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On tax policy, to govern is to maintain the status quo

19 February 2013

19 February 2013

To govern is to choose, wise people like to say when talking about policies which annoy voters but which might make good sense. Today we have another example of what happens when governments don’t choose. The Public Accounts Committee has published another one of its fierce reports on tax, arguing that tax avoidance companies ‘run rings around HMRC’. There’s plenty of criticism in it for HMRC, with the committee finding that HMRC doesn’t know how much it spends tackling tax avoidance, or whether the work that it does do is effective.

But the tax system itself, unsurprisingly, doesn’t get a good review either. The report says that Tax Trade Advisers, who specialise in income tax avoidance ‘told us that the complexity of the tax system contributed to the opportunities for tax avoidance, and that simplifying the tax system could reduce avoidance’. The report added:

‘HMRC said it was always actively engaged in planning future legislation and evaluating existing legislation and that the Office of Tax Simplification (OTS) was working to simplify the tax system, but we understand that there are only six people in the OTS.’

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Meanwhile Ed Miliband is also talking about tax avoidance and his plan for multinationals to publish how much tax they are paying.

Now, whisper it so no-one gets upset, but isn’t there a case for looking at the whole system at some point? Rather like George Osborne did in the depths of opposition when, as Shadow Chancellor, he got rather excited in 2005 about the benefits of flat taxes. Now, of course, as the PAC report says, even this sort of simplification isn’t going to end tax avoidance. But it would make it much more difficult for firms and individuals to hide within the labyrinths of the current system as the rule book would get torn up (by the world’s strongest man, presumably, as it is now over 11,000 pages long).

Either way, a real flat tax, where all income is taxed at the same rate – perhaps 30 per cent – is the sort of choice a Conservative chancellor with a particular penchant for awful headlines and painful PMQs sessions would advocate at the moment, given the current contest is not focused on how governments can fill their coffers as fully as they can in the fairest way, but how parties can flex their high tax muscles, regardless of whether their latest wheeze involving pearl earrings or a beloved 50p rate actually raises any more money. Like having an honest conversation about MPs’ pay, pensioner benefits or drugs policy, tax is becoming one of those issues where ministers fear to tread lest anyone think less of them. In these cases, to govern is to maintain the status quo.

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  • Paul J

    Does anyone really believe that the sort of people who bend over backwards to avoid paying 40 or 45 percent are going to gladly pay 30 instead?

  • Colin

    Why was my comment censored ?

  • Smithersjones2013

    Underlying this pathetic Westminster posturing over tax avoidance there is a simple reality. Multinationals are not going to base themselves in countries that persecute them for maximising their tax efficiency. All Westminster is doing is reducing our employment (and tax revenue) opportunities for a few cheap headlines/

    Therefore the only way to ensure ‘fairness’ [sic] in such matters is to do as Europe is doing over their own financial woes. Increasingly integrate the financial and tax systems. Do we really want this county’s tax policies decided by the Security Council of the United Nations or the G20 or both?

    Furthermore, there is something decidedly sinister in what seems to be Westminsters underlying arrogant underlying belief here. Do Government really have a divine right to tax us to the hilt to get them out of their debt problems purely so they can continue indulging their debt addiction by wasting our money on their vanity projects and in pursuing their narcissistic personal global political aspirations?

    Given our past experience of excessive and obsessive taxation (1776 in particular) you’d have thought Westminster might have been wary of such mindless cheerleading about such matters but apparently not (despite the obvious and growing dissaffection of the electorate for any of the Westminster Freakshow Parties)

  • HooksLaw

    How does taxing everyone at ‘perhaps’ 30% help people currently paying it at 20%?
    There is an argument for abolishing all allowances and other bits of social engineering via the tax system but surely that makes sense only if you have a LOWER rate.
    Does MS Hardman know what she is talking about?

    All the various scandals about low tax only came to light when Osborne looked into them as Chancellor and revealed them in his budget speech. These scandals all happened under labour, when Miliband was a minister.

    • ajwillshire

      If you include national insurance then most people are paying 31% tax. Pensioners don’t pay NI, of course, but there could be an adjustment to the state pension to compensate.

