How the media and the rich collude to fight the poor

In August a blog post on Sir Philip Green being a ‘tax avoider’ over on Liberal Conspiracy started quite a long debate in the comments over whether Philip Green was really doing anything wrong. The two sides of the arguments can be summarised as:

  1. Why should anyone structure their business or their self-employed working practice in such a way as to make sure that they maximise the amount they pay in tax? Furthermore, how many ‘Lefties’ on the other side of the debate have themselves voluntarily paid more tax than they are legally obliged to?
  2. Yes, tax avoidance is perfectly legal and no laws are being broken by Philip Green, however, he goes against the spirit of the law and isn’t avoiding tax accidentally but has had to purposefully set up his business arrangements in order to pay no tax.

Sir Philip Green has volunteered to help the government save money, he believes that as a successful businessman he can save the public sector money – and maybe he can. However, I have a fundamental moral objection to Sir Philip Green or any obscenely rich person deciding that they know what is best for the public sector or the economy in general. Last year Sir Philip Green paid his wife a dividend of £1.2bn, which meant he avoiding paying around £285m of tax. Sir Philip Green dares to lecture us on waste, on overspending of ‘bloated’ public services whilst at the same time he considers £925m in one year just isn’t enough for him and he has to set-up his current arrangement to avoid paying tax.

One of the arguments employed by people supporting tax avoidance is that essentially because it is legal rich people are entitled to avoid paying tax, they are entitled to keep more of their profit. Entitlement is supposed to work both ways, but strangely the wealthy chancellor George Osborne (personal fortune of around £4m courtesy of his trust fund according to Wikipedia) thinks that when poor people access an entitlement they are actually making an unacceptable ‘lifestyle choice‘.

When a businessman like Sir Philip Green avoids paying £285m in tax in one year because he pays his profit as a dividend to his wife who lives in Monaco it is good business. When a poor person claims disability or unemployment benefit it is an ‘lifestyle choice’ and a sign that the benefits system is ‘completely out of control’.

Call me a liberal dreamer, but I think that blatant, obscene tax avoidance is a sign that the system is ‘completely out of control’. Sir Philip Green has made a ‘lifestyle choice’. He met an accountant / lawyer and chose to pay his earnings as a dividend in this way to avoid paying tax. It wasn’t an accident, it wasn’t the freak result of his living arrangements, it was the intentional creation of a system that meant he would pay no tax on his profits. His lifestyle choice was to take home over £1.2bn a year rather than the meager £925m he would have been left with had he paid tax.

Benefit fraud is estimated to cost the taxpayer around £1.5bn a year, Green’s personal tax avoidance makes up around 1/7th of this amount. In respect to benefit fraud George Osbourne has declared:

“This is a fight. We are really going to go after the welfare cheats.

“Frankly, a welfare cheat is no different from someone who comes up and robs you in the street. It’s your money.

“You’re leaving the house at seven in the morning or whatever to go to work and paying your taxes – and then the person down the street is defrauding the welfare system.

“This money is paid through our taxes which is meant to be going to the most vulnerable in our society, not into the pockets of criminals.”

At no point does he talk about tax avoidance in similar terms. At no point does he declare that the tax avoided by Philip Green is ‘our money’, nor does he complain that we are all leaving for work at seven in the morning and paying our taxes whilst Green is elsewhere avoiding his share. Most offensively at no point does he complain that this tax money, avoided by Green and other million / billionaires is ‘meant to be going to the most vulnerable in our society, not into the pockets of billionaires’.

The attacks on ‘welfare cheats’ will be spearheaded by the right-wing press, alongside their normal outrage that even claiming the child benefit and housing benefits that people are legally entitled to are an unacceptable ‘lifestyle choice’. Type ‘welfare cheats’ into Google and you are met with a deluge of outraged newspaper articles – the Daily Mail currently leads the way with 3 articles on the first page. Now type ‘vodafone tax avoidance’. The fact you are now met with a series of links to forums or the occasional blog post speaks volumes about our corporate-friendly media.

If you missed the Vodafone tax avoidance non-scandal,then let the Private Eye fill you in:

WHEN Vodafone bought German engineering company Mannesmann a decade ago for €180bn, it desperately wanted to use the mother of all tax avoidance schemes so taxpayers would subsidise what turned out to be a massively over-priced mistake. The plan was to route the acquisition through an offshore company.

