The VAT rise will mean tighter purse strings for everyone, with the poorest being hardest hit. But there is an alternative which some sections of the media and certain politicians seem reluctant to talk about, let alone act on.
The £120bn tax gap is more than the NHS budget and over three times the budget for education. It dwarfs the £13bn brought in by the VAT increase. At a time when George Osborne is telling the British public that we’re all in this together, 38 Degrees members are calling on him to do more to make sure everyone plays by the rules and pays their fair share of tax.
Some members of the coalition government have made positive statements about tax dodging. That’s a start. But rhetoric isn’t enough. There is much more that can and should be done to make sure those with the broadest shoulders really do contribute the most. At the moment tax havens remain open (the UK controls ten) whilst tax inspectors are being cut and local tax offices closed down. This is why 38 Degrees members decided that cracking down on tax cheats should be a priority campaign in the current climate of cuts.
On Monday 38 Degrees members put their money together to buy ads in the Independent, the i and the Guardian naming and shaming George Osborne as the Artful Dodger. At the moment, he stands accused of both dodging his own taxes (saving £1.6m in future inheritance tax with a £4m trust fund) and dodging the issue of tax cheats altogether.
Tax enforcement is a complicated area. But where there’s a will, there’s a way. As long as the scandal of tax dodging is something which isn’t being talked about, politicians won’t be feeling the pressure to take firm action to stop it. The more public and media attention there is, the more room for manoeuvre there is for those members of the government who do want to crack down.
Now that the ads have been seen by millions in newspapers and on the internet, 38 Degrees is getting ready to put them up on billboards and bus stops to keep the pressure up. Anyone can get involved in the campaign by visiting the 38 Degrees website and signing the petition or sponsoring the next round of ads. But it’s not just about donations: it’s about hundreds of thousands of us coming together to expose the scandal of tax dodging and push the issue up the agenda so the government starts taking it seriously.
David Babbs is Executive Directory of 38 Degrees.org.uk
‘The Independent View‘ is a slot on Lib Dem Voice which allows those from beyond the party to contribute to debates we believe are of interest to LDV’s readers. Please email [email protected] if you are interested in contributing.
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29 Comments
I totally agree, this phenomenon of massive tax dodging (legal and illegal) is appalling. It was something that we as LibDems, and Vince Cable in particular, were pretty hot on but I guess that’s been lost in the realpolitik of the ‘coaliton’.
The fact that at the same time we can justify such savage cuts to the poorest in society whilst this goes on is why I beleive that coalition for the LibDems is not working.
I think 38 Degrees are doing great job, it would seem better even than the majority of LibDem MPs/ministers.
I agree with the sentiment but surely credit where credit is due. The Coalition government has announced extra £800 million for the revenue. We have seen the deal with Switzerland (presumably largly the result of negotiation dating back to the previous government). As you acknowledge it is a complicated issue but it does seem that in the last 6 months more progress has been made than one could have expected under the likes of “haven’t the rich suffered enought?” Mandelson.
presumably no-one involved in 38 degrees has an ISA?
It annoys me when the Right (particularly the tabloids) have a go at benefit claimants for claiming welfare they are perfectly entitled to under the rules. What 38 Degrees are doing here is equally annoying to me. The rules allow George Osborne to set up trust funds that will avoid your offspring paying inheritance tax. You’re lowering yourself to the standards of the gutter press. Sure, point out how the rules are unfair, and even better explain how they need to be reformed. But don’t criticise the individuals who simply wish to improve their circumstances within the current rules.
Your accusation that the issue of tax cheats is being dodged is wrong. The Coalition is investing £800m in clampdowns on tax evasion and avoidance. I’m waiting to see the outcome of this investment before heaping any praise, but it’s clearly not the case that the issue is being ignored.
I have supported previous action by 38 Degrees when they have kept their campaign on matters of policy. But I can’t support silly gimmicks like this.
Two immediate points.
1) An additional £900m ring fenced was provided in the last spending round to enable HMRC to focus on additional high net worth individuals where it had evidence of tax evasion.
2) The concept of introducing a General Anti Avoidance Rule which would probably be targetted primarily at corporates is now being considered formally on behalf of the Treasury. Such a rule would be applied to all instances of tax avoidance (as opposed to evasion) rather than relying as at present on specific legislation to block particular loopholes in the tax law. The effect would probably be to reduce the incidence of tax avoidance.
