Business secretary admits that governments are ‘behind the curve’ on corporate tax avoidance as the row over the tax affairs of Starbucks rumbles on
Vince Cable has admitted that governments are “behind the curve” on corporate tax avoidance and called for more international co-operation to clamp down on multinationals shifting profits to low-tax countries.
The business secretary added that Starbucks had not drawn a line under the row over its tax affairs, despite the coffee chain’s pledge to pay £20m to the taxman over the next two years – having paid only £8.6m in corporation tax since launching in the UK 14 years ago.
Asked if Starbucks had brought an end to the row, Cable said: “Absolutely not at all. It is really for HMRC to work out whether their offer is remotely commensurate with what they should be paying.”
Cable added that states have been caught out by the growth of multinational corporations, allowing the likes of Starbucks, Google and Amazon – which have successful UK operations but use different tax jurisdictions – to shop around for the best tax regime.
“Governments have been very fragmented. They are behind the curve. We operate national systems of business taxation and enforcement in a world where companies operate on a global scale, seeking out low tax jursidictions. Governments are at a disadvantage,” he said.
Citing a joint initiative drawn up by the UK and German governments to crack down on tax avoidance by multinationals, Cable said states should co-operate more on tackling corporations’ tax arrangements. “There is scope for a lot more of that kind of work and the G8 [group of nations] may well focus on how to do that more extensively.”
George Osborne, the Chancellor, and his German counterpart, Wolfgang Schauble, called last month for “concerted international co-operation to strengthen international tax standards”. Osborne and Schauble said they would back work by the Organisation for Economic Co-operation and Development to identify possible loopholes in tax regimes.
Speaking on the fringes of a conference hosted by the Association of British Insurers, Cable also welcomed comments by the incoming governor of the Bank of England, Mark Carney, that hinted at dropping the BoE’s inflation target. Carney said this week that central banks should consider more radical measures when interest rates are low, and mull scrapping inflation targets if those measures fail to have an impact. He said: “If yet further stimulus were required, the policy framework itself would likely have to be changed.” Carney added that replacing the inflation target with a nominal gross domestic product (GDP) benchmark “could in many respects be more powerful than employing thresholds under flexible inflation targeting”.
Cable said: “I have made it fairly clear that macro-economic management should involve a wider framework than is currently presented by the inflation mandate.” The BoE’s monetary policy committee, which sets interest rates, targets a consumer price index (CPI) inflation rate of 2%. Cable said using nominal GDP growth as a target would be an “acceptable mandate”.