Corporation tax reform rarely gets anyone excited – particularly when it involves phrases like ‘minimum thresholds’ and ‘effective rates’. Yet it is exactly this topic, specifically the latest international agreement on minimum corporation tax, that Labour should be placing front and centre of its economic pitch to the British electorate.
In October 2021, with remarkably little fanfare, the UK and 136 other countries signed up to the Organisation for Economic Co-operation and Development (OECD)’s plan to get the largest global companies to pay their fair share of tax in the countries they operate in. The premise is simple enough: countries must have an effective minimum tax rate of 15 per cent on international companies’ profits, ideally by early 2024. If they don’t, then the country where the company is headquartered can collect the ‘missing’ tax. This means that if the UK, for example, didn’t implement the minimum 15 per cent rate, the US could collect the tax that US companies operating in the UK, like Amazon, should have paid here.
The OECD plan could provide a massive tax revenue boost for the Treasury. It’s also a potential vote winner. The majority of us feel that it is fair for large companies to pay tax: in September 2022, more than two thirds of Britons wanted a windfall tax on oil and gas companies. And with the rising cost of living and stagnating wages, calls for large companies to pay more tax on their profits grow louder. It is precisely this popular support that has led many ministers to support the minimum corporation tax.
But all is not harmonious within the current government: powerful voices from the Conservative backbenches, like Jacob Rees-Mogg and Liz Truss, hate the idea. From their perspective, it binds the UK’s hands, preventing the economic wizardry of free market economics from fuelling a utopia of high growth at no cost. This backbencher disquiet handicaps the government; there are already rumblings from Conservative backbenches that any attempt to formalise the OECD agreement in upcoming legislation will spark a rebellion.
This discord represents a golden opportunity for Labour. The free market faction of the Conservative party forcing the government to offer only tepid support for the OECD reform leaves the goal wide open for Labour to prove its fiscal maturity and discipline by offering its own full-throated backing.
Supporting the tax reform also aligns with Labour’s foreign policy goal of rebuilding the UK’s international credibility, especially with our European allies. By promoting the tax on the world stage, Labour can send a clear signal that its government will guide the agreement, still in its relative infancy, from being a good idea on paper to actual implementation.
As strange as it may sound, supporting the OECD agreement may also win support from the international companies that the tax is supposed to target. Although rarely said in public, many international companies are complimentary about the OECD’s agreement, seeing it as a neat solution to the increasingly nightmarish tax minefield they currently face. Instead of tangling with twenty different tax systems, all of which compete with each other to get large companies to invest in their respective countries, companies will have one uniform agreement to adhere to. Labour may not get rapturous applause from these companies for supporting the agreement, but it will not get open hatred either.
A minimum corporation tax could be a great idea kicked into the long grass in favour of protectionism and short-term tax incentives. Or it could herald a golden age of British international leadership that promotes fiscal maturity coupled with innovative tax reforms to fit the 21st century digital economy. The choice is Labour’s. If the party is serious about fiscal responsibility, it must seize the initiative and place the universal corporation tax front and centre of its fiscal plans.
Image credit: OECD/Michael Dean via Flickr