I am on my way to Brussels this morning to speak at an EU Parliament event organised by the Socialist and Democrats Group of MEPs (of which Labour MEPs are members) on ‘Who stole our future?'. It seems that the tour has resumed despite recent events in my life. That is because I feel that it's appropriate to do so. I will be talking about the tax gap in the context of the reshaping of society that we need. And if we are to have a future that includes the sense of public duty that my father undoubtedly embraced throughout his life then beating the tax gap is a key issue.
Several years ago I worked with the late Michael Meacher MP on this issue. Michael proposed legislation I had written to address the tax gap in the Commons as a private members bill. I well remember Jacob Rees-Mogg opposing it because he said, firstly, that Michael was a ‘socialist in tooth and claw' and ‘this Bill would result in more tax being paid, and we do not want that'. I stress; I paraphrase.
Not for the first or last time Rees-Mogg angered me. He was right to describe Michael as a socialist. But the issue of beating the tax gap is at least in part about upholding the rule of law. Why the Right can in any way tolerate tax abuse when it threatens one of the foundations of Conservatism is very hard to understand, unless and until you comprehend that they are not Conservatives at all.
And that they are not pro-business either. There is nothing remotely pro-business about tolerating tax abuse when the consequence is that cheating businesses obtain an unfair competitive advantage over those businesses that act in the long term interest of all their stakeholders.
Rees-Mogg's attitude was about only one interest, which was and is the selfishness that puts the interest of individuals who are willing to abuse above that of all others, including honest competitors, the law, the state and by extension all others in society. It does not require a socialist to point out the moral bankruptcy of such a position, although it seems that it helps, and makes the Left the best friends honest businesses have on the political spectrum, in my opinion.
Second Rees-Mogg was wrong to say that beating the tax gap meant more tax had to be paid. It might, of course. But I strongly suggest that since tax is primarily a tool of fiscal policy designed to beat inflation above all other goals then revenue maximisation is not the goal of any government. Rather the aim should always be to raise the required amount of tax as equitably as possible to achieve that fiscal goal in ways that achieve the secondary (but vital) goals of redistribution, repricing market failure, reorganising the economy and reinforcing the relationship between the citizen and the state. I doubt Rees-Mogg would recognise any of these.
My message today is that this is what we have to do. If we are to reclaim our future proper understanding of the role of tax is vital.
However, as my research is now showing in work I hope to publish soon, this is not the case, and there are massive impediments to doing so.
Astonishingly, official and other research data on tax is frequently inaccurate.
So too often is GDP data, which makes tax gap estimation hard.
And even the number of taxpayers is frequently subject to misreporting between data sources.
At its most basic level understanding tax is hard because official statistics seem to be perversely dedicated to ensuring that we cannot know the truth.
And when it comes to tax gaps, there is too little research and even too much denial that the issue is of consequence.
Tax cheats, both domestically and internationally, are stealing tax revenues. That is beyond dispute. But the absence of data to identify the true scale of the issue and to target resources to addressing the issue is the surest indication that they have far too many partners in politics and officialdom who are far too close to the Rees-Mogg view for comfort.
There is, I suggest, official complicity in the maintenance of the tax gap. Ed Balls was once said to have commented that he would not like to live in a country that sought to collect all the tax owing to it. I disagree: I want a state to seek to collect all the tax owing to it, but no more (of course). And that's because to do so is the foundation of economic and social justice. We are too far from both.
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At council level there are league tables showing the tax gap in Council Tax collection. The bottom two councils are frankly the sort of places that rhyme with split poles. It could be a coincidence but I’d rather not take my chances, thanks.
How they could reduce their tax gap is a good question. They could extend the Council Tax Support scheme back to 100% if on a low income and cut spending on those earning over £50k, which I’m sure the nasty neoliberal Rees-Mogg would endorse. Or they could hire more enforcement to ensure the full amount due is collected.
You can’t collect what people don’t have. Council taxes are punitive and unrealistic. If govt can supply funding for any percent of local councils needs, as it already does, then it can equally reasonably supply all of it, leaving local citizens with more to spend, if they choose, in their localities. The enterprising would no doubt then move to ensure their localities boasted genuine value in retail and services to encourage such spending. It would work, and, as we see from peeking into the BofE’s Asset Purchase Facility, into which the odd few tens of billions are wont to occasionally materialise, it’s not like money can’t be found from nowhere when there’s a perceived need for it, like now.
