Globalisation, tax cheats and the race to the bottom

How can we reduce tax cheating which costs us tens of billions of pounds a year? Director of the Tax Justice Network, John Christensen, spoke about tax justice at a packed open meeting hosted by Oxfordshire Green Party and held at the Friends Meeting House, Oxford, on 1 April 2015. The event was chaired by Larry Sanders, Green Party candidate for Oxford West and Abingdon.

Outlining the reasons why tax justice is important, John Christensen suggested that tax evasion, avoidance and non-collection costs us around £120 billion a year. Although the Government estimate is more conservative, at around £45 billion, we would have more than enough to fund key services if we were serious about addressing the problem.  

Taxes are perceived negatively, legitimising attempts to avoid them, and yet they shape development processes and build citizen/state relationships. According to John, we need to build just tax regimes in Africa, where tax is only just beginning to be debated in election campaigns. In this country, taxes have been shaped to reflect the concerns of big business. Corporate income taxes have been cut whilst VAT has increased, hitting the poorest hardest.

We need to change perceptions of tax, particularly around the notion of ‘tax competition’ which John suggests would be more accurately described as ‘tax wars’. David Cameron’s hashtag #globalrace refers to competitiveness between countries who use tax breaks and subsidies to attract investment, the argument being that big companies would take their business elsewhere without this incentive. 

In response to ‘competitive’ pressures, governments cut taxes on wealthy individuals and corporations, then make up the difference by hiking taxes on poorer sections of society. The result is that inequality increases. According to John: “Tax competition is pure economic illiteracy, and yet it is at the core of our current economic policy.” Companies haven’t created more jobs, and tax avoidance hasn’t diminished, with lower tax rates. 

In addition, tax havens enable individuals and corporations to pay minimal taxes. It is estimated that £13 trillion of personal wealth is invested offshore - and that’s only including financial instruments, not assets such as real estate or artworks.

How are these huge amounts moved offshore? An investigation into the banana trade revealed suppliers charging subsidiary companies for services in numerous different countries to minimise the amount of tax paid in the UK. Since the 1970s, trade tariffs and direct taxes have reduced, and the growth of cross-border trade has increased the opportunities for mis-pricing and tax avoidance. 

So, what is the solution? Oxford East parliamentary candidate and economist, Ann Duncan, emphasised the fact that tax is a positive thing and that the language used to describe it needs to change - few would argue that we don’t need to contribute to the funding of our public services or correct market failures; and most would support some redistribution of income and wealth.

The Green Party has long championed firm action on tax avoidance. Green MP, Caroline Lucas, put forward the 'Tax and financial transparency' bill, shortly after taking up office. The Green Party has pledged, in the first 100 days after the election, to introduce a Tax Dodging Bill to crack down on tax avoidance, close loopholes and ensure that greater transparency is used to bring recalcitrant companies to heel. In the Green Party's vision, by 2020, the UK would spend a similar proportion of GDP on public services as Germany currently does.

Watch the full presentation:

John Christensen trained as an auditor and a development economist, and has worked in a variety of the world’s poorer countries. He was employed by Touche Ross & Co as an offshore company and trust administrator in Jersey, British Channel Islands (a tax haven) and was economic adviser to the Jersey government for 11 years. He is, however, fiercely critical of the mis-use of tax havens for corrupt practices, and has been described by the Financial Times as Jersey’s “most prominent dissident.”

The Tax Justice Network was founded in 2003 as a global network of researchers and professionals working with campaigners from a variety of organisations. The Network’s role is to map, analyse and explain the role of tax and the harmful impacts of tax evasion, tax avoidance, tax competition and tax havens. The Network is not aligned to any political party.