I was amused when debating the subject of the tax gap with Michael Fallon MP on Jeff Randall’s Sky TV programme last evening.
Fallon tied himself in knots. He claimed my numbers were wrong. He claimed that the government would be delighted if it could recover 1% of my estimated total gap of £120 billion or so.
Then he claimed HMRC must be reformed. And PAYE must be reformed. And that the non-dom rule must be revised and a General Anti-avoidance Provision should be introduced. When I pointed out the last two were in the Coalition agenda because of Lib Dem policy and my discussions with Vince Cable had put them there he was even more confused. His last comment was “Richard is right”.
Quite so. But why his confusion on the way to reaching this obvious conclusion? I suggest that it’s because the right are very worried that the tax gap provides the left with a narrative that challenges their cuts agenda that they’d really rather ignore.
First it says there is an alternative to cuts. That’s obvious. I don’t for a moment suggest that £120 billion of tax can be collected and the tax gap closed. I live in the real world. But I do think £26 billion of outstanding debt could be reduced by £5 billion. I do think a General Anti-avoidance Provision, tackling the domicile rule, tackling residence abuse and tackling income shifting plus better rules on corporate residence could dramatically change the loss to tax avoidance and recover £8 billion a year — or one third of the tax avoidance gap. And I do think that tax evasion could be reduced by at least £7 billion a year — and probably somewhat more — if (and it’s an important if) enough resources were dedicated to the job.
That’s up to £20 billion of additional tax available meaning a whole raft of cuts — real cuts that will impose real pain on real people and leave our economy in the doldrums of recession and massive numbers of people in the despair of poverty and unemployment — can be avoided.
But there’s a second and as important point here. My argument makes an assumption which the Tories don’t want made explicit — and that is that I think that the government would do more good for society by spending this money in the way I have suggested than can be created by the tax fraudsters and abusers spending their ill-gotten gains as they do now. Those who challenge the tax gap analysis — and the Tories do - do not agree. They think that the free-riders on the back of society — the tax fraudsters and abusers — know how to spend money better than the government does. At the same time they’re saying it’s better that these cheats be allowed to spend their ill gotten gains than it is to provide the education, health care, pensions, benefits and protection from criminals that honest tax payers deserve.
This is the real reason why the Tories, in particular, do not want to face up to the size of the tax gap. If they did it would be obvious just how much they’re letting the cheats get away with.
And I’m explicit — when Michael Fallon dismisses my figures on the tax gap — when all the right wingers who comment on this blog say I don’t know what I’m talking about dismiss the same figures — figures which are however completely in line with best academic estimates of the UK shadow economy when their own are ludicrously low — I think they’re making a deliberate, but hidden, statement — which is that they’d rather the cheats have this money than the government.
And they do that for one reason — because they hate government. And they hate what it supplies.
They hate the fact that it supplies education and health for all.
They hate the fact that it provides a safety net in society — a safety net they want to remove.
They hate the fact that the state can provide some dignity in old age.
They hate the fact that the state could provide homes — good homes — for all who want them in our society.
They hate the fact that the state can provide the things most people seem to value so highly in our communities — safety, training, health, roads and public transport, the arts, vast ranges of entertainment and sports activity, and most of all — the freedom from fear of destitution if something goes seriously wrong with the best laid plans that all of us have.
That’s what the right are really saying when they dismiss the tax gap.
They’re saying — and let’s be explicit about this — that supporting fraud and abuse is more important than helping the old, the sick, the vulnerable and the young.
So let’s not pretend for one minute when they nit-pick the numbers, or say nothing can be done that this is their real message. Their real message is profoundly political — that they don’t want anything to be done. Because they prefer crime to justice.
The left doesn’t. We’re in favour of justice. We oppose crime. We believe that the state delivers real value for real people who need the services only the state can supply. And we believe all of us — everyone in society — is better off as a result. That’s the message we’re delivering when we say the tax gap has to be closed.
So let’s not for one moment think this issue is some minor technical side show. This is a message at the core of the difference between left and right, between the decency, honesty, justice, hope and the prospect of a better life for all that the left promotes and the corruption, nastiness, abuse, greed and despair the right stands for.
