What’s the legal content of the Tax Lock?

“Steve Thorburn trades as a greengrocer in Sunderland. In the course of his trade he used weighing machines calibrated in pounds and ounces. On 16 February 2000 he was warned by a properly authorised inspector that these machines did not comply with current legislation. He was served with a 28-day notice requiring that the machines be altered so as to yield measurements in metric units. He did not obey the notice. On 31 March 2000 the inspector obliterated the imperial measure stamps on his machines. He continued to use the now unstamped machines to sell loose fruit and vegetables by pound and ounce. He was prosecuted.” And then convicted.

So began Thorburn v Sunderland City Council [2003] QB 151 which you can read in full here. Whether Mr Thorburn was rightly convicted depended upon the operation of the so-called ‘doctrine of implied repeal’. The doctrine, as stated by Lord Justice Laws (one of many exemplars of nominative determinism to be found in our legal system), is this:

The rule is that if Parliament has enacted successive statutes which on the true construction of each of them make irreducibly inconsistent provisions, the earlier statute is impliedly repealed by the later. The importance of the rule is, on the traditional view, that if it were otherwise the earlier Parliament might bind the later, and this would be repugnant to the principle of Parliamentary sovereignty.

The provision compelling metrification of weights and measures was said to be found in the European Communities Act 1972 (the “ECA”). In a nutshell, Mr Thorburn argued that it had been implied repealed by the Weights and Measures Act 1985 (the “1985 Act”). To the extent that the ECA required Mr Thorburn to use metric measures it had been impliedly repealed by the 1985 Act which permitted the continuing use of imperial measures. The 1985 Act was inconsistent with the 1972 Act and so, he argued, had impliedly repealed it.

He relied upon what Lord Justice Maugham had stated (in a 1934 case):

The Legislature cannot, according to our constitution, bind itself as to the form of subsequent legislation, and it is impossible for Parliament to enact that in a subsequent statute dealing with the same subject-matter there can be no implied repeal. If in a subsequent Act Parliament chooses to make it plain that the earlier statute is being to some extent repealed, effect must be given to that intention just because it is the will of the Legislature.

Giving the only substantive judgment in the Divisional Court Lord Justice Laws held that, in fact, there was no inconsistency between the ECA and the 1972 Act. So one could not read the 1985 Act as impliedly repealing the ECA in any event. However, in case he was wrong, he went on to consider the extent of the doctrine of implied repeal.

He recognised that there were now certain types of legislative provision which cannot be repealed by mere implication. As he put it (at para 60):

The courts may say – have said – that there are certain circumstances in which the legislature may only enact what it desires to enact if it does so by express, or at any rate specific, provision.

Elaborating, he said (at para 62):

We should recognise a hierarchy of Acts of Parliament: as it were “ordinary” statutes and “constitutional” statutes. The two categories must be distinguished on a principled basis. In my opinion a constitutional statute is one which (a) conditions the legal relationship between citizen and State in some general, overarching manner, or (b) enlarges or diminishes the scope of what we would now regard as fundamental constitutional rights. (a) and (b) are of necessity closely related: it is difficult to think of an instance of (a) that is not also an instance of (b). The special status of constitutional statutes follows the special status of constitutional rights. Examples are the Magna Carta, the Bill of Rights 1689, the Act of Union, the Reform Acts which distributed and enlarged the franchise, the [Human Rights Act], the Scotland Act 1998 and the Government of Wales Act 1998.

Ordinary statutes may be impliedly repealed. Constitutional statutes may not be. For the repeal of a provision in a constitutional statute:

the court would apply this test: is it shown that the legislature’s actual – not imputed, constructive or presumed – intention was to effect the repeal or abrogation? I think the test could only be met by express words in the later statute, or by words so specific that the inference of an actual determination to effect the result contended for was irresistible.

So Mr Thorburn’s conviction stood. And the House of Lords refused him permission to appeal.


That’s legal history for you. I made it as interesting as I could.

The relevance of it all lies, of course, in the Conservative Party’s pledge this morning. Should they be re-elected they would introduce a new Act – call it the Tax Lock Act – which would bind the Government not to raise taxes. I have written about the pledge in more detail here.

