Livingstone NIC-ed on tax avoidance

by Atul Hatwal

The hand to hand combat of a mayoral campaign is hardly the ideal environment for sober reflection, but for the Labour party, it’s time to have a long hard think.

After yesterday’s partial release of the mayoral contenders’ tax and earnings details, there is now a threat that Ken Livingstone will not just lose the London election, but will seriously damage the national party in the process.

The full nature of this danger is not quite apparent yet. The media focus over the last 24hours has been on examining the total tax paid by each of the candidates, looking at who paid the most. This is understandable but misses the point.

The issue is not about the absolute amounts handed over to HMRC, but whether these figures demonstrate that the candidates have, or have not, lived up to their rhetoric.

It’s about trust, not finance and for one of Labour’s most high profile figures, who has volubly railed against tax avoidance, the figures are damning.

In 2010/11, setting aside pension contributions, Ken Livingstone received 92% of his income – £63,333 – through dividends and just 8% or £5,700 through a normal salary where tax was deducted on a pay as you earn (PAYE) basis.

This approach is a standard and perfectly legal way of drawing down money from a company and is used by hundreds of thousands of people for one simple reason: it avoids national insurance contributions (NICs).

Dividends are not liable for NICs, so being paid principally through dividends reduces or completely removes NICs payments.

In 2010/11 the threshold to start paying NICs was £5,720 per year and as if by magic, Ken Livingstone’s PAYE income for the year was £20 below the level where any NICs would have to be paid.

Fancy that.

The only reason £5,700 was paid as PAYE income at all is that that there needs to be a  level of PAYE earnings each year above a minimum threshold (£5,044 in 2010/11) to  build eligibility for certain benefits. For example, the state pension, for which Ken Livingstone qualified, during 2010/11.

Again, to be clear, this is not tax evasion, and it’s certainly not illegal, but avoiding NICs is tax avoidance for most voters.

If the contradiction between Ken Livingstone’s historic positions on tax avoidance, and his private practice were not bad enough, events over the last week have made the situation much worse.

Three egregious statements particularly stand out: – one from the LBC debate and two from the Newsnight debate.

First, on LBC, when questioned about whether he had avoided personal tax by funneling funds through his private company, Silveta, Livingstone said, “the fact is, Boris and I are in exactly the same situation… We both had media earnings. We both put them through a company. You have to pay tax on the money you take out.”

When he made this statement, Ken Livingstone was fully aware that he received the majority of his income through dividends, just as he knew that Johnson’s tax status as self-employed meant he took his remuneration via a normal PAYE salary, fully liable for NICs.

The two situations are very clearly different. Livingstone knew it. But still he made the claim. No wonder Johnson was angry.

Second, in the Newsnight debate, Livingstone gave what seemed to be an unequivocal statement that he had not avoided any tax, “On every penny I’ve been paid, I’ve paid the normal full rate of tax”.

The key words here are “normal full rate of tax”.

Once again, Ken Livingstone will have known that to most Londoners, the distinction between national insurance contributions and income tax is a semantic one. For people on typical salaries, it’s all deducted at source, and goes into the same government pot.

To this audience, avoiding NICs would hardly constitute paying the “normal full rate of tax”. Livingstone would have understood this, but as earlier in the week, he went ahead and made the claim.

Third, later on Newsnight, Livingstone adopted a different tack to the LBC debate to justify why he used Silveta. This time it wasn’t because he and Boris were doing the same thing, instead he explained it was because he is an employer, “I do not pay income tax on the money I use to employ other people. No business in Britain does.”

On this occasion, credit is due to Brian Paddick for picking him up. He pointed out that a limited company was not needed to employ staff and Livingstone could have achieved his professed objective by simply setting himself up as a sole trader, as Paddick had.

The two questions of how to employ people and how to draw down income without avoiding tax are completely different and unrelated. Livingstone will have known this, but as per the pattern of the week, he ploughed on wilfully despite the facts.

