How Jimmy Carr, Starbucks and the rest reminded us you can be filthy rich yet morally bankrupt
You can hardly blame rich people for trying. Before 2012, every year was a good year for not paying your tax – it was easy, it was legal and someone else did most of the paperwork. Then suddenly the government decided to make tax avoidance a moral issue, rather than a strictly legal one, and celebrities with shrewd accountants were fair game. Tory donors, less so.
Gary Barlow and the rest of Take That were accused of avoiding tax through an investment scheme. Comedian Jimmy Carr, who made jokes about bankers not paying tax, was found to be channelling his earnings through a Jersey company to the tune of £3.3m a year. The money was then lent back to him, sparing him the burden of income tax. “I just think this is completely wrong,” said the prime minister of Carr and others. It’s also unattractive.
More recently, multinationals including Amazon and Google were lambasted for paying less than their fair share of tax, using complex arrangements to funnel cash through European subsidiaries. Starbucks, which technically hasn’t made a profit in the UK for the last two years, was so stung by the bad publicity surrounding its financial arrangements that the company agreed to pay £20m in tax voluntarily. But if you don’t legally owe it, it’s not really tax. It’s just a donation, handed over through gritted teeth to rescue the brand’s reputation.
There are two big problems with turning tax avoidance into a moral issue. First off, it’s too complicated. It’s difficult to remain outraged by something that needs to be repeatedly explained to you – very, very slowly. When public accounts committee chairman Margaret Hodge claimed that the public would consider certain tax schemes “completely and utterly and totally immoral”, she was perhaps overestimating our willingness to get to grips with exactly how they work.
Second, it might be scummy, but it’s not illegal. If our only weapon against tax avoidance is an appeal to the better natures of corporations and billionaires, we’re in trouble. As Justin King, the chief executive of Sainsbury’s, put it, “Corporation tax is, to all intents and purposes, an elective tax. Quite legally, companies can choose in which country they want to pay it.” Unlike the rest of us, corporations conduct their business with the Revenue through litigation and negotiation. Tax breaks become tax scams when the taxman decides to close the loopholes that gave rise to them. By then the accountants have already moved on to new loopholes.
It wasn’t so many years ago that people refused to pay their tax out of a sense of moral duty. Protesters wouldn’t pay the poll tax, for example, because it was unfair. Nowadays people only avoid tax in order to keep more of their money.
The idea of paying tax as a moral, as well as a legal, obligation definitely has some weight – the effect of public opinion on Starbucks’ balance sheet has shown us that – but how much tax is good enough? If you disapprove of the top rate of tax being lowered, should you continue to pay at the old rate? Will you pay as much tax as you morally owe in 2013? How much is that, exactly?
See also in finance
• Fiddling your expenses, Denis MacShane.
• Fixing the Libor rate.