Monbiot’s tax take and the embedding of plutocracy: an urgent concern for Liberal Democrats

Featured on Liberal Democrat VoiceWe are, it would appear, reaching a political watershed. There is perhaps a small window of opportunity to step back and consider where we think the country is heading. Then it could be too late. I was planning to post in response to George Monbiot’s article in today’s Guardian. But his post, coupled with other developments, raises some profound issues.

Monbiot’s article gives his take on the implications of proposals for what might, at first sight, appear technical changes to corporate taxation. But he argues plausibly – if rather hyperbolically – that the changes represent  a major concession to the self-interest of multinational corporations. The net result of the changes will be to allow corporations – and banks in particular – to reduce their liability for UK tax considerably. And this is occurring, of course, at the same time as David Cameron is notably prominent in the media saying that the Government is committed to doing precisely the opposite – making sure that banks pay their share in order to help rebuild the economy.

There is, no doubt, a question of whether Monbiot has got the right end of the stick, not being a tax accountant. I subsequently read a post over on the Tax Research UK blog, which is broadly supportive of Monbiot’s reading of the situation. Even so, I’m sure there are technicalities that will continue to be debated.

A fundamental political issue is whether, regardless of any short term economic benefit it may deliver, the change in tax policy will trigger a competitive “race to the bottom”. Will countries seek to outdo each other in minimising the tax burden they impose, to the detriment of the majority who benefit from tax-funded public provision? No one except the most short-sighted would dismiss the prospect out of hand.

At the same time news appears (via the FT) of the Government’s proposals to relax the requirements upon super-rich immigrants. It is proposed that the rich should receive differential, and favourable, treatment. It will be easier for the super-rich to buy their way to residency. The price may well be the promise of several million pounds in ‘investment’ in the UK, but that is little more than loose change for the sort of households the government is hoping to attract. And this at the time when the visa rules for students and skilled and unskilled workers are being tightened up considerably.

Clearly this Government is even more intensely relaxed about people getting filthy rich than its predecessor. But unlike the misquoted, but not much lamented, Dark Lord, that position isn’t contingent on the rich paying their taxes. And great wealth buys political influence. It would appear that the Government has little intention of doing anything other than continuing to pander to the overly affluent. And here we need to distinguish quite sharply between words and deeds.

To return to Monbiot’s article, he put his finger on something that has been troubling me for a while. One of the problems I have with this government is the lack of transparency with which it represents what it is doing. Political hypocrisy is nothing new. But Cameron and Co seem intent on taking the art to a new level. It’s the nakedness with which it is perpetrated that is so distasteful.

To the extent that I remember the Thatcher era – being, as I was, a young lad at the time – my impression was that she had the courage of her convictions. Her government was willing to stand up and say something along the following lines: “this is what we’re going to do – you may not like it, but we’re going to press on anyway because we think it’s the right thing to do”.

We can contrast that with the way the current Government goes about its business.

We have a Chancellor who can insist he is being tough on the bankers, when in fact he is being nothing of the sort. Bankers dismiss a levy of £2.5bn per annum as not even an inconvenience. We have a health secretary who tells us that health reform is not in any sense about privatisation. When clearly it is. Out of the ‘any’ providers being invited into the system, I’ve an inkling which type is going to prove most willing. We have a push to the Big Society which is supposed to be about strengthening civil society, while multinational contract service providers are rubbing their hands at the prospect of capturing billions’ worth of additional business from cash-strapped local authorities. We have the double act of the Communities Secretary and Housing minister touring the TV and radio studios asserting that if only their chief executives took a pay cut and local authorities were more efficient in bulk buying paper clips then they won’t have to cut front line services. Yet anyone with a basic grasp of arithmetic can see that if that is a genuine attempt at a calculation then they are several orders of magnitude out.

If all else fails we have government departments responding to criticism and concern by resorting to bland assertions that “ministers do not believe that [extremely negative outcome] will happen”.

