On the day that the Chancellor was delivering his admission of failure (sorry, autumn statement), I fell to thinking about the tax system (my internet connection was down for a couple of days so this posting has been delayed). We’re frequently told that it is too complicated and that it needs simplifying. Equally, its complexity appears to be such as to defeat attempts to simplify it. This is a mere fig-leaf for inaction. Successive governments of all inclinations have neglected to tackle either the convolutions that allow the astute and the unscrupulous to avoid paying their dues or the resultant chasm between rich and poor, a chasm that has continued to widen, despite the presence of supposedly egalitarian ministers throughout a majority of the past fifty years.
What can be done? I propose that some new principles activate taxation policy. The first is to make it an overarching truism that taxation is a contribution rather than a penalty. We all pay lip-service to the famous dictum in John F Kennedy’s inauguration address more than fifty years ago: “Ask not what your country can do for you – ask what you can do for your country”. Yet we generally resent paying our dues, talk in terms of “the burden of taxation”, even of “state grabs”, and have no compunction about paying the window-cleaner or the decorator in cash so that we avoid VAT and he avoids tax altogether.
Tory Chancellors generally aim to cut taxation because they subscribe to a liberal fiscal policy of reducing public spending and “giving back” to the electorate or rather, as we anti-Tories call them, to “their friends in the city”. But this stance implicitly confirms the notion that tax is an imposition. Rather, government needs to engineer a change of mindset so that the duty on goods and transactions is seen as that other kind of duty, a civic duty. The fine distinction between tax evasion and tax avoidance needs to be eradicated. Not paying one’s dues is too often seen as a legitimate sport – and certainly less culpable than taking unmerited benefits (which robs the country of far less). But avoiding/evading tax needs to be re-categorised as what it really is: anti-social behaviour, deception and indeed theft.
Then the thrust of tax should be firmly fixed onto income and purchasing. These are clearly identifiable areas of accounting where deception is most easily detected. Let income tax, from whatever source, be calculated on a straightforward sliding scale. This can allow government to manipulate the wider economy to ensure that wealth really is redistributed and the gap between rich and poor reduced. I propose that personal taxation be as rigorous and simple as possible. If the respective amounts that various classes and strata of citizens receive and hold can be controlled by tax, there is no need to overlay on that system a cat’s cradle of ifs and buts that is complicated and susceptible to exploitation. Let us abolish the tax loop-hole once and for all.
If the bulk of tax is taken based upon an individual’s income, the great majority of other occasions for imposing duty may be done away with. Taxes on business, on enterprise, on firms and on organisations could be cut to a minimum. By the same token, business deductions should be done away with too. If tax on enterprise is low, there is no argument for or need for outgoings to be set against tax. Businesses will have to cover their expenditure in the charges that they make to others or in the rates of pay with which they reward themselves and their people.
But if trading outfits are permitted to keep the great majority of their income and profit and only see taxation begin to kick in when that income and those profits are disbursed to share-holders, directors, pension-holders, employees and those with whom they make trades, there ought to be more incentive to plough profits back into the business. The traditional blurring between business expenditure and capital expenditure would no longer bedevil tax claims.
Taxation on corporate profit (capital gains) could be abandoned, encouraging business to invest. Tax on spend – what used to be called purchase tax and is now VAT – could be more carefully targeted, especially to help those for whom certain items like domestic utilities, eating out, petrol and clothing make up a high proportion of costs. The black economy aside, taxes associated with purchasing do not lend themselves so readily to corrupt practices.
Under my taxation system, it would be the level of personal income that would be most closely scrutinised by HMRC. No individual would be able to pass himself off as a business as many have profitably done to date, most notoriously the comedian Jimmy Carr.
Nor would individuals be able to avoid their dues by living abroad. The press barons have never been slow to avoid paying their dues. US citizen Rupert Murdoch contributes no tax to the British government and employs an army of accountants to minimise doing so elsewhere. Lord Rothermere, owner of The Daily Mail, contrives to live in tax exile even though his main residence is in Wiltshire, a remarkable piece of juggling (his newspapers are registered in Bermuda and the wealth he inherited from his father was not subject to British penalties because Rothermere Sr lived under the rather less draconian tax regime in force in Paris). Performing the onerous task of owning The Daily Telegraph from their tax haven in Monaco, the multi-millionaire Barclay Brothers must have laughed to scorn the fainthearted level of graft in the Westminster village that was so comprehensively uncovered by their organ. Moat-cleaning indeed! Why not acquire a Channel Island? That’s a vastly more cost-effective scam.
The issue of “non doms” did exercise politicians and commentators on all sides for a while in the century’s first decade, but to no lasting purpose. The question of whether someone who lives abroad for tax purposes should enjoy status privileges in Britain is, to my mind, an irrelevant and misleading question. Where someone designates her or his principal residence is far too exploitable a matter. Income should be taxed not on the basis of where the earner lives but where the income is earned. Better yet, follow the practice of the IRS in the United States: tax without reference to either the location of the earner’s domicile or the country of the income’s origin. To avoid taxation, Americans have to renounce their US citizenship altogether and even after that their US income is taxed on the same basis as that of a guest worker. You don’t hear of US billionaires living as tax exiles. And if rich Americans can tolerate such a system, Brits sure as hell can too.
No doubt there would be a degree of departure from these shores among those unwilling to submit to contributing an appropriate proportion of their wealth to public provision. Such people merit a one-word response: “Goodbye”. If, to continue owning several mansions and a private jet, they are obliged to be based in a country where, beyond their gated communities, they are surrounded by abject poverty, that is for their consciences to reconcile. But it is a self-serving myth that our industries cannot survive without greedy, grasping individuals. They can and will survive (the BBC managed to go on after Jonathan Ross, for instance) because there will always be people who are thoughtful as well as talented, who want work that is stimulating first and lucrative only as may be, and who will choose to stay in a decent society that diligently cares for all its members.
Tax-dodging needs to be much more heavily penalised. There is no sensible argument for sending such crooks to jail. The penalties that hurt are financial ones. Let any individual found to have avoided taxation be fined five times the amount avoided. And let organisations, companies and corporations pay twenty times the tax shortfall. Such penalties ought to have a deterrent effect. The present argument about tax avoidance that is immoral but not illegal is an absurdity. If the tax laws cannot be streamlined so that any tax bill that is morally justified is simultaneously obligatory, the authorities have only themselves to blame for their failings.
Finally, there is the black economy. Many who rail against the bestowing of (for instance) a knighthood on Philip Green or Mick Jagger for services to tax avoidance do not turn a hair at under-the-counter transactions of their own. Well, you may ask, how can one track down the black economy? The task can certainly begin. The Television Licensing Authority notoriously comes calling on householders who do not own a television licence on the argument that not all of these people can possibly be getting by without a television. Something similar could be undertaken to confront those who do not register on HMRC’s records. Some of those accumulating cash-in-hand income while registered for benefits would certainly be caught that way. Maybe HMRC might also work fruitfully in tandem with the Ministry for Work and Pensions to identify those many millions who are entitled to receive state benefits and credits but, usually out of ignorance, do not receive them.
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On the subject of Sir Mick Jagger, the 50th anniversary of the formation of the Stones reminds of the two gigs of theirs that I attended in my youth. The big megastar one was at Earls Court as part of their European tour in May 1976. But I more fondly recall the rougher band that I saw – still including Brian Jones – at Kettering Granada in January 1964, when they closed the first half of a bill topped by the Ronettes. Now that was real rock’n’roll history.
