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UK Uncut Revisited

Friday 18th March 2011

In a previous post, I mentioned UK Uncut, the activist group that campaigns against tax avoidance. It was mostly a rant, because of a particular protest that seemed idiotic to me.

Today, a report has been published which looks at the 4 main victims of UK Uncut, and what the actual situation is. In each case, UK Uncut’s argument is incorrect, and often contradictory. The report also briefly looks at the economics of taxation, and suggests some ways to reform the tax system.

I think it’s well worth reading, to understand a little bit of the nuance that’s been so crassly ignored by the protests.

Posted at 1:02 pm | Posted In: Politics Tagged:

17 Comments:

Lucy

Friday 18th March 2011, 5:04 pm

Those arguments are all accurate, but they are are completely legal ones. Where UK Uncut are trying to draw the distinction is between ‘illegal’ and ‘immoral’.

You already know my feelings on this, so I am not going to get into the same debate all over again :-)

Dickie

Friday 18th March 2011, 5:58 pm

In all these instances, the tax paid doesn’t seem to relate to clever tax avoidance measures, but rather to exemptions put in place by the government in order to achieve certain goals. Tax is defined by the government, and the government are saying “in this circumstance, pay us less tax”. How on earth are businesses acting immorally by complying? If UK Uncut wish to draw the (IMO deeply invalid, in the case of tax) distinction between morality and legality, then they’ve chosen spectacularly poor examples.

Laura

Wednesday 30th March 2011, 8:46 pm

I totally agree with what you’re saying Dickie – tax can only ever be a legal issue, not a moral issue. I wonder if you might be interested in the Rally Against Debt, a sort of anti-UKUncut movement, which calls for fiscal consolidation? – see http://www.rallyagainstdebt.org/. I’m not affiliated but heard about it through Facebook and think it’s a fantastic idea. Trying to spread the word to other interested parties!

(I’m a friend of Lucy’s and found this blog via a comment you made on her blog)

Dickie

Thursday 31st March 2011, 12:20 am

Ha, I like that idea! Thanks for sharing the link, Laura.

Lucy

Thursday 31st March 2011, 11:42 am

Anything can be a moral issue, especially anything involving money which directly or undirectly has a large impact of millions of lives the world over. Just saying.

Lucy

Thursday 31st March 2011, 11:43 am

(Is that comment being moderated or did it disappear into thin air?)

Dickie

Friday 1st April 2011, 12:28 am

They both disappeared into the spam folder :-S

I guess the fundamental moral issue is whether it’s ok for people to only pay the minimum amount of tax. If we accept that, then I think it becomes a legal issue. Whether certain tax practices are moral or not is dependant on their legality.

If we take the view that tax avoidance means that businesses can afford to employ more people, pay better wages, or charge their customers less – all of which are true, to varying extents – how does this change the moral picture? Does it then become immoral not to try to minimise the tax bill?

And on the topic of morality and tax, why is it rarely asked (except by classical liberals and the like) why it’s moral to take large proportions of the money people work hard to earn? ;)

Andy

Sunday 3rd April 2011, 1:03 pm

For me it’s like the distinction between the spirit and the letter of the law. There are many things which are legal to to the letter, but contradict the spirit.

It’s analogous to exploits in video games. There are things that, while not directly cheating (things like wall hacking, which modify the game’s code) there are tricks which exploit bugs in the game’s code to get an unfair advantage.

Nobody would say it was fair (or moral) to glitch through through the ground and build underground sentry guns which spawn-kill people in TF2 (search Google for one of the Team Roomba videos).

Similarly, exploiting loopholes to legally avoid tax isn’t cool.

And the economic argument for tax is that there are things called externalities, where some parties benefit (or are harmed) by things you can’t directly charge them money for.

Businesses in this country benefit from an extraordinary number of positive externalities, including an educated & healthy workforce, law and order, protection against business failure, and so on and so forth. If they feel that they no longer want these externalities or taxation, they can happily fuck off to Somalia and see how much better they feel unencumbered by functional government. Otherwise, they can put up and shut up.

Dickie

Sunday 3rd April 2011, 3:32 pm

There is already enough trouble working out exactly what the letter of the law is, which is why there are disagreements between taxpayers and HMRC. Indeed, it’s one of the reasons we have courts; to figure out, and apply, the letter of the law.

Figuring out the spirit then would clearly be much more difficult and subjective; and not helped by the existence of loopholes designed as incentives or disincentives, to encourage or discourage certain behaviours and activities.

Bear in mind too that the government and HMRC aren’t helpless bystanders here. They set the rules, so if they don’t approve of loopholes they can close them. Otherwise, as long as people don’t evade tax, as long as HMRC approve of what they’re doing, then I don’t see how anyone can claim that it’s immoral. Unless you think that it’s wrong for people to want to pay the minimum tax bill, in which case I ask how much extra you pay?

