Sort out the tax dodgers, Labour, then the benefit bill won’t be a problem

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Off-message: If Rachel Reeves had promised to get as tough on tax avoidance in her previous job as she is promising to be on benefits now, Labour might have had more credibility.

A lot of people have been getting their knickers in a knot about Rachel Reeves’ interview in today’s Observer – and rightly so.

In it, she tells us (wrongly), “We are not in an environment where there is more money around,” and says that Labour will be tougher than the Tories when it comes to slashing the benefits bill. She stressed that she wanted to explode the “myth” that Labour is soft on benefit costs.

There are a few myths feeding into these statements. Firstly, the myth that millions upon millions of British citizens are living a life of luxury on benefits, which is, quite frankly, infantile nonsense. Benefits do not pay the ordinary claimant enough to afford huge luxuries and never did. They were always intended to cover the cost of survival while the recipient looked for something better. Anything else is a lie concocted by unscrupulous politicians, that you would be a fool to believe.

Then there’s the myth that the British taxpayer is being defrauded out of a fortune by benefit cheats who are (again) living a life of luxury at our expense. One look at the figures dispels that idea! The fact is that only seven people in every thousand commit benefit fraud – at a consequently small cost to the overall budget – and the amount they receive simply would not support the lifestyle our politicians are suggesting for them.

Let’s move up to a bigger myth – that people prefer to live on benefits than get a job. We’ve now moved from infantile nonsense to dangerous nonsense. The current situation, engineered by the conservatives in both Coalition parties, means there are very few jobs available – around 500,000 at any one time, with 2.5 million people chasing them.

And what kind of jobs are they? How many are zero-hours contracts? How many are part-time? These jobs do not pay more than benefits (“Making Work Pay” – another Tory lie) so anyone taking them will be out-of-pocket.

Meanwhile, the Tories in power have rigged the system so that anyone who does not spend the entire working week pestering local businesses for jobs that they aren’t offering will be sanctioned and will lose their benefit for a period of up to three years! It is entirely disproportionate, considering the state of the economy, and may cost jobseekers a lot more than a few quid a week in the long run.

But this is how the benefits bill will be slashed – by the Conservatives and by Labour, if Rachel Reeves is to be believed. Ministers of any party, living in the la-la land of made-up statistics, will sanction people for failing to work hard enough at securing jobs that don’t exist!

Ms Reeves says Labour’s jobs guarantee will ensure that those jobs do exist but we don’t know that for sure. We do know that she intends to continue Tory policy on sanctions – blindly.

Finally, we have the biggest myth of all – that there isn’t enough money. HM Revenue and Customs just released estimates for the last-but-one tax year (2011-12), suggesting that it failed to collect £35 billion in evaded or avoided tax during that year.

That’s seven times more than the national bill for JSA, and more than 29 times the estimated cost of all benefit fraud. But wait – it gets better! This is only an estimate and it has long been believed that the true cost of the so-called “tax gap” is £120 billion – equal to each year’s national deficit, 24 times the cost of JSA or 100 times the cost of benefit fraud.

Why isn’t our government going after these criminals? Why hasn’t Labour promised to go after them if the Tories won’t?

Simple: Both main parties have been re-writing tax law to make it easier for rich individuals and large corporations to avoid paying tax, and ignoring flaws in tax laws that make avoidance possible.

So for example: In the late 1990s, the then-Labour government removed the tax on dividends that meant companies had to pay tax on profits if they wanted to pay them out to the owners. So for example Arcadia boss Philip Green’s wife Tina, who is technically the owner of the company and lives in Monaco, received a tax-free £1.2 billion dividend in 2005; if this tax had been in place, £300 million of that would have gone to the UK Treasury.

Gordon Brown slashed Capital Gains Tax from 40 per cent to 10 per cent in 2000, meaning income that his friends in private equity managed to engineer into capital gains would be taxed at a lower rate than was paid by their cleaners. Not the finest hour for the Party of the Worker!

And towards the end of its term, New Labour started dismantling the rules that guarded against industrial-scale tax avoidance by British multinationals, meaning profits returned to the UK from overseas subsidiaries would be exempt from tax. This created a substantial incentive for firms to send their income offshore.

