companies House, and by requiring similar transparency for trusts.

The government should require public country-by-country reporting of the revenues, profits and taxes of multinational companies, and should also consider how to encourage similar transparency around the incomes of, and taxes paid by, wealthy individuals in the UK.

The UK needs to play a more proactive global leadership role in reducing the opportunities for multinational companies to avoid tax by shifting profits between jurisdictions, helping to build a fairer (unitary) global taxing regime as well as taking unilateral action domestically where needed to ensure a level playing field between domestic and global firms.

The government should not pay consulting fees for tax policy advice to professional services firms who then advise their private sector clients on how best to avoid or circumvent those policies.

The government should make more use of its existing powers to tackle corruption and tax evasion, such as the much greater use of unexplained wealth orders.

Income should be taxed at the same rate, regardless of its source and of how the person earning it is registered. Tax rates for employment and self-employment, and on income from work, capital gains and dividends, should be equalised.

Corporation tax is important for ensuring that businesses contribute to the costs of the social infrastructure (hospitals, schools, roads, police) that they depend on in order to generate profits, rather than just maximising returns for their shareholders. The UK corporation tax rate should be at or above the OECD average, and should not be offset by excessive and unnecessary allowances.