Merryn's Blog

We should crack down on all tax dodgers, not just the rich

The Lib Dems' proposals to investigate the tax affairs of everyone who earns over £150,000 a year are unfair. The low-paid are just as likely to be evading tax.

I have a soft spot for the Lib Dems. And I'm totally with them on the idea that we should try and prevent as much tax evasion as possible. If we close the so called 'tax gap', we wouldn't have to waste so much time worrying about the deficit: it would all but close itself.

However I'm not entirely sure why they have to spend quite so much time demonising the middle classes. Take the suggestion shoved out this week at the Lib Dem conference that anyone who uses legal means to avoid tax is effectively a criminal, and the apparent plans to investigate anyone earning over £150,000 simply because they earn over £150,000. It makes 150,000 people most of whom will be hard working professionals suddenly guilty until proven innocent, and raises the prospect of perfectly innocent people being forced to take lie detector tests simply because they are high earners.

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The whole thing, as George Bull, head of tax at Baker Tilly puts it, is as "ludicrous as it is offensive." It also "continues an unpleasant feature of current UK politics, namely creating hate figures and then using the tax system as an instrument of punishment." The fact is that starting 75,000 new tax investigations a year (to be conducted by £900m-worth of new staff at HMRC) on the basis that a whole section of the British electorate are unethical tax cheats "has no more merit than an assertion that all teenagers should be rounded up because they are drug taking bullies."

It also doesn't make much real sense. Why? First because HMRC already has a set of risk-based selection techniques they use to identify the kind of people who might be underpaying and one which seems to work pretty well. But also because it isn't really clear that the generally law-abiding middle classes are necessarily the ones to go for: they might be avoiding some tax but how many are really evading it in scale?

Anyway what of the lower earning parts of society, the ones the Lib Dems appear to think can do no wrong? Lorna Bourke makes this point well on Citywire. There are, she says, several million people working effectively full time in the black economy, albeit for several different employers. They are technically self employed (or perhaps technically unemployed) and hence liable to declare their own earnings and account for their own taxes.

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Do they? Who knows. But in the South East, "a cleaner could easily be taking home £20,000 a year in cash, all untaxed. An employee on the same salary will pay tax and national insurance of around £4,100." This is obviously "grossly unfair:" why should low income tax evaders have a net income 20% higher than the salaried? And why should the fact that they are low earners make them less likely to be strapped to a lie detector by HMRC?

Sure, the UK would be a better place if the income tax threshold was shifted to £10,000 or £20,000 leaving the average cleaner out of the equation all together but that hasn't happened (yet). We are all legally liable for tax and we should all be paying what we owe, regardless of where we come in the income stakes.

If the Lib Dems manage to get their attacks on the middle class taken on as policy I wonder if they'll also encourage the taxmen, when they are off rifling through the bank accounts of the nation's professionals just because they earn over £150,000, to pop into their kitchens and driveways and have a go at the cleaners and the young men valeting their car just because they might get paid in cash. It doesn't seem very likely does it? The whole thing gives a new meaning to the phrase "one rule for the rich, one for the poor."

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