In an age of hyper-individualisation anything with collective connotations is under threat as far as I am concerned.
Tax needs to be rehabilitated in the public eye. You have done your best with your book ‘The Joy of Tax’.
I’ve been doing a lot more cycling of late (mainly to save money on train fares). The road I cycle on is in a shocking state yet brand new cars (mostly 4 x 4 or luxury cars – Mercedes is big at the moment) go over it everyday, their owners comfortably listening to their music, with the air conditioning or heating on, sealed in their own little world. They will complain about the road but not also all to readily avoid paying tax.
If ever there was a symbol of private opulence versus public squalor, its on our roads.
Also – as long as real wages continue to decline and debt goes up, people will look at any tax as making their life harder – not their spending or debt decisions. i hear this all of the time – even from what you might call ‘educated people’.
“Ed Balls was once said to have commented that he would not like to live in a country that sought to collect all the tax owing to it. ”
…….is that Ed Balls the lovable clown, but rather clumsy, overweight dancer and popular TV celebrity? ….or are you referring to another Ed Balls?
He of Strictly….
Ed Balls has a minor saving grace, in that (AFAIK) he doesn’t talk a lot about having a working class background while attacking the Corbyn wing of his party.
For that, the champion is Alan Johnson. I’m not a Corbyn supporter for various reasons, but I was incensed by Johnson’s recent diatribe on Newsnight. You may have seen a clip on Twitter put out by Newsnight in which he talks about his first conference, which involved the Militant Tendency row. The rest of the piece included him talking about Bolsheviks, Mensheviks and anarcho syndicalists – and, insofar as I understand what’s going on, lying about the reason for Joan Ryan’s deselection.
Which is why, no doubt, it was always the small self-employed people who were pursued as relentlessly as would a pack of African wild dogs, back in the good old days when I worked for the Inland Revenue. If one of the major targets ever appeared – and they did – it was all kid-gloves and tugged forelocks. Mind you, there was the day when I was called in to see the boss, because a complaint had been made. By a Minister of the Crown, livid at my bad attitude. Hilariously, another Minister in the same Government had just, on the same day, complimented me on my firm but fair approach. The two telephone calls came within the same hour.
I remembered my father telling me – ‘treat a duke just as you would a dustman.’ Like you, he was a Quaker. And practised what he preached.
And so did I. Still hated the job, though. Much better teaching English to Speakers of Other Languages.
Hi Richard,
Following your thinking, I think you’ve missed something that’s great for your campaigning.
In the past you did much work on the tax gap. Now you show how MMT spends first and taxes back to control inflation. I think I am correct so far?
So therefore, isn’t your tax gap an indication of the inflation that has been caused and affected everyone as a result of taxes evaded/avoided/paid late?
Therefore there must a be %age value added to inflation due to that £120bn. Any idea? 1%? 2%? 4%? extra inflation? Something to research?
Cheers,
Berg
I have delayed posting this but this week has not been a good one for blogging, for reasons already noted
I will address the issue as soon as I can
So the consequence of closing the tax gap could be (depending on the fiscal target that is being aimed for) that the same amount of tax is collected, but the headline rates of certain taxes could fall.
JRM really is odious – it is only the media’s fascination with the bizarre that gets him so much air time.
Neil says:
“JRM really is odious — it is only the media’s fascination with the bizarre that gets him so much air time.”
I hadn’t thought about like that, but I see exactly what you mean………. like the nature programmes that focus on the curious mating habits of molluscs, or the perennial fascination we have regarding snakes and large spiders.
[…] By Richard Murphy, a chartered accountant and a political economist. He has been described by the Guardian newspaper as an “anti-poverty campaigner and tax expert”. He is Professor of Practice in International Political Economy at City University, London and Director of Tax Research UK. He is a non-executive director of Cambridge Econometrics. He is a member of the Progressive Economy Forum. Originally published at Tax Research UK […]
Interesting article in the TLS last year by Jane Frecknall-Hughes, Professor of Accounting and Taxation at Nottingham University Business School.
