Notes from Catherine Rowett, former Green Party MEP for East of England and deputy coordinator of the Eastern Region Green Party*(UK). Biographical reflections on life as an MEP. Longer reflections and discussions on issues relating to policy, the good life, justice, equality, anti-austerity economics and the future of the planet. This is also a forum for exchanging ideas on how to tread lightly on the planet and avoid supporting exploitation and corrupt practices. Here we go...

Monday, 6 April 2015

Tax loopholes

At the end of March, a number of people wrote to me about the so-called "Mayfair Loophole". Or rather they wrote to the current MP in South Norfolk who is Richard Bacon (Conservative), and copied me in to see what my view was. This is what they wrote:

The Mayfair loophole gives special treatment to private equity bosses. They shouldn’t be allowed to dodge up to £700m of tax a year. It’s money which should be going to our NHS, education and public services.
Will you vote to close the Mayfair loophole - by voting for amendment 3 in today’s Finance Bill? It's being tabled by Caroline Lucas MP. If the vote happens, please explain to me how you voted.
I'm sending this email to the other MP candidates for this area, to find out how they'd vote if they had the chance.
Here’s the report into the loophole, for more information:

The Link provided there (to a section of the 38Degrees site) gives more information about the loophole and the proposed amendment due to be tabled by Caroline Lucas.

In the event the proposed amendment by Caroline Lucas was not debated, due to time limitations. So no solution has been endorsed as yet. But the Green Party has committed itself to closing this loophole, which currently loses the country an estimated £700 million a year in tax revenues. You can find the Green Party position explained here.

Richard Bacon gave his constituents the following reply:
I have been concerned about this issue for many years and have been campaigning on it together with my colleagues on the Public Accounts Committee for many years.  Indeed, it is largely because of our committee’s campaigning work that the whole question of “tax and who pays it” is now much higher up the political agenda, where I think it needs to be. Tax is not a simple issue.  Having said that, there is a growing public sense that the tax system is “not fair”; that is – to put it crudely – that it offers one set of rules for ‘the rich’ (including rich individuals and big multi-national corporations) and another set of rules for everyone else (including normal people and small businesses); and I believe there is some truth to this general public view, even if it needs to be qualified here and there. Public anger found its most visible expression after Starbucks, Google and Amazon all gave evidence to our committee some while ago, when people started to boycott Starbucks and buy their coffee elsewhere. You can watch our Public Accounts Committee hearing with Starbucks here. I was highly critical of the use of personal service companies by over 2,000 senior civil servants in order to minimise their tax liability.  Top civil servants were paying corporation tax at 20—26 per cent, rather than income tax at higher rates.  I discussed this matter on the BBC’s Newsnight programme in an interview that you can watch here. I quizzed HMRC’s Tax Assurance Commissioner Edward Troup earlier this week, when we discussed the status of people who live here permanently but are non-domiciled in the UK for tax purposes, which you can watch here. The way in which the question of tax is sometimes presented in the media actually hinders rather than helps understanding.   For example, the very phrase ‘tax avoider’ can be deeply misleading.  If you go into a building society to invest in an ‘ISA’ – which is a tax-exempt savings account available to everyone – you are being a “tax avoider”.  That is to say, you are avoiding tax that you would otherwise pay.  There is nothing wrong with this.  Actually, the government wants you to be a tax avoider and has said so clearly.  Successive governments of all political parties have backed the idea that there should be tax-exempt savings accounts. Why?  Because all governments have reached the conclusion that our society needs people to save more – and that offering tax relief on the returns which people get from their savings is a good thing to do.  In the same way, if you take out a pension you are a tax avoider.  Why?  Because the government wants you to be a tax avoider – it wants you to have a pension and therefore offers substantial tax relief against the cost of taking out a pension. One person’s ‘tax avoiding’ is another person’s ‘sensible tax planning’. The phrase ‘tax avoider’ has become a ‘swear word’ which describes not only activity which is ‘normal and fair’ but which also describes activity which is ‘undesirable’. Years ago, it used to be widely understood that tax law broadly covered two kinds of activity: i) the avoiding of tax which you did not need to pay if you planned properly, which was perfectly legal – and, indeed, if you were the director of a company, your legal duty under company law to avoid; and, on the other hand, ii) the evading of tax, which is simply illegal and a criminal offence.  The distinction between these two activities – avoidance and evasion – used to be much clearer.  A very big ‘grey area’ has emerged in which taxpayers such as large companies ‘twist and turn’ to achieve outcomes which were certainly not intended by Parliament but which appears to be ‘legal’ and which would survive a legal challenge in the courts. This has happened for two related reasons. First, it is now much more common than 30 or 40 years ago for companies to become global, which means that they operate in many different tax jurisdictions.  Second, different governments around the world offer many tax reliefs for a wide range of different reasons.  This combination of i) worldwide economic activity and ii) huge numbers of tax reliefs provides almost limitless possibilities for creative accounting.  The obvious ways to eliminate these problems are i) to stop global trade and ii) to have the same tax everywhere in the world, but plainly neither solution is in the slightest realistic. The great enemy here is complexity.  The more complex the system, the easier it is for highly paid tax lawyers and tax accountants to dream up entirely new ways of achieving an outcome not intended by Parliament. Every attempt to create more rules to solve the problem actually makes the problem worse. The only way to make serious progress is to make the tax system much simpler and get rid of all tax reliefs, but the trouble is, of course, that for every person who would like to say ‘Get rid of the tax reliefs’, there are others who benefit from the tax reliefs. You will quickly see the point by imagining how you would feel if you had an ISA or a pension, and the government suddenly said ‘We are abolishing all the tax reliefs on ISAs and pensions’. I discussed these issues on BBC Radio 4's 'Today programme' which you can listen to here or here.  You can read more about my work in ensuring that our tax system applies to everybody equally on my website here, here and here.   Please do take the time to visit the links above and to listen to what I have said on this subject on behalf of my constituents and taxpayers generally.  I hope you will see that I have been active in defending the interests of the vast majority of people who pay their taxes on time and in full. Thank you again for taking the time to contact me. Yours sincerely 

