Danny Alexander: pay tax as I say not as I do?

Lib Dem chief secretary to the treasury Danny Alexander wrote a powerful article — Rich tax dodgers are as bad as dole cheats — for this week’s Sun newspaper. His condemnation of those, such as Jimmy Carr, who legally avoid paying their taxes couldn’t have been stronger:

… to most people it’s outrageous that a few of the very richest and their expensive financial advisers are devising ever more obscure and underhand ways of not paying their tax. When it comes to paying their fair share, some of the people who can afford it most think they can get away with paying the least.

Frankly, I think people who dodge the tax system are the moral equivalent of benefit cheats. Both sets of people think they can bend the rules everyone else lives by for their own benefit. That is bad enough on its own but what makes it worse is that it’s people like Sun readers who have to make up the difference.

Fair comment.

But let’s rewind two years, and to the Daily Telegraph’s splash about Danny’s MP’s expenses claim, and his avoidance of paying Capital Gains Tax on a south London property in 2007. Here’s what Danny said then:

I sold the Elspeth Road flat in 2007 and moved to another flat but was advised that CGT was not payable because of the operation of final period relief, which exempts homes from CGT for 36 months after they stop being the main home. I paid all the taxes required but CGT was not payable on the disposal of my Elspeth Road flat.

And here’s how my co-editor Mark Pack — quite rightly — defended Danny, pointing out that not paying something that’s not due is not a story:

Capital Gains Tax rules says that you don’t have to pay Capital Gains Tax when you sell your main home. If that was all they said then they’d be an issue because it’d look like at the point of sale he was saying one home was his main home for tax purposes and another was his main home for expense purposes. And on those grounds Lib Dems should criticise him, because that’s what many of us have criticised other MPs for doing.

But – and it’s a whopping big but – it’s not actually the truth.

That’s because, as Mike Smithson has pointed out, Capital Gains Tax rules say that if the property was your main home up to three years before you sold it, you don’t pay the tax. Three years before 2007 takes us to 2004. In 2004 there was just the one property owned and he wasn’t an MP.

So, as Mike puts it Danny Alexander “essentially is being accused of not paying a tax when no tax was due”.

Jimmy Carr might understandably feel aggrieved at being condemned for accepting legal tax-avoidance advice from his accountant by an MP who accepted legal tax-avoidance advice from his accountant.

A ‘to be fair’ caveat… It’s only fair to note there is a distinction. Jimmy Carr’s tax avoidance scheme was specifically created in order to minimise his tax liabilities. In Danny Alexander’s case, it was a question of working out what capital gains tax he was required to pay once he’d sold his house. Nonetheless, the similarities emphasise Labour leader Ed Miliband’s point this week that “I don’t think it is for politicians to lecture people about morality”.

* Stephen was Editor (and Co-Editor) of Liberal Democrat Voice from 2007 to 2015, and writes at The Collected Stephen Tall.

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32 Comments

  • Richard Dean 23rd Jun '12 - 2:02pm

    If tax avoidance is not illegal, or for that matter immoral, unethical or suspect, then the principle of fairness suggests it should be available to all. Perhaps HMRC could provide guidance on their website, or links to sites that do?

  • Chris Young 23rd Jun '12 - 2:07pm

    If CGT were to be payable when people moved home, there would be justified outrage. People buy homes to live in on the basis that they won’t be specifically taxed when they sell them. 3 years is a reasonable period for people to get their affairs in order after a relocation. Why would anyone in their right mind go out of their way to pay tax that was not due? Conversely, why would anyone who had not made an “error of judgement” go out of their way to avoid paying tax that was clearly due? The two scenarios are really not comparable.

    The last time I studied it, there were still a number of schemes which were more tax-efficient in order to attract investment. So let’s close any obvious loopholes, introduce GARR, and foster more private investment in green technology and other socially useful projects capable of generating a return. Don’t we have a green investment bank for this sort of thing…?

  • @stephen tall

    Too often i disagree with your articles but on this you are spot on! Bravo.