“We might wonder, however, by what right governments take away their citizens’ money via taxation, and pluck those feathers, in the first place. We hear much these days about the ethics of tax avoidance, but little about the ethics of taxation itself. The idea that imposing tax is unethical — that it is, in fact, theft — has a long history, dating back at least to Augustine of Hippo, although often attributed to Thomas Aquinas, and remains central to the thinking of libertarian philosophers. The basic premiss is that if anyone other than a government took away your money without your consent, then it would be undoubtedly theft: why should a government be allowed to do this when no one else is permitted to do so?”
How about because a) they created the money with a lien attached and b) we consent via the ballot box.
Not hard is it?
One wonders what these ancient worthies might make of council tax, apparently, theft, by their lights. Unless they meant local government too, I suppose.
johnny says:
” The basic premiss is that if anyone other than a government took away your money without your consent, then it would be undoubtedly theft: why should a government be allowed to do this when no one else is permitted to do so?””
This is an attitude common amongst the American right wing uber wealthy class. Gun-toting, survivalist, red necks particularly for whom all government involvement in their lives is seen as an intrusion.
Soon to become widely popularised in Brexit (South) Britain, I suspect. Such antisocial attitudes start as elite exceptionalism, and as they spread down the economic social scale and become mainstream, society will inevitably cease to function.
Then, I suppose, when we’ve cleared the detritus from the streets, we have to start all over again with a new social contract.
Here is the article, in case anyone else was looking for it: https://www.the-tls.co.uk/articles/public/right-pluck-goose/
Johnny –
That sentiment expressed by Jane Frecknall-Hughes loses any traction once you’ve considered what tax is actually for.
Some believe it pays for government services (which certainly isn’t true from an economic perspective, although it does form a healthy part of the equation which informs how much a government can safely spend, so there is a correlation)… some say it manages the economy to control inflation (which it certainly does by directly influencing the available money flowing through the markets)… some say it gives Sterling its value and underpins democracy. Others say it guides behaviours through incentives and disincentives. Some believe it partially redistributes wealth. I think there’s something in each of those statements (even the “building schools and hospitals” nonsense, to an extent).
If I thought for a second that my money (that I earned with my own two hands and with no help from anyone else ever, no siree Bob) was just being taken by a fat cat government so it could provide itself with caviar and solid gold toilets whilst I went without the basics of life, I’d take to the streets with my trusty pitchfork and encourage others to do likewise. I don’t think that’s what happens when tax is taken from my salary. I don’t think any sensible person does.
If I accept that tax is a necessity for one or more of the reasons I previously stated, and if I accept that the “burden” of tax falls on everyone, with their liability mitigated by common sense and their ability to pay, then I should pay tax happily. And so should anyone. Why wouldn’t they?
Oliver Wendell Holmes (who was most definitely not a Socialist by any measure) put it succinctly and quite beautifully – “I like to pay taxes. With them, I buy civilisation”.
Tax is necessary. It’s not just a good idea as long as others pay it. It’s not theft. It’s the membership fee for a civilised community. It doesn’t stop people doing what they want to do – it enables their dreams and allows people to drink deeply from the well of opportunity offered by this wonderful world we’re lucky enough to live in.
No tax = No Community = No Law = anarchy, chaos and savagery. It’s that important.
The “it’s my money, why are the government taking some of it” cry would have some merit if we were all living isolated and self-sufficient lives and the government contributed nothing to our well being/economic success.
The reality in most economies (certainly in the UK) is that we are living in a government-created ecosystem. We are like filter-feeders in an ocean of money/opportunities created by government/society – we depend on a myriad of things outside of ourselves which would simply not exist without a state to regulate and nurture them.
This link is amusing (I hope it’s real) as it shows a T-Party nut thanking some of those pesky government employees for saving his house from fire! http://www.slate.com/blogs/the_slatest/2015/08/24/less_government_more_freedom_t_shirt_firefighters_thanked_washington_state.html
🙂
The interesting thing about characters like Jacob Rees-Mogg who purports to be a Catholic but wants to be a public figure also is that they’re never prepared to go public and explain and discuss at length what behaviour Catholicism requires. Instead he will cherry-pick bits that suit his self-centred view of the world. This means he will never seriously engage with the real purpose of taxation preferring to see it as an attack on individual enterprise, the concept of life as also being about group enterprise largely an alien one.
Rees Mogg appears hopelessly out of touch with Catholic economic teaching, which is very left of centre (of course)
“Rees Mogg appears hopelessly out of touch with Catholic economic teaching, which is very left of centre (of course)”
The Catholic Church appears hopelessly out of touch with Catholic (or at least Christian) teaching. Vatican opulence and the miserable estate of many its most devout congregations makes little sense to me.
