UK support for Biden’s tax plan would raise £14.7bn, enough to ‘build back better’ the NHS and care system, says IPPR
US push for G7 to back new global minimum corporation tax at 21 per cent would be fairer for UK businesses and raise vital revenue
The UK government should back the Biden administration’s new proposals for international coordination on a minimum corporation tax at the G7 meeting this month, according to IPPR.
In a briefing paper published today, the IPPR Centre for Economic Justice makes the case that this would be a triple-win for the UK:
- A global minimum corporation tax set at 21 per cent would be fairer: it would end a 20-year ‘race to the bottom’ between countries competing to undercut one another on corporation tax, and it would ensure that large companies pay their fair share of tax. It would prevent multi-national firms from offshoring their profits to tax havens, gaining an unfair advantage over UK-only companies, SMEs and high street shops.
- It would raise vital revenue which could be devoted to building back better after the pandemic, without increasing the UK corporation tax rate. Projections show that a global minimum corporation tax set at 21 per cent would generate increased UK tax receipts of £14.7 billion, more than sufficient to fund much-needed rebuilding of the NHS and care system, in line with analysis by IPPR earlier this year (see note 3 below). This burden would fall mainly on the shoulders of highly profitable multi-national companies which are most able to pay.
- It would provide an opportunity for global leadership. The UK is the only G7 country that has not publicly backed the planned reforms. It now has a chance, as it hosts the G7 meeting in Cornwall this month (June), to play a leading role in defining a new consensus on global taxation - setting a new model of post-pandemic recovery built on fair and transparent taxation and investment. The plans offer a chance for the UK to support the wider agenda being lead from the US by President Biden.
Amid speculation that the UK government may attempt to forge agreement on a lower minimum tax rate of 15 per cent, the IPPR paper argues that the original Biden plan for a 21 per cent rate would both be fairer, and raise more revenue. Setting a lower rate would not end the race to the bottom on tax, the paper says, while also foregoing almost half the potential tax revenue – raising £7.9 billion instead of £14.7 billion.
The briefing’s authors also challenge head-on the claim by opponents of the tax that its introduction would undermine national sovereignty. The UK has no such sovereignty while some larger companies are able to avoid tax by shifting their profits to offshore havens, the paper argues.
Under the Biden plan, all major economies would agree to introduce a 21 per cent corporation tax. Companies would be allowed to shift revenues and profits between countries that comply with the minimum global tax. But if a firm were to move profits to a country with a lower tax rate, the UK or the US would be able to tax those profits at 21 per cent for their own revenue, with other countries free to do the same.
If the minimum corporation tax rate were set at 21 per cent, companies that already pay their full taxes in the UK would not face higher bills, as the new UK corporation tax rate of 25 per cent is already above that minimum. The new tax levy would be highly targeted, affecting only those firms that currently benefit from moving UK profits overseas, mainly highly profitable multi-nationals.
George Dibb, head of the IPPR Centre for Economic Justice, said:
“Boris Johnson and the UK government, as hosts of the G7 meeting this month, have an enormous opportunity to shape the global economic consensus as we emerge from the Covid-19 pandemic.
“Supporting the Biden plan for a global minimum corporation tax is an opportunity to ensure that the recovery is built on a fair tax base, where companies and countries compete on a level playing field.
“Yet the window of opportunity may be narrow. Failure to reach consensus has held these negotiations up for years, until the new US administration kick-started the process again. The UK should not miss the opportunity to seize global leadership on the issue.”
Carsten Jung, senior economist at IPPR said:
“This is the opportunity to fix a system that allowed highly profitable global firms to shirk their responsibility to society. For years, big businesses all round the world have avoided taxes, to the tune of $500 billion per year.
“This gigantic tax avoidance scheme has operated at the expense of all those domestic businesses that do pay their fair taxes. Fixing this will restore the level playing field for all UK businesses, and it will address one of the big economic injustices of our time.
“Fixing this would also deliver a long-term boost to UK tax revenues which can be spent on key national priorities – for example it would be more than enough to fix the multi-billion pound funding gap in the NHS and care system.”
George Dibb, Carsten Jung and Shreya Nanda, the report’s authors, are available for interview
NOTES TO EDITORS
- The IPPR paper, Ending the Race to the Bottom: Why the UK should seize the opportunity to support a global minimum corporation tax by George Dibb, Carsten Jung, Shreya Nanda and Henry Parkes, will be published at 0001 on Tuesday 1 June 2021. It will be available for download at: http://www.ippr.org/research/publications/ending-the-race-to-the-bottom
- Advance copies of the briefing paper are available under embargo on request.
- IPPR calculated the £12 billion annual investment needed to ‘build back better’ in the NHS and social care in the report The State of Health and Care: The NHS Long Term Plan after Covid-19 by Chris Thomas and Parth Patel. Available to download here: https://www.ippr.org/research/publications/state-of-health-and-care
- Since 2008, the main rate of corporation tax paid by businesses on their profits in the UK has been dramatically reduced, from 30 per cent to 19 per cent. Yet there is mounting evidence that many multinational corporations are able to avoid corporate income taxation, in the UK and elsewhere. It’s estimated that companies shift $1.38 trillion of profits out of their home countries solely to pay less tax. In this year's UK budget Rishi Sunak, the chancellor, announced an increase in UK corporation tax to 25 per cent effective from 2023, yet as long as larger companies are able to structure themselves so that revenue can be shifted overseas to lower tax regimes, this tax increase will fall on the shoulders of smaller firms.
- IPPR is the UK’s pre-eminent progressive think tank. With more than 40 staff in offices in London, Manchester, Newcastle and Edinburgh, IPPR is Britain’s only national think tank with a truly national presence. www.ippr.org