Tuesday 24 July 2012

Tory tax scandals and some new tax proposals

George Robinson, yet another
Tory donor to be caught tax-dodging.
In July the subject of tax-dodging burst back into the headlines after the Observer published details of an astonishing study showing that the global uber-rich have stashed at least £13 trillion in tax havens around the world, an amount greater than ten times the entire economic output of the UK and larger than the 2011 GDP of the US and Japan combined. This revelation came the day after it was revealed that a major Tory donor had been forced to pay over £2 million in back tax after a tax tribunal ruled that George Robinson must pay income tax and National Insurance contributions on the profits from the attempted tax dodging scam he had arranged with his business partners.

In the wake of these revelations the Tory propaganda machine rumbled into action with a new strategy aimed at deflecting attention away from the uber-rich tax dodgers and extremely dodgy Tory donors by trying to shift the blame onto ordinary people.

The strategy was spearheaded by Treasury secretary David Gauke who began mouthing off about how paying a plumber cash-in-hand is "morally wrong" because it denies income to the treasury. The Tory attempt at deflecting criticism away from the tax-dodging banks, corporations and uber-rich that have hidden away £ trillions in tax havens is completely transparent to anyone but the deluded reactionary halfwits it was presumably aimed at.

There is so much wrong with Gauke's deflection strategy that I could fill a whole article, however I'm going to limit myself to pointing out a few of the most glaring flaws.

It is clearly not "morally wrong" for an individual to pay for services in cash. Paying in cash does not deny the treasury anything. Moral culpability falls on the service provider that doesn't properly declare their income. This is not just "common-sense" or a matter of opinion, it is part of UK tax law.

The cash-in-hand economy does cost the treasury money, but highlighting this as the main economic problem when it is dwarfed by the scale of corporate tax-dodging is clearly just a deflection strategy intended to protect the interests of rich Tory party backers.

What makes shifting wealth to tax havens significantly worse than the cash-in-hand economy is not just the scale of it but the fact that tax haven wealth is removed from the economy entirely, whilst a significant proportion of cash-in-hand wealth is recycled back into the UK economy. This means that the economic harm to the UK caused by cash-in-hand tax dodging is generally far less than it would have been had the wealth just been siphoned away into a tax haven.
It seems David Gauke has been put in
charge of the Tory deflection strategy.
It would seem that Gauke and the Tories have not learned their lesson from the Jimmy Carr case; that proclaiming moral indignation about tax-dodging is completely hypocritical when the Tory party is funded and supported by a legion of tax-dodgers, including the aforementioned George Robinson, their biggest donor and serial tax-dodger Michael Ashcroft and the tax-dodging singer Gary Barlow. Not only do the Tories take financial donations and free publicity from tax-dodgers, several key Tories benefit directly from tax-dodging, including their leader David Cameron who inherited hundreds of thousands of pounds from his father's tax-dodging empire and George Osborne who stands to inherit several million through a tax busting family trust fund. As one commentator on another blog pointed out, "It'll be a bloody cold day in hell before I begin taking morality lessons from the Tories".

The Tories seem to be more preoccupied with "managing the message" on tax-dodging than with actually doing anything to combat the avoidance/evasion of UK taxes.

Here are a few simple suggestions they could adopt if they were really concerned with ensuring people and companies make their fair share of social contributions:

Firstly, many of the World's most notorious tax havens are UK administered Crown dependencies such as The Cayman Islands, Bermuda, Jersey and Guernsey. If the government were serious about combating tax-dodging they should set about imposing trade embargoes and economic sanctions. One possible strategy could be to ban all transfers from tax havens to Britain and other law-abiding European countries except where it could be proven that full tax had been paid on the original funds before transfer to the haven. This means that tax-dodging shell companies would have to come clean about who really owns and benefits from them and depositors would then face a choice between being unable to spend their cash in the places they prefer to live, or repatriating their cash and paying a substantial fine.

A fairly simple change to government spending rules would also help. The rules must be changed to ensure that any company or individual in receipt of government funds (subsidies, loans, outsourcing contracts, care home fees, PFI contracts, housing benefit payments, procurement contracts, interventions [bailouts] or other forms of state payments) must either be British based or a British subsidiary and pay their fair share of tax. This would mean that any company hoping to suckle the teat of taxpayer generated government funds would have to avoid using tax loopholes and avoid facilitating the tax-dodging activities of their employees by paying them via "service companies". If they want to generate profits from taxpayers' cash, they must pay tax on their profits. I can hardly see how the Tories would be able to oppose such a fair sounding strategy other than by just completely ignoring it as Osborne and co have done so far.

Another rarely mentioned area of tax-dodging is the UK drug trade which is worth £ billions a year. All drugs should be legalised, regulated and taxed. The harder ones like cocaine and heroin should be prescription only. Obviously some people would grow their own cannabis and distribute it to their friends, but there would still be plenty of money to be made from cannabis through properly licenced cannabis shops. Consumers would soon switch to buying their drugs from proper regulated and tax paying outlets, apart from a minority that would prefer to grow their own easily cultivated drugs like cannabis and magic mushrooms, as long as these home growers do it for personal use or to give away, there would be no tax evasion going on.

It has been estimated that the state would save at least £18 billion a year if drugs were legalised. Not only would the legalisation of drugs bring in a lot of tax revenue and create vast savings in policing, anti-drugs propaganda and detention, it would also massively reduce a lot of the social harms associated with prohibition (acquisitive crime to pay massively inflated street prices and associated high insurance costs, sale to minors, contaminated drugs, overdoses due to inconsistent quality, drug pushing, funding of violent drug gangs, cartels and terrorists....). The legalisation of drugs is becoming a no-brainer. Cannabis has been de facto legalised in many states of the United States (which is where the ideologically driven push for drug criminalisation was sparked off by a bunch of illiberal moralising puritans in the first place). Decriminalisation in Portugal has seen vast falls in acquisitive crimes and addiction rates. Even people normally considered to be unthinking reactionaries are recognising that the "war on drugs" has been a complete failure, as evidenced by 60% of Sun readers recently voting that drugs should be legalised. The only thing standing in the way of a sensible drugs policy (that more than pays for itself) seems to be the puritanical and prohibitionist attitudes of the political classes.

If the government adopted these three strategies (of pressurising tax havens, outlawing state funding of tax-dodging enterprises and legalising drugs) the UK would increase tax revenues (and cut wasteful government spending) by tens of billions of Pounds per year.

See Also