The Prime Minister was right to blame himself for his bad week, but it wasn’t for the way that he handled the increasingly strident demands for him to divulge his tax affairs to the public, and to which he has cravenly acquiesced – though those are all mistakes too. His big error was back in 2012 when he condemned the comedian Jimmy Carr for immorality in his tax affairs.
Here’s a contentious proposition that I want to put: taxation is an entirely legal construct. It has no moral dimension. Talking about the morality of a corporation or person’s tax affairs is meaningless, because it is governed, and strictly governed, by a set of rules. Your affairs either comply with the rules, or they don’t. You’re either within the law, or you’re not.
Now, the rules are insanely complex, because they have evolved to control a constantly changing legal environment. It is unlikely that any one person understands them all, and anyone who does understand just a set of them, is capable of charging a lot of money in exchange for the exercise of that understanding. That isn’t immoral, it’s just reality. Heart surgeons are expensive too, but the Health Service or your insurance will buy their services if you need them. That’s because you only need to be ill to need a heart surgeon, and anyone can become ill. But if you’re poor, you don’t need anyone to minimise your tax, because you hardly pay any anyway.
Sorry if that hurts, but it does seem to be at the heart of this fuss: “The Prime Minister says ‘we’re all in this together’ but actually it’s one rule for the rich and another for the poor.” This is, of course, absolutely correct. The top 20% of earners in this country pay 50% of the tax. The bottom 20% contribute 6% (and presumably, a smaller percentage contribute nothing at all). More than half of the tax yield gets spent on social protection and health, from which (along with a fair chunk of the education budget) the rich ones will gain nothing. If there is a discernible morality here, it is that the richest people in society ought to pay not a fair share of the tax bill (how often is the phrase ‘the rich should pay their fair share’ bandied about in this discussion?) but a vastly disproportionate share. The more they earn, the more they should pay, and they should do this because it is an important part of the social contract that the weakest in society should be cared for, and the wealthiest should do it. Not only that, but above a certain level of wealth, that share should increase, so that more than a third of their extra earnings is given to the Exchequer. So it is certainly one rule for the rich and another for the poor. I do not disapprove of this, I think it is broadly as it should be.
It’s just that the rules get a bit more complex for the rich. The unlanded are unlikely to face an inheritance tax bill when their parents die – which, incidentally, has to be paid before you usually have time to sell the assets so that you can afford it. Manual labourers and nurses are not likely to hit the threshold for capital gains unless they run a surprisingly successful side-line in online trading. But it’s true that they may not understand, unless they are tipped off by a union, for example, that they may be able to put some of their expenses against their tax bill, and hence reduce it – ‘avoid’ paying that part of the tax, in other words. But if they do, is someone going to be calling them immoral? Clearly they may not be paying as much tax as someone who does not realise that this is permissible, but does it put them at fault in any sense at all?
Mrs Cameron Senior clearly received some sound advice that if she forked out a few large gifts to her children, then provided that she lived another seven years after making them, they could avoid paying tax on them. She might have paid an adviser to tell her this, though I’m guessing it is fairly common knowledge. That’s because the rules about tax say – they actually say this, they’re not having to be twisted or manipulated – that if you give some of your money to your children, and it’s well before you die, then it’s a gift, not a bequest: it’s not part of your estate, and doesn’t have to be taxed. This makes sense – obviously forking over all your wealth to your kids on your deathbed doesn’t stop it being a bequest. Obviously giving your children a £50 postal order when you’re in your twenties isn’t going to be counted as part of your estate. Somewhere in between is a boundary, and parliament has set it at seven years. If Mrs Cameron doesn’t make it through until 2018, then the payments to David and his sisters will be included in her estate, and the inheritance tax bill will be increased accordingly. If she does, then they won’t. Are we going to say it is immoral for her to live that long? Or that it was immoral for her to have given them the money so early in her life?
