“I don’t think in the last 20 years or so one can say that governments have driven corporation tax policy. It’s the large companies that have driven the direction of corporate tax policy.” – Philip Baker QC, a European tax expert and Treasury adviser
In 2013 George Osborne told the BBC: “The cost of welfare is one of the things that makes the public finances unsustainable.” Richard Branson’s Virgin Atlantic took £28m from the Welsh government in 2011 to set up a call centre in Swansea, that was a form of welfare. The German, French and Dutch companies that now run our train services are subsidised by the British public to the tune of hundreds of millions. The £45bn taken by firms in corporate tax benefits is a form of welfare. So is the ultra-low cost insurance scheme the government runs for exporters such as BAE Systems. None of these are labelled corporate welfare, but that’s precisely what they are: direct public spending aimed at protecting and supporting businesses. Among the measures in the coming budget is believed to be taxing disability benefits. That will raise about £900m, according to the Institute for Fiscal Studies. That is about the same sum as the state gives every year to managers who buy shares in, say, their dotcom startup and see them soar in value, without having to pay much tax on the gain, thanks to a scheme called Enterprise Management Incentives.
Business receive £93bn a year from the government in grants, subsidies and tax breaks. George Osborne, the chancellor plans to cut £12bn more from the social welfare bill yet it is less than the £14.5bn given to companies in direct subsidies and grants alone. In the financial year 2012-13, the government spent £58.2bn on subsidies, grants and corporate tax benefits. It took just £41.3bn in corporation tax receipts. Many of the figures, especially on direct payments, are hard to unearth, as they are scattered between various arms of the state. The government admits: “There is no definitive source of data about spending on subsidies to businesses in the UK.”
Many of the companies receiving the largest public grants over the past few years previously paid little or zero corporation tax, the analysis shows. They include some of the best-known names in Britain, such as Amazon, Ford and Nissan. Cameron calls his government’s policy to make the UK “the most open, welcoming, business-friendly country in the world”. Incentives include the lowest corporation tax rate anywhere in the G7, tax exemptions for research and direct government support. For decades, the UK has operated on the basis that it is in an international fight to attract investment. It was summed up by Michael Heseltine in his 2013 report on industrial policy: “Unless we make it worthwhile for footloose capital to come here, it won’t.”
It has led to the slashing of corporation tax rates, so that Britain has a lower corporation tax rate than the US, Japan or Germany. It has encouraged devolved administrations in Holyrood and Cardiff to disburse millions to big companies, without demanding much in return. The result has been fiscally disastrous. As this research shows, of the 44 companies that received more than £1m in government grants between 2005 and 2011, 13 paid no corporation tax at all; a further 17 did not pay any corporation tax either the year before or the year that they received public money.
In 2012, Amazon was attacked by MPs on parliament’s public accounts committee for avoiding UK tax. Yet in the same period, the online retailer was awarded £16.5m in grants by the administrations of Scotland and Wales to help build distribution centres. To link the Wales plant to the transport network, the Welsh assembly built the mile-long “Ffordd Amazon road” at an additional cost of £3m. Of the regional development agencies that gave grants to private companies until 2012, only one – for north-west England – gives details on what it gave to whom, and that for just 2009-11. Civil servants know a lot about the individuals who claim employment support allowance: every last cough, spit and missed appointment at the job-centre. Yet of the big companies that rake off millions in direct grants, taxpayers often hear very little. The result is that the public do not know where billions of their own taxes are going.
Offering sweeteners to businesses is usually justified by the prospect of extra taxes flowing in, not only in corporation taxation, but also employers’ national insurance. Business groups regularly call for corporate welfare and other “pro-growth” measures on the grounds that they help create jobs. Firms protesting against onerous taxes and red tape will sometimes threaten to move, just as the giant bank HSBC is considering relocating to Hong Kong.
The elements of the £93bn corporate handout break down as follows:
• Subsidies and grants: £14.5bn. This includes cash to the train operators to run services, subsidies to defence firms and grants to businesses to induce them to invest. The £14.5bn figure for 2012-13 is used by the Treasury in its own statistical analysis of government spending.
• Corporate tax benefits: £44bn Of the 93 major tax reliefs provided by the Treasury, 27 are aimed at business. The largest amount was spent allowing businesses to write off billions spent on plants, machinery and equipment among other items.
In 2012-13, the public gave a £20bn subsidy to private investment. The construction industry gained more than £7bn in exemptions on new housing and land duty.
A 2009 study by the rich nations’ thinktank, the OECD, found that the UK had more generous corporate tax benefits than the US, Germany or any of the seven other major economies it examined.
• Hidden transport subsidies: £15bn. Unlike motorists and the petrol levies they are charged, airlines do not pay tax on fuel – support worth about £8.5bn a year, according to MPs on parliament’s transport select committee. Train companies also enjoy lower duty on fuel.
• Energy subsidies: £3.8bn. Most public handouts to energy firms are not widely acknowledged, according to a recent House of Commons environmental audit committee report. It said: “The variation in definitions of subsidy allows the government to resist acknowledging subsidy in many areas.” Yet the dismantling of Britain’s nuclear power stations cost the public £2.3bn in 2012-13 alone.
• Insurance, advice and advocacy services: £406m Includes such vital services as the state’s insurance scheme for trading abroad – the export credit guarantee – of which the defence firm BAE Systems says: “Many of our customers require it.” It also includes government trade advisers and overseas business networks.
• Government procurement from the private sector: £15bn Capita, Atos, G4S and Serco alone received £4bn worth of public-sector contracts in 2012-13. While procurement provides the public with services, it is not always about securing value for money for taxpayers, as the business secretary at the time, Vince Cable, acknowledged in 2012. He said: “There is a role for the government using procurement in a more strategic way.”
Drawing on the financial accounts of the big outsourcing companies the direct above-cost element of procurement at £15bn out of a total spend of £238bn. The £93bn sum is, he stresses, “a conservative estimate”. It leaves out invaluable support on which it is nonetheless hard to put a price tag – such as the trade delegations abroad led by Cameron, Osborne and other politicians or the use of foreign aid to help British business win contracts in poor countries. It also does not include the legacy costs of the bank bailouts for 2008-09 and other crisis measures, which are estimated to have cost £35bn in 2012-13.
The result is a stratum of businesses that is not beholden to the same social settlement as previous generations. Modern big business has got so used to tax breaks, handouts and easy ways of making cash (such as squeezing staff pay and conditions) that it no longer researches or innovates. AstraZeneca was assisted by a local MP to get a £5m government grant to develop its research and development centre at Alderley Park, Cheshire. Five months later, in 2013, it announced it was closing the plant and shedding 2,100 jobs. Absent from the public record is what it told its local MP. He was, of course, the chancellor, George Osborne.