  • “Jimmy Carr might understandably feel aggrieved at being condemned for accepting legal tax-avoidance advice from his accountant by an MP who accepted legal tax-avoidance advice from his accountant.”

    But as you go on to say, what Danny Alexander did wasn’t “tax avoidance” in any meaningful sense, because he didn’t take any action to avoid paying tax.

    One would hope that if he hadn’t employed an accountant, HMRC would have given him exactly the same “advice” about his tax liability if he’d rung them up and explained the situation to them,

  • Stuart Mitchell 23rd Jun '12 - 3:35pm

    Echo Simon’s comments. It’s appalling the way Carr has been treated. If he is paying insufficient tax, it’s entirely the fault of the government (and I don’t just mean the current government) for failing to close the loopholes. Hearing Cameron condeming Carr’s morality, while refusing to comment on far worse offenders like his chum Philip Green, is absolutely sickening.

  • Tony Dawson 23rd Jun '12 - 3:43pm

    “I don’t think it is for politicians to lecture people about morality”.

    Isn’t it funny how the meaning of this Miliband sentence changes dramatically if you just alter the words slightly? Would anyone agree with:

    “I don’t think it is for politicians to give leadership over morality” ?

    The cynic in me says that the Opposition leaders’ office knows too well what is likely to be in the pipeline for emerging about some of their close associates within the next few years.

    Morality is so wide-ranging a concept, affecting virtually everything we do and say.

    The idea that every improvement in the way a country is run is to be delivered wholly or mainly by government action is a ludicrous and disgraceful one. Politicians’ ‘leadership’ by example and by speech, advice, support for people doing right and criticism of those doing wrong all seems to be highly-desirable and potentially cost-effective way of achieving change and reinforcing the ‘knit’ of society. The problem appears to occur when ‘advice’ turns to ‘lecture’ or attempts to re-inforce the good become ‘enslavement by conformity’.

    It looks like one of those highly-irregular verbs:

    I advise
    We give leadership
    You comment pertinently
    He/she lectures
    They (tabloid newspapers particularly) pillory

    🙁

  • Cameron needs to look carefully at where his own inheritance came from before condemning tax avoidance. Talk about pot and kettle!

  • Tax avoidance ~ Tax evasion ? Where is the line? And where is the morality, when even God is at it?
    http://www.thisismoney.co.uk/money/news/article-1612036/How-Geldof-could-save-16m-in-death-tax.html
    “…..Just send us the fu**ing money…..!!!!

  • Tony Dawson 23rd Jun '12 - 8:30pm

    It’s an EC harmonisation thing. Jeremy Hunt simply prefers to do these things the Greek way. 🙁

  • Martin Pierce 24th Jun '12 - 7:56am

    A lot of the legal tax avoidance – including Jimmy Carr’s – involves the use of offshore accounts and funds in Jersey, Guernsey and the Isle of Man, which have very low tax rates, but the convenience of being fully part of all sterling banking mechanisms. We’ve already recently been through the use of them by Amazon etc to avoid VAT. All the issues around ‘non-doms’ also rely on being able to hold accounts in these territories which they can fully use in the UK. Although not technically part of the UK, or even the EU, they do in practice rely on the UK for lots of infrastructure from defence downward. Simple answer to a lot of the problems would be to integrate them fully into the UK and thereby harmonise their tax rates and rules with ours. They’d absolutely hate it but a lot of the rest of Europe sees the UK as unable to speak out morally against tax havens worldwide while we effectively control 3 of our own. Danny A, with his mate George, could initiate action on this tomorrow if they had the will

  • Tony Dawson23rd Jun ’12 – 3:43pm..“I don’t think it is for politicians to lecture people about morality”. Isn’t it funny how the meaning of this Miliband sentence changes dramatically if you just alter the words slightly? Would anyone agree with:….“I don’t think it is for politicians to give leadership over morality” ?…………………………………….

    Rather a strange statement. Let’s try, ” Isn’t it funny how the meaning of this Bible sentence changes dramatically if you just alter the words slightly? Would anyone agree with:….“Thou shalt Kill”, etc ?…………………………………….

