Tax avoidance helps drive the Big Society

 

          It has become politically fashionable to attack tax avoidance. Many try to lump it in with illegal tax evasion, condemning both. The Chancellor tries to draw a  necessary distinction between aggressive tax avoidance, which he dislikes, and run of the mill tax avoidance which many undertake. It is time politicans and the government recognised that a lot of tax avoidance is commonsense, much of it is actively encouraged by the government, and some of it has a moral purpose.

          I want to give four examples  of people who lower their overall Income Tax rate or  Vat bills  for good reasons.

         The first is a retired accountant called Charity. She has a decent private pension from a tax sheltered pension fund. Her retirement income is bigger than she needs, as she lives modestly. Her leisure pursuits of listening  to the radio, going for walks with her dog, and attending the local theatre are not expensive. She works one day a week as a volunteer for the CAB, is a JP, and is actively involved with a local animal charity. She is a very generous regular donor to the charity, using the government’s tax saving scheme for her donations. Both she and the charity benefit from the tax relief or tax avoidance on offer.

           The second is a working mother called Prudence. She had ten years off work to bring up her children. When her husband left her she got an administrative job with the local Council. She is now making accelerated payments into her pension fund, as she wants to provide for her own old age, thinking it wrong to rely on means tested benefits as a pensioner if you can save for  yourself. Her tax charge is lowered thanks to the pension tax reliefs available.

          The third is a senior teacher called Mr Reader. He believes in good levels of public spending, especially for education, and has devoted his life to teaching, even though it used not to be that well paid. Following Labour’s good pay rises, he now has something spare each month to save. He lends it to the government through tax privileged national savings. He pays PAYE Income Tax. Because he  does not want the hassle of having to declare savings income he  takes advantage of the tax breaks on offer. He feels his savings contribute to higher state spending and think the tax breaks are moral.

         The fourth is a successful small business owner called Ed.  He now mentors local small businesses, and gives time as a volunteer to help start ups in his town. He has decided he should always try to employ sole traders to do any work he needs doing at home – plumbing, building, electrical work or help with the garden. He decides  he will only employ small businesses that are not registered for VAT, saving himself and them the VAT burden. It  means he can spend more on what he needs, and give them a bigger boost to their turnover as a result.  He is therefore avoiding substantial Vat sums.

         The government rightly welcomes the Big Society. That requires charities and volunteer activity to flourish. Tax breaks drive much of this generosity of spirit, and help furnish the charities and other institutions with the cash needed to organise the volunteers and create the work programmes.  Politicians need to be careful lest in their enthusiasm to lump tax avoidance in with tax evasion they do damage to that strong UK tradition of volunteer work and giving, and undermine some of the government’s own tax  saving schemes which have been designed to influence our conduct. They also need to be aware that tax savings drive much of the savings and pensions efforts of people, a bulwark of a free society. It is these savings which keep many people away from needing more benefits from the state in hard times and old age.

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71 Comments

  1. Brian Tomkinson
    Posted April 8, 2012 at 8:50 am | Permalink

    The whole issue is hypocritical. Most people attack tax avoidance when it is something they cannot do themselves, otherwise its fine. Who actually likes paying taxes and wants to pay more? Even politicians like to boast of how they have “taken 1 million people out of tax altogether”, whilst they busily look for other ways to waste more money and therby require higher taxes. Focus on reducing government spending, allow people to save and spend more of their own money and you never know the economy might just improve.

    • lifelogic
      Posted April 8, 2012 at 2:49 pm | Permalink

      The people who say they like paying taxes are in my experience usually people who do not pay very much, people who are in reality hypocritical or people who simply do not understand how much is chucked down the drain by government (or even worse often spent on things with negative consequences).

      You could perhaps add to JR’s list No 5. Someone who just runs a business and wants to retain the money in it to expand it, purchase more plant, create more jobs and be able to compete – rather than just handing the profits over to be wasted by the state.

      This person too help society by providing real and lasting jobs with proper capital equipment, growth and a future tax base. It helps society rather better if the money stays with the business.

      • uanime5
        Posted April 8, 2012 at 7:08 pm | Permalink

        Surely if this business owner spent their money on expanding their plant and creating jobs they’d have lower profits and would therefore have to pay less taxes on these profits. Making large profits would indicate that they’re not investing enough back into the business.

        • lifelogic
          Posted April 9, 2012 at 5:26 am | Permalink

          Not true you cannot offset all capital expenditure against business profits in that way.

        • lifelogic
          Posted April 9, 2012 at 8:00 am | Permalink

          Also businesses pay many taxes even if they make no profit at all. Employers NI, rates, public music taxes, stamp duty, VAT, VED, fuel duties, planning fees, building control fees, to name but a few.

