Tuesday, 13 July 2010

Victims of crime shouldn't pay

If you were burgled, how would you feel about having to pay the thief? That’s what’s happening to ordinary people after the bankers robbed us blind in their money-making spree of the last decade. We’ve had to bail them out and now we’re expected to pay with pay freezes, tax rises, cuts in services and job losses.

It doesn't have to be this way. The following is a summary of an excellent article by Darren Williams in the forthcoming issue of Celyn magazine:

The PCS union commissioned Richard Murphy, a chartered accountant who has undertaken research on tax policy for governments and NGOs around the world, to look at tax avoidance. In 2008, Murphy demonstrated that around £25 billion is lost to the Exchequer annually just through tax avoidance – that is, measures that are technically legal but against the spirit of the law, as opposed to tax evasion, which is illegal (Denis Healey famously said that the difference between the two was ‘the thickness of a prison wall’).

Some examples cited by Murphy are putting a transaction in someone else’s name, relocating a transaction to a tax haven or paying a company director’s income in the form of a share dividend rather than a salary, to avoid National Insurance. The TUC pamphlet sets out a number of reforms that could close the loopholes that permit such practices.

In addition to the £25 billion lost to tax avoidance, Murphy now estimates the annual cost of tax evasion as at least £70 billion. this is because HMRC underestimates the level of evasion of direct taxes like income tax and national insurance because of the method of calculation it employs.

To his £95 billion estimate for avoidance and evasion combined, Murphy adds the figure for tax declared but not collected, which was most recently estimated by HMRC as £28 billion, but which will certainly have risen, as the department has allowed more businesses to defer payments to cope with the recession. Thus, we have an overall tax gap in the region of £123 billion – equivalent to almost 80 per cent of the UK’s £155 billion budget deficit.

Of course, it would be unrealistic to expect that the whole of this sum could be recovered, even if the political will were there. But UK government policy over the last six years has actually made the problem worse by undermining HMRC’s capacity to collect what is owed. In July 2004, the then-Chancellor, Gordon Brown, announced the government’s adoption of Sir Peter Gershon’s recommendation for cuts in the civil service including 12,500 from HMRC.

Worse still, almost a quarter of all tax is paid late and, in many offices, sums of less than £3,000 are not proactively chased for recovery, a situation that has contributed to at least £11.2 billion of bad debt having arisen in the 2008‐09 financial year alone.

The solution is clear: hire more staff to investigate tax evasion and avoidance and to chase bad debt. Murphy estimates that the net cost to the government of HMRC taking on a new employee, who would otherwise be unemployed, is around £12,000 after benefits, taxes, etc. are taken into consideration. The tax revenue raised per member of staff in 2008-09 was close to £5 million and, even when allowance is made for the fact that the tax currently going unclaimed is, by definition, the most difficult to recover, Murphy estimates that a new member of staff employed on tax collection duties could be expected to bring in around £252,000.

Rather than reverse the policies of the New Labour government, however, the ‘Con-Dems’ are set to make matters worse by subjecting HMRC to the 25 per cent budget cut that all Whitehall departments (apart from health and international department) are expected to make. This is sure to translate into thousands more job cuts and further reduce the department’s capacity to bring in the tax revenue that would help avoid such cuts in the first place.

The PCS union says:

‘Reducing the tax gap would mean the new government could avoid having to make swingeing cuts in public services. Our proposals would tackle tax dodging which costs the UK economy £100 billion per year and costs developing countries £250 billion.’

These arguments need to be taken up by Plaid and a wider anti-cuts campaign if we are to ensure that public sector workers, and all those who depend on public services, do not bear the burden for a crisis caused by the banks.

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