And they know that the narrative of the tax gap can expose all this.
No wonder they’re frightened.
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I agree very strongly with that analysis of what often passes as right wing thought. What is annoying is that there might be interesting conversations to be had about the proper role of the state and the appropriate level of tax and government spending. There is no point in talking with the apologists for spivs and cheats. Which is why I think your moderation policy is still too loose!
What rot. It has shown that your numbers are wrong – several times. Wrong, wrong, wrong. But you refuse to admit it. You are the narrow-minded, dogmatic one. You can’t even labels axes correctly. Your reports are full of invented figures, non-sequiturs, leaps of logic and poor statistical analysis. Just as befits a graduate of a mediocre university who is now a retired accountant.
@Alan Barnes
Posted – just to prove my point!
And to provide evidence to support James’ case
This comment has been deleted as it did not meet the moderation criteria for this blog specified here: http://www.taxresearch.org.uk/Blog/comments/. The editor’s decision is final.
They are also taking the ‘nothing can be done’ line, Richard, because a large number of the people who subscribe to and/or support these practices are natural Tory supporters (I suspect) and the party therefore doesn’t want to alienate them.
Re the post from Alan Barnes. Two points. First, even if we dismiss your figures and go with those from HMRC the amounts are still so large that it would still make absolute sense to pursue the various policies you suggest. Second, I’m amazed that in a serious blog someone can be so childish as to make derogatory comments about whatever university you did or didn’t go to. But then again, it just shows how ingrained elitism is on the right. Obviously if you’d gone to the ‘right’ university they wouldn’t dispute your figures 😉
@Alan Barnes
me-di-o-cre
—adjective
1. of only ordinary or moderate quality; neither good nor bad; barely adequate.
2. rather poor or inferior.
Without invented figures, non-sequiturs, leaps of logic and poor statistical analysis, please can you explain how the University of Southampton is “mediocre” whilst recently being ranked 12th out of 127 institutions by The Sunday Times?
I will try to post his again, but it blows a hole in your numbers so it will probably be deleted again.
You postulate £120 billion of missing tax, so if we presume an average tax rate of 25% on the “undeclared” income, that gives us an extra shadow GDP of £480 billion. The ONS says that the UK GDP is about £1.4 billion, of which £700 billion flows from the government so we can presume that substantially all of that is not flowing into the shadow economy, so that leaves us with a balance of £700 billion of legitimate private sector consumption, and according to you, another £480 billion of shadow economy.
Given that we know that most big business is legitimate, that it is very hard to avoid many duties, the only way you can get to a figure of £480 billion is if every small business is on the fiddle, which we know they are not. Hence Alan Barnes’ criticism and my devastating analysis (as befits a graduate of the world’s #1 university, according to the Guardian).
@Alex
What a lot of twaddle
Read what I said
£70 billion is tax evasion
That’s 13.5% shadow economy – as per the World Bank
That’s all in the shadow economy – by definition – cash in hand
It’s not governemtn
Or big business
Or small business
It’s illegality
GDP = £1.45 trn
@ 13.5% = £195 bn
@ 36% overall tax rate = just over £70 bn
Unassailable
Fact
So stop apologising for crime
@James from Durham
I’m tending to agree with you
I deleted a load of verbiage tonight in accordance with your suggestion
Traffic goes up every time I do
I think I had previously understood Richard to be saying that £120bn of tax could be potentially collected, but that’s not what he’s saying at all.
Shrinking the shadow economy by 10% does not strike me, as someone with no expertise in this area, as an unrealistic target. It would be good to see someone look into the historic experience of this kind of project here and overseas. It’s unclear why the Tories and those of the Right should oppose this – it’s the flipside of the “benefit cheats” we hear so much about.
On the other hand I’m quite confident that a package of tax reforms and anti-avoidance could, without changing tax rates or affecting “normal” people or companies, raise very significant sums. £8bn does not seem outlandish. A GAAR on its own would achieve little; structural changes to the system of the kind mentioned above are what is required. The Tories’ motivation for opposing such proposals is very clear indeed. The immediate cost to some of their key donors and supporters could be staggering. What is needed is for realistic, concrete, costed, proposals to be developed, both to put the Libs under political pressure and ensure that the next Labour Government is ready and prepared to act.
