Toby Young is, I admit, not a left wing favourite , for all sorts of reasons, including his dedication to opening a supposed 'free school' meaning the eviction of a great many charity organsiations from their premises in Hammersmith, which is sure indication of his belief in the 'Big Society'.
He was never, therefore, going to provide an objective review of Nick Shaxson's book 'Treasure Islands', but he's written one for the Mail on Sunday all the same.
The title gives much of the game away about what he thinks of tax avoidance. It's entitled "Why the super-rich deserve their tax holiday". But he then provides no evidence to support the claim. It appears that his best evidence that tax avoidance is legitimate is that:
"If you buy fresh squeezed orange juice the price includes VAT. If you buy standard concentrated orange juice there is no VAT. So if a key reason you buy concentrated oarange juice is that it is a bit cheapert, you are avoiding paying VAT. Is that wrong?"
No. It's simply the wrong question. In simple economics no one makes that choice on a tax motivated basis. They do so on the basis of price, and the most it reveals is that on occasions the boundary between zero rated foods and standard rated foods is a little arbitrary. So what does that prove? Only that in any legal system boundaries have to be drawn and sometimes there are slight price distortions as a result. It's a price society deems worth paying, and rightly so.
But does that justify the rich opting out of society, as he is saying is permissable, and that they do so through supposedly legitimate but morally dubious activity that clearly abuses the spirit of the law - something all our Big Banks have suggested they can clearly identify in the last week? No of course it doesn't.
In which case what does Toby Young's inane justification prove? Well, I'll suggest three things. First it suggests he has no moral compass. Second, he has no idea about the subject on which he is pontificating. And thirdly he is the last person I'd want to entrust a child's education to.
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If you read the whole article he is suggesting that wealth creators come to the UK, partly at least, for the cost. A country that taxes highly will cost the entrepreneur more. His suggestion is that the entrepreneur will choose between countries which result in the cheapest (which means post-tax) cost to him, in the same way a consumer of orange juice will choose between the cost of alternative products.
You have taken his OJ analogy to its most literal extreme and even trotted off into an amusing distraction about different foods being standard- or zero-rated – and in doing so you have missed his point entirely.
“In simple economics no one makes that choice on a tax motivated basis. They do so on the basis of price”
But if the imposition of a tax determines the price of something by making the price relatively higher, then in “simple economics” surely the choice has been made on a “tax motivated basis”, even if subconsciously?
Richard,
I like your blog a lot but I am getting a little tired of the spelling mistakes and typos. Please use a spell checker. If you use firefox you can get a addon.
Sorry to criticise but it really is quite important because I find it detracts from your message which is much more important.
I don’t expect this to published.
@Chris, Oh FFS, get a life. Richard, carry on, keep focussed.
“wealth creators come to the UK, partly at least, for the cost”
“Wealth creators” are not plucky chaps who plant magic beans in the ground. They come here because, unlike Zug or Cayman we are not a boring craphole with no opporunities to make money through providing currently produced goods and services. Unlike these places, we also have a proper infrastructure topped by a state willing to put a fresh nappy on the financial system if it does a mucky doo-doo and protect private deposits.
And if you can’t – or won’t – recognise the difference between a slight VAT-induced price distortion in the orange juice market and massive, complex systems of loophole-seeking paper transactions, mired in secrecy and fraud that are (unlike, say the sale of a carton of orange juice to someone who is thirsty) of no commercial value save to avoid paying tax in the jurisdictions whose expensive systems and protections enabled you to make your profit, then you are an (Comment deleted by editor at this point).
Do not expect a balanced view from Toby Young — he is a stooge for the banks and vested interest – as are those responsible for the obtuse remarks above. The fact remains that the vast majority of us are screwed relentlessly by the excheque, whilst a priveledged few – the wealthy and big business – have the resources to avoid tax – assisted by their accomplices on Jeersay,Gainsay and the Isle of Shame.
(Gosh now i will be in trouble with “Chris”!)
@Rod Cowan
So. If the fresh OJ was dearer, but gathered less tax, it would be the more attractive buy for someone whose motivation was to avoid paying tax.
