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The morals of tax evasion and avoidance

September 16, 2012

Backbench MPs have debated tax evasion and avoidance, led off by former Labour minister Michael Meacher.  The debate on Thursday afternoon was one of a series organised by the Backbench Business Committee.  This committee is breathing life into the Commons chamber, stifled by Government business in previous Parliaments.  They respond to Dragons’ Den type pitches from MPs, asking for time to discuss their preferred topic.  I am hoping to initiate a debate on reducing the voting age, something I tried seven years ago.

I welcomed the opportunity to debate the general topic of tax avoidance and evasion, something I have written about several times on this blog.  Most of the political debate is about the rates of taxation, such as VAT or the top rate of income tax.  But we spend too little time discussing some of the underlying principles.  One of those principles is the moral obligation to pay your taxes in accordance with the laws and rules set by Parliament.  Those people or corporations that dodge paying their full legal tax bill are cheating the rest of society.

Anyway, this is what I had to say, extracted from Hansard.  It’s a speech time limited to 10 minutes, with a few interventions from other MPs.  The one at the end from Simon Hughes messed up my timing!  I’ve put the Hansard link at the end if you want to read the other speeches.

 

Thursday 13th September

4.45 pm

Stephen Williams (Bristol West) (LD): I am very pleased that we are having this debate, and I thank the right hon. Member for Oldham West and Royton (Mr Meacher) for persuading the Backbench Business Committee to obtain the time for it. I have sat through loads of debates on the general economy, Finance Bills and all the rest of it during my seven years in the House, but we have never really engaged in a debate on the rights and wrongs of the tax system. We have started to

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get there in today’s debate, although, if I may say so, I did not think that the right hon. Member for Oldham West and Royton quite got there himself. I felt that some of his opening remarks were a bit too aggressive towards the Government. However, I am glad that he initiated the debate, because it is important to debate the definitions of tax avoidance and tax evasion, the perceptions of those quite different issues, and where the wrongdoing actually lies.

This is not about the tax rates that we discuss quite often in the Chamber, and it is not about who is paying their fair share, although I agree with my right hon. Friend the Member for Bermondsey and Old Southwark (Simon Hughes) that there is an important debate to be had about how much an individual and a corporation should contribute to society, and whether there should be a floor below which no one who is making a profit should drop in any given year. What we should be discussing today is payment of what is assessed and what is legally due: no less and no more.

Tax evasion is always wrong. I do not think that that is said clearly enough. It is illegal, and it is a fraud on the public and other taxpayers. It is always wrong, whoever is doing it, and whether a person is squirreling away millions in a secret bank account, paying in cash for work to be done on his or her own house, or paying a guest house owner. We shall all be going to party conferences soon, and I hope that none of our delegates will be tempted to pay guest house owners in cash. Those who do so should know, and should own up to themselves, that they are avoiding the obligation to pay VAT, and that it therefore follows that the person they are paying for the service is not putting the transaction through the books and is evading income tax as well.

Steve Baker: Does my hon. Friend agree that one of the reasons low-paid people evade tax is that taxes on them are far too high? One of the things that we need to do is continue the trend of lifting the lowest paid out of tax altogether.

Stephen Williams: I entirely agree with my hon. Friend. I am sure that he is delighted that his party is in a coalition with mine, because we are indeed lifting more of the low-paid out of tax completely by progressing towards a £10,000 income tax threshold. We should make taxes simpler as well as lower for people on low earnings.

This is a moral as well as a legal issue, and I think that perhaps we should discuss morals more in the Chamber. We all have a duty to pay, and cash in hand actually means cheating your neighbour. I think that, as Members of Parliament, we should be more courageous about making that clear. I agree with what the hon. Member for Walsall North (Mr Winnick) said about Sir Philip Green, but he is an easy target. We should be clear about the fact that if you are evading tax, it does not matter who you are: it is always wrong.

