Likewise the state pension. Any politician who dares to question perks such as the winter fuel allowance and the seriously expensive triple lock of guaranteed annual rises immediately faces a storm of fury from recipients insisting they have “paid their stamp” and are thus entitled to endlessly rising living standards. Never mind the fact that their “stamp” was spent years ago and their pension payments are funded from taxes levied on today’s workers.
Is tax just a mandatory subscription fee you pay to provide yourself with services you might or might not want and might or might not use?
Another way to see tax is an insurance premium towards a group policy. This view is closer to the narrow financial facts of tax: the amount we pay in is not related to what we get back.
If you’re a privately-educated high-earner who drops dead at 60 without reaching a hospital, you may well contribute far more to the Exchequer than you receive in direct services. And if you’re born disabled or develop a complex chronic condition that limits your ability to work, you’ll very likely cost the state more than you pay in tax.
Government responses to the Coronavirus crisis show that insurance policy paying out, and might just shift, a little, the way politicians talk about tax. By and large, politicians tend to speak of tax as a necessary evil, something they try to do to people without them noticing too much. Hence the continued resonance of that Colbert quotation I began with: it’s used again and again in books and articles about tax, and with good reason — it’s still relevant today.
If you present tax as that necessary evil, tax avoidance and evasion make a certain logical sense. Especially if you believe (rightly or not) that you pay more in than you get back.
That belief is most often found in “self-made” people who have made money in business and appear to believe that their success exists almost wholly separately to wider society. If you built your firm through hard work and grit, who can blame you for losing sight of the social and economic infrastructure that was a necessary condition of your success? Roads, courts, clean air, policing, defence — take them away and see how long any business lasts.
(Some small-state conservatives still recall Ronald Reagan’s joke: “The 10 most terrifying words in the English language are ‘Hi, I’m from the government, and I’m here to help.” But as the historian Ian Morris has pointed out, in reality the 10 scariest words are “There is no government, and I’m here to kill you.”)
We don’t just pay tax so we can get stuff. We pay tax so that people — including us — can get stuff when they need it. Like an insurance policy, it only works through the pooling of risk — and contributions. Part of the reason a country like Germany has been able — so far — to absorb the coronavirus crisis better than others is a history of taxation levied and used to provide insurance against disaster: the Germans have almost too many ventilators and testing facilities, tax-funded precautionary capacity that now looks more prudent than wasteful.
Which brings us back to the companies that decide to skip a few premium payments by routing profits through off-shore subsidiaries, lending money between units and all the other clever wheezes. As voters wonder why their states’ insurance policies aren’t paying out as they expect during a fundamental challenge, is it any wonder that politicians feel little urge to help such firms?
But let’s go back to Colbert’s geese for a moment. It may well be politically expedient and even emotionally satisfying to let tax-efficient corporates go under right now. How many tears will be shed in the UK if Richard Branson loses his airline and his island?
But letting the noisiest geese starve won’t bring in so many feathers. The really interesting question about tax after the crisis is whether there’s now a chance to persuade more companies — and maybe some people too — to pay more tax.
If the crisis is demonstrating that tax is an insurance payment that can help protect everyone from grave harm, what is the social status of tax avoiders? The idea of shaming companies over their tax records is now old, and largely ineffective: there are lots of firms whose tax arrangements are famously ruthless and mean, yet how many have been successfully shamed into ending those arrangements? Most just use a fraction of the money they save in tax to employ a few more top-drawer PR folk to answer questions from annoying hacks and politicians, then carry on as before.
What hasn’t been tried enough is approval, the positive moral pressure of acclamation. Some companies don’t pay enough tax, but some pay lots.
According to PWC’s annual Total Tax report, Britain’s biggest 100 firms paid £84.7bn in tax last year, 11.7% of total government receipts.
Yet how many of them talk about their total tax contribution, about how many nurses or ICU wards they funded last year?
