Budget week is coming. Following the Paradise Papers there will be hopes that more might be announced on steps to be taken to beat tax abuse. Amongst my many hopes that will be dashed I share this aspiration, but not now entirely in the ways that many NGOs who campaign in this issue do. That's not to say that their demands are wrong or inappropriate, because that would not be true. If, as for many such organisations the aim is to beat international tax avoidance by multinational companies then what is called the A, B and C of measures called for by the Tax Justice Network is wholly appropriate. They are:
- Automatic information exchange that works from tax havens,
- Beneficial ownership of companies on public record, and
- Country-by-country reporting.
We quite emphatically need all three. I support the demands.
But I am also well aware that they are not enough. In the context of the domestic economy and the need to both regulate that better and beat abuse within it then international tax abuse is only one of the issues that we face. My guess (and everyone does some guesswork here because we're dealing with estimates of what is inherently unknown) is that offshore and international tax abuse is unlikely to make up more than twenty per cent of the UK tax gap. The rest is domestic and I have to say that if effective steps are to be taken then this abuse within the UK has to be tackled as well.
There are five big elements. One is the existence of shadow companies that trade unregulated within the UK economy because both HMRC and Companies House have entirely withdrawn from making any attempt to regulate the UK company sector.
The second is the cash in hand economy, which persists and is much bigger than HMRC say it is. See page 19 here.
The third is the abuse of UK allowances and reliefs. Domestic abuse is bigger than offshore abuse in all likelihood. That's covered from page 43 here.
The fourth is tax loss in capital taxation, which seems to be largely ignored but which is very significant. That's detailed from page 27 onwards here.
And then there is crime, from deliberate non-payment of tax owing by walking away from companies that owe it, to manufactured abuse. There are a number of references in the link already provided.
It is these elements, plus offshore abuse, that make up my estimate of the tax gap, which is three times the size of HMRC's.
The question is what to do about this. That is always the harder issue. And that is where politicians need to become more savvy, because the problems here are deeply embedded in the UK tax system and so harder to identify and address than offshore abuse (against which the campaign should continue). My suggestions in approximate order of priority are fivefold (I have limited myself).
First the culture of HMRC needs to be utterly reformed. It has a passive senior management far too focussed on delivering cost savings to keep their Treasury paymasters happy than on the task they actually have to achieve of running an effective, and fair tax system. Root and branch reform of the management of our tax system is required. including having HMRC accountable to parliament via a Ministry of Tax, a Minister of Tax in the Cabinet, a Tax Select Committee and an Office for Tax Responsibility to act as internal auditors of HMRC reporting to that Select Committee. I set out my reasoning here.
Second, we have to properly calculate the tax gap. It is done, half heartedly at best by HMRC at present, most of their data is estimates and they have ignored IMF advice on the issue. Until we know what tax there is to collect we won't get it. Full Fact investigate this here.
Third, HMRC need more staff, and they continue to need to be based locally. The idea that HMRC can operate from just 14 offices (none west of Bristol in England, north of Glasgow in Scotland and none in East Anglia at all) is sheer madness. It denies people access. And it destroys local knowledge. Tax has to work in the community. Worse, it will undermine good governance in HMRC, result in the loss of a considerable number of older experienced staff who will not now move long distances to keep their jobs, and creates real risk that each office will develop its own working practices from which tax injustice will follow. I argue the case for a more local HMRC from page 52 here. There is more on this issue here.
Fourth, we need to secure information on all the companies that are really trading in the UK at any point in time. This is possible but legislation is required to, firstly, require that any bank providing services to a UK company or trust has to supply information to HMRC on the fact that they are doing so, and then HMRC and Companies House must be legally required to secure information from that company or trust or from those who manage, own, or benefit from it. I have already drafted law to make all this possible. Full details can be found here. I can think of little that can beat the tax gap more than this, and the absurd fact is that we now expect banks in Cayman and Jersey to do this but we do not do it ourselves, which is madness.
Fifth, I strongly recommend that as many tax reliefs and allowances be closed down as possible, or that they be restricted in scope. As I noted recently, pension tax relief now costs the UK £50 billion a year and we have a surplus of savings already. That is madness. I explain all the issue at length over a range of taxes here.
Undertake these reforms and we really begin to beat tax abuse. We have a long way to go.
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The next part of What I want for the Budget is available here.
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HMRC has completely withdrawn from Norfolk since you wrote your paper on the Tax gap. HMRC plans no presence in East Anglia. Your nearest local tax office in Cambridge will close in February.