Health issues also arise, relating to tobacco and alcohol. My hon. Friend the Member for Amber Valley (Nigel Mills) mentioned beer duty. I am the chair of the cross-party group on smoking and health, and later this year I shall chair an inquiry into the smuggling trade—particularly the trade in tobacco, but there are cross-over issues involving alcohol. There is a very easy thing that the Government could do about those problems: they

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could tighten the bonded warehouse regime. There are currently very few restrictions on who can operate a bonded warehouse. Perhaps the Public Accounts Committee could consider that as well. A large amount of tax is evaded through the misuse of bonded warehouses and, as a result, people consume more alcohol and cigarettes and damage their health.

While evasion should be a black-and-white issue—it is always wrong—in respect of avoidance there are many shades of grey, which is a big problem. At the innocent end of the spectrum, tax avoidance is when people plan to pay no more tax than we in Parliament intend them to pay under the schemes we lay out in Finance Bills every year. I assume most of us have an individual savings account. I opened a new ISA earlier this year with Triodos bank, the ethical bank that has its headquarters in my constituency. Some of us signed a joint letter urging all parliamentarians to set an example by moving our money into ethical providers of finance, such as Triodos and the Co-op bank. By investing in ISAs, however, we are, of course, avoiding some income tax on our surplus capital.

I support all the various enterprise incentive schemes to encourage entrepreneurs to set up new businesses. I should declare a former interest, in that before entering Parliament I was a tax consultant working for some of the large firms that the right hon. Member for Oldham West and Royton (Mr Meacher) laid into, but what we were doing was enabling people who were setting up businesses to take advantage of the reliefs his Government had introduced, in order to encourage more such people to take up good ideas, transform them into a business, create wealth and employ people. That is a good thing; that is good tax avoidance in the dictionary sense. Things go wrong, however, when such sensible planning is stretched too far and there are egregious schemes of avoidance, artificial transactions and contrived schemes.

The Chair of the Public Accounts Committee mentioned the very good exposés The Times did during the summer. As well as attacking Sir Philip Green and other fat cats, parliamentarians should make it clear that we condemn similar activities by those who are popular with the public—pop stars in Take That, premiership football players or Formula 1 racing drivers whom we are asked to believe all live in Monaco. These people make huge amounts of money because of the public enjoyment of what they do and they do not need to mitigate their tax below what the people who watch them perform think they have to pay.

What should we do about this? First, Her Majesty’s Revenue and Customs needs to focus much more on tackling avoidance. The headline figure of the number of people who work in HMRC has been mentioned, but how many people work for a particular arm of Government is less important than what they actually do when they are working. I hope the Minister will confirm that the efforts in the HMRC large business units and high net-worth units will be ever more relentlessly focused. The staff must have the appropriate training so they can match the skills levels of the lawyers, bankers and accountants pitted against them, and they must also have the necessary IT and other technical resources.

We parliamentarians have a duty as well. We can change the rates and rules, and we have done that in several Budgets since the 2010 general election. Last year, the Government tightened the rules in order to

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block a scheme of disguised remuneration, where individuals were receiving loans from their employers that they had absolutely no intention of ever repaying, and thereby were avoiding income tax. However, the Labour Front-Bench team at the time—I do not think its current occupants were part of that team, so I do not hold them personally responsible—instructed all its Back Benchers to vote against that coalition Government measure.

Under this year’s Finance Bill, we are introducing new stamp duty regimes in order to tighten up on the move of people buying properties via corporate envelopes and thereby avoiding stamp duty. The Liberal Democrats, and in particular my right hon. Friend the Business Secretary, called for that at the last election. Avoiding stamp duty in that way will now be almost impossible unless people want to incur an enormous liability in the future.

I listened carefully to what the right hon. Member for Oldham West and Royton was saying about the general anti-avoidance or anti-abuse regime. His words would have had more force if he had at least acknowledged that this Government had commissioned a report by Graham Aaronson. He has been in the business for more than 40 years, so I cannot think of anyone better to chair a committee looking at how we can tighten up on avoidance schemes. At least this Government are introducing an anti-abuse regime. It may not be perfect to start with, but a rule is being introduced. The right hon. Gentleman’s Government had 13 years to do that, but it was persistently ruled out by the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown).

Mark Durkan: Is that observation not a bit like saying that if the Government were looking at creating an anti-strike rule, the person to put in charge would be Bob Crow?