The potential damage from yesterday’s figures could be devastating for Ken Livingstone’s political career. Not only do they provide clear evidence that he avoided national insurance contributions, they critically undermine and in some cases contradict his statements throughout the week.

More broadly, there is a real danger to the Labour party nationally. If Labour’s candidate for mayor immolates himself over this issue, what does it say about the judgement of the party’s leaders who have backed him so strongly?

And what does it mean for the image of the Labour party if one of its most senior figures becomes a walking talking model of “do as I say, not as I do”?

At a time when George Osborne has just delivered the worst received budget in living memory, David Cameron is losing his reputation for competence and every government policy initiative seems to go wrong within minutes of being announced, how is it possible that Labour can find itself in this situation?

Atul Hatwal is associate editor at Uncut


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46 Responses to “Livingstone NIC-ed on tax avoidance”

  1. sres says:

    An honest assessment of the ken tax affair

  2. Carole Bonner says:

    As Ken reached pension age on 17 June 2010 he is not liable to pay national insurance from that date so it is hard for me to see how he is avoiding paying National Insurance when he is not liable to do so

  3. Matthew says:

    The amount of tax he paid in 2010/2011 is in line with what one would pay if it was all channelled through Income tax/Ni isn’t it? Are you suggesting the figures aren’t correct?

  4. Colin says:

    We need to cut Ken loose for the sake of the Party. Those who allowed Simon Fletcher and the Socialist Action entryists to seize effective control of the London Labour Party’s selection process should take a good look in the mirror.

    With the right candidate, we could have beaten Boris Johnson and created real momentum. Instead we have an angry old hypocrite with dodgy friends and dodgy tax schemes who is tarnishing Labour as he sinks.

  5. People have to take a long look in the mirror and ask themselves, is Ken the kind of hypocrite they want to see in office?

    The audacity of condemning tax avoidance while engineering it for yourself is incredible.

  6. GasMan says:

    “And what does it mean for the image of the Labour party if one of its most senior figures becomes a walking talking model of “do as I say, not as I do”?”

    I’m afraid this is nothing new.

  7. Sawucomin says:

    You forgot to mention that dividends tax rate is much lower than incomce tax rates.

  8. Jumbo says:

    Really? Where’s the news? There can’t be many labour politicions who aren’t millionaires bigging it up over the little taxpayer. That’s their job: hypocrisy oils the cogs of the politics of envy, the embodiment of the modern British left. Really, tarquin, a C+. Could do better

  9. Tom says:

    I’m with Matthew, above – what, exactly, are you suggesting he’s avoided? As far as I can tell, an income of £94,568, under a standard self-employment model like Brian Paddick uses, would actually attract *less* in total deductions (income tax, class 2 NICs, class 4 NICs) than Ken actually paid in income and corporation tax. Where’s the problem?

  10. Harry says:

    I think the saving is not on NIC but on the overall tax take ie corporation tax and income tax.

    If you take dividends you have no income tax payable to the extent that it falls into the basic rate tax band. Very roughly indeed around 30k of the dividend is essentially income tax free. Because dividends are not a deductible expense for the company the dividend is however effectively exposed to corporation tax. But as the rate of corporation tax is lower than say the higher rate band or additional rate band for income tax on excess dividend or earnings you generally get an overall tax saving when using a company compared to being a sole trader. Obviously it also helps lower tax rates if you pass money to the spouse (providing this is done in return for work!) which is also something I believe Ken may have done.

  11. Matthew says:

    Could you answer the two points raised, which seem valid

    a) does he need to pay NI?
    b) has he actually paid less tax than you would expect if it all was a simple salary of £94k?

