Recent internal debate in the Labour Party around its spending plans has helped to move the party back into the centre-ground from the tax-and-spend hinterlands. However, that debate has focused on the “spend” bit; there has been no real soul-searching in relation to the party’s position on the “tax” bit.
This absence is both surprising and damaging.
It’s surprising, because, unlike spending, where the Tories have a natural head-start, fairness in the tax system is much more obviously Labour territory.
It’s damaging, because a (completely wrong-headed) belief has grown up that £32bn per annum of prospective income – i.e. the so-called tax gap – is just lying around waiting for the Labour Party to come back into power and pick it up. And this belief undermines the commitment of many of the party faithful to tackling the “spend” bit.
But perhaps worse still, the absence of a sensible debate – or perhaps more accurately the focus on insensible debate – is a missed opportunity to articulate a set of effective and actionable principles for a sensible approach to taxation around which the Party, the electorate and even the business community might cohere.
The most recent attempt to galvanise the party into action is Progress’ ‘Tackling Tax Avoidance Charter‘. But as I have observed before, it has both the strengths and the weaknesses of Margaret Hodge: it’s a powerful call but to unworkable action.
Over the coming days, I will look at each of the Charter calls. But I start with its introduction:
“This month the G8 will be discussing international action against tax avoidance. While this is hugely important, it is not an excuse for inaction at home, where HMRC estimates a ‘tax gap’ of at least £32bn exists. At a time of squeezed incomes and public spending cuts, it’s simply unfair a group of global corporations and wealthy individuals are avoiding paying their fair share.”
This introduction – an otherwise sensible call for fairness – perpetuates a number of unhelpful fictions. In fact, of the £32bn tax gap, “only” £5bn is attributed by HMRC to tax avoidance. And I am aware of no evidence at all that global corporations are disproportionately responsible for this £5bn of “avoidance” – indeed I am not even aware of any suggestion that they are. And, although I know other commentators disagree, I argue tax avoidance transactions before the specialist tax tribunals day in and day out and I have no doubt that the General Anti-Avoidance Rule (the “GAAR”) will have an enormous effect in shrinking that part of the tax gap attributable to tax avoidance.
I don’t make these points (and those I will make in the days to come) because I think there’s no need for action on tax avoidance. I don’t make them because I don’t think £5bn matters. I don’t make them because I mean to defend global corporations. I make them because I would like to see Progress as a useful participator in the debate around closing the tax gap. And I think it ought to set it sights higher than making noise.