Neither of these measures would have been pursued by the government without the Lib Dems so the party’s ministers have not lost sight of the issue.
Of course, reducing how much tax avoidance takes place is not at all straightforward especially given the strength of the vested interests of the big corporates, high net worth individuals and the professional firms.
Most people know about the Vodafone case, but there are many more corporations running thriving businesses in Britain. They like the marketplace that Britain offers. They like safety of the legal framework that Britain offers. Their directors and executives like the theatres, the arts, the museums that Britain offers which are funded out of taxation. But that’s where the problem lies – they don’t like to pay for it.
They prefer to do business in Britain, and have their head office in Britain – but have a small accounts office located offshore where they can divert the funds and avoid paying UK corporation tax.
The protests in the corporations outlets should continue until they pay their taxes.
Ironic that we have to protest to uphold the law. Even more ironic, the police have broken up some groups protesting for the law to be enforced.
@ Simon – “…extra £800 million for the revenue…”
@Malcolm Baines – “An additional £900m… ”
You’ve both been had by some clever coalition double-speak. The coalition have actully done the opposite. They’ve cut the money HMRC needs to pursue tax-cheats.
Don’t believe me? Check the wording in the Treasury’s CSR document and check the HMRC budget and their recently published strategic plans. Don’t bother quoting Danny Alexander’s speech in September at the Lib Dem conference and on Lib Dem website – that was where you were duped.
This article appears to conflate tax evasion (illegal) with tax avoidance (legal). Company Law enshrines the principle that companies should maximise shareholder value; consequently they’d be failing their shareholders were they not to (legally) minimise their tax liabilities. Similarly, its a rare individual who voluntarilly will pay more tax than legally they have to.
The answer is to change Tax Law, not complain when companies and individuals operate within it.
@Duncan
I think your particular analogy (between welfare claimants and tax avoiders) is wrong and only works if you actually suggest that the welfare claimant in question is not really entitled to welfare but uses expensive accountants and lawyers to find the loopholes that allow them to claim perfectly legally.
The only reason that rich people can avoid tax is by ignoring the spirit of the law and employing people to make sure they don’t end up in Ford Open Prison for a few years.
What’s more, if the chancellor of the exchequer was found to be employing similar tactics to get welfare to the tune of £1.6 million ‘perfectly legally’ do you think they might have to resign?
If someone wants to live here, they should pay their tax just like in the US and other supposedly civilised societies.
Anyway, Osbourne himself uses the word ‘scroungers’ when referring to welfare claimants – it’s him and others in his party that have fed the tabloids their lines so at worst the 38 Degrees campaign has served a bit of poetic justice at worst.
Agree with a lot of the comments above. This issue has to be tackled, but while what 38deg are doing is mostly great, they are getting a little bit close to the edge. They should first congratulate the coalition on investing more than Labour ever did on tracking down evasion. They should also be careful about criticising avoidance, as has been pointed out those who use ISAs could be equally attacked. The point should be that schemes that allow avoidance by millionaires should be stopped, rather than “naming and shaming” people for investing their money wisely.
@Tab man
Tax avoidance: employing tax accountants to transfer your tax burden to people who can’t afford tax accountants.
Richard SM – do you want to post a link to the pages in the documents you refer to? HMRC’s budget was substantially reduced in the CSR – the key question is what the phrase “ringfenced” means in practice.
Frank – as Tabman says above there is no reason why anyone should pay tax if they are not required to do so by the law. Therefore you have to change the law and/or change the climate of opinion which 38 Degrees amongst others are trying to do so avoiding taxes (especially by individuals) is not seen as legitimate. Increasing transparency on this (as on bankers remuneration) is crucial.
There is a lot more the government could do to tighten up in this area but as I said above the vested interests opposed to it are very strong.
Tabman – although I am no expert in the area, there is I am sure a lot of reforms that could be usefully done to company law to make companies more accountable to shareholders and employees and reduce the power of directors to make decisions in their own interests. These are very undemocratic organisations.
@richard sm – so you don’t have any ISAs. or make any tax deductible pension contrubutions?
One of the most interesting aspects of this is the figure of ‘up to £120 billion’. I see it a lot, but have never seen any breakdown to demonstrate how it is calculated. Can anyone point me in the direction of it?
