Evening Standard: How the tide turned against tax avoiders

Chris Blackhurst, City Editor of London's Evening Standard, has written a long article titled How the tide turned against the tax avoiders. It probably doesn't say very much that readers of this blog aren't already familiar with, but the very fact that the title refers to tax avoidance rather than tax evasion underlines how far the debate has shifted in recent years.

For decades the organised tax avoidance industry has hidden behind a bogus distinction between evasion and avoidance, described by a former UK Chancellor of the Exchequer as "the thickness of a prison wall". In truth, the distinction between the two lies more along the following lines: poor people evade, rich people avoid. Having access to expensive lawyers and accountants allows rich people the opportunity to create complex and opaque structures behind which they can hide their dirty little secrets.

But the tide has turned. As Blackhurst comments:

Society has had enough of people who live and work here but go to great lengths to reduce their tax bills. Suddenly there is a nervousness on the faces of the evaders and avoiders, and their advisers - and a spring in the step of HMRC.

The financial crisis has exposed many weaknesses in the British economy. The tax system is one of them. Far too many exemptions, including the anachronistic non-dom rules, favour get-rich-quick type of activities over the less exotic process of actually creating real wealth through designing and producing better goods and services. Financial 'innovation', typically involving some combination of regulatory or tax arbitrage, has been confused with genuine innovation, and the lure of short term boosts to share value, which tax avoidance provides, has shifted attention from the awkward truth that British companies just don't compete on the world stage any longer without the quick fix of what are effectively tax subsidies. This highlights the sheer inadequacy of boardroom members, too many of whom are drawn from the same, self-serving bunch of re-treads who served up the crisis in the first place.

Blackhurst points out how the British have become far too lenient towards tax dodgers who pull all sorts of stunts from places like Guernsey and Jersey to avoid paying UK tax. Other countries, especially the US, are far less lenient. Blackhurst again:

The difference is cultural as well as economic - here, we call them tax "exiles", as though they are the ones suffering; in the US, they are tax "fugitives", criminals to be hunted down.

This culture has been shaped by decades of drip-drip anti-tax propaganda, combined with regular parades of national treasures (think Sean Connery and Michael Caine) who threaten to leave the country rather than pay higher taxes towards its upkeep.

Everybody wants better public services, but too many politicians and journalists keep up the age-old lie that these can be achieved with lower taxes. What has really happened, and not just in Britain, is that the tax charge has shifted to middle and lower income households, and richer people pay less and less. Unsuprisingly, income and wealth inequalities in Britain have reached levels not seen since before the Great Depression.

Tackling the pro-avoidance culture is an absolute imperative, regardless of the colour of the next government. The coming years are likely to stretch social cohesion to its limits, and any sense that special rules apply to powerful and wealthy people will further undermine confidence in the institutions of state. The Conservative Party, badly harmed by the Ashcroft affair which reveals some unhappy truths about the judgement of its leaders, cannot afford to appear lax on tax avoidance: this will be a litmus test of their claim to no longer represent the wealthy elites.

As Blackhurst concludes, "our attitude towards those who pay little or no tax has profoundly altered."

We think that TJN has played a modest part in achieving this. But the battle isn't over yet, and the forces of reaction have plenty more firepower available to them.