Liam Fox’s call for Britain to champion the cause for free trade in the wake of Brexit and increasing trade barriers, needs to be examined against further revelations of the so-called Paradise Papers scandal, and other evidence of the growing power and influence of the British corporate elite.
The UK international trade secretary stated that non-tariff trade barriers operated by G20 countries have risen sharply since 2010. At a time of struggling economic growth in the poorer parts of the world, such trade barriers have risen from 300 to 1,200 between 2010 and 2015.
By contrast to this growing protectionism, the British government now champions the cause of open and free trade to lift the global poor. But this claim does not sit comfortably with further revelations in the recent Paradise Papers leak. The documents from offshore financial service providers (many of which are British overseas territories and crown dependencies) show widespread tax avoidance by companies and the ultra wealthy.
Meanwhile, the UK tax code – and its enforcement over the past 30 years – is largely based on the capture of British government legislative and economic policy by UK corporate interests. The complex structures that allow multinationals, and high-net-worth individuals, to protect their cash overseas is just one small part of a multi-billion pound corporate tax avoidance industry. Not only does this harm the UK economy, it entrenches global poverty.
Two sides, same argument
After many years of celebrating the economic benefits of the single market, the British government now argues for a decisive Brexit to remove all barriers and needless regulation from world trade. The efficiency gains from growing free trade, the argument goes, will ensure all nations benefit from a rising tide of prosperity, not just the UK.
This seems contrary to the government’s previous Remain argument, which asserted that the economic value of membership of a large trading block, such as the EU, and free trade only within the single market.
But further examination of this reveals that the difference is not so clear-cut between the two positions.
Many of those in favour of continued membership of the EU, on both sides of the Channel, do not just want protection from a “race to the bottom” and declining employment and environmental standards. European leaders, such as French president, Emmanuel Macron, also want to protect the fruits of open and unregulated markets, privatisation of national assets, and low corporate tax rates.
In the UK, the main Brexit and Remain sides merely champion different versions of neoliberal economics, with all its theoretical proofs for efficiency, prosperity, stability and fairness. Both want to give a largely unregulated corporate sector further freedom to best allocate capital as they see fit, with the idea that it will better serve the UK consumer and producer.
The real story
The real economic story since 2010 in the UK is not growing European protectionism, now opposed by the government in the name of liberty and good conscience. It is that UK corporate tax rates have fallen in each of the four previous budgets at a time when UK household living standards have shrunk at their fastest pace since 2011. In the shadow of the next budget, the chancellor, Philip Hammond, would do well to remember that the country is forecast to not even raise 7% of its total tax receipts from corporation tax in 2017-18.
What is particularly revealing in terms of corporate privilege is that UK corporate profits are currently at or near record highs as a percentage of GDP. The growing wealth and power of this elite in the UK since 2010 has many implications for declining UK living standards, social stability and the current household debt crisis.
In the last seven years, the City has rigged markets (Libor), laundered money and mis-sold products, but has diverted attention by implicitly threatening to take even more more of its profits out of the UK. Meanwhile, the benefits of privatising the once state-owned utilities – £37 billion in dividends since 2010 – have gone to a relatively few shareholders, not to the increasingly stretched British household.
The current UK tax system works not just in favour of corporate interests, but is fundamentally unsuited to the digital economy where capital can be moved around the world at the flick of an electronic switch.
By contrast, research led by a former City banker concluded that a more broad-based financial transactions tax would bring an additional £5 billion a year. Another simple, unavoidable and efficient tax, a land value tax, is even championed by the UK’s self-proclaimed “original free-market think tank”, the Institute of Economic Affairs.
Both taxes point to the current UK corporate tax arrangements as increasingly indefensible.
So the call for free trade – whether global or just in the EU – is a convenient smoke screen that obscures the vast corporate privilege and profits that is embedded in UK governmental and economic policy. And the budget is very unlikely to change estimates that money raised from corporation taxes will fall to just 2.3% of UK national income by 2021–22.