    • Susan
      Posted April 8, 2012 at 3:35 pm | Permalink

      Brian,

      There seems to be a lot of hypocrisy going around and most of it is not coming from the public but from Government. Take the banks, Government tells the public that the banks must lend more, but in private they have been told to hold more capital, they cannot do both successfully. I could provide many examples of where the Government is telling the public one thing and yet the actual circumstances are quite different. This latest one on tax avoidance is yet another example. They give the public the message that aggressive tax avoidance is morally wrong yet they have no intention of stopping rich people avoiding tax. Then they wonder why the public confuse the issue of evasion and avoidance.

      Now I have nothing against people avoiding tax if they find a way to do this. However what I do object to is the middle classes in general have very few ways to avoid tax, apart from the usual pension and tax free savings. What we are seeing is the middle classes taking most of the burden of the tax increases. We see it most recently in the so called granny tax where people who have been prudent and saved for their retirement are being punished for actually taking responsibility for themselves.

      Now it seems to me that it is all very well to accept that the those that can avoid tax will no matter how rich they are. However, when people who have no way of avoiding tax and have worked hard and saved are forced to take the main burden of taxation that becomes an entirely different matter. The message from Government is starting to look like, if you have worked hard to do better, paid your taxes, saved and acted with responsibility within society we are going to punish you for that through taxation. The middle classes are starting to look like the easy target for this Chancellor and that is not acceptable.

    • Daedalus
      Posted April 8, 2012 at 4:18 pm | Permalink

      Easy isn’t it? But will they? No I don’t think so. The trouble with common sense is it is so uncommon!!!!!!!

      Daedalus

  2. APL
    Posted April 8, 2012 at 8:59 am | Permalink

    Off Topic:

    Would you say the results of our, Foreign Secretary regime change policy on Libya have been a resounding success?

    • lifelogic
      Posted April 8, 2012 at 12:39 pm | Permalink

      Regime change policy is almost always a disaster, there being no reason to assume the new one to be any better than the old. Further the change from one to the other is nearly always a very, very unpleasant period.

      • APL
        Posted April 9, 2012 at 9:33 am | Permalink

        Lifelogic: “Regime change policy is almost always a disaster, ”

        Yes, ordinary folk, no disrespect to your self ll, seem to have realized this simple and obvious fact about twenty years ago.

        What is wrong with the political class that they simply cannot seem to understand the basic lessons life tends to teach?

        When are we going to hear William Hague and David Cameron admit that maybe they made a mistake interfering in Libyan internal affairs?

  3. A Different Simon
    Posted April 8, 2012 at 9:01 am | Permalink

    Absolutely spot on J.R.

    That politicians fail to distinguish between tax-avoidance and tax-evasion must surely be deliberate . It is isn’t it John . Please tell me that all MP’s know the difference ?

    That layman fail to distinguish between tax-avoidance and tax-evasion is a reflection that people do not take responsibility for their own financial affairs .

    People are very keen to try and evolve their financial affairs to accountants or advisors when in reality it is far too important for that .

    Sadly the majority of the population are not capable of addition , subtraction and multiplication , never mind compound interest . Many of the remainder are are either too lazy , institutionalised and disinclined to look after their affairs , or don’t have to because it’s all done for them courtesy of a tax-payer guaranteed risk-free defined benefit pension .

    All they are good at is complaining about those who “avoid tax” , about those who have the gumption to set up their own companies or become self-employed , or protest that profits of companies , wages of footballers should be limited from the luxury of their defined benefit pensions because they dont’ need to invest money to provide for their old age themselves .

    • A Different Simon
      Posted April 8, 2012 at 9:01 am | Permalink

      Typo : DEVOLVE not EVOLVE

  4. Nick
    Posted April 8, 2012 at 9:01 am | Permalink

    The problem is that you as a government are desperate for cash – any cash.

    Deficit 150 bn. Spending increasing above the rate of inflation – no overall cuts.

    Debt 7,000 bn, almost all Bernie Maddoff’ed off the books.

    So its tax tax and more tax.

    What has happened is that the linkage between taxes and services has been broken. No one has a clue as to what they pay for a government service, and as such cannot judge if its value for money.

    For example, what do you pay for the NHS?

    What’s the cost of providing the NHS for one person?

    I doubt anyone has a clue. [I've a rough clue but that excludes the big future costs of pensions - with no services for that money]

  5. JimF
    Posted April 8, 2012 at 9:04 am | Permalink

    The issues you state are all legal ways of passing money through the system without incurring confiscation of part of it.
    However, where does that leave the tradesman who aspires to earn more than the VAT threshold but has to compete with those just under it?
    Where does it leave the small businessman who went through years of earning below the higher rate threshold when his public service buddies were earning good money, only to find that as soon as his business has grown to the size where it pays Corporation tax, and he higher rates of income and CGT, the Labour/Conservative taxing duopoly has not only moved the goalposts, but totally changed the rules of the game?