But what is the substantive legal content of the pledge? That, of course, depends on the binding quality of the Tax Lock Act. If Parliament enacted it on Day 1 (pledging not to raise, say, VAT from 20%) and then introduced a Finance Bill on Day 2 (which raised VAT to 25%), what would the pledge do?

The short answer, clear beyond serious doubt, is absolutely nothing.

(1) I do not consider that a Tax Lock Act would be an Act – like Magna Carta or the Bill of Rights – which “conditioned the legal relationship between citizen and State in some general, overarching manner.” It follows that I consider it could be impliedly repealed.

(2) If I’m wrong about (1) it seems to me that the hypothetical provision in the Day 2 Finance Bill raising VAT would give rise to an irresistible inference that Parliament intended to repeal the Day 1 Tax Lock Act (at least insofar as it said there would be no rise in VAT). You can best see why I might say this if you have regard to a recent provision whereby Government has raised a tax rate. Take, for example, this provision from the Finance (No 2) Act 2010:


It’s not easy to see how anyone could read this otherwise than as intending to introduce the rate of VAT from 17.5% to 20%.

(3) But even if I’m wrong about both (1) and (2), it is worth remembering that any future Conservative Government could simply choose explicitly to repeal the Tax Lock Act. Such is made abundantly clear in paragraph 59 of Lord Justice Laws’ judgment in Thorburn.

So, however you slice and dice the matter, it is abundantly clear that so far as legal content goes – I leave its political content to others – the pledge has none.

The Conservative’s Five Year Tax Lock

Here is David Cameron tweeting out the Conservatives ‘Five Year tax Lock’:


Others have made the argument that to pledge not to change the law signals a breakdown in trust in politics. No one has made it better than George Osborne did in 2009. Here’s him in Hansard:


I’m not sure I could have put it better myself.

Leaving aside the fact that Parliament could perfectly well introduce a Finance Act with a tax rise, and that would crack the ‘lock’ by impliedly repealing the legislation introducing it, what does the ‘lock’ actually mean? I’ve seen a few loopholes in my time so let me tell you.

Assuming the above to be the extent of the ‘lock’ the Tories could, consistently with it, do any one of the following things:

  • Subject benefits to income tax.
  • Lower the threshold at which NICs were paid, a measure that would hit the poorest hardest. Note that the Conservatives pledge only that they won’t increase the ceiling not that they won’t reduce the floor.
  • Jettison reliefs from income tax – for example on childcare, or pension contributions – or national insurance contributions. The loss of these reliefs can have a profound impact on your tax bill.
  • Amend the thresholds at which different tax rates were paid. Such an amendment could increase or decrease the tax bill of any individual.
  • There is no pledge in relation to inheritance tax, capital gains tax, corporation tax, stamp duty, air passenger duty, and so on. Increases in all of these taxes remain entirely possible – if not likely.
  • The Conservatives could reduce the VAT registration threshold, compelling hundreds of thousands of small businesses to charge VAT on their sales.

I could go on, and on. But what’s the point: even if you assume the ‘lock’ is adhered to, it’s all but meaningless.

Note: I have amended to add the first bullet point.

Why the right is losing the argument on tax – and why it matters to all of us

On Sunday, Labour pledged to tax as income the performance fees (known as the “carried interest”) paid to certain investment managers. This rather than the much lower capital gains tax rate enjoyed hitherto. The pledge followed Labour’s promise, earlier in the week, to remove the centuries old non-dom tax break and, last month, to restrict pension tax relief for high earners.

Taken individually, there is a compelling case for each of these measures. And they cohere as individual parts of a bigger programme to bring more earnings above £150,000 into the top rate of tax. Looked at as a matter of good design, we should applaud them. The removal of piecemeal tax reliefs and complexity is the intellectually unassailable argument of flat taxers. They should love this programme too.

They don’t though.

In 2012, Allister Heath, the Telegraph’s Deputy Editor, chaired a report calling for a flat tax of 30%. But on Thursday he led the charge against the non-dom changes in a heroic leader piece entitled “Labour’s Socialist Headbangers Will Clobber Us All.” It was a “near certainty”, he said “that a significant minority of non-doms, including the richest… would up-sticks.”

