Tax evasion and tax avoidance

Yesterday during debates on the Finance Bill in the Commons Labour wheeled out their old friends tax evasion and avoidance. They do not like either avoidance or evasion, but they were always with them during their years in charge. They are almost allies, because they allow Labour to work off their prejudices against enterprise and success. They give them an alibi for the deficit. If only, they intone, the Treasury would clamp down effectively on tax evasion and avoidance we would be spared the “cuts”. Let me make it clear before Labour try another of their lies about me that I too condemn tax evasion and wish the tax law to be properly enforced against crooks. Sensible tax planning is a different matter, as Labour only reluctantly accepts.

On Labour MP figures there could be as much as £120 billion of missing tax. The last Labour government was more modest, quantifying it at £40 billion but failing to collect it. After 13 more Labour years of anti avoidance Labour MPs have concluded there is still a bigger than ever golden hoard waiting to be collected by the white knights of the Revenue.

They did not have much of a response when I asked them why they had been unable tocollect this elusive treasure during their 13 years in office. They were even more dismayed when I pointed out that quite a lot of the avoidance was the result of policies the Labour government put in or supported to encourage various types of approved behaviour.

National Savings, for example, sells tax free savings products. Labour always approved of this and sold a large amount of such products to savers who did not want to have to pay tax on the interest on their savings deposits or bonds. This is tax avoidance with a purpose – the purpose of paying more easily for excess government spending.

Then there is the case of the investment allowances against Corporation Tax. Labour was busily defending those from planned reductions. They think it’s a good idea to encourage more investment by offering people a tax break from profits tax for doing so. It’s another type of approved avoidance, which was nonetheless included in the figures they were using for the tax avoidance they needed to clamp down on!

For more of the argument please see the text of my remarks under speeches on this site, to be posted later today.

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  1. Alan Jutson
    Posted July 13, 2010 at 9:19 am | Permalink

    Evasion and Avoidance are what you tend to get when tax rates are High.

    Because of Evasion and Avoidance Tax you need higher Tax rates. Its a manifestation of excess Government control and expenditure.

    The solution is in the Governments hands,
    Lower Government control over its people,
    Lower Government spending,
    Simplify the tax system and Benefits System
    Lower the tax rates.
    Perhaps tax evasion and avoidance will then shrink, along with many other Benefit frauds.

  2. Mick Anderson
    Posted July 13, 2010 at 9:37 am | Permalink

    Having watched the arguments about taxation for decades, I conclude that there is no such thing as a "good" tax.

    Some tax is inevitable to pay for necessary services, but Labours raison d'être is taxation for the purposes of social engineering. As such, their ambition seems to be 100% tax on everything earned, graciously granting us a little back if we do exactly as we are told.

    The new Administration should look at what services are needed and work out how to fund them, rather than start with Labours profligacy and control-freakery. We need new thinking on spending and the required tax, otherwise the Coalition is still dancing to Mr Browns tune.

    PS. I'm heartily tired of hearing Mr Ball' tirades on the Today program with only an interviewer as counter-balance. Mr Balls manners are appalling and he "answers" every question with an accusation. I thought the BBC was obliged to be politically impartial.

  3. Richard1
    Posted July 13, 2010 at 10:03 am | Permalink

    The figure of £120bn comes from the TUC. It is drivel of course & plucked from thin air and is a reminder, if we needed it, of the irrelevance of trade unions today. Part of Gordon Brown's pernicious legacy to the UK was to leave us with the most complicated tax system in the world (the UK's tax code is now the world's longest, having overtaken India's). Brown's belief in state-directed micro-management led him to set up all sorts of schemes (allowances for investing in favoured industries such as smaller British films). Of course people then take advantage of these, and so legal avoidance rises. What this shows again is the complete lack of understanding of so many on the political left of the consequences of policies they support.

  4. Norman
    Posted July 13, 2010 at 11:15 am | Permalink

    Who'd have thought it, Labour are becoming financially literate and calling for a lowering of tax rates and reduced regulations, reducing the desire for companies to ever more complex 'tax efficiency' schemes and thereby increase revenue to HMRC.

    That was their proposed solution to the problem I take it? Or would they want more regulations, more laws, more government control, more supervision? Then bleat about the increase in tax avoidance by the robber barons in a few years time.

    They just don't get it.

  5. Blank Xavier
    Posted July 13, 2010 at 2:56 pm | Permalink

    That 'missing tax' remained in the private economy and led to the creation of wealth; it supported and continues to support our fragile economy.

    Had it been taken in tax, it would have been wasted by the Government; no wealth would have been created by it.

    The recession would have been that much worse, had the ability of the Government to take tax been that much better.

    • Simon
      Posted July 13, 2010 at 4:17 pm | Permalink

      That assertion is predicated on the Government taking more if they could which is pretty assumption of Brown and Co .

      Evasion meens the rest of us have to pay more than our fair share doesn't it ?

    • billyb
      Posted July 14, 2010 at 10:04 am | Permalink

      No – had it been taken in tax, the deficit would have been lower, and the liabilities of honest citizens would be correspondingly lower. If you don't approve of what the government does with your tax money, publicly withhold it and go to jail to make your point. Don't cheat the rest of us.

  6. JimF
    Posted July 13, 2010 at 3:32 pm | Permalink

    This is the same Labour Party whose MPs and Cabinet Ministers were changing designation of their residences to ahem…. avoid CGT? Pot-kettle-black comes to mind.

  7. Alan Wheatley
    Posted July 13, 2010 at 6:00 pm | Permalink

    There has been tax avoidance ever since there was tax. It is legal, every sensible person does it, and it has never been a problem until the last Labour government.

    Gordon Brown as Chancellor insulted honest citizens by stating that those who undertook tax avoidance measures were doing something wrong, and if they did not stop of their own accord he would make them stop. And he had the affontery to claim that ordinary citizens did not understand the difference between "evasion" and "avoidance".

    I think it is far more a case that the great financial legislator just could not bear the thought there there were others who were smarter than him.

    But horror of horrors, judging from JW's contribution to the finance debate Labour have caught "Brown's decease".

  8. billyb
    Posted July 14, 2010 at 12:28 am | Permalink

    I find it very sad that a great many of our entrepreneurs and wealth creators, especially those involved in cash trades, think it is fair game to underdeclare their income and overstate their expenses. They think you'd be daft not to. These people seem to despise benefit scroungers and be staunch Tory voters yet miss the connection to their own behaviour. As a result we wage-slave PAYE payers pay more.
    In the book "Freakonomics" such losses were estimated at $300bn in the US, so I suspect the equivalent UK figure is a pretty significant % of the deficit, and probably many times the losses due to benefit fraud. If only HMRC could collect it.
    Having the government admit it exists is a good start. Then coming up with some ideas … what are the chances John?

  9. Posted July 16, 2010 at 12:11 pm | Permalink

    Everyone hates paying their taxes, I always think of Alan Sugar and his philosophy if you are paying a large amount of tax you must be making a lot of money, it is therefore down to the government to collect if fairly.

  10. mashaka
    Posted October 2, 2010 at 4:20 pm | Permalink

    the explanations are quite not enough to enhance understanding

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    John Redwood won a free place at Kent College, Canterbury, He graduated from Magdalen College Oxford, has a DPhil and is a fellow of All Souls College. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.

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