    • uanime5
      Posted April 8, 2012 at 7:30 pm | Permalink

      “Where does it leave the small businessman who went through years of earning below the higher rate threshold when his public service buddies were earning good money”

      By higher rate threshold are you referring to the 50% tax rate for those who earn over £150,000? If so then the small businessman is probably earning much more than his public service buddies.

      “only to find that as soon as his business has grown to the size where it pays Corporation tax, and he higher rates of income and CGT”

      Corporation tax is 20% for those earning below £300,000 and 26% for those earning above this amount. I’m not sure why the businessman wasn’t paying this in the past.

      By higher rate of income I take it you mean the 50% tax rate for those who earn over £150,000. Is a salary of £150,000 normal for a company earning about £300,000?

      I’m fairly sure you have to pay CGT no matter how little your company earns unless you’re making a loss.

  6. David Williams
    Posted April 8, 2012 at 9:16 am | Permalink

    Tax avoidance kills black economies.

    • uanime5
      Posted April 8, 2012 at 7:11 pm | Permalink

      Surely those who avoid paying their taxes have more to spend in the black economy. After all why buy legitimately when you can buy cheaply.

  7. alan jutson
    Posted April 8, 2012 at 9:20 am | Permalink

    John

    In your example Ed does not save all of the VAT, as a non registerd business cannot claim back VAT on purchases made, thus the VAT included price is charged (although not highlighted) on any materials purchased by the sole trader you outline.
    I would agree that Vat is saved on the labour element, as this is VAT free until the turnover of the business reaches a qualifying/registered level.

    From a business point of view, the problem with the VAT registration level is should you be supplying and fitting higher capital cost items (materials), then you cannot earn a living wage (VAT free) as your materials cost alone push you above the threshold levels, when competing against someone who just supplies labour only.
    Some businesses get round this by getting their customers to purchase all materials for them, from the supplier, and then only charge (VAT Free) for the labour element, but this then risks the customers material investment, if the job is not a good one.

    Having a company supply and fit, both materials and labour, means the customer has more control.

  8. Bob
    Posted April 8, 2012 at 9:28 am | Permalink

    “It has become politically fashionable to attack tax avoidance.”

    A political fad started by Labour and as usual the Tories fell in right behind them, just like grammar schools. Labour lead and the Tories follow.

  9. Alan Radford
    Posted April 8, 2012 at 9:33 am | Permalink

    It’s a shame you didn’t have Charity as a gentleman. Charity and Prudence could have got together, with Prudence enjoying the security of Charity’s pension, and Charity enjoying the company of a younger woman in his twilight years.

    Mr Reader is obviously a socialist who has benefitted from the high levels of public pay, financed by Prudence and Charity.

    • Mark
      Posted April 8, 2012 at 12:47 pm | Permalink

      It being Easter, aren’t Faith and Hope the missing personalities?

      Now we see through a glass darkly.

      • Denis Cooper
        Posted April 8, 2012 at 2:23 pm | Permalink

        But the greatest of these is charity; which in my view doesn’t mean forcing other people to pay more taxes to make up for the shortfall in government revenue because you’ve got tax relief on your charitable donation.

        • Mark
          Posted April 9, 2012 at 4:06 pm | Permalink

          So you’re happy with the aid budget then?

  10. Bernard Otway
    Posted April 8, 2012 at 9:33 am | Permalink

    It is utterly stupid to CONFLATE tax avoidance with tax evasion,BUT that is the way of the LYING disseminators in modern social comment,they CONFLATE everything EG
    Racism/homohobia/and any other ISM or PHOBIA to arrive at the WORST possible label
    for those NOT on the left,remember “TWO LEGS BAD FOUR LEGS GOOD” plus ALL the
    politico brainwashing propaganda nasty words ORWELL invented in that BLUEPRINT
    for the left called 1984.They want society to be a MATRIX that is a CONFLATION of the movie of that name PLUS two others called EQUILIBRIUM and SERENITY.I think they are ALL “EVIL” IF EVER I got my hands on a STARSHIP like Captain Kirk,s the transporter machine would be very busy with it,s END target being the centre of the SUN.
    I recommend a read of “Fred on Everything” his latest piece called “We are Screwed” is
    EYEWATERINGLY SEARINGLY HONEST. Just google him

    • Scott
      Posted April 10, 2012 at 7:02 pm | Permalink

      Seriously? You realise George Orwell wrote Animal Farm and 1984 as satire warning against hugely authoritarian right wing regimes. Animal Farm, he stated, was designed to show that Russia when he was writing was not a truely communist regime. 1984 was about an Authoritarian governmnet and poked fun at right wing ideals (like the fact that they constantly publish figures saying how much they are producing but no-one ever seems to get any of it, and the references to the war using up all the resources, a dig at the whole concept of GDP!). To suggest that 1984 or Animal Farm where a “Blueprint for the left” shows a deep misunderstanding of the concept of satire written by a very left wing individual. He even stated so much when he said “For some years past I have managed to make the capitalist class pay me several pounds a week for writing books against capitalism… the only régime which, in the long run, will dare to permit freedom of speech is a Socialist régime.” So 1984 probably wasn’t a “blueprint for the left” but a critique of the right.

