Taxpayers are handing businesses £93bn a year – a transfer of more than £3,500 from each household in the UK.
The total emerges from the first comprehensive account of what Britons give away to companies in grants, subsidies and tax breaks, published exclusively in the Guardian.
Many of the companies receiving the largest public grants over the past few years previously paid little or zero corporation tax, the analysis shows. They include some of the best-known names in Britain, such as Amazon, Ford and Nissan. The figures intensify the pressure on George Osborne, the chancellor, just as he puts the finishing touches to his budget. At the heart of Wednesday’s announcement will be his plans to cut £12bn more from the social welfare bill.
Yet that sum is less than the £14.5bn given to companies in direct subsidies and grants alone.
Corporate welfare is part of what David Cameron calls his government’s policy to make the UK “the most open, welcoming, business-friendly country in the world”.
He listed the “great incentives” for businesses to come to the UK in a document published last September for UK Trade & Investment (UKTI) – a government department working to help British businesses succeed abroad and to woo overseas investors. These incentives included, he said, the lowest corporation tax rate anywhere in the G7, tax exemptions for research and direct government support.
The Guardian’s analysis shows that while the state is giving private companies an increasing amount in direct handouts, the money repaid in corporate taxation is falling almost year upon year.
In the financial year 2012-13, the government spent £58.2bn on subsidies, grants and corporate tax benefits. It took just £41.3bn in corporation tax receipts.
In 2012, Amazon was attacked by MPs on parliament’s public accounts committee for avoiding UK tax. Yet in the same period, the online retailer was awarded £16.5m in grants by the administrations of Scotland and Wales to help build distribution centres. To link the Wales plant to the transport network, the Welsh assembly built the mile-long “Ffordd Amazon road” at an additional cost of £3m.
Many of the figures, especially on direct payments, are hard to unearth, as they are scattered between various arms of the state. The government admits: “There is no definitive source of data about spending on subsidies to businesses in the UK.”
Of the regional development agencies that gave grants to private companies until 2012, only one – for north-west England – gives details on what it gave to whom, and that for just 2009-11.
The analysis lends fresh urgency to the debate over what Britons give to business and what they should expect in return.
Offering sweeteners to businesses is usually justified by the prospect of extra taxes flowing in, not only in corporation taxation, but also employers’ national insurance. Business groups regularly call for corporate welfare and other “pro-growth” measures on the grounds that they help create jobs. Firms protesting against onerous taxes and red tape will sometimes threaten to move, just as the giant bank HSBC is considering relocating to Hong Kong.
The research was carried out by Kevin Farnsworth, a senior lecturer at York University, who has researched and published studies of corporate welfare for more than a decade and who is launching on Wednesday an online database of grants made to companies.
To determine how much Britain pays for its businesses, he looked at the figures for the financial year 2012-13 – the last year for which there is a near-complete set of accounts. The elements of the £93bn corporate handout break down as follows:
• Subsidies and grants: £14.5bn This includes cash to the train operators to run services, subsidies to defence firms and grants to businesses to induce them to invest. The £14.5bn figure for 2012-13 is used by the Treasury in its own statistical analysis of government spending.
• Corporate tax benefits: £44bn Of the 93 major tax reliefs provided by the Treasury, 27 are aimed at business. The largest amount was spent allowing businesses to write off billions spent on plants, machinery and equipment among other items.
In 2012-13, the public gave a £20bn subsidy to private investment. The construction industry gained more than £7bn in exemptions on new housing and land duty.
A 2009 study by the rich nations’ thinktank, the OECD, found that the UK had more generous corporate tax benefits than the US, Germany or any of the seven other major economies it examined.
• Hidden transport subsidies: £15bn Unlike motorists and the petrol levies they are charged, airlines do not pay tax on fuel – support worth about £8.5bn a year, according to MPs on parliament’s transport select committee. Train companies also enjoy lower duty on fuel.
• Energy subsidies: £3.8bn Most public handouts to energy firms are not widely acknowledged, according to a recent House of Commons environmental audit committee report. It said: “The variation in definitions of subsidy allows the government to resist acknowledging subsidy in many areas.” Yet the dismantling of Britain’s nuclear power stations cost the public £2.3bn in 2012-13 alone.
• Insurance, advice and advocacy services: £406m Includes such vital services as the state’s insurance scheme for trading abroad – the export credit guarantee – of which the defence firm BAE Systems says: “Many of our customers require it.” It also includes government trade advisers and overseas business networks.
• Government procurement from the private sector: £15bn Capita, Atos, G4S and Serco alone received £4bn worth of public-sector contracts in 2012-13. While procurement provides the public with services, it is not always about securing value for money for taxpayers, as the business secretary at the time, Vince Cable, acknowledged in 2012. He said: “There is a role for the government using procurement in a more strategic way.”
Drawing on the financial accounts of the big outsourcing companies, Farnsworth calculated the direct above-cost element of procurement at £15bn out of a total spend of £238bn. The £93bn sum is, he stresses, “a conservative estimate”. It leaves out invaluable support on which it is nonetheless hard to put a price tag – such as the trade delegations abroad led by Cameron, Osborne and other politicians or the use of foreign aid to help British business win contracts in poor countries.
It also does not include the legacy costs of the bank bailouts for 2008-09 and other crisis measures, which are estimated to have cost £35bn in 2012-13.
