The Independent View: Rhetoric is not enough on tax dodging

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

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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  • 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.

  • Simon McGrath 6th Jan '11 - 12:23pm

    presumably no-one involved in 38 degrees has an ISA?

  • Malcolm Baines 6th Jan '11 - 12:28pm

    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.

  • Malcolm Baines 6th Jan '11 - 1:26pm

    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.

  • Simon McGrath 6th Jan '11 - 1:27pm

    @richard sm – so you don’t have any ISAs. or make any tax deductible pension contrubutions?

  • Simon McGrath 6th Jan '11 - 1:49pm

    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:
    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.

  • Simon McGrath 6th Jan '11 - 7:04pm

    @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).

  • Andrew Duffield 6th Jan '11 - 7:28pm

    Change the tax system to collect unearned income (economic rent) and tax avoidance becomes impossible.

  • Simon McGrath 6th Jan '11 - 9:46pm

    @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.

  • @ 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?

  • Simon McGrath 7th Jan '11 - 1:05pm

    @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.

  • @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.”

    £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.

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