Your point about the economic argument doesn’t quite address the one I made. That yes, tax should exist for externalities. But business taxes aren’t always (if ever?) paid by businesses. Employees (or potential employees) and customers tend to pay them. If a business avoids some tax, and uses the money they’ve saved to employ more people (who pay tax on money they earn and spend) or reduce the cost of their product (which I think we can all agree is good), can you explain why this is a bad thing?

Which isn’t to say there shouldn’t be taxation, merely that perhaps it should be worked out a bit more intelligently. Unlikely, given that its politicians who set the rules…

Btw:

“exploiting loopholes to legally avoid tax isn’t cool”

But I seem to remember it was you who stuck up for the Guardian, when I mentioned their tax avoidance… :p

Andy

Sunday 3rd April 2011, 3:52 pm

What the Guardian did was within the spirit of the law; that was a specific exemption created for that. There’s wide blue water between making use of an exemption specifically created e.g. having an ISA, and employing a very clever accountant to squirrel away your money using some convoluted scheme.

To use… I dunno, a Counter-Strike analogy… using the SHIFT key to walk makes your steps silent. That’s fine; that’s the explicitly what being able to walk is for. But maybe you discover a method of jumping and ducking such that you move at normal running speed, but silently. That’s bad. The game allows it, but it’s a bug.

Similarly, you can use an ISA to reduce your tax liability on interest payments; that’s what ISAs are for. But you can only save ~£5000 a year in one. If you manage to find a way to save £10000 a year by disappearing £5000 of it offshore, and don’t pay tax on the interest, you’re taking the piss. It’s a bug in the tax code.

As far as my tax arrangements go, I pay no income tax (because my income is mostly untaxable, the rest is below the threshold), I have an ISA (but it’s mostly doing nothing for me, c.f. I’m below the personal allowance threshold anyway), I don’t tick the “Gift Aid” box on charitable donations, because I’d be ripping off the taxman if I did so. I did actually overpay tax last year due to a clerical error, but I haven’t cashed the cheque they sent me. So I guess I’ve paid about £20 extra. It wasn’t a large overpay.

There’s nothing wrong with paying the minimum tax bill. There is something wrong with going out of your way to find schemes by which you can make most of your tax bill go away by laundering it through the Caymens.

As regards business taxation; come off it. I’m sure businesses are dying to make products cheaper, if only there were less tax! If only government wasn’t so burdensome, your cup of coffee would be cheaper, your slice of cake wouldn’t break the bank, your delicious takeaway pizza would be delightfully affordable… (am I hungry?). I find it slightly more likely that the extra profit margin would disappear into a shareholder’s pocket instead.

Dickie

Sunday 3rd April 2011, 4:21 pm

“What the Guardian did was within the spirit of the law; that was a specific exemption created for that”

No. As i explained last time, The Guardian & AutoTrader were owned by the Scott Trust. A charitable trust like that is not able to use the SSE to reduce their tax bill, so the Scott Trust was wound up & re-established as a business, so as to qualify for the SSE. It’s textbook tax avoidance.

I agree, there’s nothing wrong with wanting to pay the minimum tax. And we’re free to organise our affairs however we like, so I don’t see why the two are incompatible. How are we meant to insist that people choose to pay more tax than they need to?

And again, if a loophole is truly taking the piss, then the government is entirely free to close that loophole.

“I find it slightly more likely that the extra profit margin would disappear into a shareholder’s pocket instead.”

No. Corporation tax is not just incident on shareholders. It’s also on employees and customers. Yes, businesses would like to cut their prices by cutting tax bills, as it offers a competitive advantage. Also, businesses tend to like to expand, but taxes are a deadweight which can hamper that. And equally, we would like these things to happen; as consumers because we like having cheaper goods, and as individuals because we like having jobs!

In which case, there are probably better ways of taxing the owners of businesses who benefit from the profit, rather than the businesses themselves (for some taxes, of course). The report in the original post gives some ideas, and to be honest I fail to see why they are controversial. Isn’t it obviously preferential to have taxes with the lowest cost to the wider economy?

Dickie

Sunday 3rd April 2011, 4:45 pm

Just to back up the assertion that corporation tax isn’t just incident on shareholders, here is a paper on precisely this issue.

“Overall, the recent empirical evidence, the open economy computable general equilibrium models of tax incidence, and the sensitivity of the amount of capital investment within a country suggest reconsidering the assumption that the corporate income tax falls on the owners of capital; labor may bear a substantial portion of the burden from the corporate income tax.”

Lucy

Sunday 3rd April 2011, 6:35 pm

Andy is more eloquent than I am on this issue, so I’m going to cop out and say that I pretty much agree with him 100%. The game analogies are hilariously geeky though :-P

With regard to the coporation tax issue:
“there are probably better ways of taxing the owners of businesses who benefit from the profit, rather than the businesses themselves (for some taxes, of course).”