  • Tom Tom

    HMRC acts under Government directive. If you want to assess Corporate Taxes you impose a Minimum Tax payable. The fact that British GAAP permits Financial Accounting to deviate from Tax Accounts is misleading to investors and that VAT is listed as a Tax Paid by Corporations rather the “Collected from Customers” is another farce. It is time that Taxes Paid by Corporations were broken down into those paid by Customers, those Paid by Employees and those actually levied and paid by Corporations on their reported Profits,.

  • Jebediah

    Most governments sensibly (from a self-interest point of view) don’t have the guts to radically overhaul any system. Any change brings about losers, losers shout louder than winners. The media likes to cause trouble and whip up a story so they focus on the losers. Thus even if the government (of any party) creates vastly more winners than the losers the perception caused by the media is not that way. In politics votes are money, if you want more votes, it is not always rational to do the right thing economically.

  • Russell

    A ferocious attack from Hodge the hypocrit!

    Perhaps and article regarding her tax dodging might be more appropriate. As mentioned in Guido……”The company share register for Stemcor shows that Hodge holds several million pounds worth of shareholdings in trusts, including for members
    of her family. Her family’s firm Stemcor confirmed that she has “shares held in trust or in her children’s names”.

    How about some proper investigative journalism from Isobel on a Labour MP who is one of the many hypocrits in the Labour party?

    • Tom Tom

      So what ? It is quite legitimate to hold Shares in Trust in private companies

      • Russell
        • Tom Tom

          So what ? It is perfectly legitimate to use Trusts to handle the shares in private family companies and it the usual method on Farms, Private Companies and Estates. It is the only way that Family Companies survive and there are far too few of them in Britain. There is absolutely no reason for The State to seize seedcorn capital to squander – Austria, Canada, Poland have NO Inheritance Taxes. Simply filling out the forms is a hige waste of time. MOST expensive houses in London are held through Offshore Trusts as is Margaret Thatchers – to mitigate the rapacious Inheritance Tax. Thankfully Alistair Darling brought some relief to ordinary families in October 2008 whereas Osborne has simply reneged on his promises made then

    • Colonel Mustard

      They are all hypocrites. It is just the degree and specifics which vary.

  • Grrr8

    What happened to implementing the Mirlees commission report?

    • HooksLaw

      This was an unofficial IFS report wasn’t it? Is there any requirement for anyone to implement it? Merging NI and tax is fine in theory but then you find that pensioners do not pay NI on their pensions and oops whats the political problem there? You go out and promise to placate the losers in any such changes.

      It might make more sense to lower tax and hypothecate NI to health costs and unemployment benefits.

      • Grrr8

        Yep unofficial so no requirement to implement. But w/ Isabel calling for a rethink of the tax system, the report would be a good place to start. My understanding is it had more to do with differential VAT than income tax and NI but I look forward to being corrected (too lazy to research).

  • Chris lancashire

    You omitted to mention that it was dear old Gordon, ably assisted by his closest lieutenants, Balls and Miliband, who succeeded in doubling Tolleys from 5,000 pages to 10,000. And what now? Remembering nothing, learning nothing, they propose adding a brand new “mansion tax” that would yield another couple of thousand pages to Tolleys. As The Times editorial today rightly points out, not long after the mansion tax was introduced it would steadily extend downwards as government finds the original idea didn’t really yield that much.
    I think, therefore, we can discount any useful input to this discussion from HM Opposition.

    • telemachus

      So you do not think publishing multinationals tax a good thing?

      • Nicholas chuzzlewit

        Tolley’s is a tax guide so your comment is a complete non sequitur. The point is that the tax code expanded materially during the Brown years thus creating more opportunities for tax avoidance.

        • Colonel Mustard


          “…in all but his final budget, Brown increased the tax thresholds in line with inflation, rather than earnings, resulting in fiscal drag. He abolished this 10% tax band in his last budget in 2007 to reduce the basic rate from 22% to 20%, increasing tax for 5 million people and, according to the calculations of the Institute for Fiscal Studies, leaving those earning between £5,000 and £18,000 as the biggest losers. According to the OECD UK taxation increased from a 39.3% share of gross domestic product in 1997 to 42.4% in 2006, going to a higher level than Germany. This increase has mainly been attributed to active government policy, and not simply to the growing economy. Conservatives have accused Brown of imposing “stealth taxes”. A commonly reported example resulted in 1997 from a technical change in the way corporation tax is collected, the indirect effect of which was for the dividends on stock investments held within pensions to be taxed, thus lowering pension returns and contributing to the demise of most of the final salary pension funds in the UK.”