He did, though, concede that the eligibility conditions for non-dom status were “bizarre.” When I asked him why he had not called for their reform earlier he claimed he had. But he dropped the point when I pointed out his report had explicitly recommended no change. I had an almost identical conversation with another avowed flat-taxer, Stephen Herring, Director of Tax at the IOD.

The problem they face is this. If you won’t advocate sensible reform against your own interests you can’t expect to be listened to when you advocate sensible reform for them.

Now, none of this would much matter but for the fact that the right is already losing this argument. And not – entirely at least – in a good way.

There is a rate of tax that is too high. Although we sustained marginal rates of income tax as high as 99.5% in the post-war years through to the late 1970s the world, our place in it, and the tax rates of our competitors, were all very different then. Today we are – like it or (more likely) not – highly dependent on the highest earning 1% who pay around 27% of all our income tax receipts. And the evidence clearly shows there to be a point where increasing the rate of tax brings about only small increases in receipts – and beyond which increasing it further can lead to reductions. It is this relationship that the Laffer curve describes. Even around the 50% mark policy makers begin to “stroll,” as Robert Chote, Chairman of the Office for Budget Responsibility, memorably described it “across the summit of the Laffer curve.”

What is true for individuals is also true for business. Despite the Coalition’s promise to rebalance the economy, we remain heavily reliant on financial services. Yet, for understandable political reasons, banks have been hit time and again. And there are serious murmurings of discontent, even amongst the most socially responsible of bankers.

It is this debate that ought to be centre stage; it is this debate that matters. There is meaningful difference between the parties: Labour is promising to restore the top or “additional” rate of tax to 50%. The Conservatives have refused to confirm they will not cut it to 40%. What the extra yield might be today – because things have moved on from when Treasury last did the exercise – from a higher rate of tax is a point I mean to cover in a later blog post. But what I do know is that, if the right persists in inconsistent and alarmist ‘Chicken Licken’ry, it will further remove itself from a position of influence.

That would be a bad thing. We need an intellectual compelling counter-argument to the view, slowly taking hold and fostered by ongoing increases in the personal allowance, that taxes are things other people can be relied upon to pay.

There are those on the right who see taxes as a confiscation of personal wealth under compulsion of law by a spendthrift state. The left’s equivalent would soak high earners until the pips squeak for the sin of financial success.  They deserve each other, these ideologues.

But for the rest of us, the only question we should be asking is, how much tax is too much?

Jolyon Maugham QC advised the Labour Party on its reform to the non-dom rules.

Some quick thoughts on Labour’s Avoidance/Evasion announcement

Below is Labour’s Press Release on tackling tax avoidance and evasion. These things are not typically made available to the public – so I have taken the liberty of publishing it below.

Some brief thoughts on the announcement follow:

(1) Labour will tackle the beneficial taxation of private equity carried interests. Whilst this tax break is, perhaps, uglier even than the non-dom remittance basis, these individuals are highly mobile and the behavioural effects of removing this tax break cannot sensibly be considered in isolation from the increase in the top rate of tax, the mansion tax, and removal of the remittance basis of taxation for non-doms

(2) having pointed out that the Tories’ projected £5bn yield from tackling tax avoidance is meaningless if unspecified (actually I was a little blunter) I cannot fail to make that point in this context. That having been said, the carried interest changes are newly announced today. And there are a series of previously announced measures all supporting that £7.5bn target (including the non-doms measure which I continue to think will provide a substantial yield). Perhaps critically, unlike the Tories’ £5bn, Labour’s £7.5bn is not being committed in support of future spending plans: it is a mere target.

Do I think this target is achievable? See (4) below.

(3) measures to improve the accountability of HMRC are long overdue. Indeed, these proposals do not, I would say, go nearly far enough. It is to be hoped that Labour is merely signalling what ground it expects its previously announced enquiry into HMRC practices to cover

(4) the success of measures to tackle the informal economy will be central to Labour’s ability to meet this ambitious target. Both parties know this area to be of critical importance – both the former Financial Secretary to the Treasury David Gauke and the current Shadow Chancellor have tried to raise the profile of this issue. But as to what those measures should look like: neither side has yet advanced workable proposals

(5) It is neither fair – nor accurate – to describe the Tories as having presided over an increase in the tax gap.