Before the 2010 election, our old friend David Gauke made a lot of noise about stopping the limitless tax deductibility of interest payments, that had been used by Boots (the chemist) to slash its tax bill. Six months after the election, when he was in a position to do something about it, he was telling everybody the rules would not be altered because business considered them a competitive advantage.

The Coalition brought in tax exemptions for companies’ tax haven branches and for profits parked in tax haven subsidiary companies. Meanwhile, tax breaks for the cost of funding these offshore set-ups, from the UK, are also provided.

Corporation Tax will drop to 21 per cent by 2014, even though there is no evidence that cutting the rate will make the UK any more competitive in world business.

The Treasury’s mission is now to adjust the framework of tax laws to suit big business. The ‘Big Four’ accountancy firms are now well-entrenched in writing our tax laws for us – and they run the most popular tax avoidance schemes. Consultations have descended into a process of agreeing laws demanded by big businesses.

There are clear and irrefutable arguments that reversing these legislative idiocies and closing every other tax avoidance loophole will do far more for the economy than flogging the unemployed to death, looking for jobs that don’t exist.

But I don’t think former Bank of England economist Rachel Reeves will be interested in that. In 1975, an appalled taxpayer wrote to then-Chancellor Denis Healey, complaining that an employee of the Bank (which is supposed to work on preventing tax avoidance) had been giving advice on how to avoid tax. “I wonder if this is really part of the Bank of England’s duties,” the correspondent wrote.

The behaviour of Ms Reeves, the former Shadow Chief Secretary to the Treasury, suggests that she believes it is.

Further humiliation for Osborne and HMRC over tax avoidance

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0sborne has every reason to be red-raced with embarrassment over his pitiful record regarding tax avoidance. Parliament’s public accounts committee has done all the hard work for him and he still can’t put it into practice!

Revenue and Customs bosses, reeling from the broadside they took for claiming the UK’s tax-dodging public enemy number one was a hairdresser from Liverpool, can take no solace from the attitude of Parliament’s own public accounts committee.

Three days before HMRC published its silly little list, the committee called on it to “publically name and shame” all organisations and individuals who sell or use tax avoidance schemes, in order to discourage such activity.

The fact that the organisation has not taken the opportunity to do so serious undermines its position.

Let’s have a look at what the UK Parliament’s website – www.parliament.uk – has to say about the government’s stance, because the criticism is so heavy it’s almost funny:

Tax avoidance—using tax law to gain a tax advantage not intended by Parliament—reduces the money available to fund public services and is completely unfair to the majority who pay the tax due. HM Revenue & Customs (HMRC) estimates that in 2010-11 the tax gap due to avoidance was £5 billion. HMRC further estimates that the present total tax at risk from avoidance over time is £10.2 billion.

In Australia, promoters have to get clearance for schemes before they introduce them. An advance ruling system of this type could deter contrived avoidance schemes and increase certainty in the tax system. Australia has also introduced powers to fine those who promote schemes that could not reasonably be expected to work or comply with the advance ruling system.

“Promoters of ‘boutique’ tax avoidance schemes like the one brought to our attention by the case of Jimmy Carr, are running rings around HMRC,” said Margaret Hodge, chair of the public accounts committee.

“They create schemes which exploit loopholes in legislation or abuse available tax reliefs, such as those intended to encourage investment in British films, and then sign up as many clients as possible, knowing that it will take time for HMRC to change the law and shut the scheme down.

“Their clients can then take advantage of this window of opportunity to make a lot of money at the expense of the taxpayer, while the promoter simply moves on to a new scheme and repeats the process. It is a game of cat and mouse and HMRC is losing.

“It has allowed a system to evolve where the die are loaded in favour of the promoters of tax avoidance schemes. The complexity of tax law creates opportunities for avoidance, there are no penalties to stop people promoting these schemes, and HMRC is ineffective in challenging promoters who are deliberately obstructive or deliberately sell schemes they know do not work. Promoters pocket their fees whether their schemes work or not.

