London.
In Charles Dickens ‘Hard Times’, there is a scene where one of the main protagonists is exposed for having repeatedly lied about the humbleness of his origins. After constantly regaling acquaintances with the story of how he was abandoned to a life of penury by a feckless mother, the factory owner Bounderby is forced to concede that his childhood was not quite as impoverished as he has sought to make out. Before an assorted cast of friends and employees, Bounderby’s mother explains that, far from having grown up in a ditch, he was in fact raised by a loving family which took great pains to secure him his first job. The vast wealth he has subsequently amassed is thus not solely the product of his own unique exertions, but the result of the training and support lavished upon him by close relatives.
This literary moment of revelation is roughly analogous to the position in which the modern-day equivalents of the 19th century Bounderbys find themselves. Having castigated benefit cheats and those who live at the state’s expense, and lauded the self-reliance fostered by the free-market, the rich have seemingly had no compunctions about receiving government handouts to the tune of billions. Their status as paragons of the free-market, entrepreneurial spirit has been definitively exposed as the disingenuous proselytizing of a few gluttons who have grown fat from feeding at the trough of public finances. There is, however, one discrepancy in this literary analogy. Whereas the tale recounted by Bounderby’s mother was a cause of acute embarrassment to the self-styled independent industrialist, the rich have yet to betray any sense of humiliation at the evident contradiction between their words and deeds. Like Emperors with no clothes, the wealthy beneficiaries of public largesse continue to flaunt their nakedness before a public too quiescent to raise any strong objections against their immodest displays.
In this atmosphere, rife with hypocrisy, barely a week passes without working people being upbraided for some perceived failing. The supercilious remarks of the welfare reform minister, Lord Freud, himself a former investment banker, that the underprivileged lack initiative and consider benefits a ‘lifestyle choice’ are unfortunately only one in a long line of government diatribes which are striking for their obtuseness. The poor, the millionaire minister sermonized, should be prepared to take the biggest risks, as they have least to lose. He neglected to say where they should acquire the capital to launch their new firms. But perhaps he envisions the banks giving a helping hand, as it is evident that they incur absolutely no risk in lending to people unable to repay their debts.
As bitter harangues against the indolent poor assume an increasingly bizarre tone, the unstinting flow of public funds to the idle rich attracts, at best, measured criticism from politicians and the press. The shocking fact is that, except for a brief decline in the year following the crash, the finances of the inordinately wealthy have continued their upward trajectory seemingly unchecked by the severest economic downturn since the great depression. According to the Sunday Times, the combined fortunes of the richest 1000 individuals now exceed the pre-crash total of £413bn, standing at a record £414bn. The pay of directors of FTSE 100 companies has similarly grown, rising by at least 10 percent in the last year, despite static wages for most of their staff. Bankers are not alone in having benefited from state handouts. The transfer of public wealth has taken place in manifold ways, all of them mediated by a state which exists to cosset the private sector against the vicissitudes of the market. In areas ranging from health care to reform of the benefits system, the government has opened up new glittering vistas to avaricious firms seeking to engorge themselves on the remnants of the welfare state. A recent Guardian investigation estimated that taxpayers will end up paying over £300 billion over coming decades to private firms for infrastructure projects – schools, hospitals etc. –worth only £55bn. In 2017, the cost of these repayments is set to peak at £10bn a year, exactly the additional amount that Chancellor George Osborne wants to cut from the welfare budget by 2016.
Among the most insidious of the methods for transferring taxpayers’ money to the already wealthy, however, is tax avoidance. Whilst benefit fraud elicits scandalized howls from politicians and calls for a tightening of regulations, tax avoidance is treated as a regrettable vice about which ministers can only wring their hands despairingly whilst exhorting the rich to be more community-spirited. There is an invidious moral differentiation lurking in the background here – whilst benefit cheats are scamming the state into giving them money, the CEOs of multi-billion pound companies are seen as hard-working entrepreneurs whom the state wishes to deprive of the fruits of their labour through unfair exactions. But not only is the cost to the treasury from tax avoidance infinitely greater than benefit cheats, these activities are just as much theft from the public purse as any other type of fraud. Looked at from a purely economic standpoint, each individual worker a company employs constitutes a unit of accumulated capital – their various skills, even their health, is a result of sustained investment by the state from the day they were born. Who usually provides healthcare for workers should they fall sick? Who paid for their early education? Who bears the burden of supporting them and their families in the event they become unemployed? It is a simple point but one that is inexplicably passed over by the defenders of a lax tax regime, but the inflated profits of corporations are only possible because these costly overheads are paid for through taxes. And this is quite apart from the money invested in roads, railways, the police, firemen and other essential services and infrastructure that are essential to enable businesses to function efficiently. The refusal of corporations to pay their taxes is not an unfortunate moral flaw, it is theft writ large, far more injurious to the economy than the behaviour of mostly apocryphal single mothers with 8 children.
This month it was revealed that Amazon, Google, and Starbucks have systematically been avoiding tax on most of their profits. The glib view these companies take of their tax obligations was on full display two weeks ago, when Amazon’s Director of Public Policy, Andrew Cecil, caused the usually sedate members of the public accounts committee to scold him for his ‘outrageous’ and ‘deliberately evasive’ responses and his fantastical claim that he was not aware of how much Amazon made from its British operations. These companies are not exceptions. The total amount avoided in tax is approximately £25 billion; the amount illegally evaded is far higher, at £70 billion. In reality, the distinction between avoidance and evasion is nebulous, arising at least as much from the pusillanimity of tax inspectors as legislative loopholes. Over the last eight years, HMRC has failed to take to court a single company for avoidance of corporation tax, preferring to conclude amicable arrangements which result in companies paying a titular sum amounting to only a pitiful fraction of their actual liabilities. The image of the pertinacious taxman obstinately pursuing tax-dodgers is something that only applies when it comes to the rest of us, not big business. Moreover, HMRC’s inherent lassitude in enforcing corporation tax is compounded by the government’s efforts to reduce it a token organization, with only a token staff. 10,000 of its already over-burdened inspectors are to be made redundant once new budget cuts come into effect.
Orthodox economists are fond of citing the ‘tragedy of the commons’ to discredit more equitable economic systems based on common ownership. According to this argument, medieval herders acting rationally will take advantage of a commonly owned field to expand their herds beyond what the field will naturally support. Since the costs are borne by the entire group, but the benefits accrue to the individual, the herders will continue to exploit this resource until the basis of their wealth is eventually destroyed. At present, it seems a modified, even more unbalanced version of this scenario is being enacted, as companies enjoy all of the advantages but bear virtually none of the cost of a stable economic environment for conducting business. The idea that benefit claimants are responsible for the nation’s debt is insupportable. Expenditure on the unemployed and sick is eclipsed by the massive amounts funneled to corporations in the form of direct subsidies and a permissive tax culture. Until the rich bear a share of taxes which is commensurate with their inflated profits, then the evisceration of our public services is likely to continue unabated, with detrimental repercussions not only for those immediately on the receiving end of budget cuts but also for the long-term prosperity of businesses. The suggestion of government ministers that we should all become ‘Bounderbys’ as a way out of our economic difficulties is a ludicrous one, testimony to their vacuous ideas about the causes of the current crisis. The image of the self-made man has always been a fiction concocted for the edification of the poor, not a concrete policy prescription, as should be clear by now from the behavior of our very own ‘self-made’ caste of plutocrats.