We need a simpler tax system

I have had a large number of emails asking ‘what will you do to crack down on tax dodging?’ and as I am unable to respond to them all, I hope people will read this response.

My approach to tax can be summarised in the following five principles:

1.     Tax is a cost to individuals and businesses: it should only be as high as is required to provide the services we need.

2.     The wealthiest should pay the largest share.

3.     Tax should be as simple as possible: complexity breeds loopholes and avoidance.

4.     Evasion should be prosecuted and aggressive tax avoidance should be tackled.

5.     There is no such thing as government money; it is all taxpayers’ money and should be spent carefully and efficiently.

The wealthiest should pay most

The wealthiest people in Britain have never been richer – but they have never paid as large a proportion of tax as they do now. The top 3,000 earners pay more income tax than the lowest-paid 9 million taxpayers put together; the top 1% of earners pay around a third of income tax. Quite rightly, those with the broadest shoulders are paying the most.

We need a simpler tax code

However, our tax code is still astonishingly complicated – it is structured in such a labyrinthine way that armies of well-remunerated accountants are able to exploit loopholes and outwit HMRC. It is one of the longest in the world, a record we should not be proud to hold. I was struck by what the Archbishop of Canterbury recently said in a BBC interview:

"Somebody said the other day that the tax system is of biblical proportions, well the Bible is only 1000 pages, how many tax systems are only 1000 pages? They are several hundred times that. There needs to be simplification in tax so that people are responsible in the right place."

Unfortunately, the complexity of the tax code which has evolved over the last decades has meant that those wealthy enough to afford specialists in structuring their affairs in a complex way benefit, while those of us who try to do our own tax returns or pay through PAYE are the ones who (rightly) pay everything we owe. In Hackney, a large number of people are self employed and so spent much of last month sweating over their self assessments – these are the people I will fight for if elected as your MP, starting with making self assessment easier and shorter.

This government has already done a lot

Few of my correspondents seemed to be aware that this government has taken a number of steps to close loopholes and tackle aggressive tax avoidance. Britain is already leading the world in changing international tax laws and implementing those changes here first – in fact, this government has gone further than any previous government on this. If I am elected, I hope to be part of a Conservative majority government which will recoup at least another £5 billion each year in the next Parliament which would otherwise be lost through tax avoidance and evasion.

Of course, the recent files relating to HSBC date back at least eight years and so cover practices under the last Labour government. Since 2010, the Conservative-led government has taken a number of actions in this area which I support. Among these, it has:

·       Closed many of the loopholes exposed in the reports about HSBC and specifically taken action to get back money lost in Swiss bank accounts.

·       Increased the maximum penalty for hiding money in tax havens to 200 per cent of the tax evaded.

·       Reached agreements with Switzerland and Liechtenstein which have brought in around £2 billion in previously unpaid tax.

·       Made over 40 changes to tax law, closing down loopholes and introducing major reforms to the UK tax system.

·       Introduced a General Anti-Abuse Rule which will deter the creation of abusive tax avoidance schemes.

·       Clamped down on Stamp Duty avoidance with an Annual Tax on Enveloped Dwellings.

·       Stopped hedge fund managers using partnerships to avoid paying tax on their income.

·       Led efforts within the G20 to reform the international corporate tax rules through the OECD Base Erosion and Profit Shifting (BEPS) project.

·       Put tax transparency at the heart of the UK’s presidency of the G8, promoting the development of automatic information exchange which over 90 countries – all major financial centres (including Switzerland), all the G20, all the EU and all of the Crown Dependencies and Overseas Territories – have committed to beginning by 2018. 

·       Introduced a 25 per cent tax on multinationals’ profits where they’re artificially shifted out of the country which will raise over £1 billion over the next five years.

·       Invested £1 billion in HMRC since 2010 to tackle tax avoidance, evasion and non-compliance. HMRC have recovered more than £31 billion in tax as a result of interventions with large businesses since 2010. HMRC’s High Net Worth Unit has collected £852 million from the UK’s wealthiest people. Between 2010-11 and the end of March 2015, HMRC will have collected more than £100 billion in additional compliance revenues.

  • Raised a record amount from compliance and reduced the tax gap. It is forecast HMRC will raise £26 billion this year from compliance, £9 billion more than in 2010. The tax gap has fallen from 8.5 per cent in 2005/06 to 6.8 per cent in 2012/13.