Google tax row is a gift to Labour and Jeremy Corbyn's camp knows it

Labour will be able to remind us that the Tories depend heavily on donations from the financial sector and to shine a light on the lobbying of the Government

Google is the world’s biggest company for one reason, if you ask it a straightforward question you get a straightforward answer (PA)

Sometimes in politics, all you need is luck. Jeremy Corbyn has not had much of it in his first four months as Labour leader. To the frustration of his closest allies, events such as the Paris terrorist attacks and the looming decision on the Trident nuclear weapons system, have fixed the spotlight on national security rather than economic issues.

Sticking to his long-held principles on foreign and defence matters has not made it easy to reach out beyond Labour’s new tribe. But his luck may now be changing. Another article of faith for Mr Corbyn and John McDonnell, the shadow Chancellor, may now work to their advantage and finally get them a positive hearing from the public. Both were advocates of “tax justice” long before it became fashionable. So the Government’s sweetheart deal with Google, under which the US tech giant will pay a mere £130m of tax for the last 10 years, is a much-needed gift to Mr Corbyn.

George Osborne played into Labour’s hands by mishandling the row. A week ago, Google leaked the deal selectively and late at night to try to secure favourable coverage, a foolish move bound to provoke other media outlets into attacking it. In a tweet just after midnight, the Chancellor hailed it as a “victory.” When the agreement came under fire, the Treasury argued it was not a political decision but one struck by HM Revenue and Customs (HMRC); but it couldn’t have it both ways.

Conservative MPs who are not among the “FOGs” (Friends of George) signed up to his campaign to succeed David Cameron, claimed the Chancellor revealed his three weaknesses – being too clever by half, out of touch and lacking political judgement. “This cosy deal is toxic for us,” one groaned. The timing was awful, as people completed their tax return by the 31 January deadline. (“I found my inner peace when I did my tax return,” says HMRC’s advert. But the Google saga is more likely to make taxpayers’ blood boil). And Tory MPs saw the danger of alienating the party’s natural supporters among small businesses by appearing in thrall to the big multinationals. The small firms know that Google is the tip of an iceberg, with many others like Apple, Starbucks, Amazon, and Facebook, sticking to the letter rather than spirit of the law.

Although the Treasury was careful not to brand its Diverted Profits Tax (DPT) a “Google tax,” I don’t remember it complaining about the headlines which called it that. We now have the bizarre spectacle of Google not paying the “Google tax”, since the £130m payment is outside the DPT. Downing Street and the Treasury denied reports that the back tax amounted to a tiny 3 per cent of Google’s UK profits, saying the media was confusing profits with turnover. But they would not disclose any more of the deal and so had to take the attacks on the chin. I suspect that Mr Cameron and Mr Osborne, their eyes on the prize of attracting big firms to Britain through low corporation tax, took their eyes off the damage the Google story would do them in the Dog and Duck.

The public will surely be bemused that a company which employs 2,300 people in the UK, generates an estimated £4.6bn of sales here and will build a spanking new London HQ for 5,000 workers, has still not been classed by the Government as having a “permanent” taxable presence. This means it can route its sales through Ireland, the Netherlands and Bermuda to keep its tax bill to the minimum. Google is acting within the law, which does not tax profits or sales in any one country but the value added in it, so it is the politicians who need to change the rules.

Mr Cameron and Mr Osborne will no doubt point to their DPT and their backing for new global rules through the Organisation for Economic Co-operation and Development. But instinctively they prefer a competitive advantage to serious action on an EU-wide level, which they are blocking.

This creates an opening for Labour on an issue on which, unlike foreign affairs and defence, the party is united. The Google row, which is far from over as the European Commission and the Commons Public Accounts Committee investigate the deal, will give Labour a platform to make its economic case. It was quick to exploit the controversy this week, and showed that it is learning the art of opposition. To the Corbynistas’ surprise, they even won plaudits from right-wing newspapers for the first time.

Labour will now be able to remind us that the Conservative Party depends heavily on donations from the financial services sector and to shine a light on the lobbying of the Government – not least by the banks. Being seen as the party representing their rich friends will disrupt the Tories' attempt to hold the centre ground. In contrast, Labour’s instincts will be in tune with a majority of the public. Yet it will still have to work hard to take its golden opportunity. Labour can't solve the Google problem with the flick of a switch, but could win brownie points by arguing forcefully for a new global tax to replace an antiquated system designed in the 1920s.

Mr Corbyn will need to learn lessons from Ed Miliband’s populist policies such as an energy price freeze. Labour set out to be both “radical and credible”, but voters would not give Mr Miliband's ideas a hearing because his party did not first win economic credibility, as the Labour peer Stewart Wood, his former adviser, acknowledged.

But it is the Conservatives who face the biggest challenge on corporate taxation. At the top of Mr Cameron’s bucket list is fighting inequality, as he returns to the “compassionate Conservatism” on which he was elected Tory leader 10 years ago. The Prime Minister seems to have forgotten that part of his original pitch was to champion “responsible capitalism” and take on big business where necessary. The Tories, their Achilles heel exposed by the Google row, would ignore that agenda at their peril.