Labour
We need the tax system to work, which means Rachel Reeves will have to do a lot more than she’s planning
The Guardian has reported that:
Labour has appointed an expert panel to advise the party on ways to tackle tax avoidance following its plan to reap £5bn from a crackdown on tax dodgers.
The party’s shadow financial secretary, James Murray, said the independent group would also advise on how to modernise the tax authority, which has come under fire from MPs for failing to claw back an “eye-watering” amount of owed tax. He said the panel offered decades of experience.
So, who are they? The Guardian suggests that:
Sir Edward Troup, a former Treasury special adviser on tax and head of HMRC, will be joined on the panel by Bill Dodwell, former tax director of the Office for Tax Simplification and a retired senior accountant at Deloittes.
The four-person group will also include the Labour MP Dame Margaret Hodge, a former chair of parliament’s public accounts committee, and Mike Bracken, founding partner at the consultancy Public Digital, and founder and former executive director of the UK Government Digital Service.
I should note that I know three of the four: the exception is Mike Bracken.
There are a number of things to note.
The first is that this panel is a long way short of being an Office for Tax Responsibility, which is what we really need to monitor the preparation of tax gap data and to undertake tax spillover assessments to really understand just what is not functioning properly within the UK tax system. This panel does, in that case, fall seriously short of a plan for what is needed.
Second, if this group is meant to tackle the tax gap, 56% of which arises amongst small businesses according to HMRC's own data, picking Ed Troup, who has only worked with large corporate clients, and Bill Dodwell, who did likewise at Deloitte, and Margaret Hodge, who has no tax experience at all - as she once willingly told me - is not the way to go. Nor is picking a data specialist when HMRC's Making Tax Digital programme is not an answer to any known question.
We need an Office for Tax Responsibility. But what we also need is that people with experience of the real problems that we face should advise on solutions.
The Federation of Small Business should be advising.
So should a small accounting practitioner.
HMRC staff need to be represented.
And given the history of the impact of the tax justice movement, it too needs to be on board so long as the representative knows something about tax, and right now, almost none of those engaged in those campaigns have any actual tax experience at all.
Then, this panel needs to ask the awkward questions:
- Is the tax gap data right?
- How do we know?
- What is motivating abuse?
- Why has the small business tax gap got very much worse of late?
- To what extent does HMRC's own behaviour encourage the tax gap?
- Is the tax system riddled with loopholes that could be closed, with ease, and how could that be done?
- Is there a problem with the ease of access to limited liability in the UK?
- What is the plan to co-ordinate action on all these issues, and others?
- What is the budget for this panel to commission work to assist the delivery of advice they supply to Rachel Reeves?
We need the tax system to work better than it does.
To achieve that, we need a stronger panel than Rachel Reeves is appointing, and that panel needs to have teeth as an Office for Tax Responsibility.
Labour should establish an independent office for tax responsibility
I am quoted by Larry Elliott in the Guardian this afternoon on the tax gap:
The accountant and tax expert Richard Murphy says: “Reeves could raise billions by closing the tax gap, but not by looking offshore to find it. The tax gap is in the cities, towns and villages of the UK where small businesses aren’t paying large amounts of what they owe.
“If she wants to collect that money – and support honest business by doing so – then she needs to reopen the UK’s local tax offices and put VAT inspectors back on the road, checking that business really pay. Nothing else can work.”
Murphy believes HMRC is under-estimating the size of the tax gap, which he says could be as high as £90bn. He thinks Labour should establish an independent office for tax responsibility to monitor delivery and ensure HMRC doesn’t “mark its own homework”.
The overall opinion that Larry finds from the interviews he did? That Reeves is being an optimist, although the reasons vary. But no one seems to doubt that more investment in HM Revenue & Customs is necessary.
Rachel Reeves is looking in the wrong place if she’s trying to solve the tax gap
I posted this video on TikTok this afternoon:
Rachel Reeves and the tax gap Rachel Reeves has suddenly decided that she will close the tax gap. However, she thinks the money that she will find is currently offshore, but she's wrong. If she's going to raise serious money that's currently not paid in tax she has to look to the UK small business community who are currently not paying up to £3 in every £10 that they owe. #tax #uk #rachelreeves #labour #labourparty
Rachael Reeves will not close the tax gap by looking overseas. Pretending that the problem is elsewhere is no longer realistic. It’s in her own backyard.
Rachel Reeves is making an announcement today on how she will plug the gap that she thinks exists in her financial plans as a consequence of Jeremy Hunt stealing her intention to close the domicile rule.
As the Guardian notes this morning, she has resorted to the age-old intention of politicians who do not know how to balance their supposed books by claiming that she will close the tax gap.
