Right on cue, at the start of their party conference, Lib Dem Ministers are talking tough about a new crack-down on tax avoidance.
People will be forgiven for thinking they’ve heard it all before because they have – at last year’s Lib Dem conference and the year before that too. But what matters is not the rhetoric in the conference hall, but the action in government departments.
Tax avoidance must be properly addressed. Society clearly suffers from a failure to collect its taxes due and it is the majority of people, who pay their dues and rely on good public services, who lose out when some individuals and businesses shirk their responsibility to pay their fair share.
That is why Labour in government worked so hard to clamp down on tax avoidance. The High Net Worth Unit at HM Revenue and Customs, which announced this week that it has exceeded its targets to bring in £200m a year, was set up in 2009 by Labour in government.
We also brought in powerful new tools forcing tax lawyers to tell HMRC if they spotted a loophole, before they could use it. That scheme has identified more than 2000 avoidance schemes and saved £12.5bn in avoidance opportunities since it was introduced.
There is much more to do to build on that work, but despite the rhetoric the government’s actions have fallen short. A backbench debate in the House of Commons last week revealed just how weak the government’s actions in this area have been.
Ministers had no answers to why HMRC, the tax collection agency, is having its budget cut so deeply, by 16.5 %, and losing an extra 10,000 staff cut by 2015. The government does not seem to understand that cuts which go too far and too fast at HMRC risk being a false economy.
They also failed to explain why the tax avoidance measures which were, apparently, the Liberal Democrat contribution to the last Budget were projected to yield just £265m – a fraction of the amount normally recovered each year.
The real story is that the Liberal Democrats were palmed off with platitudes in exchange for supporting a £3 billion cut in the top rate of tax. This was a £40,000 tax cut for thousands of millionaires, while millions of families and pensioners were asked to pay more.
The debate also highlighted the shambles over the Liberal Democrats’ much-hyped scheme, the General Anti-Abuse Rule (GAAR). With its stated aim as being to clamp down on anything not “reasonably regarded as reasonable”, you can see why people have been left scratching their heads to understand it.
Top HMRC officials have claimed it could actually lead to more tax avoidance not less, because it is so unclear. MPs also pointed out that the Treasury’s own impact assessment concludes that the yield from the GAAR will be “negligible”.
The government’s tough talk on tax havens was exposed too. The new deal with Switzerland to collect tax on hidden British millions was ripped to shreds, with the total anonymity it will continue to allow tax dodgers, as well as the ample opportunities it gives them for opting out altogether. Labour MPs pointed out that agreements drawn up with other countries under the last government, for example with Lichtenstein, were much tighter.
And the government is making changes to corporate taxes which some fear will lead to more avoidance – and could cost developing countries billions by making it easier for corporations based here to avoid tax there – without doing the basic work needed to assess the risks of that approach.
So for all the tough talk at the party conference, it’s actions that matter. Nick Clegg and Danny Alexander are senior Ministers in this government and they must take responsibility for what it does – whether that’s on the economy, tuition fees or tax avoidance.
After so many broken promises people will judge the Liberal Democrats on what they do, not what they say.
Catherine McKinnell is Labour MP for Newcastle upon Tyne North and shadow exchequer secretary to the Treasury