Politicians, Tax and the Moral Argument

According to Treasury Secretary, Danny Alexander, those who use tax avoidance measures to reduce their tax liabilities are the “moral equivalent of benefit cheats”

He was speaking publicly after it was reported that comedian Jimmy Carr is saving himself masses of cash by using a tax avoidance scheme called K2. It works by transferring income to an offshore company and then being ‘loaned’ the money back. Under Inland Revenue rules, because the loans could, theoretically at least, be recalled, tax is not payable on the amount transferred.

Mr Carr is said to have moved around £3.3m per year to the fund and only paid about a one percent rate of tax to the UK revenue. Seemingly he is not alone, as there are reported to be up to one thousand others making use of the same scheme.

At this point, I make my apology for returning to this subject after my earlier post but it seems that once again a government minister is attempting to demonise someone who is acting perfectly legally and within the boundaries of UK tax legislation. The morality of such a scheme is a judgement best argued by someone other than a politician.

Ministers have tried similar tactics on those who claim benefits, by attempting to create the image that anyone who relies on the state is a scrounger

In any system there are those who are either savvy enough to exploit the loopholes, or rich enough to employ firms of experts to do so on their behalf. It irritates me that politicians like Mr Alexander can whinge so publicly about something of which they are responsible for passing into law in the first instance.

I find it even more irksome when several of his own parliamentary colleagues have been known – and exposed – for abusing a few rules and regulations in the recent past and have themselves claimed a defence of ‘using the system’.

Whilst I do share Mr Alexander’s frustration that wealthy people are able to reduce their tax burden using such means, I have to accept it is legal. I also share his frustration over those who maximise the benefits rules but often that is legal too. It seems, however, that we do not share the much greater frustration over large corporations who often avoid paying tax altogether, whilst making vast profits from customers who are hardworking, who do pay their full taxes and who are totally ‘moral’.

Perhaps the reason for our final lack of sharing is that all political parties seem happy to accept donations from such ‘tax aware’ companies without a thought about morality.

After all, throughout the history of politics, ‘money’ and ‘morality’ have never been happy bedfellows.

(Picture Copyright HM Treasury)

Update: Since writing this post, prime minister, David Cameron, has also stated publicly he finds such aggressive tax avoidance to be morally wrong. The fact remains……it IS legal and that is what matters.