The bosses of some of Britain’s largest companies yesterday expressed support for deep cuts in public spending, yet a TUC study also released yesterday suggests top companies are avoiding paying billions in tax.

Charles Dunstone on his yachtIn a letter to the Daily Telegraph, “business leaders” yesterday gave their support to George Osborne’s drastic spending cuts. They claim that any watering down of the proposed deficit reduction would be a mistake, since it would ultimately lead to “deeper cuts, or further tax rises, in order to pay for the extra debt interest”.

Among the signatories to the letter are the managing director of Microsoft UK, the chief executive of BT and 12 chairmen or chief executives of FTSE 100 companies.

That they would adopt this point of view is not exactly surprising – after all, corporations are not among those directly affected by the cuts (On the contrary: the top rate of corporation tax is set to be cut from 28% to 24% over the next four years.)

More interesting is the fact that on the same day, the TUC published a report which highlights another possible way of reducing the deficit – one that would give the signatories to the Telegraph letter a much more active role.

The report, entitled The Corporate Tax Gap, looks at large UK companies and examines the difference between the tax they are expected to pay and the tax that HM Revenue & Customs actually collects. The results are striking: The differential amounts to 7%, which means that the effective tax rate was around 21% in 2009. If tax avoidance continues on this scale, “the effective tax rates paid by the UK’s largest companies might fall over the next few years to an average of about 17%. This is 3% less than the small company’s corporation tax rate in the UK ”. For the first time, the UK would have a regressive corporation tax system.

The exact amount of tax avoided by corporations is difficult to calculate, mainly since the companies have ceased to publish data on UK trading, profits or tax liabilities. In an earlier report, published two years ago, the TUC estimated tax avoidance by UK companies at £12 billion.

So, when the signatories to the Telegraph letter urge the chancellor to address the “debt problem in a decisive way”, they should be aware that there is no better way to demonstrate their own decisiveness than by paying the tax they are required to pay.

TUC Graph

Peter Stauber

Peter Stäuber is a freelance journalist and translator. He writes for English and German language publications and is a member of the NUJ.