Firstly, let me make it absolutely clear that I welcome that intention. It is entirely appropriate. I discuss it at length in the Taxing Wealth Report 2024. I look at the issue in chapter 15 of that report, where in four subsections, I deal with the need to better estimate the tax gap, to undertake tax spillover assessments, to set up an Office for Tax Responsibility to monitor delivery on this issue, and to reform HM Revenue & Customs so that its presence in local communities might be recreated so that it might deliver on this promise.
It would also be well worth looking at chapter nine, and in particular subsection 9.1 on reforming the administration of corporation tax and subsection 9.3 on the reforming of Companies House, both of which are essential if we are to close the tax cap.
In that case, given my enthusiasm for this topic, it would be churlish in the extreme to not welcome Rachel Reeves' intention to tackle this issue.
That said, excepting her comments on domicile, which are appropriate because the Tories are very clearly trying to manipulate the replacement rules for this in favour of the wealthy, Reeves’ comments this morning do appear to have an inappropriate focus to them.
In particular, she is highlighting another age-old mantra, which is that we must pay great attention to offshore tax abuse use if the tax gap is to be closed. Whilst there will, inevitably, be some outstanding opportunities for tax investigations during the period when the domicile rule is closed as matters, previously unseen come to light, I overall doubt that this is where the focus of attention for HMRC should now be. After all of my years campaigning on offshore, I am not saying the issue has gone away. It has not, but it has reduced, considerably. All the effort expended on it has now paid a considerable return. As a consequence, the evidence is now very strong that the problems in tax recovery are not to be found offshore. Nor, by and large, are the problems created by tax avoiders. It seems that HMRC is catching up with them. Instead, the problem that we face is in collecting tax from those who owe it and choose not to declare it within the domestic economy.
As I note within the Taxing Wealth Report 2024, whilst the overall claim of HMRC is that the tax gap is falling (which I doubt) what is also unambiguously true is that the tax gap for the self-employed and small businesses is very high, and in the latter case, in particular, rising rapidly.
In the case of small companies, it is estimated that 30% of all corporation tax liabilities owing or not now paid. Although HMRC never seems to extrapolate a tax loss in one tax to imply that there must be a consequent loss of revenue in another tax, it necessarily follows that if this is the case, then those same companies that do not pay the corporation tax that they owe must also fail to pay the VAT and PAYE that they owe, meaning that it is my belief that both those estimates are seriously underestimated as a consequence. In addition, I do not take seriously HMRC’s claim that the tax gap amongst the self employed is now only 18.5%, representing a decline over the last few years from a peak of 32.5%. If small companies fail to pay 30% of the tax that they owe there is no reason to think that small businesses do anything significantly different.
If Rachel Reeves is serious about closing the tax gap, this is where she would start looking for money. And, as I note in the Taxing Wealth Report 2024, if she wants to collect the significant sums involved in this loss, then she would require that HMRC begin to reopen its local tax offices because only by having a presence in the communities that it serves, and which pay tax, can it understand who is not paying that money, and who is helping them to evade it.
Simultaneously, she should be transforming the information that UK banks are required to submit to HM Revenue and Customs each year so that all those companies trading in the UK can be properly identified, and she should be massively increasing the resources available to Companies House to increase the effectiveness of its operation in tracking down corporate data in the UK.
There is a real opportunity to reduce the tax gap in this country, but Rachael Reeves will not close the tax gap by looking overseas. Pretending that the problem is elsewhere is no longer realistic. It's in her own backyard.
Brexit shows that all countries are better off within the European Union – who knew?
This FT half hour film itemises and demonstrates what a disaster Brexit is. Not only for trade and industry but also for simple collaborative relations. And even, at the end of the piece, as Martin Wolf suggests, for democracy… Rather similarly, Geert Wilders has publicly abandoned the policy of the Netherlands leaving the EU saying.... Read more
Stephanie Kelton on the economy
This YouTube video by the Belgian economist, Joeri Schasfoort, which was conducted in February 2024 at the Warwick Economic Summit held at Warwick University, is really excellent. It forms part of of a series of discussions labelled Money & Macro Talks. He correctly calls the episode with Stephanie Kelton an in-depth discussion. The interview technique... Read more
Capital gains should be subject to the same rate of tax as income
I have posted this video on YouTube, Instagram and TikTok this morning:
The transcript is as follows:
One of the proposals that I make in the Taxing Wealth Report is that capital gains should be taxed at the same rate as income.
Capital gains are the profits that people make from selling land and buildings, or pieces of art, or stocks and shares, or, anything else of that sort that, by and large, wealthy people own.