Monbiot captures this approach well when he concludes his article:

And this government? It has learned the lesson that Thatcher never grasped. If you want to turn this country into another Mexico, where the ruling elite wallows in unimaginable, state-facilitated wealth while the rest can go to hell, you don’t declare war on society, you don’t lambast single mothers or refuse to apologise for Bloody Sunday. You assuage, reassure, conciliate, emote. Then you shaft us.

The question is how much longer will Liberal Democrats remain complicit in this agenda. This is a question of the utmost urgency. Once these changes have been made and privilege becomes further embedded the political system will lose its leverage to redress the balance in future. We only have to reflect on the difficulties the US political system encounters in trying to overcome the influence of entrenched corporate interests when it seeks to formulate – let alone implement – policy designed to improve the lives of the disadvantaged. No liberal should need to be reminded that the concentration of power in the hands of any sectional interest is anathema to genuine democracy.

Two questions remain. What are we going to about it? Is it already too late?

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10 replies »

  1. Monbiot’s article is quite a rant but his conclusions seem confused.

    On the one hand he criticises the Government for reducing the tax rate on corporations to get them here, and on the other he accuses them of encouraging corporations to move abroad. Which is it?

    Surely the key issue is whether or not the proposals are likely to maximise the Government’s tax take or not?

    Comparing the UK’s CT rates with other OECD countries you can see the logic behind what they are doing.

  2. @Alex

    Why aren’t you leader of the libdems?! I’d vote for you and I’m a Labour member!!!

    You are undoubtedly right that we are currently going through a watershed moment in British politics which will shape the political debate for decades to come. Unfortunately, the “progressive” response to the crisis has been totally shit, rather than the financial crisis being a catalyst for questioning the thatcherite consensus, which caused the crash, instead we’ve allowed the debate to be about government and public spending. The deficits incurred largely to keep the economy going during the recession are now being used to permanently reduce public services and cut welfare programs. Its a textbook example of disaster capitalism.

    “A fundamental political issue is whether, regardless of any short term economy benefit it may deliver, the change in tax policy will trigger a competitive “race to the bottom”. ”

    Exactly, we’ll end up like the US where state corporation taxes were slashed, as were employee rights, in a race to the bottom. Ending up in the southern “right to work” states where corporation tax is zero and so are workers rights.


    “On the one hand he criticises the Government for reducing the tax rate on corporations to get them here, and on the other he accuses them of encouraging corporations to move abroad. Which is it?”

    Its not about encouraging them to move abroad, the changes will allow large companies, and only large companies, to funnel profits through off shore subsidiaries and pay no tax on their profits at all.

    “Surely the key issue is whether or not the proposals are likely to maximise the Government’s tax take or not?”

    Only if you believe in voodoo economics. The current UK rate of 28% is not high compared with other advanced economies, by cutting it to 24% the UK will have the lowest rate of all large advanced economies. Coupled with the new loops holes detailed in the Monibot article multinationals it seems will be paying zero corporation tax, how will allowing large companies avoid all taxes on their profits maximise government revenues?

  3. Thanks for your comments.

    @Liberal Neil – I have to say that I’m with Chris on this one. Our current corporate tax regime is in no way punitive, rather it is comparable to that of similar economies. So it is unlike that it is a disincentive to locating here. Whatever they are designed to achieve, the effect of the proposals is most likely going to be a reduction in the tax contribution of corporations.

    The trouble with much policy thinking at the moment is that it isn’t serious about incentives or the long term.

    We only need to think of the impact of Gordon Brown fiddling with the detail of the rules on pensions. Net result a few years later – the end of the final salary pension scheme, to the detriment on the well-being of millions of people in old age.

    @Chris – I agree with much of what you say. I’m not looking to be a politician, but I suspect you’ve answered your own quesion in your first paragraph 😉

  4. The Labour party business manifesto from 2010 supported (and started) this review of control of foreign company rules (I’m not saying whether I agree with that or not, but just pointing out that it’s not some secret-Tory trick).

