David Gauke – 2011 Speech to the Hundred Group

Below is the text of David Gauke’s (the Exchequer Secretary to the Treasury) speech to the Hundred Group in London, made on 1st March 2011.

It is a great pleasure to be here today.

I know that the PwC Total Tax Survey is in its sixth year… but I think this year’s event – and the findings that Susan has just set out – are particularly timely.

When public finances are incredibly constrained – where difficult decisions are being made on public expenditure – the interest in business taxation has rarely been greater.

Indeed perhaps the easiest, or the most politically palatable approach to bringing down the deficit would be to concentrate on raising business taxes.

That, however, has not been our approach.

We need a pro-growth strategy to get us out of the mess we’ve inherited.

And this means that the UK must remain an attractive place to do business.

A place where you want to locate, invest, and succeed.

Which is why creating the most competitive corporate tax environment in the G20 is such a priority.

Not only through annual reductions to the mainstream rate – bringing it down to just 24% by the end of this Parliament

But also through the introduction of a patent box – making the UK an attractive location for innovative industries.

Moving to a more territorial system – through reforms to the foreign branches and CFC regimes.

And improving the way in which we make tax law – taking a more deliberative and consultative approach.

This has included innovations such as the corporate tax roadmap… and publishing finance bill clauses in draft… both of which have been warmly received by the business community.

As I believe that a Government who are focussed on supporting economic growth must ensure that we have a corporate tax system that is an asset to our economy, not a liability.

A tax system that encourages businesses to come here in the first place, not the reason they move away.

And that this is in the best interests of everyone.

Yet there are considerable challenges we face when trying to get this message across.

First, there is a perception that the total tax contribution businesses make is restricted to the corporation tax they pay.

Yes, corporation tax is important…

…but as the work carried out by the Hundred Group and PwC demonstrates…

…our largest firms make a vital contribution in terms of business rates, irrecoverable VAT, employers National Insurance Contributions, as well as the income tax and National Insurance Contributions paid for employees.

The second challenge we face is that people believe – or at least give the impression they do – that corporation tax is somehow a victimless tax, not paid by real people.

Of course, as with any tax, the incidence will ultimately fall on someone.

As far as corporation tax is concerned, the question is whether the burden falls on shareholders (largely in the form of pension funds) employees (through lower wages) or consumers (as a result of higher prices).

The consensus, among economists at least, is that it’s predominantly the employee who foots the bill.

And it is testament to the lack of understanding of this fact that – when this point was made to a member of UK Uncut on Newsnight – his response was to say that this demonstrated the unfairness of the tax system.

It is rather like someone complaining about the law of gravity if an apple fell on his head.

And the third misperception is that a competitive corporate tax system somehow involves being weak on avoidance.

This Government is determined to be tough when it comes to reducing avoidance.

As part of the Spending Review, we strengthened HMRC’s capacity in this area.

Under our watch all the major banks have signed up to the code of practice on taxation for banks.

In December, we set out bold policies to tackle longstanding avoidance opportunities, including disguised remuneration.

And we have asked Graham Aaronson QC to explore how a General Anti Avoidance Rule might work in the UK and what it would look like.

Because we all know, at the margin, some people try to be too clever by half in an overly aggressive pursuit of lower tax bills.

The truth is the public will not wear this – especially during times like these.

And as their representative, nor will we.

But it is equally unhelpful to try to exaggerate the scale of the problem.

We have all seen some campaigners choosing to stoke the fires of public opinion.

It is a feature of this debate that legitimate behaviour by taxpayers – consistent with both the letter and spirit of the law – is being classified as ‘avoidance’.

This action artificially inflates both estimates and perceptions of the ‘tax gap’.

It is, I think, to the credit of Richard Murphy, author of the oft-quoted TUC tax gap estimates, that he acknowledges the use of allowances and reliefs within his calculations.

Only last month he wrote that:

‘It is a persistent argument of business that the tax gap on corporate profits (which I have estimated to exceed £10 billion a year in the UK) is not the result of any form of avoidance at all, but simply the use of perfectly acceptable allowances and reliefs.

And some of it may be… of course that has to be true.’

And he then went on to argue:

‘…[that] the use of such reliefs is a valid element in the tax gap.’

That is not my view, nor, I think the view of most people.

But it does demonstrate the difficulty and confusion that can exist in this area.

Where a combination of complexity in the law, fluidity in definition and, quite rightly, a strong desire on the part of the public to see that everyone pays what’s due, can often conflate the problem.

It is not surprising, therefore, that individual businesses – some of our biggest high street names, even the guardian media group, whose publications regularly provide comment on tax, for instance – are finding their individual tax affairs under intense public scrutiny.

And it strikes me that this won’t be the last of it.

It will just run and run.

At present many of the more questionable assumptions that fuel this campaign are taking place without effective rebuttal.

So, having set out the challenges that faces a Government wanting to put in place a competitive tax environment, let me set out a challenge to business.

I know that, for most businesses, the sensible course of action is to keep a low profile here.

To avoid being drawn into a contest that is both complicated and unpredictable.

But although that might make sense for the individual, there is a danger that the collective voice of business is getting lost.

We could have a better-informed debate over the coming years if businesses were willing, perhaps, to be more transparent about the tax they pay… and explain the story behind the figures.

At a time when, across the board, the public expect greater openness…

…I think it could be in your long-term interests to engage more forthrightly in this discussion.

To set out your own position. To be more robust on the essential contribution you are making individually to reduce the deficit.

Yes, that may mean greater scrutiny and, for some, this could be uncomfortable.

But it could also be an opportunity… an opportunity to address some of the myths and confusion that exist.

That’s why I welcome the work undertaken in respect of the Total Tax Contribution.

It is a valuable source in the debate

And a constructive first step towards meeting one of the key communication challenges for UK business over the coming years.

A first step toward, generating and maintaining public consensus in support of an effective and competitive tax system in the UK.

Thank you.