Tax avoidance… not just important to maintain, good for the country!

Enterprise Management Incentive | EMI

Clearly that’s a pretty unfashionable statement at a time when we are daily being inundated with media headlines about the evils of big corporate tax avoiders so I guess I’m going to have to justify it quickly. Well although this is not my main point it is nevertheless worth remembering that recent history is littered with examples of appalling tax policies made in response to grandstanding politicians and ill-informed newspaper headlines. We have the disastrous 50% income tax rate – a tax increase that has directly resulted in less tax being collected precisely because it makes good politics to bash the perceived wealthy. Or the abolition of capital gains tax taper relief – a change that made no sense at the time and makes even less now. And there are plenty of other examples too. We should be wary of making the same mistakes again.
And I am not suggesting that HMRC should not aggressively pursue real tax evaders and wrong-doers – just that the big guns should be aimed properly at the real villains and that they are not large corporate organisations.

The problem is this – we all love tax increases that affect other people, particularly when those other people appear to be better off than us and ill-deserving of their privilege. Because we understand that the country needs to raise taxes and we all believe that we personally pay our “fair share” – which is a phrase we shall return to in a moment – whilst other people aren’t playing things with a straight bat which automatically means that the rest of us, the ones that pay our way, have to pay more.
Now at this point I could do a complex economic analysis the result of which would show that higher taxes on large international companies means they are less inclined to invest in the UK and will therefore create fewer jobs and show how higher share prices benefit all of us with savings, investments, mortgages and pensions i.e. everyone! But I won’t…because in today’s Twitter sound bite world where anything that takes more than 140 characters to explain is lost in the background noise, it would be shouted down and pointless.

So instead I’ll say this. We are in serious danger of becoming a nation that deplores success, that envies achievement and that has a sense of entitlement only belittled by its sense of avarice. We can see this in the way we talk about banks. It is now clearly accepted wisdom that all banks and bankers are evil capitalist vampires sucking the life blood from the rest of us even as they drive their fast cars and dine on caviar and champagne. We hate when they are successful and create wealth. In fact the only thing we hate more is when they fail and we have to bail them out. Except deep down we don’t really hate that. We love it because we have a new tool to bash them with. We love it but of course we still resent it. It seems that a bank can never pay its “fair share”. And herein lies my main point. We use the phrase “fair share” like it actually means something. Except it doesn’t. Or at least it doesn’t mean the same thing to any of us. And who gets to decide what is “fair”? So next time you transfer cash into your non-working spouse’s name to pay less income tax on the interest, are you being fair? Or turning your small business into a limited company to save tax? Or paying into your pension? Or donating to charity? Or bed and breakfasting shares? Or giving assets away to avoid unnecessary inheritance tax? These are all things that save you tax. And by definition therefore someone else needs to pick up the tab for you. Are you being fair?

The answer is – of course you are. You are exercising your right to arrange your affairs quite legally to pay as little tax as possible and pay only what is due. And if the only difference between that and Starbucks is the amount of money involved and the fact that you think they can afford it and that therefore for them to pay more is “fair”, then I suggest you should think again about your own actions next time.