This avoidance culture is taxing, we need to change it

This latest bout of HSBC tax revelations was shocking only because it was predictable. We have been here before and the propensity for government inertia on this is legendary. The last tax avoidance scandal, in January 2013, saw David Cameron pontificate:

“We do need a debate in this country, not only what is against the law… but what is unacceptable in terms of really aggressive tax avoidance.”

Yet nothing seems to have happened. Worse still, it is not ‘really aggressive tax avoidance’ that needs debating anymore. If everyone is up to a little ‘vanilla’ tax avoidance, as Lord Fink thinks everyone is, then something more fundamental is wrong.

Labour are right to set out plans to shake up the culture and rules by which HMRC does its work. Research by Richard Murphy, has put the cost of tax evasion at around £85bn and tax avoidance at £19bn. That is a huge amount, and HMRC need to toughen up in tackling this.

Yet tougher action alone will not be enough. Perhaps we need to give people a stark choice: We will cut the incentives to avoid tax by increasing opportunities for people to place their wealth where it will be productive, in exchange for a reduced tax rate, but there will be tougher penalties if you aggressively avoid the tax you owe.

Since Labour unveiled the ISA scheme in 1999 it has been a clear success, with 13.5 million ISA holders placing £57bn in tax-efficient savings. Schemes like this could be used as a template to enable people to simply invest their wealth in a way that benefits this country directly. Why can’t we encourage more tax-efficient Government schemes that allow people to invest in homes, innovation, health and education? Perhaps something like a London Bond, so that those benefiting from the enormous wealth the capital generates can invest in its continued growth.

Most people can see the difference between ordinary wage earners investing some money in an ISA and the rich, individuals and corporates alike, squirrelling away their wealth in ever-more elaborate schemes off-shore schemes. So let’s think about how we can direct people to make more productive choices about where they place their wealth.

Part of this also means challenging the idea that it is ok to avoid tax because of this narrative that tax funds Government waste. Over in the US politicians like Elizabeth Warren have been frank about why paying tax is important. Her “There is nobody in this country who got rich on his own — nobody” is not just an appeal to do what is morally right, it articulates something often missed. Taxes support economies by paying for little things like education, road improvements and science budgets. Without UK tax receipts there would be no £1bn to invest in broadband infrastructure improvements, £1.1bn in science investments or £10.4bn for improvements to the transport network.

We need to reset the culture around how we view tax in Britain – but we also need to change the nature of the game itself.