WE SHOULD all pay our fair share of taxes. In an age of austerity and spending cuts, deliberately to avoid tax is morally unacceptable.
Tax-avoidance is big business. Each year, it costs the taxpayer a sum equal to — and possibly greater than — the total amount by which the Government is seeking to cut public spending. Every pound lost in tax-avoidance is a pound stolen from the poor. Now, more than ever, it is our Christian duty to press for action to close the tax gap.
The tax gap, which is defined as the difference between the amount of tax actually collected and the tax that Parliament intends should be collected, stands at £35 billion a year — by the Government’s own reckoning. But Richard Murphy, from the Tax Justice Network, estimates the figure to be nearer to £120 billion.
There is a whole branch of accountancy dedicated to “tax-planning”, most of which is concerned with reducing tax liabilities, and most of which is perfectly legal. Where this is simply about enabling individuals or businesses to take account of tax allowances specifically ordained by the Government, I have no problem. But where it is seeking to exploit loopholes in order to avoid paying tax that is rightly due, it is another matter. This type of tax-avoidance may be strictly legal, but — especially in the current economic climate — it is hardly moral.
Most of us have no choice about whether to pay our taxes. Yet, if you are wealthy enough, it seems that other rules apply. With the right accountant, paying taxes (or not doing so) is a matter of choice.
AN INVESTIGATION by the Evening Standard, as far back as 2007, identified that, of the more than 400 UK-based individuals with incomes in excess of £10 million a year, only 65 paid any income tax. The rest used a battery of sophisticated — but legal — techniques to avoid paying tax. And, as we discovered only last month, as many as 100 civil servants have been getting in on the act: being paid as private companies rather than as individuals, specifically to avoid paying income tax or national insurance.
But it is big businesses that are the really significant tax-dodgers. A fortnight ago, Barclays was caught using two schemes to buy back debt, in order to seek to avoid paying more than £500 million in tax — including one plan to reclaim tax that it had never paid in the first place. Yet, for every such scheme that is shut down, many more go unchallenged.
Companies have more opportunity than individuals to avoid tax, not least because they can operate internationally, opening avenues for tax-avoidance between territories. Of the top 100 corporations in the UK, 98 run subsidiary companies in offshore tax havens, which can allow them and their clients to avoid huge sums in tax.
The magazine Ethical Consumer reported recently that 13 of the biggest contractors of public services have subsidiaries in tax havens. The implication is that the companies concerned, including BUPA, KPMG, Capita, and Serco, are actively managing their finances in such a way as to avoiding paying taxes in the UK, while earning hundreds of millions from contracts funded by the taxpayer.
Yet corporate lobbyists are after still further gains. In the run-up to what looks certain to be another austerity budget, the Treasury has unveiled proposals for a new tax loophole, which will effectively hand out millions of pounds every year to multinational businesses.
Disguised behind the title of “proposals on Controlled Foreign Companies reform”, the plan offers incentives for companies to shift even more of their financial operations offshore, as a means of avoiding paying UK taxes. Even on the Treasury’s own estimates, this will cost the UK £840 million a year in lost taxes. Action Aid estimates that the measure will cost developing countries even more.
TAX-avoidance on this scale is not a victimless crime, even if technically it stays within the law. When public finances are so tight, it costs us all. Consider these scenarios:
• one third of the amount lost in tax-avoidance by the 700 largest corporations in the UK could increase the child tax credit by enough to halve child poverty in the UK;
• just under half of the total amount lost to tax-avoidance would pay for a 20-per-cent increase in the state pension, or could reduce the basic rate of income tax by 3p in the pound, or could build an extra 50 hospitals.
THE Tackling of widespread tax-avoidance would reduce the need for further cuts in public spending. This could be achieved by a combination of improved transparency and stronger anti-avoidance measures — but only if the public mood demands it.
Last July, the Methodist Church took a lead by calling on the Government and on multinational businesses to end tax-avoidance schemes. It argued that, as public services were being cut, the injustice of tax-avoidance was becoming more acute.
In the autumn, leaders from a number of Churches took up the challenge, signing an open letter calling on the Chancellor to take stronger action to tackle tax-avoidance (News, 4 November). More than 700 supporters of Church Action on Poverty (CAP) emailed the Treasury to back this.
Two weeks later, the Treasury announced its intention to close a £120-million tax loophole, which allowed firms such as Tesco and Amazon to avoid paying VAT on CDs and DVDs ordered online by shipping them from Jersey. It was a small step in the right direction, but one that must be followed up by more concerted action in the Budget next week and beyond.
The Bishop of Ripon & Leeds, the Rt Revd John Packer, writes in the foreword to a new report about the tax gap, It’s Time to Close the Gap, published today by CAP: “The gap is an affront to God who made all human beings of equal worth. The Churches have a theological and biblical duty to express the need to close the gap.”
Niall Cooper is the co-ordinator of Church Action on Poverty. www.church-poverty.org.uk/closethegap .