Theme: Political Economy | Content Type: Digested Read

Freeloading Tax Avoiders are Harming Democracy Itself

Richard Woodward


Ian Dooley

| 7 mins read

Is the UK ungovernable? After Brexit and an inconclusive 2017 general election, widespread disaffection of many UK citizens with politics, politicians and political institutions is frequently traced to the failure of the UK's political machinery to deliver on promises or to meet their expectations.

In the last decade, examples of this failure have been legion: the failure to deliver robust, balanced or inclusive economic growth; the failure to eliminate the budget deficit; the failure to meet homebuilding targets; the failure to control immigration; the failure to remedy the tribulations plaguing the National Health Service; the failure to address chronic underinvestment in infrastructure; and the failure adequately to equip, prepare and protect services personnel in and for combat zones.

This ongoing political turbulence has prompted a reprise of debates from the 1970s when many concluded the country was ungovernable due to ‘overloading’ – a growing mismatch between the electorate's expectations and the government’s capacity to fulfil them.

However, these accounts overlooked another phenomenon besieging UK governance during this period. This phenomenon was freeloading: the withering of government capacity deriving from people enjoying the benefits of citizenship without altogether contributing to the cost.

In the interim, these problems have become endemic – not least because of the unspoken but discernible policy of successive governments to turn the UK into a tax haven.

The rise of tax havens

As a tax haven, the UK permits rich individuals and corporations to profit handsomely from the public goods paid for out of general taxation, whilst simultaneously supplying them with subterfuges that allow them to curtail their UK tax liabilities. Irrespective of citizen demands, tax avoidance and evasion deprives the UK government of the revenue necessary to discharge its responsibilities. By worsening inequality, tax avoidance and evasion have also damaged the UK's democratic institutions.

Hardly a week now passes without some fresh revelation of tax avoidance committed by a prominent corporation or celebrity. Amazon, Barclays, Boots, Caffè Nero, Facebook, Google, Ikea, Starbucks, and Vodafone are amongst dozens of firms that have attracted censure for paying minimal UK corporation tax, despite sustaining extensive business activity in the country.

Incongruously, some of the most notorious perpetrators of tax avoidance are also amongst the most prodigious consumers of public goods and recipients of government gratuity. The most egregious examples come from the banking sector. As the taxpayer was writing a blank cheque to bail out the financial system, it was revealed that the big four high street banks were operating a network of 1,649 tax haven subsidiaries.

High‐profile scandals involving prominent individuals and corporations, plus the failure to clamp down on them have reinforced the perception that the UK's political system is geared towards the rich and the powerful at the expense of the marginalised majority.

Growing inequality

What currently has the moniker of austerity is simply the compounding of a forty year‐long programme to square the freeloading circle by moderating spending and levying taxes that disproportionately distress the poorer segments of society. During this time, the UK went from being one of the most equal OECD countries to one of the most unequal.

To quote the Association of Revenue and Customs, the union representing senior HMRC staff, ‘the country cannot afford this madness. The government is acting like an unhinged Robin Hood—taking from the poor and giving to the rich’.

The impact on democracy

Soaring inequality has brought into sharp relief the well‐documented tension between the egalitarian tendencies of democracy and the wealth (and hence, power) concentrating propensities of capitalism. Assisted by the Bretton Woods settlement, the UK's post‐war governments were able to legitimise capitalism and stabilise democracy through widely shared increases in real incomes.

Conversely, the subsequent economic polarisation has bred a perception that the UK's democracy is mutating into a plutocracy where a self‐serving elite receives special treatment and wields outsize influence on the political system at the expense of the marginalised majority.

The UK's ‘non‐domiciled’ residents are illustrative in this regard. ‘Non‐doms’ are UK residents whose permanent home or domicile is elsewhere. They are spared tax on foreign income unless it is remitted to the UK, free to enjoy their millions in exchange for a payment miniscule in comparison to prevailing income tax rates.

Most of the UK's 115,000 non‐doms are not intimately connected with politics. Amongst their ranks, however, are press barons and major donors to political parties. During the 2015 general election campaign, it was divulged that non‐doms had donated over £27 million to the three main political parties since the turn of the century.

Democratic governance requires that everyone has the opportunity for an equal say in collective decision making. This does not mean that everyone has equal sway, but the outcome ought to reflect the most persuasive argument around which people could be mobilised, rather than who has the most resources to set the political agenda.

The seriousness of this predicament was finally acknowledged in the aftermath of the global financial crisis whereupon a crackdown on tax avoidance was pledged as part of the strategy to taper the UK's yawning budget deficit. Like previous endeavours, however, the strength of the clampdown has been sapped by vested interests. The failures of this process are described in more detail in my article for the Political Quarterly journal.

Suffice to say that the supposed suppression of tax avoidance and evasion in the post‐crisis period has been little more than a façade behind which freeloaders can perpetuate their parasitic activities with almost complete immunity, with the standing of the UK's governing institutions damaged in the eyes of many citizens as a result.

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