Recently, there’s been criticism of companies such as Topshop and Vodafone for the practice of tax avoidance – minimising tax liability within the law; in other words, companies being based abroad but continuing their business in the country. An analogy can be made with companies shopping around to find the best deal or place to set up their operations.
Arguments have been put forward by groups such as UK Uncut, suggesting that tax avoidance is unfair for those facing public sector cuts in Britain. It is felt that, in this period of austerity, the rich and not the poor should be bearing the brunt of the deficit reduction programme – most potently indicated by the protest sit-in at Fortnum and Mason. But is clamping down on tax avoidance the only coice we have? No.
It seems that tax avoidance is a symptom of the problem of high corporation tax rates – 26% in the UK compared to Ireland’s 12.5% rate. This has lead to lower levels of unemployment and higher rates of GDP growth in Ireland thanks to many new businesses establishing themselves there. The Irish economy is now exporting strongly and this will help them to recover quickly from the effects of the recent recession.
The libertarian response to this issue should be helping companies find the best bargain – that is reducing the corporation tax rate which is certain to make Britain a more competitive place to do business. Furthermore, this response is more likely to help those less well off as real growth and employment benefits all, rather than resorting to ‘penny pinching’ the pockets of a few businessmen.
The solution is not to clamp down on tax avoidance but to make Britain a more competitive place to trade. Reducing the rate of corporation tax means that companies won’t have to go to drastic measures of basing their businesses abroad. It’s a simple method that offers prosperity for all and will continue to drive the best of British business.
Karishma Puri won third place in the 2011 Young Writer on Liberty Awards.