Yet, upon discovering that these gifts were made, Jeremy Corbyn wants these rules looked at. ‘It does actually reduce the level of inheritance tax that is available for the Exchequer as a whole,’ he claims. Well, take a look at the rules here. Which ones would you like to change? Which ones are you convinced are reasonable concessions to honest taxpayers, and which ones are sneaky free-rides to Cameron and his rich mates? Not so easy is it? You could scrap them all, of course, and just make sure everyone pays inheritance tax on everything they’ve ever given their children. But then you’ve got some more problems. How do you work out how much that is? How do you stop the really rich people just making sure they die somewhere else? How do you stop them moving all their assets offshore and becoming ‘non-doms’?
Ah, ‘non-doms’! ‘Offshore’! Those words you’ve heard in other stories like this! Doesn’t it make your blood boil? All those rich people doing stuff we don’t understand that’s probably making them even richer, and stopping them from paying a fantastically disproportionate amount of the national tax bill!
All of which brings us Cameron and Carr. Let’s summarise the Cameron position: He has admitted that in the past, before he was Prime Minister, he owned shares in an offshore company. He sold them, and he declared this on his tax return. There is no suggestion, at the time of writing, that he even attempted to avoid any tax at all, even though avoiding tax would in any case have been perfectly legal (by definition – otherwise it’s called ‘evasion’). As James Quarmby, a tax lawyer at Stephenson Harwood has succinctly put it, ‘What the headlines should read is “man makes a modest investment and pays all his tax”.’ The only reasons that I can imagine making people cross about this are as follows, in increasing order of respectability: a) Cameron is rich and being reminded of this makes us cross (grow up); b) Cameron is Prime Minister, and has to be above reproach, even if that means never even being in the same place, or doing the same thing as anyone who is not similarly above reproach (so he won’t be meeting Putin or King Salman of Saudi Arabia then?); c) We’ve heard about these offshore funds, we don’t know quite what we are, we know that they are shady, we know that bad people use them, and because Cameron used them, it might mean that he is up to no good, and that would be bad because he is Prime Minister. This last is what most of the respectable commentators, such as they are, seem to have been saying. However, it is like saying that he shouldn’t buy Samantha Cameron stockings because criminals have been known to put them over their heads when doing bank jobs. All kinds of companies are registered off shore, for very good reasons, and it is for chartered accountants and lawyers specialising in white collar crime to scrutinise their activities and bring them to book. The current popular response is akin to those two professions being replaced by an ignorant lynch mob carrying torches.
So Cameron was doing nothing wrong and is being vilified for ignorant people thinking that he might have been doing something wrong because they don’t understand it. Jimmy Carr, by contrast, was also doing nothing legally wrong, but the thing he was doing – a scheme known as K2 – was assessed by the Prime Minister as ‘morally wrong’, an assessment which has now come back to bite him. The scheme was a complex arrangement where salaries were paid into an offshore fund, out of which loans were made to the beneficiaries. As they were loans, and not income, because they could technically be recalled, they were not subject to income tax.
So there are those tax lawyers that we met at the top of the piece, using all their knowledge and their understanding, to put something in place that avoids the participant having to pay anything but minimal income tax. Evil bastards defrauding the Exchequer of the funds it needs to get us out of the recession – or sophisticated experts doing their job to ensure that individuals who can afford their services don’t pay any more tax than they are legally required to do. If K2 seems dodgy to you, and it does to me, then the rules need to be changed. The Coalition went one better and introduced the General Anti Abuse Rule, which requires tax arrangements not only to be reasonable, but for it to be reasonable to hold that they are reasonable (a curious version of legal objectivity it seems to me). Now those accountants and tax lawyers are earning their money making sure that their clients’ arrangements meet this standard – which ought, at least, to reduce the K2s in the world.
I don’t know what we would have to do to arrange to pay more tax than we legally have to. If we falsified our tax returns so that they looked as if we earned more taxable income than was the case, that wouldn’t be a fraud, but I suppose it might still be legally wrong. But funnily enough, this isn’t a problem that one ever hears about. If paying as little tax as you have to is morally wrong, then paying as much as you can afford must be morally right. The fact is that neither is the case. It isn’t about morals, it’s about the law, and nothing else.
And don’t get me started on Amazon…