​​Labour announces Ten Point Plan to Tackle Tax Avoidance and £7.5 billion target to reduce avoidance and evasion

Labour’s Shadow Chancellor is today setting a tough new target for the Treasury and HMRC to cut tax avoidance and evasion by at least £7.5 billion a year in the next Parliament and a ten point plan to help deliver it.

Ed Balls will give the Treasury and HMRC warning that on the first day of a Labour government there must be:

  • A draft Finance Bill which is an Anti-Tax Avoidance Bill and delivers the legislation needed for the measures set out in Labour’s ten point plan to tackle tax avoidance and evasion;
  • A report from HMRC on all current measures and processes for tackling tax avoidance and evasion, so that Labour’s review of culture and practices at HMRC can make an immediate start.

He will also ask the Bank of England to focus on risks from the informal economy, including avoidance, evasion and the tax gap, in delivering its financial stability objective.

Labour’s immediate review of culture and practices at HMRC will help deliver this reduction of at least £7.5 billion a year in tax avoidance and evasion in the next Parliament – with the ambitious goal of doing so by the middle of the next Parliament. This will reverse increases in the tax gap under the Tories and get it back on a downwards trajectory.

He will also challenge the Tories to back Labour’s plan, which includes Labour’s pledge to abolish the 200 year old non-dom rules and action to tackle tax avoidance by hedge funds.

Measures in Labour’s plan also include changing the so-called  ‘carried interest’ rules which allow private equity managers to pay lower rates of Capital Gains Tax – instead of income tax – even when they are not investing much of their own money.

Both the Chancellor and Chief Executive of HMRC will also have to present an annual report to Parliament, and give evidence to the Treasury Select Committee, on the government’s progress in tackling tax avoidance and evasion.

Labour’s ten point plan sets out a series of measures it will take in order to help raise billions of pounds a year and protect the nation’s finances.

In addition to abolishing the non-dom rules which Labour has said will be used to help get the deficit down, the concrete tax avoidance measures we have set out – including new measures today and Labour’s changes to pension tax relief for the very highest earners – will mean Labour can fully fund our NHS Time to Care Fund, abolish the bedroom tax and cut tuition fees to £6,000. Additional revenues raised over and above this will be used to help get the deficit down.

Ed Balls, Labour’s Shadow Chancellor, said:

“The Tories have spent the last week explaining why they won’t tackle tax avoidance and defending the non-dom loophole.

“They just don’t understand that when working people are paying more in tax it’s a scandal that some people can get away with not paying their fair share.

“The Tories can claim they’ll raise money from tackling tax avoidance, but the amount of uncollected tax has gone up under this government. And when push comes to shove they refuse to close the loopholes or take the tough action that will make a difference.

“It will take a Labour government to call time on this lax approach and launch an assault on tax avoidance.

“We will set tough targets for HMRC to reduce tax avoidance and evasion by at least £7.5bn a year. Our ten point plan will take the tough action needed to help us get there and we will start on day one of the next Labour government.

“We will close the loopholes the Tories won’t act on, increase transparency, toughen up penalties and abolish the non-dom rules. And our first Budget will make sure that, following an immediate review of HMRC, it has all the powers and resources it needs to come down hard on tax avoidance and evasion.

“Working people who are paying more in tax want everyone to pay their fair share. And there shouldn’t be one rule for a few and another rule for everybody else. The Tories should back Labour’s plan and stop defending the indefensible.”

Editor’s notes

Labour’s Ten Point Plan to Tackle Tax Avoidance:

  1. Abolish the non-dom rules so that wealthy people are not able to use loopholes to avoid paying tax like the rest of us, while introducing a temporary residence rule for those genuinely in the UK for a short period of time, such as university students.
  2. Re-write the rules which allow private equity managers to get away with paying less tax than ordinary working people even when they have not been investing their own money
  3. Close loopholes used by hedge funds to avoid stamp duty
  4. Force the UK’s Overseas Territories and Crown Dependencies to produce publicly available registries of beneficial ownership
  5. Increase penalties for tax avoidance including new penalties for those who are caught by the General Anti-Abuse Rule
  6. Close loopholes like the Eurobonds loophole which allow some large companies to move profits out of the UK and avoid Corporation Tax
  7. Scrap the “Shares for Rights” scheme, which the OBR has warned could enable avoidance and cost £1bn
  8. Tackle disguised self-employment by introducing strict deeming criteria
  9. Tackle the use of dormant companies to avoid tax by requiring them to report more frequently
  10. Make country-by-country reporting information publicly available