Do me a favour…
Another thing is that bank executives may be the kind of people who make their final decisions by tax rates, but genuine wealth creators tend to be the kind of businessmen (or businesswomen, of course) who will always trim their margins, if needed, to close a deal they want to do.
@Braveheart
I don’t understand at all how that follows from what I said. Please explain.
@Chris
This has been a Mac issue – the spellchecker on my chosen browser – Chrome – does not always work
I’m not a good copy reader anyway, I admit
But I may look at Safari..
@Rod Cowan
Isn’t it obvious – or are you lost in your tax subconscious? (a fiction of ever there was one)
@Rod Cowan
If the primary motive is to pay less tax, then you would buy the dearer product if it attracted less tax. Which is just silly. As for “subconscious”….
@ Carole
No yore write, I shud git a life, spilling is knot impertant in the big skeme of fings.
I apologise to Richard, please do keep up the good work and I apologise to you Karol for mi petiness.
@Chris
theLook, I’ve said sorry – and I’ll try to improve….
But yes, I do think content more important than polish – and you’re welcome to disagree
I think the telegraph article was poor quality. It seems to artificially miss the point of the real motive behind the transactions.
When you buy orange juice for physical delivery and consumption, you generally want to drink it or consume it. Whereas a tax avoidance strategy may utilise a transaction or series of transactions to primarily or mostly reduce tax.The legal form is dominant not the economic substance. Avoidance strategies use this grey area between artificiality and real world transactions successfully. Until they are then closed by further legislation.
An example being some use of EBT’s and loans (usually by high networths) , which may not have been intended to have been used in this way (at least by the general public). HMG usually bolts the gate after the faster horses have left.
This in my opinion is why a GAAR is essential,it raises the bar against aggessive artificial planning, it will also apply more scrutiny to tax legislation, so that the law is better drafted with hopefully explanation and intent of the legislation clearer so parliament can be held to account.
Otherwise intelligent people will use these gaps artificially which may have been an unintended consequence of the laws passed.
We should think more about regulatory capture, and how that happens accross the board from top all the way down?
We could be surprised by the coalition.
Seriously. I was self employed, working from home. My accountant was allowed to set a proportion of my home rent etc against business expenses. Natural enough since I used the premises for business as well as living, and in keeping with the spirit as well as the letter of the law. Not once in 15 years did my accountant suggest that I do anything the least bit dodgy to enhance my income. Not once did I suggest to her that she might.
Large companies employ a phalanx of lawyers to force cracks in statute to see if it allows them to pay less tax. They move money around different jurisdictions to exploit inconsistencies in and between the different legal and tax systems. ensure that they pay less in the least transparent jurisdiction. The aim is not a legitimate maximisation of their advantage within the spirit and letter of the law, it is to find a way around the law. This is against the spirit of the law and maybe illegal. Certainly immoral in a democracy.
TY’s ‘orange juice’ analogy is a good example of confusing individual consumer choice and what economists and others (used to) call social choice. The latter involves choices about ‘society’, about the collective good if you will. Amartya Sen coined the phrase ‘the paradox of isolation’ to point out that what we choose to do as individuals is often quite different from what we would chose if we knew everybody else would do the same, of which tax avoidance is one example. Despite his Oxbridge credentials, TY apparently never gave any serious thought to this problem—not a mistake his father Michael would have made!
@Tom Howe
The idea that there is a class of internationally mobile ‘wealth creators’ whose patronage we should be desperately courting is one of the most pernicious myths in modern political and economic discourse. For example, if Alliance Boots were to cease doing business in the UK, because we dare to charge them their fair dues, their business will quickly be usurped by smaller, local pharmacies and the state of competition in the UK market would be markedly improved, with probable benefits to the consumer as well as the public purse. Of course, Boots is bluffing anyway, because the UK is a huge economy and a lucrative market, regardless of tax rates.
What we don’t want is the kind of ‘investment’ Ireland has been ‘benefitting’ from, which involves setting up little more than a PO box. Easy come, easy go. Ireland has benefitted from growth in creative hi-tech businesses, which do not have appreciable economies of scale and so are ideally suited to small, local enterprises – not multinational behemoths. These industries also benefit enormously from the existence of a highly educated workforce and good infrastructure, both of which require public provision through … yes … TAXATION.