  12. Jumbo says:

    The ‘problem’ is his denouncement of “rich bastards”

  13. Harry says:

    Actually I now realise that there is NIC avoidance also. I think someone said that because Ken had passed 65 in June 2010 there would be no liability to NIC anyway. Not so – only if you are an employee or director of a company. The self-employed have to hit State Pension age before the start of the tax year in order to be excepted from Class 4 NIC. Therefore if Ken was self-employed he would have had to pay class 4 NIC for the whole of 2010/11. By channelling through a company he avoid class 4 NIC – so the article is correct.

  14. MattNW5 says:

    @matthew: the £94k is a red herring. It’s what he chose to pay himself out of Silvreta, leaving the rest of the money to be paid out to him (and his wife) a little at a time whenever they feel like it, whenever it fits into lower tax bands. Total money paid INTO Silvreta, which is his income in any realistic sense of the word – was something like £190k I think from memory.

  15. Sawucomin says:

    Ken’s tax bill have been much higher if whatever £ (from his work, no one else’s) which went into his company had gone straight to him as income. Funnelling his freelance earnings through his company saved him & his wife thousands of £.

    Also his company is sitting on hundreds of thousands of pounds of “retained profits” (left over from company income, aka Ken’s freelance earnings, and he can pay himself small chunks of dividends at times of his choosing to minimise tax.

    Classic way to use a corporate vehicle to reduce tax, not illegal. But it is tax avoidance which he vehemently criticises others for doing the same.

    Btw, does anyone think J K Rowling has been paying 50% top rate of income tax on all she earns from her books? Or does she use tax efficient corporate vehicles too? Your guess is as good as mine.

  16. Robert Eve says:

    Where is the surprise here?

    Vote Boris.

    Labour are the hopeless party – always.

  17. Sawucomin says:

    Re my last comment, it should have said “Ken’s tax bill WOULD have been higher”

  18. libertarian says:

    The comments section is more fun than the Ken car crash. You socialists dribblers always banging on about taxing business people prove beyond doubt you haven’t got a frigging clue about the taxes YOUR GOVERNMENT introduced and their complexity. Some of you haven’t got a clue on dividends, corporation tax, income tax, National insurance AND Employers National Insurance.

    For the avoidance of doubt Labour people. Ken paid far less overall tax ( legally) on this arrangement than he would have done as a PAYE person, there is NO other benefit to having this company. Get over it , he’s been caught out AGAIN

  19. Mac says:

    Simple test, if Ken had not used a company as a tax avoidance vehicle (completely legal by the way) how much tax would he have paid? He would have been in the 50% bracket by the way, just like Boris. If Boris had used a company to avoid tax as Ken did (and claimed Boris had) how much tax would he have paid? I think you’ll find Ken has avoided not just the 50p band, but tens of thousands of pounds which Boris has paid.

    The problem here is that Ken is condemning completely legal tax strategies that have conciously been put in place to help company formation. Ken should not be condemning people for using them, even if he did not use them himself. They contribute to helping people get companies off the ground which we should all support, and as such he should be supporting the measures and boasting he uses them himself. Instead he is misleading the public and playing to the people who do not understand companies or the tax system.

  20. swatntra says:

    There is no doubt that Ken was into tax avoidance which is not illegal but still stinks, But I blame his accountants who advised him on his tax returns. Its the same with MPs Expenses the Officers advised them on the best way of keeping all their money and flipping residences 3 times etc. So blame them.
    One good thing will come out of this fracas. In future all people seeking political office are going to have to expose their financial status and, and two we are going to have to scrutinise our candidates for high office a bit more closely and make sure they are entirely in keeping with our values and principles in their private affairs. This could clean up politics better than Kelly or Denning ever managed to do.

  21. Kernow Castellan says:

    You seem to have have accepted Ken’s claim that his earnings were less than £100k. This ignores the £250k+ which he earnt (in normal peoples parlance) but channeled into his tax-avoiding service company.

    Even now, he is claiming that his only earnings were what he took OUT of the company, not the amount he was paid (directly or via his company) for his activities in the year. This is what most voters would understand as “earnings”, not the more technical subset he is claiming.