      Reply: 1984 sounded very much like the Communist USSR, and Animal Farm could apply equally to dictatorships of the extreme right or left.

  11. Antisthenes
    Posted April 8, 2012 at 9:46 am | Permalink

    It is the difference between Nanny state and Big society between left and right. In both there are winners and losers in the former everyone eventually become losers equally in the latter eventually everyone becomes winners inequitably.

  12. libertarian
    Posted April 8, 2012 at 10:00 am | Permalink

    Excellent post John, neatly explains all we need to know about normal tax behaviour.

  13. David John Wilson
    Posted April 8, 2012 at 10:20 am | Permalink

    The fifth example that you didn’t give was of politicians, council officials and many others who set up private companies, sometimes abroad, into which their earnings from lectures, TV appearances and even in some cases their actual salaries can be paid to avoid tax.

    The examples that you gave, certainly the first three do not worry me, as they are using vehicles set up by the government to encourage people to avoid tax by participating in activities that they deem desirable.

    What is very worrying is when people use means of tax avoidance that are set up for completely different reasons. I would make it illegal for an individual’s earnings to be paid in a way that avoids NI or income tax. If some of this income needs to be used to pay for things like secretarial services then these should be claimable as expenses.

    Turning this subject around, there is a strong case for people to be able to claim for services like cleaners, gardeners etc. against their income tax. I would in this situation require the cleaner etc. to produce evidence that they are declaring the money paid for tax purposes.

    This could have two advantages. Firstly it would encourage the employment of people to carry out such services. Secondly it would attack the black economy.

    • JimF
      Posted April 8, 2012 at 1:58 pm | Permalink

      A distinction can be made between employees and the self-employed. We have to assume that the public officials involved in channelling money into Companies have service contracts rather than employment contracts. They therefore have no pensions, sickness, holiday or other benefits which would be enjoyed by employees. They also need to have multiple sources of self-employment.
      Otherwise this is illegal.
      On your last point, I agree. People should be able to reclaim expenses on expenditure directly attributable to their own income e.g. travel, child minding

      • David John Wilson
        Posted April 8, 2012 at 3:18 pm | Permalink

        All the cases that I have met where people employed on service contracts have their money paid into companies they have been in a single employment. They are paid extra to account for the lack of sickness benefits holidays pensions and other benefits.

        They should not be paid into a separate company except where that compnay has other genuine employees who contribute to the contracts.

        In a recent well publicised example three senior managers of Bracknell Council were identified as being paid in this way even though their responsibilities etc were no different from their peers.

        • JimF
          Posted April 8, 2012 at 9:04 pm | Permalink

          I presume then this skates around the HMRC ruling, these people being employed by their own Ltd Company rather than self-employed. It could easily be seen by HMRC if they chose as tax avoidance, as with one customer and seeking no other business these Ltd Companies are just tax avoidance vehicles.

      • Tony Baverstock
        Posted April 9, 2012 at 9:56 am | Permalink

        Part one is correct, no pension, no holiday pay, no employment rights.
        However, the second comment that you need multiple sources of income is not. A company can have a single source of income but is then likely to be covered by IR35.

  14. Leslie Singleton
    Posted April 8, 2012 at 10:20 am | Permalink

    Osborne should keep his advice to himself. If it is not illegal (which it wasn’t) to pay yourself through a company then that is or should be the end of the analysis. If he can persuade Parliament to make it illegal so be it. When I went to school a judge had made this position abundantly clear and it is just typical of the present Government that they should get this so wrong.

  15. APL
    Posted April 8, 2012 at 11:05 am | Permalink

    JR: “The Chancellor tries to draw a necessary distinction between aggressive tax avoidance .. ”

    Thanks, it’s about time somebody in the political class stood up for arranging ones affairs in a legal and tax efficient* manner.

    The Chancellor is a fool to use this sort of rhetoric.

    * Tax efficient in the sense of legally minimizing ones own tax obligation.

  16. lifelogic
    Posted April 8, 2012 at 11:19 am | Permalink

    You say “a lot of tax avoidance is common sense, much of it is actively encouraged by the government, and some of it has a moral purpose”. I thing that the vast majority of it has a moral purpose. It will be almost invariably spent rather better by the individual than the state. What is clearly “morally repugnant” is tax borrow and waste. Also to run a tax system, with such high rates and of such complexity, that it virtually obliges companies & individuals to use expensive and contrived structures in order to compete and survive.

