In the annual Budget statement on Wednesday, the Chancellor of the Exchequer (Finance Minister) confirmed the introduction of the so-called "Google tax". This prevents multi-national companies from sending profits to shell companies in overseas tax havens. The BBC explains the background to this tax arrangement which was signaled in last Fall's "Autumn Statement" on financial matters.
In 2013, it was revealed that Starbucks paid nothing in corporation tax between 2009 and 2012, despite sales of £400m in 2011, and had only paid £8.56m in corporation tax since it began trading in the UK in 1998.
Starbucks maintained it had made a loss in those years when it paid no corporation tax.
In 2012 it emerged that internet giant Google avoided tax on £10bn UK revenue in 2011 by doubling the amount of money put into a shell company in Bermuda. Doing so helped it avoid £1bn in corporation tax.
Other companies with similar company structures include Apple and Amazon. The new rules will outlaw movement of such things as "transfer costs" where no actual commercial transactions are involved, merely the transfer of money. The new law comes into effect on April 1.
(Since the budget making process is very different in the UK compared to the USA, I'll outline the procedure below the orange croissant)
For historical reasons, the UK financial year runs from 5 April. There is an annual "Budget" or rather Budget statement in the month or so leading up to it. In it the Chancellor gives a sort of "financial state of the nation" summary and introduces legislation that will take into effect the changes to taxation for the following year. There is also a projection on how this will affect the economy including the amount the government needs to borrow to balance income against planned expenditure. Note that there is not legislation mandating expenditure (apart from a recent law requiring the UK to give 0.7% of Gross National Income in the form of government overseas development aid in line with the UN target). Decisions on what to spend the taxation income are made at government, not legislature level although some particular projects may be announced (more later)
Many of the provisions, especially surrounding changes to tax law, may be announced in the Autumn Statement. These may then be the matter of consultation and more detailed publication of the proposed law. It has also been recent practice to announce the amount of income someone can earn before paying income tax. This has been used to target the least well off in this government (at Liberal Democrat insistence I might add). The starting point for a single person under 65 paying income tax was £6475 in 2010/11, set by the last government. In 2015/16 it will be £10,600. The effect of this has been to take millions of the lowest paid out of paying income tax altogether and represents a saving of £820 a year for the rest.
Most public interest is usually around certain indirect taxes like those on gasoline, tobacco and alcohol. In the UK these taxes form a large part of the purchase price and apply from midnight following the Budget. Often there is a rush as motorists and consumers of alcohol and tobacco stock up at the lower price if there is to be an increase. This year the Chancellor took "a penny of a pint of beer", 2p of a pint of cider, reduced taxes on spirits and froze gasoline and diesel taxes.
The Budget is also used to announce other changes to taxation and government savings schemes. These, like the indirect taxes, are usually kept secret until the Chancellor rises to deliver the statement. At that point, the government releases the "Red Book" (very large .pdf) which details the financial assumptions made in calculating the budget and details many of the allowances etc that are remarked on in passing in the speech, which usually lasts around an hour. As an example, this year a special "individual savings account" scheme was introduced for first time home buyers which adds a £50 government subsidy for every £200 saved towards putting a deposit against a mortgage. For those interested, the BBC has a list of "Key points"
Perhaps the most significant difference between the US and UK methods of Budget agreement is the speed at which the legislation putting the provisions into effect passes. This is mainly because only the House of Commons, as the elected chamber, considers the Budget, a provision that goes back a century:
The Parliament Act 1911 had a profound effect on Parliament and politics in the 20th century. It followed the constitutional crisis which had begun in November 1909 when the Conservative-dominated House of Lords rejected the Liberal Government's ‘People’s Budget’. In the two general elections that had followed in 1910 the issue of the House of Lords had dominated debate. The Parliament Bill sought to remove the power of the House of Lords to reject money bills, and to replace the Lords’ veto over other public bills with the power of delay. In addition, it was proposed to reduce the maximum duration of a Parliament from seven years to five. The Parliament Act was passed by the House of Lords by a 131-114 vote in August 1911.
Because of the parliamentary system, the government is dependent on passing the Budget - in effect it is a vote of confidence in the government's policies which is why an alternative to a full coalition is a "confidence and supply" agreement. This is where a minor party agrees to support a minority government only in votes of no confidence and on their budgets (the "supply" bit). An example of this was the
Lib-Lab Pact of 1977
An agreement was negotiated, under the terms of which the Labour Party accepted a limited number of Liberal Party policy proposals and in exchange, the Liberal Party agreed to vote with the government in any subsequent motion of no confidence. While this 'pact' was the only official bi-party agreement since the Second World War (until the Conservative–Lib Dem coalition following the 2010 election), it fell far short of a coalition. The Lib–Lab Pact's end was confirmed on 7 September 1978,[1] by which time Callaghan was expected to call a general election, but instead he decided to continue as leader of a minority government until May 1979, when after a vote of no confidence it was forced to hold a general election, in which Margaret Thatcher led the Conservatives back into power.
It is almost certain that there will be no single party with a majority after the UK General Election in May, One possible outcome of could well be a similar "confidence and supply" agreement between Labour and the Scottish Nationalists. The Labour leader has already ruled out a formal coalition. Traditionally such agreements have led to very short term administrations however the Fixed Term Parliament Act now means that the Prime Minister cannot call a general election as in 1910. Now it requires a super majority of the Commons (60%) to call one and it could well be that the second largest party might wish to try to form a government with a different "confidence and supply" agreement with other parties or a formal coalition with them.