Labour’s £7.5bn target for cutting tax avoidance and evasion

Under the last Labour government the tax gap was falling by £1.5bn a year on average between 2005-06 and 2009-10. But under the Tories it has been increasing by an average of £1bn a year.

The next Labour government will set a target to not only get back to avoidance and evasion falling at £1.5bn a year, but reverse the increases under the Tories as well.

That will mean cutting tax avoidance and evasion by £7.5bn a year – with the ambitious goal of doing so by the middle of the next Parliament.

Don’t believe the hype

If you read the papers, you might have formed the view that Labour’s proposed replacement of the non-dom regime will lead to the sky falling in. Here are some of the good bits:

The Telegraph:


The Evening Standard:


Here’s a lawyer who acts for non-doms:


Here’s the Daily Mail:


Here’s a guy who acts for wealthy shipowners:

But is the sky really falling in? Or is the media inadvertently playing Chicken Little?

Back in 2008 Labour introduced the non-domy levy (subsequently increased, twice, during the course of this Parliament). Here’s what was said then about the effects of introducing the levy. (Warning: some of it may feel a little, well, familiar).

The Daily Mail:


The British Banking Association:


The fetchingly salmon Financial Times:


The Telegraph:


A large firm of accountants:


The Times:


I could go on. And on. But you have the point. They say this every time. And then they stay. They stay because the people who were motivated by tax never came to London in the first place – they want to “Switzerland, Monaco and a host of other countries.” They came to London because it’s a very nice place to live. If you’re wealthy. And that won’t change.

All of the broadcast and print media’s fact-checking teams had been very busy. Who could blame them for not asking the obvious question, whether we’ve heard any of this before? Certainly not me.

So. Don’t believe the hype.

Oh, and to save you the trouble, here’s Chuck D

How much might we raise if we restrict non-dom status?

In a series of blog posts pre-dating that FT editorial, I argued that the non-dom rule is an unsightly bribe to those with some foreign connection to come to or remain in the UK; that the structure of the remittance basis (which taxes income and capital gains brought into the UK but not those left outside) discourages the very thing (inward investment) that we should want to encourage; that establishing someone’s non-domicile status is incredibly difficult – a fact which may be responsible for the fact that in the last decade HMRC have only taken one domicile case to the Tribunal; and I also asked why, if the introduction of the remittance basis charge didn’t reduce the number of registered non-doms, it should be thought that abolition of the remittance basis should cause the sky to fall in.

I also advanced a policy suggestion:


But what I want to look at here is the prospective yield from certain changes to the non-dom rule proposed today by the Labour Party.


What proponents of the remittance basis of taxation for non-doms say is this: yes, we know it’s unfair that those with some happenstance foreign connection should pay less UK income tax and capital gains tax than those who are UK resident through and through. But unless we lower their tax bills, they’ll leave and take such tax as they pay with them.

You need to start with that statement because, embedded within it, is a rather startling argument: that it doesn’t matter if a tax result is unfair, so long as it increases yield. This is the logic of a fiscal dutch auction: that we should offer foreigners a lower and lower income tax bill until they agree to move (or stay) here. Whilst this approach will have enthusiastic supporters – not least as Charles Walker MP (Con) has pointed out, high end estate agents – it’s not a proposition many of us would find palatable. Not even Deloitte who noted, rather drily, and of the increase to the remittance basis charge in the 2014 Autumn Statement:


It’s important not to forget this. Proposals to reform non-dom status must, of course, have regard to yield – but not only to yield. Fairness too.

Everyone will place their own subjective value on fairness in the tax system – I’ll leave that to the politicians and the voters. But what I want to do is examine the available data on yield.


