Written evidence submitted by Church Action for Tax Justice
Church Action for Tax Justice (www.catj.org.uk) is a programme of the Ecumenical Council for Corporate Responsibility, a registered UK charity.
Any tax system needs to achieve multiple objectives. It must raise sufficient revenue and not harm economic growth. It must be simple, transparent and able to be administered with relative ease by both officials and taxpayers. However, above all else, it must be fair and be perceived to be fair. As such, there is both an objective and subjective dimension to the issue of tax fairness and the current UK tax system is neither.
And fairness matters. One of the reasons why the NHS is loved so much in the UK is precisely because it is perceived to be fair – the same healthcare provided for free at the point of delivery.
Since the financial crisis of 2008 at least, successive governments have however prioritised revenue raising and the theoretical pursuit of growth at the expense of transparency, simplicity, administrative ease and in particular fairness. It is time to redress that balance.
The coronavirus has only made this situation worse. It has exacerbated existing inequalities and it has revealed new ones. For this reason, any reform of the UK tax system has a moral and political imperative to prioritise the issue of fairness above all else.
Consider the following:
- In the UK, between £35bn and £90bn per year is not paid in tax that should be paid, almost all of this by the very wealthy
- If you receive your income through shares, property or other valuable assets you pay a much lower rate of tax than if it comes from working
- The poorest households pay around 9% of their income in Council Tax, while the richest pay just 1%
- Taxes that affect the poorest most (VAT, Council) have increased over the last 30 years while taxes that affect the richest (CIT) have been cut. In practice, this means that our tax system has facilitated the transfer of wealth from women to men, from BAME persons to those who are white, from the poorest to the richest, from the young to the old, from the sickest to those who are well, from those who are disabled to those without disabilities. We say this because all of those former groups are over-represented among the poorest, and under-represented among the wealthy.
- Taking into account all taxes plus growth in the value of their wealth, the effective tax rate for the poorest households is just over 40%, while for the richest it is merely 18%
- Tax loopholes and tax dodging deprive developing countries of $200 - $400bn per year – around 3 times the amount that is given in aid to those countries
What does this mean in practice?
It means that the average cleaner in the UK is paying more in tax as a proportion of income than the average CEO whose office is being cleaned. It means the average security guard pays a higher rate of tax than the average executive whose building they are keeping safe. This is fundamentally unfair – and the British public think so too.
We commissioned a survey of over 1,000 working age adults this year. Right across the political spectrum, over 80% of the public thought that tax avoidance (let alone evasion) was morally wrong. This belief was actually even higher among Conservative than Labour voters, and it was especially high among older age groups. In response to a question about why it was morally wrong, the issue of ‘fairness’ came top of their list with 75% stating that we all need to pay our fair share.
In light of this, we would argue that any reforms to the tax system in light of coronavirus must prioritise the issue of fairness both in its subjective (do the public perceive it to be fair) and objective senses (does the system actually promote greater equality – is it progressive?).
Specifically, we would call for the following measures to be implemented:
- Put conditions on company bailouts – only those corporations paying their fair share of tax should receive government bailouts. This means that those who use tax avoidance measures, who fail to publish public country by country reports and who fail to publish the real beneficiaries of their corporate structures should not receive bailouts.
- Institute an excess profits tax – some companies have made exaggerated profits from the coronavirus epidemic. In previous times of crisis, the UK has implemented such super taxes to stop such profiteering and we should do the same now
- Tax all income on an equal footing – it is not right that if you earn £20,000 from capital gains in shares or property that you pay less tax than if you earn the same amount from work. Taxes on all forms of income (dividends, capital gains, income tax) should be equalised with a single tax free allowance covering them all
- Actively consider a net annual wealth tax – because we have failed for decades to tax growth in wealth adequately, wealth inequality has grown significantly. We need to reform areas where wealth is currently under-taxed, such as property, inheritances, capital gains, dividends and pensions.
- Stop the dodging – as indicated at least £35bn each year that should be collected in tax is not. We need to tighten the legislation to close the loopholes and in particular properly resource HMRC and Companies House so they are able to enforce those rules. As part of this many of our tax reliefs require reform especially entrepreneur’s relief which does precious little to contribute to genuine entrepreneurial activity
- Support poorer countries – the current global tax rules are under negotiation in the OECD. The UK should support the G24 proposals or at the very least ensure that whatever agreement is reached that it is one which benefits poorer countries to the greatest extent
While tax must generate revenue, and while we recognise that it must not harm economic growth – the current system is embedding a culture of unfairness that the British public will not tolerate for much longer. Ensuring a fair tax system must be the priority for any reforms and we have set out some headlines as to how this could be done.
Dr Justin Thacker
Church Action for Tax Justice