    I believe that Milliband remembers the ‘Expenses Scandal’ and how outlandish claims (by MPs of all parties) were deemed, “Not illegal” although ‘their morality’ was stretched rather more than Carr’s.

    Where lies ‘morality’ for LibDem MPs who, believing Hunt should have been ‘referred’, chose to abstain?

    The idea of ‘stones and glasshouses’ has a way of ‘biting the biter’!

  • Paul Walter Paul Walter 24th Jun '12 - 9:16am

    By the way, you don’t really need an expensive tax advisor to tell you that you don’t pay capital gains tax on your own home. It’s helpfully explained in great detail on the HMRC website:

    http://www.hmrc.gov.uk/cgt/property/sell-own-home.htm

    There is no explanation on that website about how to pay only 1% income tax by funnelling your income through a Jersey registered company and then getting them to loan it back to you.

    HMRC have confirmed that the K2 scheme is under investigation. I can’t find evidence that they are investigating their own CGT policy.

  • Simon Shaw

    Tax avoidance is a big issue and is one of the reasons we have problems with the public finances. It can also be said that Government tax policy for the last 30 years has been based on dishonesty and lack of openness.

    I find it, however, very bad form from our so-called ‘Prime Minister’ to pick on one example of this, when the problem is far wider and takes in many of his friends and donors. His father made a fortune by helping people avoid tax. The hypocrisy stinks and I hope he suffers because of it

  • Tony Dawson 24th Jun '12 - 9:53am

    @bazzasc :

    I find it, however, very bad form from our so-called ‘Prime Minister’ to pick on one example of this, when the problem is far wider and takes in many of his friends and donors. His father made a fortune by helping people avoid tax. ”

    Really? So David Cameron is probably where he is today entirely due to tax avoidance? 🙁

  • Tony Dawson 24th Jun '12 - 9:57am

    @jason:

    ” Isn’t it funny how the meaning of this Bible sentence changes dramatically if you just alter the words slightly? Would anyone agree with:….“Thou shalt Kill”, etc ?

    You are just being silly. And you know it. Removal of the word ‘not’ is completely different to describing the same act in different words.

    But I agree with you about ‘biter bit’. Many politicians are risk takers in all sorts of areas of their lives and they are not always entirely consistent in following the strictures they issue to others. This crosses all Parties.

  • I believe that both @Simon Shaw and @bazzasc are right.

    There is nothing wrong with highlighting the moral objections regarding Carr’s actions, but once started down this route Cameron has to make it clear that it applies to everyone following such practices.

    As a company director, I was offered a similar route (without the offshore element) that would have reduced my total tax exposure. It included setting up an LLP and creating a company within it that would effectively loan me my salary . I turned it down, it was legal, but in my opinion was using a loophole that would be closed, but more importantly it was just plain wrong.

    I currently pay more tax than I ever have, it’s because I earn more than I ever have, not a huge salary but better than before. Surely that’s the way it should be. Individuals who decide to base their income offshore should lose their British Citizenship. I include our famous sports stars such as A number of racing drivers in that. Monaco may be attractive in shielding your millions but if you decide to withhold contributions to this society for selfish reasons then you should have the benefits of this society withdrawn.

    It’s about personal responsibility really, the Tories are big on that for those at the bottom rung of society’s ladder but less keen for their rich friends and contributors.

  • Stuart Mitchell 24th Jun '12 - 11:46am

    “If , for example, someone engages in out and out fraud, how would that be the Government’s fault?”

    That would be evasion, and illegal. It is quite clear that what we are talking about here is schemes which are avoidance, and (at present) legal. There’s no comparison. Any rational person would avoid paying more tax than they are legally required to.

    So Jimmy Carr has been villified and forced to quit the K2 scheme – what about the other 1,000 or so people who have NOT been named and shamed in this way, some of whom (I’d be willing to bet a large amount of money of this) are no doubt backers of the Tories?