I seriously suggest it is worth reading its teaching on buisness
“I seriously suggest it is worth reading its teaching on business”
I might take you up on that. If it’s any good it’s not me that needs to read it, though. 🙂
The Vatican is one of the biggest tax dodgers in Europe…perhaps Rees-Moggs is just following its teachings, rather than the dogma.
A tax gap is caused by taxpayers overstating deductions and understanding their income so that they can pay fewer taxes and also it is the fact that late paying taxpayers also cause the tax gap.
With respect, you ignore bad debt
And profit shifting
And all base shifting
Indeed all tax avoidance
As well as issues of tax policy
I regret to say that I suspect that this is probably a deliberately provocative comment that just embarrasses you
[…] By Richard Murphy, a chartered accountant and a political economist. He has been described by the Guardian newspaper as an “anti-poverty campaigner and tax expert”. He is Professor of Practice in International Political Economy at City University, London and Director of Tax Research UK. He is a non-executive director of Cambridge Econometrics. He is a member of the Progressive Economy Forum. Originally published at Tax Research UK […]
This is a perceptive article by Richard Murphy. The UK Government cannot run out of its own currency. The main purpose of the tax obligation is to ensure that there is demand for the government’s currency. The tax obligation results in households and firms offering labour, goods, and services in exchange for the tax credits (also known as currency) that they need to extinguish the tax liabilities that the government has imposed. This results in some of the private sector’s output moving from the private sector to the government sector. This enables the government to provision itself and provide public services.
In other words, the government has to spend first before it can tax. The government is continuously spending its currency into existence (by crediting reserve accounts at the Bank of England). The government is continuously taxing some of its currency out of existence (by debiting reserve accounts at the Bank of England).
The government is supposed to use its fiscal policy (spending and taxation) to do the opposite of what is happening to demand in the private sector. The government needs to use fiscal policy to reduce private sector demand if there is inflationary pressure (growth in total spending is exceeding the rate at which the economy can produce extra output to absorb the spending). The government needs to use fiscal policy to increase private sector demand if there is labour wastage (unemployment, underemployment, hidden unemployment).
The secondary goals of taxation are to influence the distribution of income and wealth and to influence the behaviours of households and firms (discourage activities that are socially and environmentally damaging; encourage activities that socially and environmentally useful).
Financing government spending is not one of the functions of taxation. The government finances itself by being a monopoly issuer of a currency and by enforcing tax obligations that are denominated in that currency.
We are on the same page
…”unless and until you comprehend that they are not Conservatives at all.”
They are a lingering remnant of feudalism, a time when only the lower and middle classes paid their due to the Masters who allowed them to live on the land, work on it, feed them, provide them with the means to go to wars to get more land from which they’d get more revenue.
Taxing the rich is a relatively modern heresy to these Masters.
The Rees-Moggs of this world are above this, in their feudal bubble.
The delusion they have to re-impose the Ancien Regime on us all needs to be defeated with reality, and that’s exactly what people like you need to continue working for.
Sorry for your loss Richard, work is often the best way to compose yourself.
If playing the tax system using expensive teams of lawyers and accountants with multiple companies in multiple jurisdictions is an acceptable thing then why does not UKGOV create a National Wealth Service (NWS) to provide free of charge, at the point of need, sophisticated tax planning, trusts, profit shifting, off-shoring etc to the many SMEs and individuals in the UK? Why not give us all a level playing field?
And of course – that exposes the absolute wrongness of the whole thing. Creating a NWS would destroy the tax gathering capability of UKGOV. Thus – if it isn’t ok for everyone to be able to do it it is clearly just a rich man’s plaything (at the expense of the many and relatively poor) and utterly reprehensible.
You think it is a government’s job to undermine the rule of law?
I don’t
Nor, I suggest, do you understand the nature of wealth
Has your reply crossed with mine? Of course it is wrong that there should be such a NWS. And as I said in my comment the legal tax dodging and expensive planning that is going on would of course be impossible if made available to everyone. Thus it has to be, at heart, wrong.
Prof Murphy I note you are in Paris on 2/3 Oct. On 3rd you are discussing with one Prof Laffer. I am in Paris that day is it possible to attend such a conference. I have no academic credentials at all.
Please email me – details on the contact page