You’re then getting into the issue of to what extent business money is personal money. I actually think it’s sensible to keep the tax on the business side of things because then it makes it clear that the cost derives from business activites, not personal ones, and it’s easier to keep track of.

The ‘less tax costs would result in cheaper goods’ is an argument which has already fallen down elsewhere. For instance, proponents of cheap exported labour in the clothing would (I’m sure) argue that by keeping labour costs down, the resultant clothes are cheaper. In which case, why are GAP clothes so hugely more expensive than Primark clothes when both companies are notorious for their use of sweatshop workers? Sure, the fabrics in GAP will cost more, but I know approximately what fabrics cost (at least from a retail perspective) and the difference isn’t *that* big. It’s an equivalent argument, and business greed has won out yet again.

Dickie

Sunday 3rd April 2011, 10:23 pm

“I actually think it’s sensible to keep the tax on the business side of things because then it makes it clear that the cost derives from business activites”

But the evidence suggests that the cost of that tax is actually substantially passed on to employees. That it results in lower wages or less employment. In fact, the paper I linked to cites one study which found that, in some cases, wages were depressed by more than the tax actually raised in revenues!

In which case, it isn’t a tax upon the business side of things at all, as businesses are passing that cost onto other people. My argument is that this is undesirable; that we should limit the ability for this to happen by taxing different things.

“The ‘less tax costs would result in cheaper goods’ is an argument which has already fallen down elsewhere”

I disagree, and not just because the example you cite isn’t at all to do with tax… I think you’e only looking at one particular cost. For instance, do Primark and GAP spend the same on their stores? On their marketing? I’d wager that GAP spend significantly more on their product design. The cost of an object is often more than the tangible bits that make it up, and I think that’s what you’re not taking into account. In the example you cite, yes, offshoring does tend to make things cheaper (due to competitive markets; they eventually have to pass the savings on, in order to remain competitive).

You say that “business greed has won out yet again”, which is precisely my point with regards taxation. If you assume people are greedy, then it’s a bit contrary to think that the people who own and run businesses don’t try to pass on the cost of paying taxes, especially when we have evidence which suggests that this is exactly what they do. Whether that’s in the form of charging their customers more or paying their staff less, it does seem to happen – apparently to a significant extent – and IMO it’s probably not beneficial. Especially at a time like now, when we have problems with employment and lack of economic growth.

This is all somewhat tangential to the point of tax avoidance, but it wouldn’t be entirely inconsistent to be anti-tax avoidance whilst still recognising the actual economic effect of taxation.

Dickie

Sunday 3rd April 2011, 10:49 pm

Meant to mention this in response to Andy:

“Similarly, you can use an ISA to reduce your tax liability on interest payments; that’s what ISAs are for. But you can only save ~£5000 a year in one. If you manage to find a way to save £10000 a year by disappearing £5000 of it offshore, and don’t pay tax on the interest, you’re taking the piss. It’s a bug in the tax code.”

Actually, I’m fairly sure that’s a feature, not a bug.

1) You’ll pay taxes when you earn that money in the first place (assuming you’re a UK citizen, domiciled here).

2) You won’t pay tax (to the UK) on the interest as it accrues. And why the hell should you? Because the money is offshore, so you don’t derive the benefits (the externalities) of having the money in a UK bank . E.g. it’s in a foreign bank, so you won’t be able to claim back under UK government insurance schemes, should the bank fail. Additionally, you’ll be liable for taxes wherever the money is squirrelled away. We don’t (and shouldn’t, IMO) have the right to dictate tax policy in other states, who may decide to have a zero rate. I don’t think it’s unreasonable to pick financial products that offer a better rate of return; in fact I’d bet that we all do it.

3) If you do eventually bring this money back to the UK, then I’m fairly sure you will be liable for some tax. I’d guess capital gains tax or something.

Obviously I’m not an accountant and so I’m prepared to be corrected, but I’m fairly sure this isn’t entirely wrong. Either way, it’s not quite the freeload you’d expect (except in the cases where the government have left loopholes because they quite like having rich people move here, because they spend lots of money. This is one of those times when government uses taxation as a carrot…)

Andy

Monday 4th April 2011, 12:07 am

I’m quite interested in the way that the Americans like to do things, which is that you have to pay your American taxes (or a local income tax which then is counted against your US tax) no matter where you live in the world.

I know someone who’s dual British/American and planning to renounce his US citizenship to dodge that.

Dickie

Monday 4th April 2011, 12:23 am

Not sure if I think that’s fair; why should you pay full taxes for a country you’re not living in? In any case I don’t think that sort of thing could happen in the UK; fairly sure it’d contravene some EU laws. However:

“a local income tax which then is counted against your US tax”

This does happen, I think. It’s one of the reasons why Vodafone didn’t need to pay £6bn to HMRC; they’d already paid taxes in other EU countries.

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