Much of what Bacon says here is wise and clear in explaining in general terms what tax avoidance and tax dodging are. I am sure that Bacon cares about these things, and especially about ensuring that people don't muddle up tax avoidance that is deliberately encouraged (like ISA schemes), tax dodging that is exploiting unintended consequences of allowances designed for others, though still within the law, and illegal tax evasion. But for all that, it does not seem that Bacon has done anything to crack down on the illegal or unintended kind, or indeed has actually had any effect whatsoever.
Well, of course, we in the Green Party have not had any effect as yet, but then we are not in government yet, and are not the sitting MPs. We do have one sitting MP, and she has actually done something, by bringing the tabled amendment that was frustrated by the time rules.

So my answer to the question? Here is my response to those who wrote to me about it:

Dear ...... 
I’ve now seen the response that you’ve probably had from Mr Bacon, and I am impressed because his diagnosis of the problems and of the need for a solution seem to me very sound and wise. Nevertheless. I do wonder how much he can achieve, given his party’s record in this parliament. I find myself appalled at the blind eye that this government has been turning towards the loopholes and wriggle room built into the tax revenue system, and it seems suspicious that these practices serve to protect some of the wealthiest among Tory donors. 

Naturally I’m with Caroline Lucas in her attempt to address this. I would be really proud of the South Norfolk voters if they were willing to follow their wish for honesty and integrity, and elect an MP who’s prepared to stand up with Caroline Lucas on this and other matters. Let’s hope!

These things matter to me as a Green Party candidate because we need a society that works towards greater equality and a fairer distribution of resources. Tax avoidance schemes that favour the wealthy and lead to the wealthy paying a lower rate of tax than the poor are unjust and unfair, and prevent us from providing the public services that a civilised country needs, from health provision and care for the elderly to museums and libraries, schools, roads and railways.

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