MPs are dangerously blurring the line between tax avoidance and evasion
Never before has tax avoidance – legally arranging your affairs to lower your tax liability, as distinct from the illegal practice of tax evasion – been used as a political weapon in such a high profile way.
In the last week, we’ve had it all: smears, claims and counter-claims, and Ed Balls, the man who would be chancellor, has even called for people to demand a receipt when they pay someone to cut their hedge.
There have been allegations of dodgy donations, deeds, and various ruses, alongside fierce clashes at PMQs. And last week the Public Accounts Committee (PAC) called in HMRC’s chief executive, among others, to grill her on allegations about HSBC’s Swiss private banking arm highlighted by the BBC’s Panorama programme.
The heightening political rhetoric, however, feels duplicitous and disingenuous. And in their public pronouncements on the issue, politicians have been blurring the line between legal tax avoidance and illegal evasion, with worrying implications for UK tax policy.
The PAC hearing last week illustrates the point. HMRC was slammed by MPs for “not serving the British taxpayer”, attacked for failing to recover taxes from Britons who are alleged to have been benefitting from tax avoidance schemes.
Yet the tax authority, operating under rules established by MPs, can only recover money that is legally due, and if individuals are mitigating their tax burdens through such schemes, that money cannot be reclaimed because tax avoidance is legal. For politicians to bemoan avoidance, when they are the ones with the power to overhaul the system and modify the laws if they wish, smacks of opportunism and hypocrisy.
If there was the political will to do so, they could make taxes simpler, flatter and lower so there would be less incentive to avoid them, for example. Simpler, flatter and lower taxes would also be likely to widen the tax base, and the total revenue raised would, it can be reasonably expected, increase.
So the answer is in MPs’ hands. But it is politics, not economics, that is at play here and, as such, some vote-hungry MPs are now seemingly adopting two tacks.
First, they routinely, and arguably deliberately, fail to distinguish between legal tax avoidance – which can form part of a sensible and robust financial strategy – and illegal tax evasion, for which there are, quite rightly, stiff penalties.
Alternatively, they play the “immoral” card. However, tax is not and never has been an issue of morality. It is a legal impost. It is individuals’ responsibility to obey the law and arrange their financial affairs to pay what is required. No-one is expected to pay more than this – which is perhaps why you rarely see MPs queuing up to make voluntary payments to the taxman, something HMRC allows.
The unhelpful political disingenuousness on tax avoidance must come to an end. It detracts from the critical conversation that we need to have to tackle the serious global problem of tax evasion.