During the revelations that large corporate entities such as Amazon, Google and Starbucks were arranging their affairs so as to pay as minimal tax as possible on profits earned in the UK, the indignation from the general public seemed to centre on the belief that the “lost” government revenue was somehow a “lost” benefit to the average citizen. After all, won’t lower tax revenues result in fewer hospitals and worse schools? Indeed tax avoidance (together with the deliberate blurring of the legal and moral distinction between that concept and that of the explicitly illegal tax evasion) has become a favourite topic of heavily indebted governments as they attempt to balance their books without reducing their profligate spending. The speech of Danny Alexander, Chief Secretary to the UK Treasury, to the Liberal Democrat Party Conference this Autumn is typical of their hubristic attitude but now with a somewhat chilling veneer:

Liberal Democrats have led the crackdown on tax avoidance. The investment I announced at this conference in 2010, is now bringing in an extra £7bn. We are now insisting that tax dodgers pay the right tax up front – they will only get any money if their scheme is later proved in the courts to work. And we are using psychologists and behavioural economists in HMRC to get the money quickly. Tax dodgers beware – we know where you live, we know how much you owe, and now we know how you think. Your behaviour is unacceptable, and we are coming for our money.

Part of the vitriol of the general public is explained by the fact that people want some kind of tax equality and don’t want to be shouldering the burden of public expenditure themselves when others appear to be shirking their alleged responsibility. Indeed many of the cries for reform all appear to be in the direction of making people their “fair share” of taxes – an amount that is, conveniently, never quantified but always means more. Yet the core focus appears to be that life will somehow be worse off without Amazon and Google paying tax in the UK.

All of this is nonsense. Profits that are retained by private shareholders do not magically “vanish” from the economy. Rather, they are reinvested in productive enterprises that create capital in order to churn out more products that people want to buy at lower prices. Fewer profits retained by investors means fewer capital goods and fewer products on the shelves. If that money disappears into the hands of the government, it is not invested prudently in productive business. Most of it vanishes into the pockets of favoured government contractors to spend on wasteful projects – with very little resulting in marked improvements for the average citizen. This government demanding more money is the same government that, in 2012-13, wasted £1.2bn on subsidising foreign farmers through the Common Agricultural Policy, £20.6bn on public sector fraud, £3.0bn on benefits to people who don’t need them, £145m on “ghost patients” on the books of GP surgeries, £300m on unused medicine, and £113m in subsidies to trade unions1. Every pound that is taken by government to be spent on these wasteful ends is one pound less that can be invested in genuine, private enterprise that must produce products that people wish to buy. Which category of spending – public or private – are we really worse off without?

Some of the more extreme rhetoric – that the likes of Amazon and Google have “blood on their hands” because of all of those patients in hospitals who cannot be treated because of the lost tax revenue – is akin to a sick joke. What about the lives saved because government was not able to use Amazon’s tax revenue to throw bombs at civilians in the Middle East? Yet even if we ignore this the prevailing attitude is that these companies should be punished for setting up businesses, creating jobs and producing stuff that people want to buy – and right at the time when we are at the depths of a deep, government-induced economic malaise when we should be celebrating what little success there is. In any case, every company has to pay tax somewhere even if it is at a lower rate in an alternative jurisdiction. If Google pays tax in Ireland then what is wrong with that? To the rejoinder that this means a foreign government and foreign public services are benefitting from profits earned in the UK, well doesn’t the £11bn foreign aid budget do the same thing?

Increased taxes on the people that take risks to provide us with jobs and produce goods and services that improve our lives do not make things better for “us”. It only benefits the government and those recipients of its bloated, wasteful spending. Fewer taxes and vastly reduced spending would be far better for all of “us”.

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1The Taxpayers’ Alliance, Bumper Book of Government Waste 2014. From the same report: £32K was paid by a council to compensate a man who slipped on a berry in a churchyard; £1K was spend on a council officer to investigate a picture taken of the mayor looking at her phone during an Armed Forces Day ceremony; £4K was spent by a council on a whisky tasting event for international golfers; and £70 was spent by the Forestry Commission on a bunny outfit.

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