“official action to tackle tax avoidance and fraud is “a drop in the ocean”

A former adviser to the Thatcher government has warned that official action to tackle tax avoidance and fraud is “a drop in the ocean” in light of the amount of tax revenue lost to the Treasury, which he believes to be almost £120bn a year – almost twice the amount estimated by Revenue and Customs.

John Christensen, former economic adviser to the UK and Jersey governments, who has also worked within the tax haven industry in the past, said government plans announced yesterday at the Lib Dem conference in Liverpool to raise an extra £7bn by 2014-15 by tackling tax avoidance and frauds were “too timid”.

He criticised Britain’s “permissive” tax laws, which he said placed Britain in the unenviable position of leading the world on tax evasion, with over half of all tax havens around the world being British, he said.

Christensen, part of the non-partisan Tax Justice Network, said the government needed to reverse the job cuts in HM Revenue & Customs – which unions say have numbered 30,000 over the past five years, to allow tax collectors to claw back the billions of uncollected revenue.

He told a fringe meeting at the Liberal Democrat conference in Liverpool organised by the Public and Commercial Services Union (but not listed in the conference guide), that tax avoidance by the wealthy who pay accountants to identify loopholes had become “too respectable”.

Those who shunned paying their dues to the nation’s coffers ought to be named and shamed in the same way as those convicted of benefit fraud, he said.

“HMRC are doing deals and settling out of court with people who have been avoiding tax for many years,” he said. “There is a fundamental injustice here.”

Christensen said that the government needed to apply an “anti-tax-avoidance principle” and crack down on slack tax laws.

He cited one mechanism that allowed large companies and supermarket chains to avoid VAT on items worth £18.50 or less by shipping products such as DVDs and CDs to Guernsey and Jersey before posting them back to the UK for sale.

Christensen said the “anti-competitive” loophole, put in place as a special arrangement in the 1960s to stop flowers being shipped to the UK perishing during delays at customs, was benefiting the “big players” at the expense of small businesses.

A Lib Dem MP who attended the meeting and backed the coalition’s budget deficit reduction programme described the loophole as “mad”.

John Hemming, who represents Birmingham Yardley, said he had no idea this loophole existed and agreed the government “should not allow that to happen”.

Danny Alexander, the Lib Dem chief secretary to the Treasury, yesterday promised to clamp down on wealthy individuals and business who thought paying extra tax was an optional extra.

Much of the plan will involve more intensive scrutiny of those liable to pay the new 50p tax band introduced by the Labour government. Revenue and Customs looks at 5,000 high net-worth individuals, but will expand that number to 150,000.

He also promised a more robust criminal deterrent against tax evasion by increasing the number of criminal prosecutions by Revenue and Customs fivefold. Alexander revealed the Treasury would strengthen a team of investigators to catch those hiding money offshore.

The plans will be funded by a ringfenced investment of £900m, which will cover the spending round and is separate from any final deal imposed on Revenue and Customs in the spending review due on 20 October.

The Treasury estimates evasion costs £7bn a year in uncollected tax revenues, while avoidance costs roughly the same. Attacks on the tax system by organised criminals are estimated to cost around £5bn.

Alexander also promised to contract out up to £1bn of tax debt per year to private sector debt collection agencies.

But Christensen claimed the true scale was far higher, citing annual figures of £26bn in uncollected revenue, £25bn lost annually through tax avoidance, and a further a further £70bn in tax a by large companies and wealthy individuals.

Thousands of jobs had been cut by HM Revenue and Customs in recent years and thousands of local tax offices closed, making it more difficult to collect taxes, he said.

Christensen said the government should reverse the job cuts and follow Denmark’s example, who added 500 additional staff to target tax avoidance rather than £900m to bring staff to investigate the problem on a short-term basis.

Mark Serwotka, the general secretary of the Public and Commercial Services (PCS) union, said Alexander’s announcement was a “small step” in the right direction.

The PCS has spearheaded the call to target the billions of pounds of uncollected taxes by people who were avoiding or deliberately evading paying their fair share, instead of targeting public services for cuts.

He is lobbying for a reversal of staffing cuts in Revenue and Customs, which have seen around 30,000 jobs cut in the past five years; more are expected following the spending review.

Serwotka warned the fringe meeting that taking the axe to public services had not been part of the Lib Dem general election manifesto.

Millions of people voted for the party’s progressive policies, not to see it go along with slashing spending on essential public services, he said.

The union leader warned that the coming months would be “dire” if George Osborne, the chancellor, confirmed billions of pounds of cuts in next month’s comprehensive spending review.

He said the prospect of a cull of hundreds and thousands of job losses in the public sector and in private firms would lead to spiralling unemployment and threaten a double dip recession.

“We intend to step up our political campaign, but if this is dismissed we will see a lot of industrial strife the length and breadth of the country, the like of which we have not seen for decades,” Serwotka said.

Down and dirty with the Lib Dems

Mehdi Hasan
Published 08 July 2010 New Statesman

The Lib Dems have shown themselves to be adept at the manipulative and dark arts of British politics.