    They either do tax planning, they go abroad, they move their capital abroad, or they go out of business.

    Under Osborne’s idiotic tax system they have little choice. If Osborne wants to reduce tax avoidance he should change the tax system he controls and make it sensible. Start with his promised £1M IHT threshold perhaps and a flat rate 20%.

    He is the source of the problem and could be the solution.

  17. Susan
    Posted April 8, 2012 at 11:28 am | Permalink

    I don’t disagree with anything you have said Mr. Redwood. The problem is the message is becoming confused. Either tax avoidance, agressive or not, is legal or you bring in anti tax avoidance legislation and it becomes illegal. It really is as simple as that. The message at the moment from our Chancellor is that it is legal but morally it is not. Now as society should run along the lines of both legal and moral matters it is time for the Government to give proper guidance to the public. Otherwise we end up with this mixed message where certain people are looked at as pariahs for avoiding tax, perfectly legally and conversely others are not.

    • Bazman
      Posted April 9, 2012 at 1:31 pm | Permalink

      It’s either legal or illegal if the company want to make it so complicated that none can understand it or by just taking the piss like Philip green does by making millions in the UK registering part of the company to his wife and then flying in from Monaco, then it should be illegal. Our country our rules we are not a tin pot tax haven whos population are open to exploitation. This is not good for business.

  18. Caterpillar
    Posted April 8, 2012 at 11:53 am | Permalink

    Indeed tax breaks and tax savings drive behaviour, more examples of Govt believing it can coordinate the economy more efficiently than a free market. Perhaps just much smaller Govt might be an alternative approach.

  19. Posted April 8, 2012 at 12:26 pm | Permalink

    There’s a lot more to the big society than the flow of money John. Does anyone at Conservative HQ understand that?

    • alan jutson
      Posted April 9, 2012 at 7:02 am | Permalink

      Rebecca

      “Does anyone at Conservative HQ understand that”

      I do not think so.

      The Big Society (what a horrible name that is) should surely be about voluntary work in the community and encouraging those who do it .

      Governments for decades have simply put more and more obstructions in the way of voluntary workers efforts.

      Increasing Health and Safety requirements (Risk assessment and Method statements) official road closure orders, mandatory insurance for millions of pounds of liability required for any event, form filling and months of notification, official food and safety requirements, official signage, CRB registration, etc etc.

      With too much regulation people now think twice before offering help, thus many voluntary service clubs are struggling to retain membership numbers as their older members pass on.

      Just look at how Carnivals , Fairs and the like have reduced in number due to rising costs and officialdom.

      Indeed such is the growth of our claim society, if you offer to take disabled people to hospital on a regular basis for expenses (fuel money only) you have to clear it with your insurance company first to explain that you are not running a business for hire and reward.

      • Posted April 9, 2012 at 8:13 pm | Permalink

        We now have a new tool in the box in renergising the kind of local community connection which is needed to empower people to make a difference Alan and that’s the internet. Bureaucracy is not so onerous when you have discussion forum and online resources. And communities have always been good at fundraising when they get together….

        But where is the discussion about all this?

        I get the impression that the people in the Westminster bubble have no idea how to empower communities because they don’t actually understand what local communities are.

        Grrrrrrr

        • alan jutson
          Posted April 10, 2012 at 7:49 am | Permalink

          Rebecca

          Whilst I would agree that the internet provides a forum for discussion, it does not provide bodies to do the actual voluntary work which takes time, effort, and committment.

          I have been a member of our Local Lions Club for 24 years , have held every position in the club other than Treasurer.
          Yes we have a web site, as does Lions International (our parent organisation), yes it does attract the occassional new member or indeed someone who wants help, but we are struggling to retain, let alone increase our membership numbers, as are Rotary, Round Table and a host of other voluntary service organisations.

          I outline a simple act we used to do at Christmas, in the delivering of a number of surprise food parcels to the needy/elderly in our area.
          The number we now deliver is dropping fast as people pass on or eventually go into nursing homes.
          We used to be able to supplement this with new names from doctors surgeries, local social workers, health visitors and the like, now they cannot give us any new names under data protection laws, so such people who perhaps need help do not get it.

          Those needy people cannot afford a computer or broadband, as they can only just afford food, thus the data protection act hinders us finding them, in order to give help.

          I could list a whole range of increasing problems with regard to fundraising activities, but that is for another day.

  20. Max Dunbar
    Posted April 8, 2012 at 1:05 pm | Permalink

    You seemed to be doing well until the last paragraph.
    The Big Society reeks strongly of socialism. No amount of de-odourising with worthy causes or laudable public charity will convince me that there is not a rat there gnawing away and making a nasty smell.
    May be worth looking into the origins of Big Society?

