Last month a hedge fund threatened to move from Connecticut to another state. Its boss, Ray Dalio, earned $1.4bn last year. That’s as much as 34,482 teachers earning the average salary for teachers here of £29,000. But that wasn’t enough for him and he demanded Connecticut help him build new offices. They gave him $22m. You can read about the story here.
That’s $22m that he doesn’t need. It’s about 1.5% of what he earned last year. But it reduces Connecticut’s ability to employ policewomen and firemen; to repair its roads and look after its elderly; to run its schools and operate its healthcare programmes.
That can’t happen in the EU.
We have rules – called ‘State Aid’ rules – which stop powerful corporations playing countries off, one against the another. They know Member States can’t give the money – and this stops them demanding it.
You will have read about the tax shenanigans of Apple. Starbucks. McDonald’s. Amazon. Google. The arrangements of each of those companies is being looked at by EU institutions to see if they comply with European law. If they don’t, State Aid rules mean they will have (in effect) to repay the tax they’ve wrongly underpaid.
Corporate tax avoidance is a huge problem. The European Parliament has estimated it cost the EU €160-190bn last year alone. As the second biggest economy in Europe we will have suffered a substantial share of that loss. Without the protection of State Aid rules we won’t be able to claim it back.
We’ll be weak. And we’ll get weaker.
Here is Jason Collins, Head of Tax at Pinsent Mason – a law firm based in London which is very vocal in calling for measures which help its clients – talking about what will Brexit will mean for the UK tax system.
Translated, what this means is that those huge multinationals, if we leave the EU, will be free to demand more tax breaks from the UK.
You think we’ll be able to resist?
By the end of this Parliament, we’ll be collecting almost £15bn a year less in corporation tax than we were in 2010 in consequence of huge cuts in tax rates (see paragraph 1.159 here). £15bn is more than we spend on housing (and utilities such as street lighting) and contributions to the EU combined. The present government tried to do even more for these corporations – but turned back in the face of pressure from the EU.
Pretend, if you like, that we’re big enough to go it alone. Pretend we can face these companies down and that corporate tax avoidance won’t get worse. We’ve the fifth largest economy in the world, after all. But bear in mind that the global revenues last year of one company – Apple – were about a third of all the tax paid over to HMRC. And look at the evidence of how we’re already failing.
Alone, things will get worse, and quickly. There will be less tax available to spend on the NHS and schools. There will be less to build better roads for your communities and support more house-building for your children. More libraries will close – and there will be more foodbanks as welfare is cut further.
But together, we’re stronger.Follow @jolyonmaugham