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When tax-avoidance is beneficial

23 May 2014

SUGGESTIONS that the rich and famous may be avoiding tax led to indignant responses from Left and Right. The Left accuses tax-avoiders of robbing society of schools and hospitals; the Right replies with equal outrage: why should the taxman rob the successful of a penny more than his legal due?

The rules of our tax system are so tortuous that nobody thinks they can be fair, and both sides complain of being robbed. A simpler system would help. Yet there will probably always be a need for a grey area in matters of taxation.

Every government, whatever its political colouring, wants to maximise tax revenue. But high rates for those with the highest incomes do not always work. Some simply stop striving; others move their business interests abroad. As Nigel Lawson discovered when he cut the top rate of tax in 1988, revenues actually increased, and he ended up with a welcome budget surplus.

Would this be true now? The rich have done spectacularly well out of the recent recession. Their success marks a growing inequality between those on the highest incomes and the rest of us. Thomas Piketty's book Capital in the Twenty-First Century (Harvard University Press, 2014) argues that capitalism will always increase inequality. The prosperity it brought after the War until the crash in 2008 was a mere blip.

Although his argument is non-political, his analysis is music to the ears of the Left. It is galling for all of us to be lectured by the emerging global class of the super-rich who genuinely believe that because they are so capable and successful they will inevitably make better choices than government how their money should be spent. These are tax-avoiders who appear to be charged with moral purpose.

However provocative such claims might be, we should hang on to the fact that there is clear moral difference between tax-avoidance and tax-evasion. Tax-avoidance can benefit society: schemes such as ISAs encourage saving, which is good for all of us. Along with simplifying the tax system, clarifying the difference between avoidance and evasion is a priority.

It would be wrong, though, to go back to punitive tax-levels for the rich. The Communist experiment proved that preventing wealth does not cure poverty. Discouraging enterprise does not produce jobs. It is a sad fact of human nature that when the corporate state is everything, everyone cheats. If our tax-avoiders deserve encouragement, our evaders should not be allowed to pretend that they are being robbed by the State.

The Revd Angela Tilby is Diocesan Canon of Christ Church, Oxford, and Continuing Ministerial Development Adviser for the diocese of Oxford.

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