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April 13, 2012 / politicsbitesize

The rich avoid paying tax? Shocking.

George Osborne was in the newspapers this week after announcing his ‘shock’ at discovering that some of the UK’s richest people are organising their finances so that they don’t pay the correct amount of tax. The Chancellor received anonymised copies of private tax returns from HMRC in order that he could analyse the amount of tax being paid by multi-millionaires. He told the Daily Telegraph that he: ‘was shocked to see that some of the very wealthiest people in the country have organised their tax affairs … so that they were regularly paying virtually no income tax. And I don’t think that’s right.’

Labour’s shadow financial secretary to the Treasury, Chris Leslie, has accused him of ‘synthetic shock’ because he reduced the top rate of tax in his budget speech and spoke extensively about tax avoidance and aversion. Larry Elliott, in the Guardian’s economics blog, has likened the Chancellor’s ‘shock’ to that of Captain Renault’s amazement to find gambling happening in Rick’s bar in the film Casablanca shortly before being handed his winnings! It is rather alarming to think that the Chancellor of the Exchequer – the man in charge of the country’s economic well-being – has only just discovered that this practice is occurring right under his nose and that it is actually legal.

In 2006, a study was conducted by Prem Sikka, a professor of accounting, into the practices of some of the highest paid people in the UK. According to the findings in this study the richest fifty-four people in the UK between them earnt a whopping £126bn but paid only 0.14% in tax!* This fits with Mr Osborne’s analysis, in 2012, that on average the twenty highest earners in the country are only paying a rate of about 10% and saving themselves a total of £145m a year. So what has the Chancellor said he is going to do about this loss of revenue? He has stated that he will take ‘further action’ but has declined so far to outline what that might entail.

What has been proposed is that politicians’ tax returns should be made public. In his first interview since the Budget Mr Osborne told The Telegraph that he is ‘very happy’ for the government to consider publishing MPs’ tax returns. But MPs aren’t paid millions of pounds a year, so this proposal cannot be considered a real solution to the problem of legal tax avoidance by multi-millionaires.

The tax system allows those on high incomes (and who have good accountants) to syphon off millions of pounds a year using legal loopholes in the tax law. The main methods include offsetting business costs and mortgages, borrowing on buy-to-let properties and writing off business losses. Perhaps the Chancellor should take ‘further action’ on closing these legal loopholes so that everyone pays the tax they should be paying. By making it illegal to avoid paying tax everyone will pay their fair share and then maybe, just maybe, the country’s debt crisis might be resolved quicker.

* See Mark Steel’s book What’s Going On?, published in 2009, for further details.

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