Why the government has been wrong on all three recent tax headline stories

In a response to James Dowling's article in defence of David Gauke, Ryan Bourne outlines why he believes the government has been wrong on all three tax headline stories in recent times

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David Gauke has come under fire for his views on cash-in-hand payment
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Ryan Bourne
On 25 July 2012 13:51

Having debated with James via e-mail on the morality of tax avoidance, I was delighted to see his Commentator piece today which set out his views more clearly.

Unfortunately, I think he actually falls into the trap of equating very different issues - the exact same mistake that he accused his opponents of.

There are three distinct but inter-linked issues within this which have dominated the news headlines in recent weeks:

- The Jimmy Carr tax criticism
- The announcement of proposals to name and shame tax avoiders
- The David Gauke criticism of cash-in-hand payments

I happen to think the Government has got it wrong on all 3.

First, the scheme that Jimmy Carr was using may not have been as Parliament intended the tax system be used, but as far as we know it was legal. Therefore, it was tax avoidance as opposed to evasion.

While David Cameron described the scheme as morally bankrupt, the truth is the Government has within its powers the ability to change the law, and as such, make this type of scheme illegal. Those of us who favour a simpler tax system merely observed that this type of action is an inevitable consequence of an extremely complex tax system.

What's more, the logic of claiming that avoiding tax in this way is 'immoral' is to suggest there is an inherent morality to paying more tax than you legally have to. This is an area of debate, but as a small government classical liberal conservative I happen to think that Jimmy Carr can probably spend or invest his money more wisely
than the Treasury.

I therefore don't accept that politicians can pontificate about tax avoidance as a moral issue, especially given it is within their own powers to change the system via a democratic mandate.

For this reason, I also think the proposals to name and shame tax avoiders are barmy. As Mark Littlewood said a few weeks ago, it's a bit like Sepp Blatter moaning that players aren't honest about the ball crossing the goal line when he has the power to introduce goal-line technology at any time.

Governments should not be in the business of shaming individuals or individual accountants for the inadequacies of the laws they have passed, and they're wrong to assume that people should be aware of what they intended rather than what they actually set out in law.

Now, David Gauke's comments were slightly different. Clearly, if an individual is paying in cash knowing that the tradesman intends to avoidpaying VAT, then we have ourselves an example of tax evasion. Which is illegal. Again, I wouldn't go as far as saying it was immoral, but it is against the law - and if caught, the individual will be punished.

The issue that many had with the comments were threefold: a) Gauke had no plan to deal with the criminality and so was just purely moralising (the Austin Mitchell critique), b) he appeared to be shifting the burden of responsibility from the tradesman to the individual using the tradesman, c) the assumption in the way it was reported was that anyone ever paying by cash must automatically be in on some VAT scam (perhaps James can explain whether this was the case).

With the apparent inability of the Coalition to cut current spending or foster the conditions for growth (as they said they would do) so far this Parliament, ministers should stop preaching and get to work on creating a tax system that rewards success and encourages enterprise.

It's the Government's remit to set and enforce the laws of the land. If it is currently incapable of doing so, then the laws should be re-examined. 

Ryan Bourne is head of economic research at the Centre for Policy Studies. Follow him on Twitter @RyanCPS

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