by Peter Watt
Is paying tax a moral duty? It is the sort of question that has those on the left and right frothing at the mouth.
The question has recently come to the fore once again with row after row over tax avoidance by some of the rich and famous. On the face of it the case is obvious.
At a time when budgets are being squeezed and services cut there are people who are really suffering. Jobs are going and much valued support services to some of our most vulnerable are being cut so that we can reduce the amount we are borrowing as a country.
We all need to do our bit by paying our taxes and if you choose to deliberately avoid paying yours then what does that make you? Selfish? Unfair? That’s certainly the common view; and with George Osborne and Ed balls united in a desire to clamp down on such “aggressive” schemes it seems that there is a degree of consensus; paying tax is our moral duty.
But, on the other hand I have an ISA that means that I don’t have to pay tax on any interest I accrue. I take advantage of duty free (tax free) shopping when I travel abroad. I took advice on planning my pension and made sure that my arrangements were tax efficient. And I am hardly alone, millions of people do it. If you have to undertake a self-assessment then you don’t start the process trying to maximise what you have to pay you look to minimise it.
It may not be in the same league as the Jersey based K2 scheme made famous by Jimmy Carr, but it is still tax avoidance.
And companies rightly look to make tax-efficient investment decisions. Their duty is to maximise returns for shareholders and part of that is to legally minimise the tax that they have to pay. Paying less tax means that they can maximise reinvestment in innovation and jobs; which will in turn generate more tax.
Bigger profits mean better returns for shareholders, many of whom are millions of people with savings and pensions schemes.
When the Labour party bought a London property a few years ago, it used a company to buy it. The party did that so that when they sold the property it would be more tax efficient and indeed, when it was sold it saved tens of thousands of pounds as a result. Quite right too!
At the same time there has been further evidence this week that family incomes are being squeezed. Figures from the Office for National Statistics show that real household incomes are falling with people being estimated to have on average a disposable income of £273 a week.
Real household actual income per head is at its lowest level since the second quarter of 2005. The result is that families are cutting their spending and saving levels. Who can blame them with prices going up and jobs being more and more insecure?
On top of that, for those working you have to work for a total of 149 days of the year where everything earned is paid in tax. So tax represents a massive outgoing for millions of families.
This is why the tax debate is so depressing. It is characterised by all sides in stark moral terms when the reality is more complex.
On the left we should not, as we so often seem to do, start from the premise that paying tax is somehow good for people.
If someone is reliant on a service or benefit provided by the state then tax pays for this. But at the same time, the tax taken from the pay packets of millions of families across the country reduces their ability to spend on the things that they want or need.
Getting this balance right is vital for the Labour party. We are very strong at showing why there is a need for the state to act to support those who are most vulnerable and how the state can be the most efficient provider of universal services like health and education.
But we are weak at showing that we understand that it isn’t our money and that we have a duty to spend wisely so that we only ask people to pay what is absolutely necessary.
This lack of balance goes some way to explaining why people still worry about us and the economy. They assume that our instincts are to tax more. The general public might support closing tax loopholes but that isn’t the same as being eager to pay even more themselves.
So, it is right that we clamp down on so called “contrived” avoidance schemes and the planned general anti-abuse rule should be welcomed.
But we also need to be honest that tax avoidance per-se is not wrong, morally or otherwise. And that the line between “good” and “bad” avoidance is not always clear. We should state clearly that while government must collect taxes so that it can deliver the services and protections that we expect them to, we understand that tax is a necessary evil and that people have the right to try and legally minimise the amount that they pay. Furthermore, any government should have a duty to minimise the amount that people and companies have to pay in tax and to spend the tax that it does collect wisely.
Peter Watt was general secretary of the Labour party