HM Revenue and Customs in recent years has experimented with behavioural science to get us to pay our taxes in full and on time. Self-assessment payers get bombarded with messages telling us “by this point in the year, most people have already done their tax return”, and so on.
The aim is “social proof”, the creation of a clear norm that people incline to meet. I wonder if the coronavirus crisis might just offer the chance to do something similar with tax on a much grander scale, part of a new social contract between businesses and the society that is now bailing them out and paying their furloughed workers’ wages.
I’m all for naming and shaming those who don’t pay their fair share of tax. It establishes that paying tax is an intrinsically good and selfless act, something made vividly clear by Covid-19. But we should make much more use of that. Since paying tax is a good thing to do, we should dwell more on those that do it the most.
Let’s have official league tables of the biggest taxpayers, with the winners celebrated and recognised: badges, honours, the lot. Hell, why not name hospital wards after those who did most to fund them? Imagine if the eight new Nightingale hospitals had been named for the eight biggest individual taxpayers in the UK on those league tables? And think how the companies and plutocrats who came lowest on the list might respond. There is more than one way to pluck a goose.
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SubscribeJames why do you name the piece, which I enjoyed reading by the way, “Stop Shaming Tax Avoiders” Its so wrong for someone like Branson, Green, Dyson and many others to utilise the UK to set up a business and once it makes some decent money and they should be giving back to society we find that the company is moving to an offshore tax haven. This practise should be banned and if you want to take your money, that’s the money you make in the UK, elsewhere to avoid tax you should pay an exit tax to level the playing fields not take it gross and buy a place in Monaco, the most expensive apartment in Singapore or an island and most certainly any rewards such as titles etc should be returned as you are not contributing to the UK your just ripping it off.
Tax avoiders are merely taking advantage of the deliberate tax policy of the government. So called loopholes exist because ministers and their advisers want people to establish businesses in the UK without the fear of punitive taxation. If we had a more honest taxation system, we might have fewer loops and fewer avoiders.
And from what you say, less inward investment.
Quite possibly but it might also be the case that a simpler and more honest system might be attractive to inward investment as long as taxes were not punitive. There does seem to be quite a lot of evidence that lower tax rates reduce the incentive for complex avoidance schemes.
Brian, the wealthy moving to a tax haven do not face an exit charge because they do not move their wealth. Only the income moves there by reason of tax residence. Dyson, Green etc all have their businesses in the UK and pay tax on the profits earned here (including the people they continue to employ in the UK). However the income that Dyson, Green ec earn in a particular year in which they are not resident in the UK is taxed where they are resident. This is fair.
Tax avoidance is partially to do with the complexity of tax legislation. Another is the level of tax. At the moment 28% of the income tax paid in this country is paid by <1% of the tax paying population so the rich are contributing greatly (and disproportionately). Not sticking up for the rich, but I think we need a sensible discussion on tax and how it is levied once we’re out of lockdown. Generally labour is overtaxed and property undertaxed in the UK. This should change and also would help in rebalancing in some way the economy away from property investment and into productive parts of the economy.
Likewise the state pension….”paid their stamp” and are thus entitled to endlessly rising living standards. Never mind the fact that their “stamp” was spent years ago and their pension payments are funded from taxes levied on today’s workers.
I may be wrong, but initially your National Insurance went in to a kitty which increased over time so that when you wanted to draw on your entitlement (you were only entitled through contribution) as you retired, you were able to do so.
I believe the Labour government in the 1970’s and subsequently the Tory government simply spent this kitty, and we have been having issues ever since in regard to who gets what.
You are wrong I’m afraid. There was never a kitty. The first Old Age Pensions were paid before WW1 at the same time as National Insurance was started. So effectively the money was paid out as quickly as it came in. There was a contributional principle which meant you needed to work forty years to get a full state pension. That’s been eroded because many people don’t start work until their mid twenties because they are in full time education and of course some women take time off to have children. The first cohort of pensioners were the only group who received a pension without having paid in. However they only got six shillings a week from the age of seventy which was about normal life expectancy at the time so I doubt it cost the exchequer much.
