Cameron’s flip-flop over tax evasion

Britain's Presidency of the G8 should not be blighted by 'moral' carping about tax evasion. Cameron has started the wrong way

Cameron starring down the lens on tax evasion
The Commentator
On 2 January 2013 12:49

Yesterday the British Prime Minister David Cameron wrote to the leaders of the G8 countries on the day that Britain assumed the year-long Presidency of the group of leading economic powers.

Against the backdrop of the Starbucks tax furore, the cases of Jean Michel Jarre and Gerard Depardieu, as well as Cameron’s wooing of French tax exiles, the British PM has used his letter to the G8 to warn against tax avoidance.

He states, “…we know that in a globalised world, no one country can, on its own, effectively tackle tax evasion and aggressive avoidance. But as a group of eight major economies together we have an opportunity to galvanise collective international action.  We can lead the way in sharing the information to tackle abuses of the system, including in developing countries, so that governments can collect the taxes due to them.”

The problem is, as you can probably already tell, even Cameron himself understands that legal tax avoidance is part and parcel of a ‘globalised world’. To try and insist otherwise is to place undue stresses on government revenue collectors as they attempt to square the circle of remaining competitive and fair for both small and big business.

Cameron likely showed his truer feelings towards tax evasion in June this year when he told the G20 summit in Mexico: "If the French go ahead with a 75 percent top rate of tax we will roll out the red carpet and welcome more French businesses to Britain and they will pay taxes in Britain and that will pay for our health service, and our schools and everything else."

But when the shoe is on the other foot, such as during the case of comedian Jimmy Carr’s use of a K2 avoidance scheme, or indeed with regard to Starbucks’s tax arrangements, suddenly Cameron ‘gets it’. It’s almost as if he wants one rule for Britain and another for the world. (We could probably live with it if it was just about the French).

You don’t need to be an financial wizard to realise that when corporate tax rates are lowered, investment rises and evasion falls. Companies, by and large, are willing to make the trade-off between financial efficiency, public image, and the costs of employing armies of accountants and lawyers – Britain’s latest move to cut corporation tax to 21 percent is a sign of this understanding.

So what game is Cameron playing? A political one of course.

In seeking to address tax evasion, Cameron bolsters his liberal intelligentsia credentials. He’ll be the talk of Islington.

The calculation he has failed to negotiate is that in raising the issue on a global scale such as this, he is putting Britain on the back foot in attracting business and investment. Many firms will balk at Cameron’s hypocritical statements; unable to trust whether the British government intends to create a competitive business environment, or whether they are simply trying to lull corporates into a sense of security.

Cameron needs to be clearer about his commitment to lower tax rates and in his dealings with tax evasion. Either it is his will to make current legal avoidance measures illegal, or he is playing dodgy politics with an issue that could help make or break Britain’s recovery.

One thing is certain - in this current environment, no one benefits. Apart from the Bahamas, Maldives, Ireland, Switzerland…

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