    And what about Philip Green, whose tax arrangements are far more questionable than Carr’s (the sums involved are certainly vastly larger), yet when Cameron was asked for his opinion on this recently he spluttered some guff about not commenting on individual cases. Making an example of Jimmy Carr is a pathetic way for the government to deflect attention from the really big offenders who are its friends, and I’m pleased to see that the whole thing has somewhat blown up in their faces.

  • Peter Andrews 24th Jun '12 - 12:35pm

    This is like comparing apples with oranges. Danny Alexander used an allowance that was created specifically for the purpose he used it for.

  • It only takes 30 seconds of research to find the efforts Cameron’s family went to to avoid paying inheritance tax, etc. He must be deeply ashamed of himself and his family.

  • Simon Shaw

    I am not defending anyone, and am amazed you can extrapolate that from my post

    What I said was that tax policy has been incompetently managed for 30 years by successive Governments (including the one your party is a member of)

    I do not seek to defend Carr but why are you so keen to attack one individual when there are many people who are exploiting these sorts of schemes? I deplore this for all participants – and would support the shutting down of the UK-linked tax havens (Jersey and Guernsey) to prevent this

    What is wrong is that Cameron has picked out one person and now claims he will not be providing a running commentary when questioned on Tory supporters. This is hypocritical but I am not surprised that you support this as you seem to be amongst the first to defend the Tory Party.

    If K2 was fraudulent then we will let the law take its course – I am sure the situation is not quite as simple as you make out in your last post

  • Simon Shaw

    But you accused me of defending him….where did I say that?

    Your assertions on K2 being fraud may or may not be correct but there are enough examples of extreme tax avoidance being used by the rich (and as I pay PAYE I am not sure how I can use the same tricks – perhaps you can enlighten me on how I do it) that picking on one person by the PM is cowardly and inappropriate for his post

  • In times gone by, one could rape and pillage and generally misbehave but avoid purgatory, just so long as you slipped a sly few groats to a friendly Abbot whose monkly minions would pray for your immortal soul, guaranteeing redemption.

    These days to avoid the purgatory of a Tory PM commenting directly on your tax affairs you just need to slip the Tories a few quid, or do a nice line in campaigning with them.

  • Tony Dawson24th Jun ’12 – 9:57am………@jason:You are just being silly. And you know it. Removal of the word ‘not’ is completely different to describing the same act in different words.

    Yes, I was being facetious. However, “leadership, on morality, by politicians” is often negotiable; I used the example of our MPs’ lack of moral leadership over the Hunt affair.
    Picking and choosing when and where to take a moral stand shows, at least to my mind, more in common with GBS’s “We’re just haggling over the price.” than any real morality.

  • Tax Avoidance isn’t like benefit fraud; Tax Evasion is.

    Tax Avoidance is like claiming benefits or expenses you’re entitled to but don’t actually need. It’s immoral but it doesn’t meet the severity of actually defrauding or stealing from anyone. This means many politicians are as guilty as tax avoiders. Danny Alexander is at worst the moral equivalent of a wealthy pensioner getting the Winter Fuel Allowance (as they do automatically) and not sending it back, since he could have paid capital gains tax but didn’t because he was exempt.

    As for Jimmy Carr and K2, they’re likely to be ruled Tax Evasion.

  • But are the rules on not paying CGT on a 2nd home not written specifically to avoid paying tax too?
    I would argue that the ordinary man in the street would consider where you spend the majority of your time with your family would be your primary residence. Most ordinary folk would stay in a hotel or commute if they worked away from home. They would consider the “perk” of a 2nd home a “benefit” in a climate we repeadly hear referred to as “times of austerity”. It merely distances MP’s from the ordinary voter, especially when in real terms the ones paying for this austerity falls harder on the ordinary man & woman. This however matters none as MP’s only consider us important at times of elections (or referendums). So please don’t “spin” us the myth that all these “legal loopholes” are designed to benefit anyone else other than the “haves” in times when real earnings for the vast majority are not keeping up (as stated today 13/08/14) by Mark Carney of the BofE.

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