We have had an exhaustive debate on LDV on whether VAT is regressive or not and you are welcome to join in on other threads. Various sources come to different conclusions and honestly I think if you want to influence Lib Dem opinion on the issue of tax dodging you would be better off by not patronising us on other issues to begin with.
Apart from that I agree with the rest of the article.
George Osborne has taken advantage of the welfare state for the rich and not only does he set a bad example by avoiding taxes himself when he can easily live a comfortable life without doing so, it is reasonable to believe that this gives him a vested interest not to reform the laws to close these loopholes that he benefits from in the first place.
Equally I believe Vince Cable is determined to make the case that we should tax the rich more. We want to close off the capital gains tax loophole that the rich benefit from but he only had limited success in getting that through cabinet. Prior to the last general election he supported the Compass campaign for a high pay commission, and in his conference speech he advocated a tax on land that the rich will not be able to evade.
Of course getting this past the Tories will be hard, and it is a shame this was not tackled by the last Labour government.
But we are where we are and I hope your campaign will help create a mood in the country where politicians feel they have to respond. I will do my bit to help as well.
Apart from not mentioning the extra money the Coaltion Govt are putting into this the author also doesnt mention the Inland Revenue Consutlation paper on ‘disguised remuneration’ issued last year which is expected to save £500m a year bystopping various exotic avoidance strategies. Here is a link:
http://www.hmrc.gov.uk/budget-updates/autumn-tax/tiin2675.pdf
The Revenue estimate loss through tax evasion as around £40bn. Two of the larger areas are cash in hand builders etc and tobacco smugglers – two areas where it is easy for any of us to stop.
@Simon McGrath
That’s a rather stupid analogy, if I may say. Parliament determined that ISAs are only available to UK taxpayers and have a defined limit. (Like a personal allowance). Putting money into an ISA can’t be tax avoidance, because if there is no money to pay, you can’t avoid paying it!
The same applies to personal allowances. To say this is tax avoidance is equally stupid. Parliament fully intended that people have such an allowance which has a clear limitation.
Tax avoidance is the act of getting around what parliament intended, like going to the extremes of registering a British based business in an obscure offshore location.
You’re having difficulty understanding it, aren’t you. May I suggest you think a little more deeply in future before you submit a post.
@richardsm what a load of nonsense. Noone is under any requirement to pay more tax than they have to. For individuals that means using ISA and pensions. It might also mean for example someone with more money than the inheritance tax threshold giving money away during their lifetime (7 years before death).
So I guess this all comes down to what you define ‘the rules’ as – the letter of the law, or the spirit of the law. How, in a liberal democracy that places the rule of law at its heart, due you interpret and enforce a law’s “spirit”?
Change the tax system to collect unearned income (economic rent) and tax avoidance becomes impossible.
@Mark V the 120bn is from a chap called Richard Murphy.
he takes the Inland Revenue figure for tax losses of £42bn, claims they have underestimed VAT fraud and the true figure should be £70bn, adds on 26bn for late or unpaid tax (although late would presumably be a one off) and then adds on another 25bn for tax avoidance through things like non doms.
The most accurate part of this is the Revenue’s estimate of 42bn – the biggest part of which is VAT fraud.
non existent, exaggerated, dishonest, hyperbolic, innaccurate and been repeatedly debunked by many, many reputable sources.
Seriously, any article that quotes Murphy without question deserves to be filed under “ignore, trash”.
Simon’s numbers are much closer to the truth, Muprhy in particular makes no distinction between legal methods of reducing your tax burden (many of which were introduced by Govts to encourage various activities) and illegal methods.
Mark. Anyone quoting the £120bn number can be safely ignored. It’s a good rule of thumb. Supposedly reputable organisations continuing to pay former tax avoider turned incompetent gamekeeper Murphy money to produce his spurious ‘reports’ needs to reassess what they’re trying to acheive with their money.
Simon and Mat,
Many thanks for that, although it’s a pity that Mr Babbs hasn’t had the decency to defend himself from a charge of misleading the public. The problem with saying “look, there’s a massive pot of money out there that we could use to avoid cutting things” is that people think that HMRC can ‘make it so’.
The brutal fact is that HMRC has become increasingly outgunned in the contest with tax advisors, seeking to minimise their client’s liabilities. The disparity in salary scales between the big accountancy firms and HMRC gets bigger by the year so, apart from altruists, if you had a choice of employer, who would it be? That differential accelerated under Labour, and with zero increases for the next two years, will accelerate further.