Stephen Williams: Would the hon. Gentleman say that again, as I am not sure that I followed it?

Mark Durkan: On the logic that the hon. Gentleman has just deployed about the most suitable person to be looking at anti-avoidance, given his skills and predilections in that area, would the equivalent for a Government committing to an anti-strike rule not be to put Bob Crow in charge of that exploration?

Stephen Williams: It was the Bob Crow bit that I missed. That may be a fair point, but I would not put Graham Aaronson on the same moral plane as Bob Crow; I do not think that Mr Aaronson has held the public to ransom at various points. However, poachers do often make good gamekeepers. The Government commissioned the report and are acting on it, and they should be commended on doing so, given that the previous Government did nothing to put that in place.

We have talked about the domestic scene, but I wish to say something in passing about our obligations abroad to the developing world. During debates on this year’s Finance Bill, I mentioned how the rules tightening up on controlled foreign companies—that is fine, as it is our responsibility to secure our own tax base—will have unintended consequences for developing countries. It is for the Treasury to work in close concert with the

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Department for International Development to ensure that every time we change our tax law, we think through the implications that that will have abroad. In addition, some of our expanding aid budget should be expended on training overseas Governments to build up their expertise to make sure that they are able to levy taxes effectively and collect them from the multinationals operating in their countries. I know that a coalition of charities, including Christian Aid, is going to campaign on this issue later this year. I have been working with them, and I look forward to continuing to do so throughout the rest of the year.

Simon Hughes: Will my hon. Friend also encourage the Government to examine anti-avoidance measures involving offshore territories such as those that have been started in countries such as Finland?

Stephen Williams: My right hon. Friend makes a good point. I think that there is a duty on Parliament to make sure that we are clear about our intentions and clear about what is wrong, and on the Government to allocate the resources to catch the people who go beyond the rules.

 

http://www.publications.parliament.uk/pa/cm201213/cmhansrd/cm120913/debtext/120913-0003.htm#12091334000003

4 Comments leave one →
  1. September 16, 2012 2:26 pm

    As mentioned on FB I thoroughly enjoyed watching the debate and thought your speech, arguments and reasoning were spot on. It’s very refreshing to watch/hear an MP ‘say it how it is’ and be prepared to give the whole picture and not just a snapshot engineered for their own purpose. You did right by us Stephen and for that I thank you🙂

  2. brit permalink
    September 17, 2012 12:43 pm

    I agree with the comment above, good work cheers.

    Could you write a post on how far the coalition has got with implementing the recommendations of the Mirrless review? E.g. in your opinion:

    1) What has been or will be implemented.
    2) What has not been implemented, but could be.
    3) What will never be implemented and why.
    4) Which of the recommendations in 2 and 3 do you think has the biggest benefits overall?

  3. Crow permalink
    October 7, 2012 10:31 am

    Why debate all the small details which should really be left to the collection agencies to collect what is actually due? For a party in government to focus on those is like a fielding side in cricket trying to deal with Kevin Petersen by stopping him running singles when he’s hitting sixes in his own time. Yet again the Tories smote you low, the ‘mansion tax’ has just been dismissively hit out of the ground and into the river, along with several other major Liberal policy attempts in the past. When will you ever learn?! Stop appeasing them, and do something to resist the onslaught. You’re not ‘engaging’ with them in politics, they’re eating you up the way a black hole eats an orbiting star system. If you have ANY power left, it is to invalidate them by cancelling the coalition and forcing an election. How many more times must you be told this before you realise it’s truth?

    Whatever you do, start dealing with the big hitting, or you’ll lose the game and slide into some indeterminate length of oblivion. If you won’t do it, people will turn to Labour, who might at least have a go this time. They’re already making it clear that the left wing are no longer ‘persona non grata’ and it’s not doing them any harm, taking that stance, and it will clearly leave the Liberals wanting. I think the writing was on the wall long ago, what bothers me is why you will not read it.

  4. October 24, 2012 5:50 pm

    I do agree with all the ideas you’ve offered for your post. They’re very convincing and can definitely work.
    Nonetheless, the posts are very brief for starters. May just you please prolong them a little from subsequent time?
    Thank you for the post.

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