Calculating the yield to Treasury from changes to the tax regime is typically a two stage process. Stage one is to calculate the theoretical yield: if things remained the same, what would the extra measure raise (or cost)? Stage two is then to factor in the ‘behavioural effects’: i.e. how people will adjust their behaviour in light of the changed regime.

To take an example, if you reduced the duty on fuel by 30% you wouldn’t expect this to cost you 30% of your present rake. Fuel consumption would go up and so, although you’d now only get 70%, it would be 70% of a larger pot. The same is true of tax rises: it’s behavioural effects that enable Labour to say that cutting the top rate of income tax from 50% to 45% was a £3bn tax cut for the highest earners; and the Tories to say ‘but it only cost Treasury £100m’. People change their behaviour when circumstances change.

On the cut to the additional rate of tax, stage one was unproblematic. We knew how many people were liable to the “additional rate” of income tax and what they earned. What we were less clear on was stage two – how they would change their behaviour in light of increasing it to 50% – a question which formed the subject of this lengthy Treasury report.

But when you calculate the yield from changes to non-dom status you have a further difficulty. It’s not merely that you don’t know what the behavioural effects will be. It’s also that, as I observed here, we don’t collect data on the income and capital gains enjoyed by non-doms and not remitted to the UK. So you have a stage one difficulty as well. These difficulties led even the IFS to observe back in 2007 (about the effects of rival political proposals for the remittance basis charge) that no-one knows what the yield might be.

There are, however, a few propositions from which one might, cautiously, proceed.

(1) As to the size of the theoretical yield, the only data we have on the amount of unremitted gains shows average foreign earnings not remitted of £50,000. This average is drawn from a data set of 17,000 who voluntarily chose to disclose this information. However, this average is likely considerably to understate the theoretical yield. As it seems to me, the higher your unremitted gains the lower the prospect that you will voluntarily disclose them to HMRC – because disclosing high unremitted income or gains would invite close scrutiny of your entitlement to the remittance basis. Moreover, this figure looks to be just unremitted income – ignoring unremitted capital gains.

  • If you assume 50,000 people claiming the remittance basis each with £50,000 of unremitted income – and conservatively no gains – the theoretical yield would be 50,000 x £50,000 x 47% (including 2% Class 4 NICS) = £1.175bn per annum.
  • If, for the sake of argument, you assume 17,000 with an average of £50,000, 17,000 with an average of £100,000 and 16,000 with an average of £250,000 and again ignored capital gains the theoretical yield would be £3.1bn.
  • If you take the figures at the second bullet point above and also assumed average capital gains of 50% of income taxed at 28% the theoretical yield would be £4bn per annum.

(2) As to behavioural effects, we’ve introduced a number of measures of late that have rendered the UK less tax-attractive for non-doms: not merely the remittance basis charge (and increases to it) but also the annual tax on enveloped dwellings, a series of measures widening the scope of what constitutes a remittance and the forfeiting of the personal allowance from income tax and annual exempt amount from capital gains tax. I’ve looked at some historical data here but as I read it, it shows a gently rising trend of non-doms in the UK. Whilst these measures might (on one view) have effected a short term interruption to the trend, the trend remains in place. Contrary to the warnings of many, and as Charles Walker rightly predicted, the changes have not caused the sky to fall in.

Looking forward, there is good reason to believe the trend might even strengthen. For example, as the Telegraph has reported, there has been a 69% increase in the number of applications for investor visas in the UK from Russians.

This – it seems to me – provides powerful support for the proposition that one should not over-estimate behavioural effects in calculating the likely yield.

(3) Further support for not overstating behavioural effects comes from looking at the yield calculations for earlier restrictions to the remittance basis charge.

The introduction of the remittance basis charge in 2008 generated a yield in the hundreds of millions of pounds (figures of £800m and £500m were given – see page 164 – but with only limited detail). The Budget 2011 increase in the size of the charge generated a median yield of £70m (see page 36 which went on to observe, inaccurately as it transpired: “There will be no other substantive changes to these rules for the remainder of this Parliament”). And the increase in the remittance basis charge in the Autumn Statement 2014 generated a steady state yield of £90m (made up of a £120m theoretical yield reduced by 25% for behavioural effects – see page 41).