I wish you wouldn’t try to reduce everything to a question of the left and the right.
I think the truth is simpler. I think the majority of British society now share the southern European view that tax is a game. Most people, looking at things in isolation, regard many taxes as too high (IHT for the Daily Mail readership, airport taxes for the Telegraph readers, beer, ciggies and betting taxes for the tabloids). So they do whatever they can to mitigate their taxes. For the wealthy, this may involve engaging professional advisers to structure their affairs. For others, it may involve being paid cash in hand, buying cigarettes off the grey market, making the decision that it is better to be on benefits than to have a job.
But I think that is the big issue: people increasingly do not see a connection between what they pay in taxes and what they receive back. This then leads to a polarised society, with everyone believing public revenues are disproportionately spent on “others”. So the wealthy think tax is used to fund benefit fradsters. The poor think tax is used to give immigrants preferential treatment etc. Everyonme thinks taxes are used to fund politicians on the make. And as a result respect for each other within society is weakened, as is society itself.
What is needed – and what you do on occasion provide – is an explanation of the benefits that come from taxes. Because the root cause of the problem is not one of the tax gap at the top or benefit fraud at the bottom – it is the attitude (which I would say could fairly be described as the attitude of “Thatcher’s children”) – that we are not part of society and that tax is a game where to pay the minimum amount is to “win”. When there is widespread social disapproval of all types of behaviour that reduces tax liability unfairly, then there is a chance that progress will be made. But I think the carrot needs to be used as much as the stick in bringing about that change in public opinion.
Incidentally, of the 13.5% shadow economy, does that include illegal drug trade?
Richard,
If you are referring to the OECD report that tries to compare the “shadow” of various OECD countries with that of Italy, you will find that this includes
(a) Illegal Activities : Trade with stolen goods; drug dealing and manufacturing; prostitution; gambling; smuggling; fraud; etc.
(b) Barter of drugs, stolen goods, smuggling etc. Produce or growing
drugs for own use. Theft for own use.
(c) Employee discounts, fringe benefits
(d) Barter of legal services and goods
(e) All do-it-yourself work and neighbour help
If you take off all those figures your “shadow” economy becomes much smaller then apart from corporate tax avoidance (probably a few billion a year), personal tax avoidance (mostly offshore but not much more than a few billion), you are left with builders, agricultural workers and domestic cleaners who are mostly below the level for VAT registration and on the basic tax rate at most, which is a far cry from the £70 or £120 billion that you would have us all believe.
There is undoubtedly tax avoidance and tax evasion but your numbers are out by an order of magnitude, which is why people who can work these numbers out for themselves dismiss you wild and unfounded assertions. The unions and opposition politicians on the other hand latch on to them as a stick to beat the government, conveniently forgetting that they did nothing about the so-called tax gap when they were in power, preferring to raise rates of taxation instead. Why? Because they knew the tax gap didn’t exist on the scale you propose.
@Marc Daniels
You’re right – I’m not saying we could collect £120 billion
That would be impossible
The crooks are always with us
But f we have a realistic target based on a realistic assessment of the numbers we do get more than if we have a small target based on a deliberately understated target
@mad foetus
You may not see it as left v right
I do
We choose the most appropriate lens we can find
This one seems the right one to me for a lot of what I’m looking at
@Alex
Unless you can usefully contribute to debate here I will be pushing that delete button on you automatically soon
What you have written here is deliberately misleading
I have not used this definition of the shadow economy
Nor has the World Bank – links here http://www.taxresearch.org.uk/Blog/2010/08/05/the-uk-shadow-economy-proving-the-tax-gap-is-as-big-as-i-claimed/
But the World Bank do estimate a shadow economy on the definition basis I use the same (almost exactly) as I use
So step peddling nonsense or stop posting
Because this is not a site for you to spread deliberate misinformation
[…] in tax offices throughout the UK to collect the tax that is owing. I have estimated that £15 to £20 billion a year could be collected if this was done and appropriate legislation was put in […]
[…] in tax offices throughout the UK to collect the tax that is owing. I have estimated that £15 to £20 billion a year could be collected if this was done and appropriate legislation was put in […]