Thursday, 5 January 2012

Avoiding the Real Problem

The comments about tax avoidance have started again. As always the word avoidance is bandied around so that it sounds like evasion.  In the 1936 case, IRC v Duke of Westminster([1936] 19 TC 490), with regard to the taxation affairs of the then Duke of Westminster, Lord Tomlin said "Every man is entitled, if he can, to order his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be.” Thus it is perfectly legitimate for me to choose to use an ISA rather than any other savings vehicle; it avoids tax. I can choose to buy a book rather than the electronic version because it avoids paying VAT. So, when Nick Clegg says that people are angered by a "wealthy elite" who paid "an army of accountants" to avoid taxes, I don’t agree with him. I think it is the fault of what is purported to be the most complicated tax system in the world, a tax system that takes over 900 pages to detail. And who created this tax system, the very people who are complaining about it.
The solution is very simple and it starts by simplifying the tax system. It is not just me that is saying this; the Institute for Fiscal Studies is also calling for radical tax reform. In the online report Tax byDesign the conclusion includes the following statement (top of page 501):

One consequence of it, on which we have already commented, is the amount of taxpayers’ energy that goes into avoiding tax and governments’ energy that goes into combating avoidance. The more complex and inconsistent the tax base, the more avoidance will be possible and the more legislation will be required, so the more effort is put into shoring up tax revenues rather than into following a coherent strategy. Certainly, one of the central problems of dealing with tax avoidance in the UK has been the propensity of governments to tackle the symptom—by enacting ever more anti-avoidance provisions aimed at the particular avoidance scheme—rather than addressing its underlying cause—often the lack of clarity or consistency in the tax base. 
I suspect we are going to hear a lot more about avoidance and it will induce me to shout at the radio or television every time I hear it.

Wednesday, 4 January 2012

Dishonourable Honours.

Were you listening to Radio 4 around 6.52 this morning? If you did you will have heard an article that was ostensibly about the honours-for-cash storm-in-a-teacup that some sections of the media have tried to make into a big issue. The person being interviewed was the Chairman of the Committee for Standards in Public Life, Sir Christopher Kelly. Exactly the person you would want to be interviewed if you felt that political donations were resulting in honours being awarded. However, driven by interviewer James Naughtie, this quickly turned into a platform for Sir Kelly to push the committee’s proposals for public funding*.
Now, I don’t care for honours, after all, why should I be impressed that Dr Michael Leigh, for example, received the KCMG when it was apparently awarded to him just because he did his job? That people get honours for donating large sums of money to political parties should hardly come as a surprise to anyone and anybody that cares about it must be one of those already in the Westminster bubble. I do, however, get enormously exercised when anyone starts suggesting that my tax money should support political parties. Quite apart from the fact that my money will be going to support parties that I don’t support (all of them as it happens) the system ensures that no new party can compete. It obstructs the natural growth of new parties. It should be opposed at all costs.

Given the choice between a perceived abuse of the honours system and pblic funding of political parties, I would choose the former every time.

* See