    It is the shiftiness that is concerning, reminding me of Clinton: “It depends on what the meaning of the words ‘is’ is.”

  22. Joe Roberts says:

    I have always held this site and its authors in low regard, but you have hit an all-time low with this article.

    Here we are, a month away from a crucial election, and we have a supposedly Labour-supporting blog muck-raking through the personal finances of the Labour Party candidate.

    Who needs Andrew Gilligan, the Evening Standard, the Daily Mail or the Conservative Central Office press team when we’ve got LabourUncut?

    Of course, this is just an appetiser. I can only imagine what you have got planned for the General Election campaign. What are you going to hit Ed with in the run-up to polling day 2015?

    No doubt it will all be very carefully worded, so that you can pose as ‘critical friends’ and say that you’re just being constructive, and trying to chart a future for the party.

  23. paul barker says:

    This is all very well but do any of you intend to actually do something about it ?
    I have no idea how labour is structured but there must be some body with the power to drop ken, are you going to put in an emergency resolution or whatever the relevant action would be ?

  24. ian says:

    If it wasn’t tax avoidance why didn’t he pay tax and NIC normally like everyone else?

  25. Clr Ralph Baldwin says:

    Difficult times and people are now being asked (as they would be under either a Labour or Conservative Government) to give up more as a result of a banking crash created by Labour Leaderships true friends in the City.

    The ethos here and morality are more important than the legality as we are looking at moral legitimacy, that is; the ability of Politicians to not just abide by the Laws but to live in such a way as to be fit to change rules, laws and create policy that is in the best of our interests, especially during a tough time.

    Is Ken showing this kind of Leadership? Answer no. He is one of the grasping minority clinging on for all he can unwilling to make sacrifices that we all having to make. Ken has no ambition to represent anyone other than himself and his own tawdry and unhealthy excesses. In terms of morality he is of the same mold as David Milliband who has placed his “career” and sense of entitlement beyond the needs of the his Party or the Constituents who elected him.

    Labour’s moral collapse is almost complete when we cannot identify the kind of moral and enlightened Leadership we need, that the UK needs in it’s time of need from either the so called “Left” or “Right” of the Party.

    Add to that the recent scandals of the past three years expenses and lobbying and it is incredulous that beyond any kind of intelligent thought these people can continue to think they can either “get away” with it, or show absolute contempt to lead by example and make our society better when it is in such a poor state of affairs.

    Leaving Labour was one of the most, if not the most painful process I have ever known, but now I realize as many before me have said, that I did not leave them, they left me. Along with millions of equals and hard working devoted and inspiring activists before me.

    It’s a mess and can only do our democracy further harm as the Party isolates itself from the Movement, as it uses the word “professional” to describe it’s continuing concessions to the powers and forces it was created in its inception to challenge intelligently, and wisely knowing that to be better than the Conservatives more would be expected from them in their conduct.

    Instead the Leadership looked to the USA and adopted models of behavior that are not fit for the UK. Labour is no longer the Party of Equality (it’s Leadership all being relatives etc), no longer the Party of aspiration (they control and fix outcomes promoting empty drones without moral and emotionally intelligent views or passion or belief), no longer the Party of change, Livingstone and D Milliband highlight a commitment to the status quo regardless of morality and of course no long a force for good in the world resulting in the election of BNP and UKIP.

    Ed Milliband has already cast his di, has made his decision in his re founding project to continue this, representing themselves and playing lip service to poll trends and focus groups. Lessons learnt at a time of political failure causing economic failure equals zilch.

    More disturbing is the fact they really do not give a damn.

  26. Eddie says:

    In recent weeks Ed Miliband gave unequivocal support for Ken Livingstone and his tax affairs, claiming Ken had paid every penny due.

    It begs the question, before giving the support did Miliband take the precaution of asking Ken to come clean to him, or was he just happy to say it, no matter what?

    Is Ed Miliband as equally happy to claim that Ken paid every penny of National Insurance that was due?