    • lifelogic
      Posted April 8, 2012 at 4:14 pm | Permalink

      I must admit when Cameron came out with his “Big Society” stunt I did think he was rather mad – it did seem to reeks strongly of socialism but then as we see he clearly is one. When Osborne then came out with “aggressive tax avoidance is morally repugnant” I knew he clearly was going mad.

      When does it become too aggressive for him? When perhaps one puts the maximum £50K into a pension or £10K+ into isas, or when house of commons restaurants & bars are subsidised to the tune of £100 per MP person day (tax free benefit in kind) perhaps or when you just leave the county completely – perhaps to go to Grand Caymen – is that aggressive enough?

      Perhaps he could clarify?

      • Posted April 8, 2012 at 7:40 pm | Permalink

        I thought Cameron was being remarkable sane. What a shame he never came close to understanding what he was actually talking about. :(

        • lifelogic
          Posted April 9, 2012 at 5:41 am | Permalink

          A vague meaningless phrase “Big Society” rather like an “Integrated Transport system” did anyone want a “disintegrated transport system”?

  21. Alan Wheatley
    Posted April 8, 2012 at 2:12 pm | Permalink

    Excellent.

    Should be required reading for everyone.

  22. nemesis
    Posted April 8, 2012 at 2:47 pm | Permalink

    Then consider another case of a small tradesman doing very well and would love to expand and employ more people. He decides against it because if he goes over the VAT tax threshold he is into a whole different ball game and if he employs over a certain amount of people all sort of health and safety and other regs come into play. So, instead when his business reaches a certain income he quits for the rest of the year and goes on holiday or decides to only deal in cash or gets others to moonlight for him.

    • uanime5
      Posted April 8, 2012 at 7:40 pm | Permalink

      Some health and safety regulations come into play no matter how few employees you have.

      Also if the tradesman decided not to work this means that there will be more work available for other people. This will help reduce unemployment.

      • Caterpillar
        Posted April 8, 2012 at 11:09 pm | Permalink

        uanime5,

        “Also if the tradesman decided not to work this means that there will be more work available for other people.”

        (1) (In aggregate) the work won by the tradesman will based on price/quality. In removing his labour from the market (due to a distortion) then another tradesman may do the work at a higher price or lower quality, thus the economy is less efficient.
        (2) Moreover by not being able to expand the tradesman’s fixed costs are not spread over more business – hence the economy is less efficient, and
        (3) Expanding and employing allows the more efficient in an area to diplace the less efficient, that resource then moving elsewhere – again this is limited by tax/regulation distortions – again economy is less efficient.

        Driving the economy to reduced efficiency makes the country poorer.

        • lifelogic
          Posted April 9, 2012 at 11:58 am | Permalink

          Exactly Mr (or Ms) Caterpillar.

        • uanime5
          Posted April 9, 2012 at 7:52 pm | Permalink

          1) The price will only rise if the market is undersaturated, while if there is a surplus of tradesmen then the price will remain static. Also there’s no guarantee that the work will be lower quality or at a higher price it cannot be assumed that the economy will be less efficient.

          Finally as the other tradesman will be earning additional money they will therefore need less welfare and will be able to spend more money in the economy. This benefits the economy.

          2) While the tradesman may not be able to benefit from greater economies of scale, possibly making their business less efficient, this doesn’t result in the economy being less efficient. Economies can be efficient even if they are mostly composed of small businesses, such as the construction industry.

          3) Expanding and employing doesn’t displace the less efficient. For example more efficient supermarkets have replaced many smaller and less efficient stores they haven’t completely removed them because of the existence of niche markets.

          Also more efficient doesn’t automatically mean better for the economy. If a group of poor quality tradesmen band together to lower their prices as much as possible to force the higher quality but more expensive tradesmen out of business then the whole economy will suffer because the overall quality of the tradesmen will be reduced.

          Finally resources often don’t move to other locations, for example when the mines were closed most of the people in mining towns weren’t able to move to another town. This resulted in the economy being less efficient as it created more unemployment.

          In conclusion don’t confuse efficiency with improving the economy. Efficiency tends to result in reduced jobs, which is very bad for the economy.

          • alan jutson
            Posted April 10, 2012 at 7:53 am | Permalink

            Unanime5

            Working efficiently usually means you stay in business, as you can compete, rather than going out of business because you cannot.

          • uanime5
            Posted April 10, 2012 at 11:43 am | Permalink

            alan jutson

            Caterpillar was talking about the economy being efficient, not a business. While a business is more likely to survive if they’re efficient the same cannot be said of the economy, as the economy has to deal with the unemployed.

