Sticking up for David Gauke and his tax-avoidance comments

David Gauke, the exchequer secretary to the treasury, is a Conservative minister I’m quite happy to stick up for. He’s in the headlines this morning for an interview he gave to the Telegraph in which he states it is “morally wrong” to pay cash-in-hand to get a nod-and-a-wink no-tax discount:

“Getting a discount with your plumber by paying cash in hand is something that is a big cost to the Revenue and means others have to pay more in tax. I think it is morally wrong. It is illegal for the plumber but it is pretty implicit in those circumstances that there is a reason why there is a discount for cash. That is a large part of the hidden economy.”

His comments have provoked an unfair backlash. Some have wrongly inferred he was saying that paying cash-in-hand itself is wrong: he wasn’t. His point was that knowingly paying cash to get a tax-dodging discount was wrong. Not a controversial statement, surely?

Others have inferred, again wrongly, that this was simply a case of a Tory having a pop at the ordinary public while leaving the wealthy tax-evaders alone. Yet it’s clear, both from the Telegraph interview and from his public statements, that David Gauke is not living up to that easy stereotype. He delivered a speech yesterday at the Policy Exchange think-tank setting out his and the Government’s approach to ensuring all taxpayers pay their share of tax. Here’s an excerpt:

… artificial structures that aggressively exploit reliefs contrary to parliament’s intended purpose through contrived, artificial schemes fall very clearly into the definition of avoidance. Buying a house for personal use through a corporate entity to avoid SDLT is avoidance. Channelling money backwards and forwards through complex networks for no commercial reason but to minimise tax is avoidance. Paying loans in lieu of salaries through shell companies is avoidance. And using artificial ‘losses’ deliberately accrued to claim back tax is avoidance.

These kinds of schemes are where we are focussing our efforts, and they are all, to borrow a phrase from the Chancellor, ‘morally repugnant’. These schemes damage our ability to fund public services and provide support to those who need it. They harm businesses by distorting competition. They damage public confidence. And they undermine the actions of the vast majority of taxpayers, who pay more in tax as a consequence of others enjoying a free ride.

I don’t know much about David Gauke’s politics. He and I were on opposite sides of the debate on the ‘Charity Tax’ (he in favour of it, me against), but he was by far the most impressive defender of that policy before the Chancellor’s eventual U-turn. And it was good to hear him yesterday re-stating what shouldn’t even need to be stated once: that taking up legislated-for tax-reliefs — such as ISAs, pensions and Gift Aid — is entirely legitimate, and markedly different to aggressively exploiting loopholes that fail the ‘smell test’.

It was also good to hear Mr Gauke emphasise the need for increased transparency around tax advice, and set out some clear principles for the Disclosure of Tax Avoidance Schemes (DOTAS) regime:

If there is one lesson to be learnt from the cases exposed in recent newspaper reports, if a tax adviser tells you something that sounds too good to be true, it probably is too good to be true. So one of the major parts of our consultation looks at how we can make people aware where a company has previously peddled schemes that have been successfully challenged – so that they know there is a strong chance that no good will come of it. … the major reforms to the system we consult on today can, informed by our responses, place DOTAS once again at the forefront of anti avoidance measures globally. These and other proposals consulted on will:

  • Strengthen our descriptions to ensure we close the net around the few schemes that are not already captured.
  • Clarify what needs to be disclosed.
  • Require higher quality information on how schemes work.
  • Require a named individual to take responsibility as promoter for the scheme.
  • Demand better disclosure of those who use suspect arrangements.
  • Take further steps to inform the public of the genuine dangers of entering into such arrangements.
  • Ensure taxpayers know it is in their interests not to go near them.
  • And tighten the screw on those who refuse to co-operate.
  • That strikes me as a robust, fair-minded approach to the issue of tax-avoidance, one which seeks to ensure openness and accountability. Perhaps it’s inevitable that the media will focus on just one comment in an interview, rather than reflect the Government’s approach as a whole. Inevitable but a bit depressing. As Iain Roberts (formerly of the LDV parish) tweeted this morning:

    Agree or disagree with what David Gauke has proposed on tax-avoidance — but before passing insta-judgement it’s worth looking beyond the media-spin to find out what he actually said.

    * 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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    41 Comments

    • In principle both kinds of tax evasion are wrong, in practice most voters will easily distinguish between a tradesman making a small gain in income and a millionaire making a vast gain in income.

      And there’s your trouble, the coalition are giving the impression of caring more about builders putting an extra tenner or so away per day rather than bankers and businessman pocketing thousands. It might make numerical sense, but poitically it’s daft, especially when Gauke himself seems to be a massive hypocrite

      http://order-order.com/2012/07/23/naming-and-shaming-the-morally-repugnant-david-gauke/

    • Agreed. Tax evasion isnt only bad when it’s done by rich people. Labour and the left-wing press will try to go for Gauke because they want to paint the Tories as “out of touch”, which is predictable but also counter-productive because it will harm the general drive to cut evasion. The Telegraph will go after him because they love evasion.