And I can't see any reason why they should pay a lower rate of tax on the money that they make from this activity than you and I do on working for a living. But that's what happens now. By and large, they pay tax at half the rate they would do if they were working to make the same amount of money.
That's unfair.
It's also very costly. We could raise at least £12 billion of extra tax revenue a year. If we equalise these two rates, do you think we should do that? If so, I've got a suggestion to make to you. Please tell Rachel Reeves, or send her a letter, or send her an email, or tweet her and say something like this:
Rachel Reeves
Why is it that the Labour Party will not charge capital gains at the same rate as income?
Nigel Lawson did when he was Conservative Chancellor. Why won't you?
And why don't you think that's fair? I do, because it would raise enough money to help fund the programmes that are essential to restore our public services.
Best regards, etc
That's a positive action you can take to make a difference as a result of reading the Taxing Wealth Report 2024.
As is apparent from that transcript, the video includes the suggestion that those who watch it might want to contact Rachael Reese and ask why it is that she is willing to tolerate this type of justice when correcting it would provide essential funds that would permit Labour to spend more on essential public services.
I am particularly curious to know whether those here think that making such a call for action is a good idea.
Mr Cummings is, in this instance, correct
He is quoted in this interesting article in the New Yorker, which outlines the long-term effects of austerity which are still, as we know, playing out. The article continues: By contrast, Cummings sees the two cautious, hedging leaders in charge of Britain’s main political parties—and the relief among some centrists that the candidates are not... Read more
126,245
Apologies for the odd title, but that figure happens to be the number of words in the final version of the full Taxing Wealth Report 2024, which I turned into a PDF for publication last night.
Shorter versions will be available.
The whole thing should be launched on Friday unless something strange happens between now and then.
It has been a bit of an effort. Just doing final formats yesterday was a ten-hour screen-based slog. There will be more like that today.
I remind myself of one thing, which is why I began this. Lucy Powell MP said last summer that "there is no money left". It is the Labour Party mantra, and it is not true. The Taxing Wealth Report 2024 exists to show that Labour's claim refers to a choice that it made. There is money left. Labour is just choosing not to access it, which is precisely why I am so annoyed with them.
People do not know what fiscal rules are, so why is Labour fixating on them?
I did another Twitter poll yesterday, this time on a decidedly relevant economic theme:
All the usual sample selection warnings apply, although this time I would suggest that those who engage with me on Twitter are likely to know more about fiscal rules than people do on average.
In the glossary to this blog I suggest that:
There are no such things as fiscal rules. There are instead fiscal choices.
However, many politicians, and most especially those who have responsibility for the finances of a jurisdiction, often claim that such rules exist. Those politicians create what they described as fiscal rules to justify the fiscal choices that they have made with regard to the macroeconomic options that are available to them.
It may be that those who claim that they know what fiscal rules are do understand them. It would be good if they did. But, it is just as likely that they think that there are really are things called fiscal rules that must be complied with. That would be a shame when the reality is that so-called fiscal rules are nothing more than a pile of mumbo-jumbo created by the likes of Rachael Reeves to supposedly validate the decision that she has taken to impose austerity on this country without any real explanation for doing so being provided.
It worries me that there is economic ignorance on the scale admitted by those who took part in this poll. I am sure there is a strong element of truth in the regard in the replies given.
It worries me as much that politicians must know this, and despite that fact choose to talk in riddles, using such terms as fiscal rules, which they must know are meaningless to most people, seeking as a result to obscure the truth of what they are talking about.
Throughout my professional life, I have always thought it worth the effort to try to de-jargonise, as far as possible, what I have talked about with people who are not trained in the field in which they have sought my expertise. This takes effort. You have to imagine that you do not know what you have learned. Then you have to imagine what it is that is confusing the person who does not have your skills, because all too often they are unable to explain what that is. Only then, can you really work out what it is that the person in question wants clarified so that they can make properly informed decisions. Thereafter, you have the task of explaining in ways that the person might understand. Most, especially as a professional accountant, that is what I always tried to do for my clients. It seemed to work.
It seems to me that very few of our professional politicians try to do this. Especially when it comes to economics, but by no means only in that case, they usually speak in jargon. Doing, so they try to claim expertise. They appear to not understand is the true expert does not need jargon to explain what they are talking about. The expert’s skill is in relating a complex issue to the experience of the person they are taking to.
So why does Rachel Reeves love talking in jargon? Is it she does not understand economics enough to talk in any other way? Or does she use it as a way of claiming expertise? Alternatively, does she just not know what she is taking about? Or, is she simply trying to hide the truth? I fear it is the last of these options. And that is not good.