  23. Barbara Stevens
    Posted April 8, 2012 at 2:49 pm | Permalink

    Of course Mr Redwood your assumption is that everyone has a good job over the years to be able to pay or save toward a good pension. If however one is plighted by unemployment saving and paying toward a old age pension is depleted. Getting jobs when one is over 50 is bad enough, therefore saving once this happens is difficult. Many people had poorly paid jobs for years, once their salaries picked up they were made redundant in the 80’s and the salary was never the same after. With interest rates then, at 15% saving money and paying the mortage and bringing up two children was very difficult. Surviving was the name of the game and retaining the property one had fought hard to get and pay for. We succeeded, but not without sacrifice. Private pension provision was small compared to what is should have been, or could have been if employment had been continuous. We never had the chance to be like Charitiy or Prudence, or any of the rest of your suggested people. We did however fight to retain what we had, even through illness and strife, but the thought of paying no tax or getting away with not paying what was due didn’t enter our minds. May be we are the old school, where honesty and hard work is the rule of the day. Now retired, to have tax allowances cut, for that is what it is, is wrong. Where we worked for our gains many are not, and it’s that which makes us angry and sick to the stomach.

    Reply: Of course there are people who for good reason have not been able to save, which is why we have other benefits to help them.

  24. Andy
    Posted April 8, 2012 at 2:55 pm | Permalink

    I think the term ‘aggressive tax avoidance’ is absurd. Tax avoidance is just the prudent arranging of ones affairs so they are the most tax efficient. It is not our fault if the State is so dim when it draws up tax law. Tax avoidance cannot be ‘aggressive’ or ‘passive’. It just is. I am also wary of the actions of HMRC in regard to what Barclays Bank were doing, which was not illegal. HMRC were taking unto themselves powers they do not hold. We should all worry if HMRC, or indeed any other agent of the State, can suddenly define something that is legal is somehow (God knoweth how) is illegal.

    • uanime5
      Posted April 8, 2012 at 7:43 pm | Permalink

      What HMRC did to Barclays was decide that something was ambiguous was illegal. Being able to do something doesn’t make it legal.

    • lifelogic
      Posted April 8, 2012 at 7:57 pm | Permalink

      Indeed retrospective tax changes are evil and totally counter productive. An example is pensions, encourage people to put money into a pension on one basis then change the all the rules to mug them (Brown and now Osborne style).

      • Andy
        Posted April 9, 2012 at 9:29 am | Permalink

        My point is that I do not think (nor did a retired Parliamentary Council writing in the letters page of The Times) that HMRC acted within the law. What Barclays Bank were doing, though quite technical, was entirely legal. HMRC came along and said that it was contrary to the ‘Banking Code’, but that is not law is it ? How did it suddenly become so ? Obviously it was a miracle.

  25. Electro-Kevin
    Posted April 8, 2012 at 4:41 pm | Permalink

    We’re having difficulty replacing me (Scout Chairman) and our treasurer. Our children left the Scout group some while ago and there is a real shortage of parent volunteers for whatever purpose, be it fund raising, hut maintenance or group leaders. Most of our volunteers have grown-up children and are of the ‘boomer’ generation.

    I feel that the biggest cause of lack of support is that – in order to buy homes/pay rent, tax and stay out of debt – Mum has to work all the hours as well as Dad. Both are utterly knackered.

    The UK work/life balance is askew for many. Fund raisers such as Sport Relief are successful but I find that getting people to give of their time long-term and on a regular basis is far more difficult to achieve.

  26. uanime5
    Posted April 8, 2012 at 7:05 pm | Permalink

    Why does the government give Charity money for giving her money to a charity? Is giving taxpayers’ money to those who give to charity really the best use of taxpayers’ money?

    Ed isn’t avoiding a tax since it’s the companies he hires that have to pay VAT not him. Hiring people who are engaging in tax avoidance or evasion isn’t a form of tax avoidance; to be tax avoidance you have to use legal means to reduce your tax bill. Simply reducing the cost of running a business isn’t automatically tax avoidance.

    Also you missed another form of tax avoidance used by Mr Footballer who is paid £150 million per year. In order to avoid paying the 52% tax rate (50% income tax and 2% NI) he sets up a company so he only has to pay Capital Gains Tax (28%) on his earnings. Thus Mr Footballer pays a smaller percentage of his income in taxes than Ed (42%; 40% tax rate and 2% NI), Mr Reader (52%; 40% tax rate and 12% NI), and Prudence (32%; 20% tax rate and 12% NI).

    • Bazman
      Posted April 9, 2012 at 7:26 am | Permalink

      Charity is just a way for the rich and middle classes to morally justify non payment of taxes whether legal or not and to water down the case for paying any tax whatsoever.
      It’s the village mentality of the local woman checking to see if the other local woman struggling are of enough moral virtue to revive any payouts to help their starving children by inspecting their houses along with other members of the charity committee. Any work given to the men of the village is also seen as charity and if their is no work available then they are not looking hard enough or their rates are to high. What next? I’ll tell you whats next. Motorways built by charity. I’m willing to contribute a few bags of sand and turn up with my own tools wife/weather permitting. You/your company pay your taxes and it’s the governments job to make you pay. If there is holes in the system then it’s their job to block them. Charity is your own business. Ram it.

