UK keeps making excuses on tax

Bed to rights: A young girl joins in a protest against state spending cuts outside a Tory official’s home. (Luke Macgregor, Reuters)

Bed to rights: A young girl joins in a protest against state spending cuts outside a Tory official’s home. (Luke Macgregor, Reuters)

Tax is the root of all politics. What parties think about tax defines them. Tories are always low-tax by nature, by creed and by greed, eager to brand Labour the high-tax party.

In office, Labour ducked and weaved, adopting Tory language where all tax is a "burden", and all tax cuts good.
But at least in theory, all parties agree tax should be collected.

David Cameron strikes a bold stance at the G8. Though nothing concrete may be agreed, acknowledging a global tax avoidance crisis is a step forward.

Good news, too, that Cameron will make shell companies declare their true beneficiaries to Her Majesty's Revenue and Customs (HMRC), but it's regrettable this won't be public.

Only if every country goes public, says Cameron — global agreement yet again an excuse for inaction as G8 leaders drag their heels on making companies declare profits in each country.

Though Cameron suggests it should be voluntary, the Confederation of British Industry opposes country-by-country reporting on the unlikely grounds that it risks "swamping people with highly complex data".

Been down this road before
Before the G8 Cameron had to be seen to be putting Britain's own shameless tax havens in order. But as Richard Murphy of the Tax Justice Network says, nothing was signed: Bermuda and the rest still deny they are havens.

We've been here before. In 2009 a list of black, grey and white tax countries was drawn up, warning that only white-listers would be tolerated. What happened?

Within weeks, all tax havens on the black and grey lists manoeuvred themselves on to the white list with virtually no change in their habits. In a tax dispute, General de Gaulle once surrounded Monaco with troops and turned off its water supply. Could we turn off banking connections with recalcitrant dependencies?

Britain could collect far more tax, but is the government genuinely determined? Francis Maude last year boasted that he wanted Britain to be a tax haven: "That is exactly what we're trying to do." Nondomiciled foreign oligarchs awash with funny money benefit from our lax rules.

The influential Free Enterprise Group of 40 new Tory MPs wants corporation tax cut to 10%, racing to undercut Irish rates.

Vince Cable agrees, writing in the Observer: "In truth, taxing company profits is not ideal. All taxes are ultimately paid by people. We should tax people when they receive the benefits of profitable companies."

If tax is out of favour how hard will this government really try to collect it?

No enthusiasm
Cutting the 50% top rate suggests no great enthusiasm for rigorous taxing.

Last week's Office for National Statistics figures revealed gigantic avoidance of the 50% top rate.

It could have been collected, but George Osborne needed to prove it didn't work. The treasury estimated raising the rate to 50% should bring in £6.2-billion, but the actual return was a puny £100-million.

In year one, before its official start date, high earners gamed the tax by rushing to take dividends and bonuses early. They paid more into pensions, gaining undeserved higher tax relief.

Or they used trusts, or took income as capital gains. That can be stopped, by fixing capital gains, as Nigel Lawson did, at the same rate as income tax, as the Institute for Fiscal Studies advocates.

Once Osborne announced the top rate would fall to 45%, high earners gamed it again. Incomes Data Services reports a massive delay in bonuses until after April 6, when they leapt up by 107% in the finance sector to catch the new 45% rate. That could have been forestalled.

To Osborne, it proved there's no point in taxing the rich. But the Institute for Fiscal Studies says Denmark successfully collects its high top rate because it has no dodges: the rich can be taxed if reliefs are blocked.

Doing it the wrong way
But this government never worried over income being sucked up from middle to top, with the share of national income taken by the top 1% now having risen to 14%, as gross domestic product shifts from pay to profits.

Osborne redistributes taxes the wrong way. Even raising tax thresholds sees most gain go to the top half, not to low earners.

Would Cameron have taken up tax avoidance but for the brilliant United Kingdom Uncut short, sharp, witty invasions of Top Shop, Starbucks, Vodafone and Barclays?

Had the redoubtable Margaret Hodge not shamed avoiders with forensic and pithy contempt, would the government have acted? Campaigning works.

Doubts remain: would a government serious about tax collection reduce HMRC staff by 10 000, when the European Union puts UK tax evasion at £70-billion?

Tireless campaigner Richard Murphy's report on Companies House shows a shocking dereliction by this government and the last.

A third of firms fail to file returns, and £16-billion in tax goes missing with little inquiry and low risk of penalty. And now its staff are cut too. Forcing shell companies to register owners might not work without the risk of penalties.

In power, Labour was timid on tax. Tax cheating should be Labour's chance to tell honest political truths: you get what you pay for, you can't have Swedish services on US tax ideology. Tax is the price we pay for civilisation.

At elections, all parties promise the impossible, more with less and cuts in "bureaucracy" to pay for everything.

Treating the public like children on tax does nothing for trust in politics. The door has opened for that conversation. — © Guardian News and Media 2013

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