Brexit and Corporate Welfare: ‘take back control’?

It’s an ill-wind that blows no one any good, as they say. There was a call that really seemed to resonate with those British voters who opted for their country to leave the European Union in the referendum: ‘take back control’. And who doesn’t want to do that? But as Dr Kevin Farnsworth of Corporate Welfare Watch points out in his recent article ‘Taking back control’ or Brexit and the dash for corporate welfare?“:

It was never quite made clear who would be the major beneficiaries of this. One thing was certain at the time: it wouldn’t be ordinary people. Instead, power is being consolidated by the same old political and economic elites and the state is becoming more, not less, beholden to big business and its demands. These are the real consequences of Brexit.”

It’s part of a trend that has been on the increase in recent years where multi-national companies and often virtual monopolies become ever more powerful and go largely unchallenged. Corporate Welfare Watch’s latest report describes how Nissan UK has ‘garnered nearly £1 billion in corporate welfare since it began negotiating to come to the UK in 1980.’ And Brexit has only strengthened its hand.

In his article Dr Farnsworth describes how Brexit has triggered a ‘Dutch auction’ where companies are playing off one government against another to test how many inducements can be conjured up in order to persuade them to ‘invest’ and, either remain in the UK or cut a sweeter deal with an EU country. As he puts it, “Businesses know the [UK] government is on the back foot.”

Dr Farnsworth describes how the Confederation of British Industry, the Chambers of Commerce, the Institute of Directors and of course representatives from the City of London have all rushed to the EU to lobby in Brussels, because you know, these pesky regulatory burdens on business really are too much, etc etc. And meanwhile, writes Dr Farnsworth,

The ‘newly liberated’ citizens of the United Kingdom will have to bear a higher tax burden to make up for the corporate tax giveaways already promised; will pay a higher price, perhaps through cuts in health, education and other budgets, to support more generous subsidies and other inducements to companies; and will suffer from reduced labour market and consumer protections. Whether in ten years’ time they are grateful they voted to take back control depends on how the UK competes for capital in the future. But only a radical departure from previous policies will be enough to prevent the UK from racing faster to the bottom as far as social and public policy is concerned.”

You can read the full article here, and you should also check out Dr Farnsworth’s 2015 report on the British corporate welfare state.

We know surprisingly little about how governments contribute to businesses and how much that costs us. The issue is under-researched and is rarely reported on or debated. Corporate Welfare Watch was set up to facilitate an open and informed debate on the ways the British Government assists private businesses. The site hosts the Corporate Welfare Watch Database, which is the first searchable database of its kind in the UK which lists grants and/or subsidies to companies. Users can filter the data by year, recipient and head company, the major UK regions and by amount. Well worth a look.

In the United States you can also try to track which companies are getting taxpayer assistance on the Good Jobs First Subsidy Tracker, which is that nation’s first ‘search engine for economic development subsidies and other forms of government financial assistance to business’. Databases like this are critically important because as they explain on the site:

more than half of the nation’s 50 biggest cities and counties still fail to disclose online even the names of the companies receiving property tax abatements or other costly economic development incentives.”

So where does the tax justice movement stand on corporate welfare? The Tax Justice Network’s John Christensen says there are two things to bear in mind:

First, we know next to nothing about what corporate tax reliefs are available and whether they serve any useful purpose.  Governments should put on public record the details of all types of direct and indirect subsidies to companies, and they should provide an annual account to parliament / congress of the costs and benefits that flow from these subsidies.

Second, the biggest beneficiaries of these subsidies tend to be larger companies, typically multinational companies that use their political clout to extract corporate welfare.

In many cases these secret subsidies distort markets to the disadvantage of fair competition and consumers in general. But, as the Luxleaks scandal has shown, competition law is fuzzy on these matters and needs to be brought up to date to reflect a world in which states use race to the bottom tactics in a bid to attract capital.  As we blogged way back in 2006, and as any trade theorist will confirm, this tax competition entirely negates any potential benefits from free movement of capital.”