At the end of this month the majority of staff in HMRC Cambridge will take voluntary redundancy. This includes 90% of staff in its counter avoidance unit, which will cease to exist as a result.
That is the reality behind any claims the Chancellor may make in his budget speech about being serious on wanting to tackle tax avoidance.
And Cambridge had a very powerful unit of very well experienced people
Good stuff.
It seems that what we really need is an Office for Collecting Taxes Properly Using Supervision (OCTPUS for short) , never mind one about ‘budget responsibility’.
Reading about and listening to Hammond at the weekend (what a gaff by the way) proved to me how ideologically stupid both he and his party are. I mean………..driverless cars – for goodness’ sake.
And then there is the Tory housing minister Sajid Javid – Mr Disingenuous himself (or is he just thick?) moaning about Nimbyism when his party – HIS PARTY – has cut the grant regime meant to promote people using brownfield land to build on so that now more time is spent arguing about land remediation than building homes!!!
Yet a poll in the Observer apparently showed that voters still trust the Tories about the economy!!
Is this a bad dream? If so, someone please wake me up! I’ve had enough.
I wish it was a bad dream
“…..I mean………..driverless cars — for goodness’ sake.”
Hi PSR,
For goodness sake what? I don’t understand the what it is that you ‘mean’.
They are coming. And they’ll come thick and fast and it can’t happen too soon. Vehicles without emotional animals in charge of them will make the world a much safer place.
Plus, suddenly our roads will be big enough for the traffic on them. Even the M25 traffic will flow.
I don’t think this is the territory of pipe dreams. All this nonsense about drivers being hijacked by hackers to mysterious locations is a piece of nonsense to frighten the gullible and slow down the displacement of petrol heads onto tracks behind secure fences where they can play to their hearts content.
As the canals have become leisure centres and railway lines have become cycleways, cars will become playthings and future generations will shake their heads in wonder that anyone was ever allowed to take one on the public highway unrestrained.
Maybe you’re right
But I think this one will take a bit longer than some think
I suspect the issues are no resolved as yet
I’m inclined to think it’s going to happen a lot more quickly than most of us imagine possible.
It’s no longer science fiction territory.
If every road collision was covered with the media enthusiasm that greets the hiccups in self-drive vehicles nobody would go out on the road without a spare pair of underpants.
9/11 deaths amounted to 3 months US roadkill so I’m told. That’s every three months. Year in and year out. And we no longer register it. It isn’t news it’s just isolated personal and family tragedy.
Uber seem to be leading this development commercially:
https://www.bloomberg.com/news/articles/2017-11-20/uber-steps-up-driverless-cars-push-with-deal-for-24-000-volvos
Maybe it’s a long term way of solving their ‘driver as employee’ problem.
Mr Crow
I think that you are right in many ways. But there are lots scenarios aren’t there?
It could very well be that driverless cars will be an investment for those seeking rent from their investment. Cab companies can hire you a driverless vehicle that just needs fuel and the odd service. No wage bill, no holiday pay, no minimum wage or contract arguments, no rest breaks. It seems like a no-brainer for those who wish to make profits. The investment will be huge so what will the fare pricing structure look like as a result? And how much will they be for private sale?
The roll out could be slow for the rest of society with pricing so high that driverless cars are the preserve of the mega rich first?
How will insurance companies and insurance law catch up? Won’t the two have to align first? What about the Police? Liability anyone? These issues will take years to sort out.
Personally I hope that driverless cars never see the light of day. As I’ve said before what we could do with really is traditional cars with cleaner emissions – those dirty diesels could be made cleaner if the industry could be arsed. A self cleaning and polishing car would be more welcome to be honest. What is wrong with driving – the feeling of being in control? I mean look at Top Gear. Is this what people need or want – driverless cars? Having made the conscious decision to get the train and my bike to work, on the odd occasion I now use the car I actually enjoy it more – the feeling of power and control (and self control) is rewarding as is the opportunity to go slightly faster when the need arises.
I’ve never seen a crowd of people marching down a road demanding this product. But I’ve seen people demonstrating about car pollution and badly designed roads and poor traffic calming that kills people however.
The ‘driverless dream’ is just a diversion from an industry that knows that the end has begun in my opinion. The game is up; fuel stocks are on the way out – my kids could see that last ones in use. I am not sure that we have enough raw materials on this planet to make the same amount of battery cells for electric cars as there are extant engines for all the fossil fuel vehicles at present.
Will everyone be able to have one? I doubt it – I really do. The feudal dividing up of capital that we increasingly live with will ensure that.