I think it went wrong before that. I thought Nye Bevan famously said that the great secret of the National Insurance Fund was that it was not insurance and there was no fund. And he died in 1960.
A thought I have had these many years is that although capitalism works well enough on its own terms, it lacks a conscience. People who would never steal from their neighbour, in their working life become corporate raiders or marketing directors who instead happily steal from all of us. i watched the large clearing bank that employed me decline over my working lifetime from being generous and philanthropic to becoming ruthless and completely unprincipled. if it was legal, or could be argued as such, and made money, it was the right thing to do ..
What we must find a way to do, is to inject a social conscience into capitalist endeavour. All businesses should be marked somehow on a scale of the good they do and their taxes adjusted accordingly. There are lots of ways this could be done but until we give it a try it is idle to complain about corporate moral misbehaviour since profit is currently more or less their only goal..
I believe capitalism has delivered huge benefits to humanity. However, in the more recent past in the West, secular atheism has displaced religion (mainly Christianity) which previously defined virtue and provided an understanding of a virtuous society. Without that underpinning, whichever economic system you choose to go with, issues around what is a just and good society will arise. Capitalism, as you state lacks a conscience. However it is a system, simply that and no more. What needs to be addressed crucially is how, in the absence of religion, we can now define virtue and a virtuous society
I’ve long wished that instead of those annual lists of top 100 rich people, top 50 tax payers etc. ““ the sort of thing the Sunday Times loves compiling ““ we had an annual list of the Top 100 Philanthropists in the UK. As to tax avoiders, my husband has long wished they were issued not with passports with the standard red (or soon to be blue) covers, but with yellow-covered ones ““ not only because of the colour’s connotations, but also because it would stand out nicely at airports.
This is not so far from the approach in ancient Athens, where the rich were expected to fund everything from grand buildings to theatre plays, in return for – the honour, fame and approval for having done so.
Yes. With wealth comes responsibility.
I think it’s not just responsibility – perhaps a social sanctioning of certain demonstrations of pride. Or if you like, showing off by doing laudable things.
Sometimes we do .. the Rosie maternity hospital in Cambridge is named after Sir David Robinson’s mother, which I always thought a nice touch from a generous man. And there is the Sainsbury wing, the Leverhulme gallery … Addenbrooke’s in fact is named after a Cambridge taxpayer, a surgeion admittedly. I like naming things after people and wish we did more of it, as the French do
Another way of thinking about tax is as having a transactional and a redistributive element. Above a certain threshold, some of the tax I pay (directly or indirectly) comes back to me in the form of benefits and services, while some goes to provide benefits and services to others.
The question we can then ask about the former is: does the state do a better job at spending my money than I would? Is it more efficient in doing so?
In regards to the latter, we can ask: does the state do a better job of spending this money than if it simply handed it over to the recipients (by lowering the tax burden, for example).
The answers to these questions will vary according to the services provided, but it gives a framework for thinking about the issues.
It’s hard not to believe, though, that in many cases individuals would do a better job of meeting their own needs. Additionally, having handed over the money in tax, one is disempowered in regards to getting those services. When approaching a service provider one is effectively reduced to the level of a beggar.
I agree, mostly, with the “insurance premium” angle, but not all such premiums are statutory (some are). This perhaps raises the question ( not addressed here) of the difference between tax “avoidance” and tax “evasion”. Clever lawyers and accountants would never (I would hope) countenance evasion , but we would all ( I suspect) like to avoid tax if legitimately achievable. The problem is you need to catch the damned goose before you can pluck it, and ( hissing aside), the more feathers you extract, the more the risk of the goose ( as a business model) not being able to fly. Cooked, you might say.