    • I regard not paying VAT to be almost as morally corrupt as putting up large ‘Tory VAT Tax Bombshell’ posters to get elected and then raising VAT when in government.

    • I was interested that the question Gauke was asked on Newsnight was whether he had ever paid for services cash-in-hand. The answer he volunteered was “I have never asked for a discount in return for paying cash in hand”. I may be naive, but I thought most of these deals are initiated by the person carrying out the service, not the customer. I noticed that the interviewer (?Gavin Esler?) didn’t push him to answer the question he had asked. I suspect very few customers have solicited a discount, rather more have been offered one, but 90%+ of people have paid cash-in-hand for some services (probably nearer 100%!)

    • It’s up to the government to chase tax dodgers, not the customer to question the person they’ financial dealings. of the person they paying. Gauke to be fair is trying to put across a consistent message, but we need to clamp down through the legal system and stop pretending that throwing a few dodgy plumbers in jail is dealing with issue. Not a single person has gone to jail over the financial collapse of 2008 even though we know that a lot of what was going on was illegal and involved tax evasion.

    • It’s always easy and fun to blame the “little people”, but when a policy has as its natural result the evolution of a shadow economy, then there is something wrong with the policy.
      The most obvious solution is to eliminate regressive taxes like VAT (and yes, I know, VAT is the politicians’ heroin that they just can’t kick) and replace them with taxes whose burden falls on those most able to pay.

    • David Austin 24th Jul '12 - 11:40am

      Not necessarily disagreeing with the sentiment of the blog however, you can almost hear the echo of the Tory SPADs in Gauke’s office whining about how the crackdown on tax avoidance can’t be seen to be ‘unfairly ‘ targeting ‘wealth creators’ (or income tax avoiders as I prefer to rightly name them). Like it or not, the bigger problem remains individuals avoiding paying the correct amount of tax on their income, not their spending.

    • Richard Dean 24th Jul '12 - 11:53am

      The plumber comment may offend for several reasons. In the Carr context, it seems like a pot and kettle defence. More generally. it seems to misunderstand the psychology and social dynamics of plumbers. In real life, plumbers fi irritating and sometimes personally embarrassing things, so spotlighting seems like unwanted intrusion into one’s personal life. People are not necessarily thinking of tax when paying them. Plumbers seem to often overcharge, and paying in cash is done partly to compensate, partly for reasons of poverty, and partly because not everyone has a cheque book or credit/debit card and not every plumber has a radio card machine. It has the disadvantage that there’se even less chance of enforcing a guarantee – and it is this rather than tax which may be perceived as the real reason for the “discount”.

    • There is no argument; it is morally wrong. However, it’s no more ‘morally wrong’ than MP’s continued use of 1st class travel, ‘legitimate tax avoidance, etc.
      ““I have never asked for a discount in return for paying cash in hand” is political speak for “Yes I have”.

    • Tony Greaves 24th Jul '12 - 2:27pm

      I say unto you that likewise joy shall be in heaven over one sinner that repenteth, more than over ninety and nine just persons which need no repentance.

      I think it may be in Luke, from memory. But it doesn’t apply to Tories.

      Tony Greaves

    • VAT was a bad idea when it was introduced by the Heath government (because Conservatives disliked taxes on incomes and profits) and it’s a bad idea now. It doesn’t get replaced because it provides an enormous revenue stream for the government. But fundamentally it’s much like Thatcher’s poll tax; its burden (which is a different thing from its money-raising capacity) falls disproportionately on lower-income people.
      “Flat” taxes are by definition regressive, by the way. They always impose a higher burden on those less able to pay. C’est la majestueuse égalité des impôts.

    • I agree that tax avoidance is morally wrong, not just from small buisnesses but also from the larger ones which exploite the loop holes in the system. however David Gauke to quote from above said ” Channelling money backwards and forwards through complex networks for no commercial reason but to minimise tax is avoidance.”
      didn’t he channel £10,248.32 through the expenses system to avoid paying stamp duty and fees when he moved home, is this not the same?

    • ahh, class war, the war which can’t be won.

    • “But in relation to food and fuel (although probably not literature) the poor spend a greater proportion of their income on them than the rich. ”

      Irrelevant.

      It’s not, though, because the fact that the poor pay a larger proportion of their income in VAT than the rich means that – by a rather widely accepted criterion – VAT is a regressive tax.

    • VAT is regressive across all income deciles (albeit mildly) using the strict definition and the data from the ONS. People on lower incomes pay more of it as a proportion of their income.