    • Thanks for the contextual info and point of clarification.

      I suppose two different responses (at least) suggest themselves:

      – while the Review was established by the previous administration we will never recover what might have emerged from it had Labour still been in power. The changing context could completely change the flavour of the output.

      – if we think that the outputs from the Review would have been the same under Labour then it could be taken as evidence that plutocracy is even further embedded than my original post suggested because it means there is no one to contest the developments effectively. So, from a liberal perspective, we’re in a bigger jam than ever.

  5. A good post – it is right that members should hold the party to account on issues with profound implications for society at large.

    The cuts to corp tax betray the economic thinking behind govt policy – that relaxing conditions for capitalists and companies will translate into growth by trickling down to those who spend/make. It’s the same thinking behind the unrestricted nature of the bank bailout, and the similarly ill-thought-through quantitative easing policy of the BoE – give money to the rich and they’ll create jobs.

    What’s missing is recognition of the fact that in an economic crisis, it’s people that need bailing out not corporate concerns.

    But then, when the City of London contributes 0ver 50% of the Tory party’s funds, what can one expect other than a pro-corporate policy platform?

    Get involved with the social liberal forum mate, even if we can’t change the direction of travel we can apply the brakes…

  6. “One of the problems I have with this government is the lack of transparency with which it represents what it is doing….”

    “It’s the nakedness with which it is perpetrated that is so distasteful.”

    Lack of transparency or nakedness? Which is it?

    It’s just possible that Monbiot – not being a tax accountant – failed to grasp a subtle facet of this tax change, namely that it relates to the tax treatment of branches, rather than subsidiaries, and that its impact may therefore be marginal. I have some sympathy with the overall concerns, that corporation tax changes may reduce overall tax income while failing to create jobs (presumably not an outcome that any government actually wants?), and that as a country we are too much in hock to global corporates, but he may have chosen the wrong peg for his rant.

    Part of your concern seems to be that “we, the people”, were not consulted on this change. But it’s possible that, had we been, we’d get the wrong end of the stick and go off on one… And perhaps come to a conclusion which was more damaging than the proposed change. Because arcane changes to arcane tax rules – and especially their economic effects in the medium and long term – are only ever going to be even vaguely transparent to a tiny number of people, however much a government does or does not attempt to engage the likes of you or I in those decisions.

    What this government is clearly intending – and as it has stated – is that it should be judged on the outcomes, in roughly 3-4 years. Of course we should scrutinise – but economics is a fickle wind, and bald judgments that don’t attempt to model all the complexities aren’t that helpful.

    So – and perhaps this is too charitable – is it possible that, yes, Cameron et al do not care how rich the rich get, but at the same time do intend that the living standards of everyone are improved as a result? Plenty of room for ideological debate there – but a pragmatic outcomes-based argument might yet see them win the day.

    • I suppose when I talked about lack of transparency and the nakedness of the govt’s strategy I was avoiding using the word mendacity. My point is that in each case the govt is offering a narrative to justify policy or policy change and sticking to it, when it is relatively clear that this is only, at best, part of what is going on or, in some cases, is not at all credible from the outset.

      Monbiot certainly gets into a bit of a tangle on the implications of the foreign branches/foreign subsidiary issue. The point about reductions in the overall corporate tax burden is much more significant.

      I fully agree with the importance of looking beyond the short term to the medium and longer term. Any tax changes that might appear appealing in the short term, in terms of increasing competitiveness, could have significant detrimental consequences in the longer term. This is part of my point. Any idea about there being a “race to the bottom” is that sort of argument.

      I think we are agreeing that the important thing is to scrutinise proposals rigorously. We also have to recognise that there is little evidence that trickle down economics works. Allowing the rich to get richer and expecting that to be a mechanism that encourages entrepreneurialism which, eventually, benefits the poor as well is an act of faith. It is not an evidence-based policy.