“There is also a lack of transparency that makes it very hard to find out who is involved in marketing or using these schemes. HMRC publicises details of schemes that do not work but does not name the promoters or the clients. We have seen how public anger and consumer pressure can influence large companies, such as Starbucks, to behave more responsibly.

“HMRC should publically name and shame those who sell or use tax avoidance schemes in order to discourage such activity. With at least £5 billion lost to tax avoidance each year, HMRC has got to get much more robust in its approach.

“The requirement that promoters give early notification to HMRC of new schemes has resulted in the swift closure of some. But the Department does not know how many promoters simply choose to ignore the requirement. We are also alarmed to hear that promoters are getting off paying fines for not disclosing their schemes by pleading that, in the opinion of a QC, they have a ‘reasonable excuse’ for non-disclosure. HMRC is right to explore how to make it more difficult for this tactic to work.

“The number of cases HMRC takes to court is tiny compared to the overall caseload. It must make use of the additional resources it has been given to act much more urgently to investigate and close down new schemes and to bring more cases to court.

“Since our hearing, the Government has announced that it is consulting on draft rules designed to allow departments to ban tax-avoiding businesses from being awarded government contracts. This is a welcome move but we will want to monitor closely how any such rules are applied in practice.”

I wonder if the rules on banning tax-avoiding businesses from taking up government contracts will ever see the light of day?

No wonder Osborne can’t pay his debts – he’s chasing hairdressers for tax-dodging!

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accountancy, accountant, Amazon, Arcadia, avoidance, Big 4, Conservative, Customs, debt, deficit, dodger, economy, evasion, George Osborne, government, hmrc, Mike Sivier, mikesivier, Moody's, politics, Revenue, Starbucks, tax, Tories, Tory, Vodafone, Vox Political

It is no surprise at all that the UK has lost its triple-A credit rating from make-it-up-as-you-go Moody’s.

The change has been expected since before Christmas, but that doesn’t make it any less significant. Gideon George Osborne spent the first years of this Parliament using it as a stick to beat Labour – that the UK’s credit rating was the best it could be, thanks to his policies, not theirs.

That was a lie, of course. Others who know more about such matters can better explain the reasons but they have more to do with the value of bonds and savings than anything he did to improve the economy.

Like all credit rating agencies, Moody’s is a group of people who meet every so often and decide on particular countries’ scores, based on nothing more concrete than their own personal opinions. They can’t predict the future; they can only react to the present. That’s why they’re dubbed “make-it-up-as-you-go” at the top of this article.

But you can work out what that means, at this moment in time: 0sborne can’t pay his debts.

That’s astonishing. This is the world’s sixth largest economy, according to the International Monetary Fund. We make staggering amounts of money every year, so the operative question now is: Why the blazes can’t he pay his debts?

The answer lies in another story that broke last week – HM Revenue and Customs’ list of tax dodgers.

This is the list compiled by HMRC in response to public outrage against the tax-dodging schemes of large corporations like Starbucks, Amazon, the water companies mentioned in this blog before Christmas, Vodafone, Arcadia group and so on.

Who do you think this list marks out as public enemy number one?

A hairdresser from Liverpool.

Apparently this person was scalped of £17,000 for deliberate default. Others include a knitwear firm, a wine firm and a pipe fitter.

Meanwhile the amount of cash seeded away in offshore tax havens by the UK’s super-rich is estimated at £21 trillion. That’s 21 TRILLION – more than enough to pay all of our debts and put us back into surplus.

0sborne continues to use the ‘Big 4’ accountancy firms – all of whom operate many tax avoidance schemes for clients – to write the law on tax avoidance; and he changed the law to allow large companies great opportunities to avoid paying tax in the UK.

0sborne himself, remember, was identified as having profited from tax avoidance himself, and in fact offered advice on tax avoidance in a TV interview, while David Cameron’s family made a fortune on tax avoidance schemes.

There is only one conclusion to be reached: The Chancellor is using the HMRC list to laugh at us. He’s mocking the poor, who have to pay tax no matter what. He’s not going to level the playing field because that would harm his own profits and those of his friends.

The Chancellor of the Exchequer is deliberately harming the UK economy.