I will merely challenge one element of the £120 billion figure, the £26 billion for late or unpaid tax. The ‘late’ element is a nonsense, and only the net year on year increase should be taken into account. The figure is actually cumulative, potentially over many years. Unpaid tax is usually unpaid because the debtor has no money, or is the recipient of an estimated assessment in the absence of a tax return. The estimate is generally inflated and, in a number of cases, is meaningless, as there is no evidence to indicate whether or not the taxpayer is even active.
This is an astonishingly shoddy, misleading piece of work, which will contribute nothing to sensible debate and merely encourages those who got us into the mess we’re in to pass on the blame for what happens next.
@ Simon McGrath
My response to your ISA analogy obviously stumped you, as you’ve trotted out a mild neutral point not in dispute.
Tax evasion and tax avoidance are closely entwined, often only becoming apparent after a legal case. Tax cheats will always claim they’re simply avoiding tax – until they’re prosecuted.
@ Mark Valladares
Being a bit harsh on David Babbs aren’t you?This website was ‘down’ for most the time after the posting.
I have three points for you:
1) You wrote: “The problem with saying “look, there’s a massive pot of money out there that we could use to avoid cutting things” is that people think that HMRC can ‘make it so’.”
But isn’t that what Danny Alexander and Vince Cable have done? Surely your crticism should be directed at them.
2) As to the charge of “misleading the public,” Danny Alexander has clearly given people the impression that an extra £900 million will be spent in pursuit of unpaid tax. Yet, Treasury figures contradict this bold claim, and HMRC will be losing jobs. It seems to me that Danny Alexander has indeed been misleading the public.
3) That you don’t like one particular estimate is clear, but whatever the size of the tax gap, these are massive figures nevertheless. With figures of such magnitude, have the Lib Dems commissioned their own report in the past?
@mark V – I agree that advisors are outgunned. I think the real political agenda here is to come up with another way of denying the need to tackle the deficit. If it was as easy as people like 38 degrees suggest to collect this money the last government who were hardly backwards to tax anything that moved would have done so.
@ Simon McGrath
Huh? Mark Valladres says HMRC has been outgunned by the tax advisors. You say, ‘I agree that advisors are outgunned.’
David Babbs is only highlighting the same points made by Vince Cable before the election – and Danny Alexander since taking office. Furthermore, David Babbs can only shout from the wings using the information available. Vince Cable and Danny Alexander are actually in position to do something about it. What are they doing about it? Very little by the look of it.
Using the government’s own figures:
Tax-cheats cost the country £42 bilion
Whereas benefits-cheats cost £1.5 billion
Both are reprehensible, but in prioritising action to tackle the deficit, the coalition seem to be chasing the benefits-cheats, whilst doing little about the tax-cheats.
Why is that?
David Babbs, 38 degrees, Tax Research, UK Uncut and more, are righttfully raising public awareness.
RichardSM,
Let’s see, the £120 billion figure has virtually no credibility at all. £28 billion of it exists in the imagination of one fairly discredited source (see above), another £26 billion is either late, and therefore is a figure that runs from one year to the next, not new money, or is notional rather than actual, and £25 billion is plucked from the air and could never be meaningful – if they’re non-domiciled, they can adjust their affairs to suit any revisions to the domicile rule, and will if it’s financially worth it to them.
The amount of money committed above the core HMRC fiscal settlement, i.e. the £900 million, is intended to be spent on beefing up HMRC’s compliance efforts. Based on yield figures from compliance work for past years, the aim of raising up to £7 billion in additional revenue by 2014/15 is credible, if challenging. So, when Danny and Vince say that some money can be raised, and they’re talking about perhaps 6% of the ’38 Degrees’ figure, their statement is credible.
I’ve heard Danny’s statements on the additional funding. Yes, the overall HMRC budget is in decline. Part of that stems from computerisation of basic processing functions, labour intensive but not very effective. For example, mandatory e-filing of corporation tax returns and mandatory electronic payment of corporation tax liabilities, which comes into force on 1 April, will cut staff numbers – post will not need to be opened, sorted and transferred around the country, data will not need to be captured manually, with all of the work and risk of manual error generated.