If you have three data points, each demonstrating a positive yield from a restriction to the non-dom basis, it becomes quite difficult to contend that the behavioural consequences of a fourth such restriction will be such as to swamp the theoretical yield.

(4) If you proceed from that relatively modest evidential base and assume a 25% reduction due to behavioural effects (as Treasury did in 2014), then the annual yield numbers at (2) above become £880m per annum; £2.325bn per annum; and £3bn per annum. Other reductions for different behavioural effects can be relatively easily calculated.


Ultimately – and again leaving aside questions of basic tax fairness – a good change to the remittance basis is one which constrains the likelihood of huge behavioural effects. To analyse the likelihood of big behavioural effects from any particular measure what, it seems to me, you need to do is look at two groups of people: prospective immigrants to the UK and prospective emigrees from the UK.

As to prospective immigrants, what’s attractive about Labour’s proposal is that it gives people a decent period in the UK to enjoy the remittance basis. Long enough to put down roots by buying property, forming social networks, putting their children into local schools, and so on, such that they might be disinclined to leave when the incentive lapses.

And as to prospective emigrees, the data analysed above suggests that, whilst some will leave, one shouldn’t expect too many to do so. This cautionary tale – of the hugely deleterious effects on Guy Hands of his ceasing to be UK resident – might explain why.


If I proceed from the above and stick a finger in the air – an exercise that you’ll have to take it from me is not so dissimilar to that which Treasury does when it forecasts the effects of tax measures – where do I get to in terms of yield? I’m not an economist – and the data is poor. But my instinct is that the stage one theoretical yield figures will tend towards the top end – towards the £4bn end – of the spectrum. But I also think 25% is rather low as a behavioural effect: 50% or even more might well be more realistic, depending on the detail of Labour’s measures. But that would still leave a yield well north of £1bn.

Why it makes financial sense to evade your taxes. Really.

Under the LDF tax amnesty which has been running since 2009 – the bizarre workings of which I have discussed here – you can choose to disclose your tax evasion to HMRC and pay back taxes and interest on those taxes. You’ll also face a penalty of 10% of your unpaid taxes but you won’t face a criminal prosecution. Nope, and you might well still be better off than if you had paid your taxes. It will be the rest of us eating porridge, as the following example shows.

This state of affairs occurs, broadly, when you are able to make a return on the tax you have evaded which is higher than the rate of interest HMRC charges you on unpaid tax. Sufficiently higher to overcome the effects of the 10% penalty. It isn’t legal – but it’s risk free. I prove it, in the following example.

Happy Easter, from those wonderful folks who gave you the Liechtenstein Disclosure Facility.


To simplify, I’ll assume that tax rates and interest rates on unpaid tax in 2009 were what they are today. Today rates on capital gains tax are 28% and, on savings income, 45% (if you’re wealthy). Interest rates on unpaid tax are 3%. I’ll also assume that taxes follow the calendar year and are payable on 31 December rather than 31 January. None of these simplifications makes a material difference to my example.

Assume Mr X makes a capital gain on 1 January 2009: on an investment of £500,000 he makes a gain of £1,000,000. He then invests the proceeds earning a return of 10% per annum until 31 December 2015.

If Mr X has evaded his taxes he will have (in cash) at the end of 2009 £1,650,000, at the end of 2010 £1,815,000, at the end of 2011 £1,996,500, at the end of 2012 £2,196,150, at the end of 2013 £2,415,765, at the end of 2014 £2,657,341 and at the end of 2015 £2,923,076.

His tax liability for 2009 will be £280,000 with an interest bill (from 31.12.20-31.12.2015) of £50,400.
His tax liability for 2010 will be £74,250 with an interest bill (from 31.12.2010-31.12.2015) of £11,137.
His tax liability for 2011 will be £81,675 with an interest bill (from 31.12.2011-31.12.2015) of £9,801.
His tax liability for 2012 will be £89,842 with an interest bill (from 31.12.2012-31.12.2015) of £8,086.
His tax liability for 2013 will be £98,827 with an interest bill (from 31.12.2013-31.12.2015) of £5,930.
His tax liability for 2014 will be £108,708 with an interest bill (from 31.12.2014-31.12.2015) of £3,261.
His tax liability for 2015 will be £119,580.

