Bob Lyddon is author of The UK’s lost GDP and tax revenues, published today by Global Britain.
Up to £10 billion per annum in taxes and another £10 billion per annum in spending are disappearing out of the UK thanks to a perfectly legal abuse of the Freedom of Establishment within the EU Single Market.
Multinationals are working in tandem with the governments of the smaller EU Member States – Ireland and Luxembourg in the forefront – to book their UK sales revenues into European bases in those countries, pay next-to-no-Corporation Tax here, and staff their UK supply chains with low-skill, low-wage labour.
The high-value jobs and the majority of the spending go to the Member State where the European base is located.
Those Member States have constructed aggressive tax regimes to attract multinationals, whose business models major on nebulous royalty and intercompany charging, and on construing their UK operation as being an agent, acting “on behalf of” their European base to sells its goods and services.
The UK operation then receives a sales commission under the so-called “Commissionaire Sales Model”, as if they were selling cosmetics door-to-door.
90% of sales revenues land in the European base; 10% come back to the UK to pay for their UK supply chain, and what does that supply chain cost? Exactly the same as the UK agent’s revenues, eliminating any UK profit and corporation tax.
While we are in the Single Market the UK can do nothing to oppose this, apart from examine the detail of the intercompany relationships between the European base and its UK agent.
But it is plausible that the entire difference between our already-bad trade deficit of £56.4 billion and our disastrous balance of payments deficit of £114.8 billion is disappearing out of the door in this way.
That is £58.4 billion per annum being conduited out to be taxed and spent elsewhere in the EU, while we are left with an estimated 146,000 jobs that each yield approximately £1,200 in payroll taxes per annum or £175 million in total, and perhaps another £272 million in indirect taxes on the money spent here: these taxes come nowhere close to paying for the public services for the workers involved.
There is a clear case here for leaving the Single Market, and onshoring the revenues and cost base of these businesses back into the UK: that would involve more jobs, higher-value jobs, far higher payroll taxes, more money spent by the businesses and employees in the UK, and higher indirect taxes.
The same business models that have been assessed as yielding only £500 million in UK taxes now and £5.6 billion in spending, could in future yield £10.3 billion in taxes and £15.8 billion in spending – increases of approximately £10 billion in both taxes and spending.
The taxes equate to 17% of the UK’s public spending deficit of £60 billion and the same amount as our annual net cash contributions into the EU – we can leave the EU and cut the deficit by 33% straight away. If ever there were a reason to leave the Single Market this is it; I believe it is known as a real no-brainer.
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