    • lifelogic
      Posted April 9, 2012 at 12:04 pm | Permalink

      It is not quite as easy as that for Mr Footballer you will find (if you take good tax advice). Anyway even if he does pay just £42M PA is that not enough payment just to have his bin collected once every month? or whatever the interval is nowadays.

  27. Posted April 8, 2012 at 11:01 pm | Permalink

    If you promise to come and visit I’ll bid on this as a potential celebratory present John
    http://www.ebay.co.uk/itm/Margaret-Thatcher-Mug-Cockermouth-area-/320883701178?pt=UK_Collectables_Memorabila_RL&hash=item4ab628b5ba#ht_500wt_1198

    :-)

    Reply I visited your area last year

  28. Mike Stallard
    Posted April 9, 2012 at 6:03 am | Permalink

    The bankers are greedy.

    But not as greedy as the government.

  29. Sarah
    Posted April 9, 2012 at 6:55 am | Permalink

    Again I disagree with your analysis. I assume you are not trying to suggest that any of the persons outlined in your sketch would suffer from the Chancellor’s anti avoidance attack?

    The real culprits are the Phillip Green’s who pursue aggressive tax avoidance to avoid tax altogether. I once worked for a man who used such aggressive tax avoidance he managed to erode his personal allowance in a single tax year despite being on an income in excess of £500,00o a year. This can’t be right. Incidentally none of it was charitable giving! He was also self proclaimed left wing!

    It seems to me capping tax avoidance is a very good idea. It doesn’t affect tax payers on lower ie normal income scales. The possible exception should be “charitable” giving.
    Personally I think we should be heading for a much simplified tax code where there is a generous personal allowance and all income is taxed at a flat rate with no exception. What do you think John?

  30. Posted April 9, 2012 at 7:20 am | Permalink

    Salutary tales. Also, if people avoid tax, they’re likely to do socially useful things with their money, such as spend it, save it, or give it charity. It’s thus less likely to be squandered on governmental admin.

    Wouldn’t it be better, though, to have just one type of tax which could be levied on spending? If we wanted, the tax-rate could be varied depending on how indulgent or dangerous we thought the goods or services were. Vendors would be the tax-collectors and the exchequer could receive such purchase-tax payments electronically, the instant that we paid. We could get rid of all administration for national insurance, income-tax, duty and corporation-tax, along with all the fiddles, reliefs and loopholes.

    Political parties could then lay before the electorate a simple structure of tax-rates (or even a single rate) and a description of what they think the tax will raise and how it will be spent. The incentive will be to work (tax-free) and be thrifty (by saving). If governments think they must intervene in markets, they can promote certain things by zero-rating them or, even, making the purchase-tax negative and thus subsidising them.

    • uanime5
      Posted April 9, 2012 at 7:30 pm | Permalink

      Saving money isn’t socially useful as it doesn’t benefit the economy. It’s only real use is to render you ineligible for welfare if you lose your job. Giving to charity is only socially useful if you don’t demand the Government pays you for giving to charity.

      The only way to implement you idea would be to raise VAT to 60% and hope that cheaper imports on the black market don’t ruin the whole economy.

      Also being thrifty will be very detrimental to a Government that gets all it’s money from sales. The Government will need to promote squandering to ensure that it maintains a sufficient level of tax revenues.

  31. Bazman
    Posted April 9, 2012 at 1:43 pm | Permalink

    Big society means you sack the librarian and then ask her to volunteer. Aggressive tax avoidance? It’s either legal or illegal and as the chancellor if you let people avoid tax then you are not doing your job properly and need to be sacked as you are trying to blame anyone who does not volunteer to pay tax and who does that? You don’t have to volunteer and like to pay tax. You just have to pay. A point lost on Gideon and his chums who seem to be confused with the difference between tax and charity, but not as confused as some of the donors who are now threatening to withdraw their donation due to tax changes. Not very charitable and speaks volumes on their intentions and motives. Ram it.

  32. Ian
    Posted April 10, 2012 at 12:44 pm | Permalink

    John Redwood is touching on a good point that is getting lost. Tax avoidance will always be operated whether high rate tax is 25 per cent or 97 per cent.

    The question is, does the government ignore wheezes such as bogus (but not illegal) spousal-owned companies in Monaco set up to reduce tax bills or tackle and replace them with more useful avoidance schemes such as investing in training and R&D as well as long term bonds for British manufacturing.

  • About John Redwood

    John Redwood has been the Member of Parliament for Wokingham since 1987. First attending Kent College, Canterbury, he graduated from Magdalen College, and has a DPhil from All Souls, Oxford. 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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