27 January 2017

The filthy rich aren’t all filthy tax dodgers


The Public Accounts Committee continues to trot off in pursuit of one of this age’s extraordinary delusions: that there is some mass of tax evasion among the richer in our society. It is this fundamental misapprehension which underlies their latest report.

As The Guardian reports:

“Britain’s wealthiest people appear to get preferential treatment from HM Revenue & Customs and are not being properly pursued for outstanding tax bills, parliament’s spending watchdog has concluded. HMRC’s failure to clamp down on rich tax dodgers is undermining confidence in the whole system, the public accounts committee said.”

At which point we need to rewind a little. The PAC, among others, was convinced by the wailings of the Tax Justice Network and similar that the rich were giving the tax system the Anglo Saxon Wave. This two fingered approach to the law should not be countenanced, they insisted, and thus more effort should be given to bringing them all to book.

That’s fair enough. Whatever we think of the tax system, or the rates charged, all must be equal before the law. But to ask if the rich aren’t paying their fair share is quite different from asking if they are paying what they should according to the law.

Certainly, some people are convinced that the rich should be paying more. That they are not is classed as tax avoidance – or even evasion. It’s definitely true that the latter happens. As for tax avoidance: if someone organises their affairs to reduce their tax bill, it can be described as an attempt to avoid tax. This is either in breach of the law, and so is tax evasion. Or it is within the law, tax compliant and therefore legal.

So in effect there is no such thing as tax avoidance. Unless you consider tax avoidance to be the rich paying less than you think they ought.

With this vital distinction in mind we can therefore look again at the PAC’s claim. HMRC have got a specialist unit looking specifically for such digit flipping from the filthy rich. The problem, for PAC, is that they’ve not found much, aren’t collecting enough in tax and most definitely aren’t charging enough people with tax evasion.

But a possible explanation here is that much of those attempts at tax avoidance are, in fact, tax compliance. There isn’t much law breaking (yes, obviously there is some) and the original evasion contention is wrong, not the methods of investigation?

Fortunately we can test this. The same howling mob complained so much about Swiss Bank secrecy, alleging billion upon billions were stashed there, untaxed, that George Osborne actually cut a deal with said banks and the local authorities. Check through all your accounts for British citizens, he asked, and let me see who should have been paying what and who was paying what. Osborne anticipated several billions in revenue to come from this.

But after that detailed examination, the actual revenue was under 10 per cent of what had been originally claimed. Yes, there were scofflaws hiding cash in the Alps. And also non-resident British citizens who don’t pay UK tax, British non-doms who don’t pay UK tax on money earned in foreign and kept in foreign lands, and even, heavens to Betsy, UK passport holders resident in the UK who declared and paid tax upon their earnings parked with the Gnomes of Zurich.

We can indeed call many of those arrangements tax avoidance, even tax abuse, but only a marginal percentage of them were classed as tax evasion. Hence the paucity of prosecutions for tax evasion and the poor revenue collection figures.

So, yes, there is most definitely tax evasion out there. There’s even rather a lot of it. But that is concentrated in the cash economy – the “Do it for a discount without a VAT receipt” part of it. The allegations of mass evasion among the rich simply, every time we do a detailed investigation, turn out not to be true.

Perhaps the PAC should have a little think about this. Perhaps the disappointing results aren’t due to insufficient aggression on behalf of the tax collectors. Perhaps, instead, it’s insufficient aggression on the part of people attempting to dodge tax? You know, they’re simply following the law.

At which point, an interesting titbit. The only named person I know of who righteously and justly used the Liechtenstein Disclosure Facility – another of these attempts to get the naughty rich people to ‘fess up – was Dame Margaret, Lady Hodge. Sometime chair of the Public Accounts Committee. Perhaps the members of that august body would like to have a word with someone who knows all about this then?

Tim Worstall is senior fellow at the Adam Smith Institute