So his total tax bill will be £852,882, interest payable will be £88,615 his penalty will be £73,330 (he won’t pay a penalty on his tax bill for 2015) and of his £2,923,076 he will have left £1,908,249.

If, on the other hand, Mr X complies with the law and pays his taxes he will have:

At the end of 2009 £1,650,000
At the end of 2010 (£1,650,000 x 110% – (28% of £1,000,000) – (45% of £150,000)) £1,467,500
At the end of 2011 (£1,467,500 x 110% – (45% of £165,000)) £1,540,000
At the end of 2012 (£1,540,000 X 110% – (45% of £146,750)) £1,627,963
At the end of 2013 (£1,627,963 x 110% – (45% of £154,000)) £1,721,459
At the end of 2014 (£1,721,459 x 110% – (45% of £162,796)) £1,820,347
At the end of 2015 (£1,820,347 x 110% – (45% of £172,146) £1,924,916
Plus he will have a tax bill for his interest in 2015 of (45% of £182,038) of £81,917 leaving him with cash of £1,842,945 (more than £65,000 worse off).

The critical point to note is that, in every year Mr X earns a return of higher than the rate at which HMRC charges interest on unpaid taxes, he is eating into the effect of the 10% penalty. And the longer the period over which he beats that 3% the easier it is to overcome the effects of the penalty. Putting the matter another way, the 10% penalty regime benefits successful long term and punishes unsuccessful short term evaders.

Follow me @jolyonmaugham

How business should respond to concerns around tax

Today the so-called Google Tax becomes law. It is, in cash terms, a bauble. In steady state, it will yield £350m a year; far less than half the cost of the reforms to stamp duty also introduced in last December’s Autumn Statement.

Yet its political importance is huge. Despite the Coalition’s radical programme to combat avoidance – which has changed the landscape beyond recognition – the Conservatives have remained vulnerable to the allegation that they are the friends of tax avoiders.

The Google Tax was their response.

Business was furious. The measure tore up the Coalition’s Corporate Tax Roadmap. The tax profession was no more enthusiastic. The ACCA, ICAEW, CIOT and others lined up to slam it: radical, introduced without proper consultation and pre-empting international measures to tackle avoidance. Nevertheless, and unopposed by Labour, it became law.

How did we get here? And where do we now go?

Business leaders recognise that the world has changed. Survey after survey places tax first amongst CSR concerns. Tax structured transactions are in near mortal decline. And litigating even vanilla transactions is perceived to carry prohibitive reputational risks. Yet a route to take matters forward remains elusive.

But here’s a prescription. Business needs to take the initiative. The defensive formulation – “we comply with all relevant tax laws” – will no longer do for a public dyspeptic on a diet of double Irish and Dutch sandwiches.

Boards need to take ownership of the tax issue. They should publish, with their annual reports, statements of tax policy. What strategy should the tax department pursue? What is the target rate of tax on corporate gains? Will the Group transact purely for tax advantages?

For meaningful buy in, statements should be developed internally. And, to remain relevant, there should be annual compliance audits. For laggards, a new Government will want to consider changes to the Companies Act.

Business has been on this journey before. The transparency and management of the supply chain is critical to such B2C businesses as Apple and Nike. Environmental concerns influence investment behaviour beyond pure ethical plays. Why should tax be any different?

It is, of course, a particularly significant cost. Perhaps it is this that has caused Boards to be slow to engage. But, although we have yet to experience a fiscal Deepwater Horizon, the EU State Aid probe should shake from complacency those businesses benefitting from sweetheart deals in Luxembourg, Ireland or the Netherlands.

Tax transparency, of course, brings risks and rewards. XCo, which chases post-tax gains, will be closely scrutinised by the revenue authorities. YCo, which adopts a principles based approach, may suffer a higher effective tax rate. But openness will draw the sting of the charge – beloved of campaigners and the media – of hypocrisy. And through the mechanic of statements of tax policy Boards will be able to set the strategic direction of this crucial, but ill-understood, function.

The alternative, of remaining on the side-lines, leaves a gap that politicians have no choice but to occupy. In the final analysis, it is the work of our own stayed hand we curse. To regain the moral authority to participate in the debate around what tax should look like, business must throw open the doors.