The real tragedy however will be the pouring of vast sums of money into what will be a minority product (driverless electric vehicles) when there could be huge investment in green and sustainable public transport for everyone. That would be huge mistake but given the misallocation of resources in the late twentieth and early twenty-first centuries anyway I do not hold out much hope that the right decisions will be made and that is why I despair at Hammond’s bullshit and why you maybe right.
In other words in Hammond’s world you can have under-nourished children, the disabled treated like pariahs and poverty whilst in work but because you have driverless cars driving around you will be classed as a ‘first world nation’.
Really? What bollocks. The Tories are now just selling dreams and that is really telling. And that is the point. The driverless car is really just a side issue and a symptom of a deeper malaise.
Ah!, But Mr Slight Return,
We will not all need a driverless car of our own. We will be able to simply call one up on the smart phone and it will driverless itself round to the door.
It will of course require better public mass transport services to make the system work well. But the buses will be driverless too and if you take the driver costs out of the equation you can have more buses therefore more frequent services. And with far fewer cars clogging-up the road they will move more freely and regularly.
I wouldn’t worry about the capital costs. They will be shared between passengers and over time. It’s going to be far cheaper than the capital costs of everyone having their own vehicle. Richard will be able to explain better than I can how you finance that sort of thing. Or any business accountancy type.
Sure the shift won’t happen over night, but you just watch how quickly diesel cars disappear now that ‘future guidance’ has been delivered.
The availability of cobalt for lithium batteries is being flagged up as a potential bottleneck, but there are other pet projects in the pipeline and research into alternative battery types is in its infancy. The motor industry is only just accepting the death of fossil fuels and internal combustion engines.
Hydrogen is being widely touted as the fuel of the future, but I think there may be ways of scaling liquid air to individual vehicles via shipping and commercial heavy goods vehicles. There will undoubtedly be other chemical battery systems developed once the search becomes a priority for R&D.
Petrolheads and control freaks will be able to drive for fun on prepared tracks for fun without the sort of strictures which are necessary for a public highway system. Tarmac or 4X4 off-road.
The time taken for motor vehicles to replace horse transport was very short. This next transition is unlikely to take as long. The Chinese will beat us to it because of the legislative foot-dragging you allude to. They will just do it. And we will be importing their manufactured vehicles unless we get some digits extracted PDQ.
Come the impending financial crash nobody is going to want to refinance the traditional auto industry and that will quite likely be the turbo charger of change.
I’d give it a decade tops.
@ Andy – 2001 US road deaths: 42,000; 9/11 deaths 2996. (wikipedia) More urgent is developing a sensible transport policy: fewer vehicle journeys, more use of public transport, move freight to rail, reduce pollution etc etc.
But back to the budget. Agree with all the recommendations. Can anyone remember a budget that simply addressed the problems facing the country and wasn’t just a mixture of the usual spending announcements, a few tax reforms for the taxation cognoscenti and a lot of sweeties for the Party’s supporters and some egregious bribes for those whom they want to win over and even more pages of abstruse detail than the previous year to give the clever dicks working on tax avoidance something to keep them out of the pub?
This will be a budget for the fish and chip trade: a cheap headline for the next day’s paper
Sorry, correct that: an expensive headline for the next day’s paper
Andy
The point is that Hammond’s talk (repeated by some posh sounding policy wonk geezer on Channel 4 News last night) is just the latest iteration of Thatcher’s ‘Great Car Economy’.
Hammond is talking BLOB: a Big Load Of B*****Ks.
In other words there is no sense of anything really new – the production of driverless cars is just another hyper-personalisation tactic when in fact we should be investing in public transport – transporting many at once which is far more economical in terms of fuel use – existing or future sources.
And do not write diesel off too quickly. The man on the street likes his diesel car – it does more mpg than his petrol one and has more torque when overtaking and on the motorway. Diesels will soldier on but there has been a missed opportunity in putting things right in terms of emissions. So much for human creativity being used foe something noble.
China can do what it wants but I foresee the Courts here being clogged up as any law for governing driverless vehicles then runs into Judge made law in the Courts. Expect to see the builders of this crap get around the law in some way and a legal car crash some way later.
The thing is problems are not being solved here Andy: they are just being moved around. As the US marine corps would say its all FUBAR: F**ked Up Beyond All Recognition.
[…] know is that I will not get what I want from the budget today. I wanted effective measures against tax abuse and real increases in taxes on wealth. I seriously doubt either will […]