After every high is the inevitable comedown. The Lib Dems have slumped to 15 per cent in the latest polls. So much for political honeymoons. But let’s not be under any illusions. To form a coalition is a messy and arduous affair, made more difficult still by a tribal political system that favours single-party (over multiparty) governments. For two parties to come together and compromise on a range of issues, after a hard-fought election campaign in which their leaders berated and mocked one another, was a near-impossible task. It was inevitable that there would be cries of betrayal and a backlash from supporters on both sides.

Yet the Tories’ poll ratings are up, while the Lib Dems’ are down. I suspect that this is because the public holds the latter to higher standards. The third party, after all, positioned itself as a fresh, honest and decent alternative for voters disillusioned by the cynical and negative triangulations of the two main parties. The Lib Dems were the insurgents promising reform and renewal. To vote for Nick Clegg and Vince Cable was to vote for a “new politics”, or so they wanted us to believe. Yet, after only two months in office, it has become obvious that the Liberal Democrats are as disingenuous and as ruthless as their rivals.

Take the issue of public spending cuts to reduce the Budget deficit. The Lib Dems campaigned against, in the words of Cable, “cutting too soon” and too fast, as well as the Tory plans for “job cuts”. They have since U-turned on both the timing and the scale of the austerity measures; Cable claims he was persuaded of the case for deep and early cuts, “not by other politicians, but by talking to the most senior officials in the government and the central bank [who said] that we had to act”.

Really? Why then had the Lib Dem negotiators already acceded to a “significantly accelerated” deficit reduction plan involving “cuts of £6bn . . . within the financial year 2010-2011” in the coalition agreement document that they signed with the Tories, prior to a single member of their party stepping foot inside a government department or having a conversation with Mervyn King, the governor of the Bank of England ? Why did they urge Labour, in parallel coalition negotiations, to make cuts sooner than planned? “I was incredulous when David Laws and Danny Alexander made it clear that they wanted substantial cuts this year,” the shadow education secretary, Ed Balls, told me. “And Chris [Huhne] was supporting them.” Balls added: “I said it would be a breach of both our manifestos, but they didn’t seem too bothered about going against their own manifesto.”

Then there is the issue of the VAT increase to 20 per cent. “Unavoidable,” squealed Alexander, the Lib Dems’ placeman at the Treasury, echoing the Tory line. But he knows that the regressive VAT hike was entirely avoidable. Whatever happened, for example, to the mansion tax on properties worth more than £2m or restricting tax relief on pensions to the basic rate of income tax – both commitments included in the Liberal Democrat manifesto?

A recent YouGov survey showed that 48 per cent of those who voted Lib Dem were less inclined to do so again as a direct result of the rise in VAT. The party leadership could have held its hands up and apologised for running pre-election posters warning of a “Tory VAT bombshell” – which the Lib Dems have since helped detonate. Instead, Clegg chose cynically to pretend that his party had always backed the principle behind such a move. “When it comes to a choice between taxing what people choose to buy and taxing work,” wrote the Deputy Prime Minister in the Independent on Sunday on 27 June, “it is liberal to come down on the side of consumption rather than payroll taxes. It has been part of a long liberal tradition, from John Stuart Mill to Jo Grimond . . .”

Hmm. Does the Lib Dem leader need to be reminded of Lloyd George and his People’s Budget of 1909, which introduced a “super-tax” on the highest earners? “Clegg is rewriting history to suit himself,” says the political historian and SDP founder member David Marquand. “By the early 20th century, radical and progressive Liberals did not just support direct taxation; they deliberately increased direct taxation on the rich so as to pay for social reforms.”

But not any longer. As the vice-chair of the Liberal Democrats’ Federal Policy Committee Richard Grayson explains on page 30: “While many Liberal Democrats see the coalition as a creature of circumstance, its ideological basis lies in a strain of centre-right, small-state liberalism in the leadership of the Liberal Democrats.” And it is a leadership intent on making this centre-right coalition work, no matter what the future electoral cost will be to the party itself. Dissent is slowly being marginalised and, in the words of a source on the left of the party: “The inner Clegg circle is now in the ‘control the message’, top-down phase of the early New Labour years.”

It is said that, in private, Clegg’s allies have described Lib Dem MPs allied to the Social Liberal Forum – the centre-left, internal party pressure group that has been critical of the Budget – as “idiots”. Meanwhile, those Lib Dem backbenchers sceptical of the coalition’s plans to introduce Swedish-style “free schools” are being frogmarched by the party’s high command into the Department of Education. They emerge, according to one source, “starry-eyed from meetings with Michael Gove. They’ve gone in wanting to hate him but come out in awe of him.”

Dark arts
For years, the Liberal Democrats have piously presented themselves at the national level as whiter than white, while engaging in ruthless, negative and often dirty campaigns at the local level. But no more. Nationally, the party in government has shown itself to be adept at the manipulative and dark arts of British politics.

“This is more like the old politics than the new,” says a disgruntled Lib Dem source who believes that Clegg, like Tony Blair in his pomp, will strike a confrontational pose at the party’s annual conference in Liverpool and face down activists unhappy with the Budget and his political marriage with the Conservatives.

Back in 2001, addressing the Labour party conference in Brighton, Blair rejected the accusation that the New Labour project had simply been an election-winning ploy: “It’s worse than you think. I really do believe in it.” It’s a line that Clegg might consider borrowing for his own conference speech this year.