    Ultimately, are the tax avoidances of Ken really any different to the Deed of Family arrangement the Miliband entered into to avoid inheritance tax.

    Then we have The Office of Gordon and Sarah Brown Ltd. Not a charity, but a vehicle that can be used to move income from high tax years to lower tax years. Can provide income to Sarah Brown, despite it in the main being earned by Gordon Brown. Can pay dividends and avoid National Insurance, and, on death, the shares in the company can be passed through the estate without inheritance tax.

    Of course it may not be that might not be why Gordon Brown decided to set HIMSELF up as a company – Perhaps there were other reasons he did not want to register as a charity… I just can’t think of any.

    With Labour, it appear that they are all in it together!

    Tax avoidance, that is.

  27. GSilver says:

    ken has been a divisive, hypocritical, dodgy bordering on corrupt embarrassment for years yet the tribal politics that we cling to says we must defend what ever bigoted, stupid idiocy he has perpetrated this week.
    Frankly he MUST be cut lose by the labour party and treated like the phoney two faced chancer he is!

  28. Ian says:

    @Joe Roberts Do you really believe that after Ken loses the mayoral election that Ed is going to last until 2015?

  29. swatntra says:

    Get over it Joe, nobody reads the site anyway so the comments made are likely to have zilch impact. Uncut is the alternative to Labourlist, which is widely read.
    So if the suggestion that if Ken fell under a Routemaster tomorrow and Labour had to draft in an emergency candidate and that candidate be Dianne Abbott were made because she has some exeperience of team working in the Shadow Cabinet although limited, it would fall on deaf ears.

  30. Kevin T says:

    Ed Miliband has dug his own grave with this one. He’s had his chance to cut Ken loose or at least reprimand him and order him to pay full tax. The media shitstorm will hit Ed on May 4th, full force and he has no one to blame but himself.

  31. Bradfordian says:

    Oh course Ken has been avoiding tax on his income. There is no reason whatsoever for setting up a service company unless that was his intension. This comes as no surprise. Like Abbott and schools (or the Miliband property empire) we are all use to Labour Party hypocrisy and lies. Everyone should vote for Boris. Least he pays his taxes.

  32. swatntra says:

    What many people fail to recognise is that Labour people more than often come from a family background where you didn’t have two pennies to rub together and life was hard; and so they have peculiar relationship with money.
    Whereas Tories more than often have been sitting on money for generations whether inherited or in business or in land; so they have a very different relationship with money.

  33. madasafish says:

    Swatntra
    :
    You said: Labour people more than often come from a family background where you didn’t have two pennies to rub together and life was hard

    and yes for many supporters that is/was true.

    Pity it’s not true for your Leader (a millionaire) nor your deputy Leader (Cheltenham Ladies).. and the last Government made a lot of Ministers very rich either directly – expenses/houses – or indirectly (jobs)..

    It’s a card which has no resonance when the Guardian is also run by rich Oxbridge educated people and one of the principal Labour supporters owns a villa in Tuscany.

    The Establishment has won: it has corrupted and taken over the Labour Party (and the LibDems as well). The Tories once were THE establishment : now not on their own.

    Personally it just shows how out of touch politicians are on a personal level. Virtually no-one posting here would ever stand a chance of becoming a party candidate to stand as an MP: we are not Oxbridge educated /PPS or have relations in the parties.

    You only need to look at many MPs to see who their relations are to realise nepotism is alive and well in UK politics..

  34. Miss Beale says:

    How dare you say that Harriet Harman went to Cheltenham Ladies College. She was a day bug at St Paul’s Girls School

  35. @Carole Bonner: you claim he is not liable for NI from June 2010. Correct. But the four years he gives in the accounts start in 2007/08 and end in 20010/11. So, in the first three of those years he is fully liable and in the fourth liable for part of the year. That is, he is liable for at least some NI in every single year for which he has released accounts.

