The changing view of tax

Aggressive tax avoidance schemes are unfair, and cost Britain billions in lost revenue. It's time we tightened the rules, says Merryn Somerset Webb. How hard can it be?

Is it OK to avoid tax? Not long ago the majority of people might have agreed that it was. After all, as along as you aren't doing anything illegal (ie, evading tax), what business is it of anyone else's?

That view is changing. In his budget, George Osborne said he regarded "aggressive tax avoidance" as "morally repugnant". He then made a brave attempt (since failed) to force Britain into a minimum universal income tax rate by capping the level of tax reliefs any one person can claim. The press then picked up on the scandal of public-sector employees avoiding national insurance and cutting their overall tax bills by having their salaries paid via companies.

This week things have moved further, with a cover story series in The Times headlined 'The Tax Avoiders'. The paper claims that avoidance costs Britain £4.5bn a year; exposes a particularly aggressive scheme apparently used by comedian Jimmy Carr to make his income-tax liability vanish; and has a go at the tax affairs of Take That too. I'm with The Times on this one. Why should Carr be allowed to channel his income via Jersey to avoid taxes when he lives, works in and benefits from Britain?

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Why should pop stars get away with using partnership structures as tax shelters while the rest of us finance the infrastructure around them? Surely, whatever you feel about how the state spends our money, it doesn't make sense that, as The Times claims, "thousands of wealthy people in Britain pay as little as 1% income tax using below-the-radar accounting methods"?

So it should be good news that not only is HMRC clamping down on evasion via its various tax amnesties, but that in his budget Osborne also said he was to start consulting on a 'general anti-avoidance rule' (GAAR). I'd liked the sound of that, in that it suggested a blanket ruling out of all kinds of obvious avoidance: so anyone running a charity for their own purposes could perhaps be forced to pay up just as much as someone in a Carr-type Jersey scheme.

Sadly, it isn't going to be quite like that. The consultation is now not for a general scheme, but one covering "abusive schemes". Why? Because anything wider would also affect "responsible tax planning". But why is tax planning different to tax avoidance? They are surely the same thing efforts not to pay the same tax as everyone else. If Osborne could bring himself to ignore the vested interests around him he might find this less complicated.

He needs to simplify the system, knock out all confusion, then introduce a proper GAAR that prevents the entire spectrum of what accountants like to call tax planning and we call "landing the rest of us with the bill". Having done that, he can then use the savings to cut overall tax rates. If history is anything to go by, that will pretty much instantly raise his revenues. How hard can it actually be?

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.