Similarly with PAYE. The new computer system reviewed every PAYE record in the country, something like 26 million records in virtually no time at all. before that, every record had to be reviewed manually, by people, retreiving records from other offices where necessary. Staff numbers will fall – as they have since 2006. By the end of it, HMRC will have lost something like 40% of its staff numbers at that time, about 40,000 in total. Bad for employment, although there have been precious few compulsory redundancies so far. So, cutting staff does not necessarily mean cutting back on the relatively small number of staff who do compliance work at the moment. Indeed, within HMRC, resources are constantly being redirected towards compliance work.
And I agree, even taking HMRC’s own estimate of £42 billion as your starting figure, it’s a massive sum. But if it was that easy to get, HMRC would have gone for it. And there is a catch in the assumption that they should. In this country, the tax system is founded on trust, a concept which seems naive but has proved to be pretty effective in the past. The balance between aggressive compliance and risk-assessed enquiry is a difficult one to draw. You have to assume that most taxpayers are inherently honest, otherwise you need to carry out many more enquiries than is currently the case. That means a lot more resource for HMRC, at taxpayer expense, a greater burden for companies and individuals in terms of compliance costs, and the only people who will benefit are accountants.
And that £42 billion includes all of those ‘cash in hand’ payments that are so prevalent and carousel fraud, amongst other things. The deliberate fraud figure, as a percentage of funds raised each year is, by international standards, small, and the income/expenditure ratio for HMRC has traditionally been one of the best in the OECD.
38 Degrees have taken some very dodgy statistics, drawn some very dubious inferences from them, and reached a conclusion that tells the public that there are vast sums of money out there just waiting to be plucked from the tree of tax evasion. If you consider £7 billion to be vast, how do you describe £150 billion?
@Mark Valladeres
Thank for your reply
First, quickly dealing with your point about unpaid tax and whether / how this should be included in the Tax Gap. That’s the way HMRC determined how the Tax Gap should be calculated. There’s some reason behind it. They have a diagram in one of their publications. Independent bodies are only trying to assess the figure on the same basis as that used by HMRC.
Second. HMRC say a tax gap of £42 billion. Tax Research says £120 billion, and I’ve seen other figures in between. The answer probably lies somewhere in between. However, I note that when HMRC/Treasury officials have been questioned further in specific areas they have sometimes given values that are two or three times higher than the elements in their latest ‘£42 billion report.’
Third, on whether there has been an extra £900 million. Here’s how Mark Pack reported Danny Alexander’s speech about tax avoidance and evasion at last autumn’s conference.
———–
[Danny Aleaxander said] “We must ensure that every tax bill is paid in full”, deriding tax dodging as an unacceptable lifestyle choice that takes money away from those who need it more and is “morally indefensible”. Hence the significant new announcement in the speech: £900m extra is to be invested in cracking down on tax avoidance and evasion.”
https://www.libdemvoice.org/danny-alexander-conference-speech-21211.html
———–
£900 million extra? It definitely says “extra.”
You’ve criticised those who have to rely on whatever information they can get, but shouldn’t Danny Alexander be on (to use your words) “a charge of misleading the public” ?
OK, moving forward fourth and final point. Let’s take Danny Alexander at his word. He says that a total of £900m invested over the next four years (£225m p.a. x 4yrs) will go on to produce £7 billion a year in the final year.
How he has this phased isn’t clear, so let me be generous and say Year 1 £1bn; Year 2 £2bn; Year 3 £4bn; and Year 4 £7bn.
That’s a total of £14 billion revenue from an investment of £0.9billion!
Wow!!! What a fantastic return! I don’t know anywhere where I could get such a fabulous return on my money. Let me knock off a few noughts to put it in more humbler terms.
If I invest £2,250 each year for the next four years, my investment will be worth £140,000 at the end of the fourth year. Whatever the yield is, it’s big: 1500%? How do I get ’in’ on this scheme? I’d willingly put in £2250 every year for those returns.
Now, here’s my point and the one I believe the campaigners want to get across. If, as Danny Alexander says, a £0.9billion investment will produce circa £14 billion for the taxpayer, and HMRC say there is a potential of £168 billion (£42 bn x 4yrs) to be harvested, then why isn’t Danny Alexander investing more?
I acknowledge there is the law of diminishing returns, but they are nowhere near approaching that. Given the austerity measures elsewhere, this should be top priority.