          • HooksLaw

            Brown used his budgets to consolidate his position of control in the labour party, not to manage the economy of the UK.

            Spending increased without any possibility of the nations tax revenues being able to match it. Worse than that the revenues from banks and their bonuses proved to be wholly illusionary and temporary. The UK could never afford Brown’s spending, which is why the govt has to cut it now.

            Its all very tragic – if Ed Balls was only one tenth as clever as he thought he was we would all be living the life of Riley right now.

            • Smithersjones2013

              Brown used his budgets to consolidate his position of control in the labour party, not to manage the economy of the UK.

              And in that Brown seemed quite competent. Osborne (or is that ‘Osbrowne’) on the other hand hasn’t even done that and seems to be just plain incompetent and incapable of managing the economy for anyone’s benefit.

              After all its not Gordon Brown who will have borrowed more money than any previous Chancellor. Osborne will have borrowed almost double what any previous chancellor has borrowed.and unlike others will have presided over a period where wage inflation is almost non existent whilst retail inflation carries on with gay abandon. When was there as Chancellor who was so successful in making us so much poorer than we were previously (and thats even before we consider all the additional tax and price hikes he’s dumped on the electorate)?

              Oh and don’t forget Osborne adopted Labour’s economic plans less 1% and is now even failing Labour’s plans to reduce the deficit. How given Osborne’s validation of the Labour approach can Conservatives criticise Brown without criticising Osborne as well?

              • Chris lancashire

                Brown started from a position of no defecit – in fact we were repaying debt. Osborne started from a position of a £130bn annual defecit bequeathed by Brown/Balls. Osborne has already made steady progress in reducing that defecit and, by 2014, most departments will have reduced spending by 30%. I would that he had gone faster on that reduction but it remains steady progress. As for growth; just how are government’s supposed to conjure growth? They can, eventually, help to create the conditions for growth but cannot create growth itself – that comes from the private, productive sector.

          • telemachus

            We pay no heed to Duthel or any other right wing Krauts

            • Colonel Mustard

              You are not “we” you arrogant little turnip.

      • Tom Tom

        Only US multinationals apparently and not one Bank. How about Goldman Sachs, Merrill Lynch, JP Morgan, and the tax doges used in The City – just how many subs in Cayman does Barclays have ? Why did Brown let PFI deals run over Jersey ? why do British Schools and Hospitals run over Jersey companies ? why is HMRC real estate owned by George Soros in Cayman ?

  • Magnolia

    You are right that the government is pragmatic.
    Some of us are old enough to have lived through all this before.
    Go and look up ‘until the pips squeak’.
    Once the state starts helping itself to private property then we are all doomed until the next Mrs T rescue comes along.

    • Tom Tom

      Pips squak was Lord Nortclifee about German Reparations….Denis Healey said “howls of anguish from the rich” …..

      • HooksLaw

        ‘In a speech in Lincoln on 18 February 1974, reported in The Times the following day, Healey went further, promising he would “squeeze property speculators until the pips squeak” ‘ …so says wikipedia.

        Healey was promising to propose a 75% tax rate on the ‘rich’,

        • Nkaplan

          As I recall he went on to impose an 83% ‘earned income’ tax on ‘the rich,’ and a truly disgraceful 98% tax on (what he, with obvious Marxist prediclicitions called) ‘unearned income’ i.e. returns to investments.

          • HooksLaw

            Unfortunately currently we are faced with an inheritance of massive overspending (the NHS has to lose 20 billion in efficiency savings over 4 years) and deficit. Making changes is easy (or easier!) if you are in a good economic position, very difficult if you are in a decrepit one.

        • Tom Tom

          “In 1971 the top-rate of income tax on earned income was cut to 75%. A
          surcharge of 15% on investment income kept the top rate on that income
          at 90%.” Source: Wikipedia

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