    • Flat rate taxes by definition are not regressive in principle, but in practice they are, We could actually just remove VAT from as many items as possible, lower the duties paid on fuel and energy , increase higher rate taxation and thus increase the spending power of average wages thus lowering the need for redistribution through a benefits system that we simultaneously attack as too costly., while ensuring that where it’s needed mist people are not in fuel poverty . As for this idea that not Taxing books is in fact a tax break for the rich.. Amazon sell a lot of book sell a lot pf books ,. Shear numbers suggest that they are not all being purchased by the tiny minority of rich people, in the UK It in fact would merely be tax on people who read books and as we all believe reading is probably a good thing, why tax it?. Anyway,.the argument that reading is divided between the rich and the poor ignores average incomes, ignores the fact that you can be rich and no really be interested in reading and ignores the possibility that you can be poor and read a lot. All this talk of rich and poor also ignorers the reality that average wages are no longer high enough to buy a house without massive long term debt, often barely cover living costs and as a result we’re in a long term slump. VAT decreases spending.and in the form of fuel duty actively increases poverty. It is part of the problem not the solution. Tax income properly, close loopholes. Stop letting chancellors dictate the cost of going to the pub, or the size of your fuel bill. Of course the rich could always lower their tax bill by paying more to the workforce that helps them be rich. Suggesting that a billionaire could gcould get by on 3 instead of 7 billiona is not class war.

    • Ian
      my point was about the amount of books sold and the the strangeness of the argument that not taxing books was a tax break for the rich, because the sales figure suggest not only the rich buy books. It was not about where Amazon pay tax.
      I do not like VAT as a system for collecting tax , as I hope thest of my comment makes fairly clear.
      P.S
      Sorry for the messy state of some of my comments. For some reason my computer sticks when i try to delete words and sentences.

    • There is a huge amount of hypocrisy in this debate! If the legislation permits tax relief for something and you claim it then how can you be acting wrongly? If the tax relief claimed is unfair or inappropriate, then why is it allowed? The legislation is at fault and must be changed.

      If someone makes a false claim or statement in their tax affairs, then action against that person should follow. If no false statements are made and the tax is paid, then that person has not acted wrongly.

      The sheer complexity of our tax system encourages people to look for inconsistencies from which they can benefit. If everyone paid 25% on all income or gains combined with a higher personal allowance on earned income, then there would be far less incentive to find tax evasion schemes.

    • Adding to comment, I always ask (tradesmen/shops/etc.) if there is a discount for cash and prompt payment; however I still expect to receive a receipt…

      In turn as a businessman, I’ve often given my personal clients a “tax dodging discount” as a goodwill gesture or payment incentive, if it has meant that I’ve been paid before leaving their premises. They may regard the cash payment as “tax dodging” but as far as I’m concerned the money still goes through the books (revenue is revenue) as this helps to keep my records consistent. The other reason for doing this is to increase customer satisfaction and to (hopefully) gain referred business.

      So just because you get a nod-and-wink-discount for cash, don’t assume that no tax will actually be paid; the nod-and-wink may be just an act to encourage you to pay now …

    • Re: Roland 26th Jul ’12 – 12:14pm
      Addition was to comment: Ian Sanderson (RM3) 25th Jul ’12 – 9:40am

    • Make it a legal requirement for a trader to give a standardised paper receipt for any transaction over 100 quid, with their registered details and a transaction number. Make it a legal requirement for the purchaser of a good or service to obtain a receipt and keep this for say – 3 months.
      Set up a web portal where a purchaser can submit the receipt trader number and transaction number online and get a small cashback reward – this covers the purchasers who have no tax returns.
      Give anyone that does tax returns the option to submit a years worth of paper receipts, just in an envelope – no other work required. If they are standardised they can be machine read and analysed to look for systematic abuse from traders.
      Job done.

    • Richard Dean 26th Jul '12 - 12:50pm

      I recently paid for a flight online and the charge for using a credit card was 10% of the charge for the flight. If the same is true for plumbers, I’d certainly opt to pay cash!

    • @Alistair
      Not sure what exactly your proposals would achieve, other than create a new bureaucracy, with all it’s associated expenses.

      If a trader/shop/business is VAT registered they already have to issue a VAT invoice/receipt which contains their registered details and transaction number (along with other details mandated by HMRC) for each transaction – regardless of value. they are also required to keep corresponding accounting records.

      Remember the stated problem is not with receipted transactions but with transactions that the trader and customer have agreed to be unreceipted and which the trader does not subsequently record in their accounts.

    • @Roland – there is no legal requirement for a customer to demand a receipt, VAT or otherwise is there? If there was, there is then no way to process that data from the customer side. Even where receipts have standard HMRC mandated fields, there is no common layout so processing these is extremely labour intensive and impractical.

    • @Alistair
      It is a legal requirement for a VAT registered business to provide a VAT receipt if the customer asks.
      Someone else will probably know the situation for non-VAT businesses and general receipts, but I suspect that if the customer asks the trader is obliged to issue a receipt.

      However, as previously said the presence or absence of receipts is largely irrelevant. The problem is one of making sure people understand that it is morally wrong not declare taxable earnings – in the same way as it has become morally wrong to drink and drive or speed. Similarly at the other extreme making it morally wrong to move monies around “for no commercial reason but to minimise tax”.

    • Stuart Mitchell 27th Jul '12 - 7:47pm

      It is precisely because of the kind of tax evasion being discussed here that I have never liked the Lib Dems’ local income tax policy. If income tax evaders are already failing to pay their share, just think how much more that would be so under a local income tax – with the proverbial law-abiding taxpayer left to foot even more of the bill.

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