As Lord Clyde stated in Ayrshire Pullman Motor Services and Ritchie v IRC [1929] 14 TC 754, “No man in this country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or to his property as to enable the Inland Revenue to put the largest possible shovel into his stores. The Inland Revenue is not slow ““ and quite rightly ““ to take every advantage which is open to it under the taxing statutes for the purpose of depleting the taxpayer’s pocket. And the taxpayer is, in like manner, entitled to be astute to prevent, so far as he honestly can, the depletion of his means by the Inland Revenue.”
Clearly, “this country” was Scotland, but I think the principle applies equally to the other three parts of the United Kingdom.
Another precedent: Nobles that raised regiments for the king are now imortalised in the regimental system that integrated their regiments into a governmental structure.
I too had this thought years ago- could businessmen pay off our debt and be awarded with a “debt-cracker” medal, and a peerage? Have a bridge named after them?
Did I miss something here, the government setup laws allowing the tax avoidance. Why would we shame companies who are doing what shareholders pay company heads to do? Don’t like this, change the government written rules.
Lewis Hamilton a few years ago got slammed for his tax avoidance, but he did nothing wrong. The government writes the rules.
Who reading this article has a retirement plan? It’s your money is being invested in the markets and if you want to see your funds go up so you can retire then you want the heads of said companies to employ the best tax avoidance specialists.
So simple but I think someone in government paid for these type of articles as a trial balloon to keep everyone from looking at what a disastrous job all governments do with our money.
The writer has missed the point that who in their right mind wants to fund government wasteful expenditure?
Successive governments have wasted money on an eye watering scale, from Blair’s pension fund war, to Brown’s love affair with PFI, Cameron’s VS foreign aid budget, May’s naive green initiative and of course the House of Lords.
We have run a deficit for years, the debt gets bigger but they keep spending.
The writer forgets indirect taxation, fuel duties, VAT, customs duties etc, all in all add up to a very high level of taxation that is in turn part wasted.
Perhaps with a competent Govt and sensible expenditure, people would be happier to pay?
Perhaps we should mention the infamous Laffer Curve, not least because it drives Guardianistas into incontinent fury. The theory is simple; if you increase taxes, you increase revenue, BUT if you set the rates too high then you destroy incentive and encourage people to take evasive measures, and the revenue actually falls. Examples include the huge excise rates that were levied in the eighteenth century, to the point that a high proportion of the brandy and tobacco in the country was smuggled in. Revenue fell, but smuggling flourished. In contrast, when Maggie Thatcher reduced the highest rate of tax to 40% for all, revenues actually increased. The point is that taxes should be set to produce revenue, not as a tool for social engineering.
Why not do both. Allow the large taxpayers to bask in glory while the avoiders could be shamed. There have been tax avoiders in the past who gave very generously to charities. There are several impressive hospital buildings in London paid for by a gent who left the country in a hurry because of a VAT investigation. I won’t name him even though he’s dead because he has family still living and he was never convicted of anything.
The issue never discussed by commentators is the duty of governments to use out taxes wisely and carefully. Perhaps if the greedy politicians acknowledged that we provide their gravy train many more people would readily pay more.
We need regular balanced budgets in such circumstances.
Agreed. Let’s focus more attention on the tax payers, more kudos to them.
The calm tone of the various comments reflect the balance and rationality inherent in this article so well done to the author. I found the analogy of the insurance policy very appealing and immediately thought of tax avoiding corporates as being like those people that bleed their insurance companies and push up premiums for us all.
A flaw, however, with this analogy is that most insurance companies are inherently more efficient than most governments, especially in the developing world. Also, an insurance company would never get away with the sort of policy changes that governments implement over long periods of time or as parties with differing ideological platforms assume control of the ‘board’.
Something else I would like to throw into the pot is that while the Googles, Bransons and Dysons of the world are taken to task for tax avoidance, why is there so little critique by their (invariably) leftist detractors of the chronic abuse of tax revenues by many developing world political leaders? It’s not as if we don’t know who they are.