    Nice try.

  36. Matthew says:

    MattNW5′

    But that is not what is being alleged here but that the taxes due on that income declared are too low. That doesn’t seem to be the case.

  37. Here is a fine Observer article by self-styled ‘Tax Justice’ campaigner Richard Murphy back in 2003. It describes in detail how wise Observer readers and other progressives can use Budget changes brought in by Gordon Brown to save lots of tax, not least by using the various arrangements and NIC savings described in this fine Labour Uncut article. Do read it – it’s all there, spelled out nicely.

    http://www.guardian.co.uk/money/2003/feb/16/tax.observercashsection

    It is so encouraging to see hard-core socialists such as Ken Livingstone exemplifying the importance of helping the masses reduce the amount taken from them by the grasping State.

  38. MattNW5 says:

    @matthew Nonsense. What is being alleged here is that he structured his tax affairs to minimise tax and NI payments in a way that is totally legal, but totally inconsistent with the moral high ground he has repeatedly tried to claim. That allegation now seems utterly indisputable.

  39. Matthew says:

    MattNW5 – calm down. The article takes his income as he has declared it and is saying he isn’t paying enough tax on that. Your argument is a different one, and possibly a good one, but it’s good practice to stick to one at a time. In this case, if he is paying as much tax as the calculators say then it’s an odd form of tax avoidance.

  40. Jumbo says:

    The British lefties: see how they squirm, see how they squirm

  41. exsandancer says:

    Don’t think Ken is alone in this. Doesn’t Blair use a company to channel his vast earnings and paid about £315, 000 tax on income of over £12Million.

    Also Brown has the “office of Ma & Pa Broon” which follows the same route.

  42. Brilliant article. There are so many reasons not to vote for Boris. Not least his disgraceful handling of the riots and their aftermath. Instead Ken has resorted to the kind of mindless, untrue and/or spiteful ad hominem attacks that the London Evening Standard used to use against him and is the reason people actually ended up voting for him. Of course there’s nothing wrong with gutter politics if you’re looking at the stars but object of mudslinging is not to get hoist with your own petard. Ken’s campaign is disgusting and unimaginative …consisting of a mixture of bribes and character assasinations.

    “Here we are, a month away from a crucial election, and we have a supposedly Labour-supporting blog muck-raking through the personal finances of the Labour Party candidate.”

    It was Ken who took the skeletons out of his own closet – all this article is doing is pointing out what was in every national easter Sunday paper. Ken’s MASSIVE boo boo. The damage is already done. And it wasn’t done by this site but by Gussie Fink-Nottle himself.

    Laurel & Hardy could have run a better campaign

  43. Dave Hollins says:

    With friends like Atul Hatwal and Rob Marchant, Labour doesn’t need enemies.
    Why don’t you sod off to the Tories where you belong?

  44. Mr Hollis, there is a difference between being disloyal and being an ostrich.

  45. monty says:

    At least Ken Livingstone wasn’t Oxbridge educated. Other than that, there is nothing good to be said about him at this stage of his soon-to-be-over political career. The Oxbridgisation of the Labour Party (might as well call it the Oxbridge New Labour Party) has been a disaster for so many of us who can no longer relate to a party that has become virtually indistinguishable at the top from the Conservatives in terms of policies and educational/cultural backgrounds. The only remotely electable non-Oxbridge left-wing party is the Green Party. Hearing Caoline Lucas say she was proud to be a Socialist on Question Time was wonderful. I would urge all traditional Labour voters who are now sick of New Labour to defect to the Green Party. The future of the Left in Britain is Green!

  46. Raymond says:

    The relevant virtues concerning a politician, of any political persuasion, should be their honesty, loyalty, morality and credibility. Their educational and family backgrounds and financial status have no bearing in politics. What is important is their personal qualities; honestly held political views and principles, combined with their understanding and abilities. Sadly many politicians fail to meet this desired criteria.

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