This, however, would potentially fall foul of British anti-tax avoidance laws, and when the company asked the then Inland Revenue to clear the arrangement, it duly refused.

Vodafone went ahead with the scheme anyway and as of March 2009 the Private Eye suggested that they had already moved €15.5bn into the company, avoiding €5bn of tax in the process. However, HMRC had a strong case and were confident that they could get the money back, a case that was strengthened last year when the court of appeal ruled that British laws could conform with European laws. Vodafone were facing a hefty tax bill, but sadly this was not taking into account:

HM Revenue & Customs’ (HMRC) “permanent secretary for tax”, Dave Hartnett, and his customer-friendly approach to big multinationals.

Despite HMRC’s victories, Hartnett moved the case from his specialists and lawyers – dismissed in recent comments to the FT as “very intelligent people” suffering from “a black and white view of the law” – to a dimmer but more amenable group to negotiate with Vodafone’s head of tax, John Connors, who until 2007 was a senior official at HMRC working closely with Hartnett on handling big business.

The fruits of these talks, conducted without consulting HMRC’s litigators and specialists in the tax law concerned on the chance of success in the courts, was a bill for Vodafone of £800m, with another £450m payable over five years and, remarkably, an agreement that the arrangement can carry on into the future with a promise of no challenge from HMRC. The Eye understands that the settlement also swept up several other Vodafone tax avoidance schemes.

The lost tax is reported to be around £6bn and as the Private Eye makes clear: the staff cuts within HMRC are destroying its abilities to fight tax avoidance. In a final insult to human decency the Private Eye points out:

The Tories have further cause to thank Mr Hartnett. As Eye 1136 revealed five years ago, government cuts adviser Philip Green had personal discussions with Hartnett over his tax affairs while legal battles raged over schemes for husbands and wives to share their income for tax purposes. Dividends from Green’s businesses continue to be paid to trusts controlled by his Monaco-resident wife Tina, undisturbed by the taxman.

Doesn’t it seem to you obscene that George Osborne is picking a fight with welfare cheats and cutting benefits for the poorest people in society when the obscenely wealthy pay nothing in tax – legally or illegally – even though they could clearly afford to?

15 Comments

  • Chris says:

    George Osborne…Vodafone…

    Hang on a tick, wasn’t a bloke called George Osborne seen on a promotional jolly in India recently, extolling the virtues of a certain large telecommunications firm? Shurely shome mishtake! etc.

  • I can’t describe how angry and sick this makes me.

  • Briar says:

    Excellent. And so rarely heard. Instead we get the BBC in propagandist mode broadcasting mums all saying the cuts must be made and the chancellor is sooo brave to make them. Just why has the fact that the corporate elite were responsible for the financial crisis been dropped from the narrative? Just why is it always the public spending share of GDP which is blamed? In fact the more of the country’s wealth which is spent on the country’s people, the more democratic this country is. Yet the message put out by the elite’s propaganda outlets is just the opposite. This isn’t just mad, it is criminal.

  • Nadim says:

    This really is an eye opener! I only knew about Philip Green when I was watching “Have I Got News For You”. This Vodafone incident really takes the biscuit. I just wonder why the tabloid press don’t bother reporting on it. I guess they are in the trough themselves. Just like the phone tapping incident. They will happily secretly video someone who is easily corruptible, but when it comes to dealing with anyone on a similar situation to themselves, then it’s all quiet. Remember Conrad Black.

  • Alex B says:

    “Call me a liberal dreamer, but I think that blatant, obscene tax avoidance is a sign that the system is ‘completely out of control’. Sir Philip Green has made a ‘lifestyle choice’. He met an accountant / lawyer and chose to pay his earnings as a dividend in this way to avoid paying tax. It wasn’t an accident, it wasn’t the freak result of his living arrangements, it was the intentional creation of a system that meant he would pay no tax on his profits.”

    I choose to hold a large proportion of my savings in a (tax-free) National Savings Index-Linked Savings Certificate, an even larger proportion in a (tax-free) Cash ISA, and I occasionally buy Additional Voluntary Contributions for my (tax-free) pension fund. A few years ago, I took advantage of a government-sponsored scheme to lease (and eventually buy at a “assumed market value”) a bicycle from by way of salary sacrifice from my gross pay. These were not accidents, or freak results of my living arrangements; it was intentional that I minimised the amount of tax I paid on my savings and income.

    Does that make me, and many other ordinary savers (and some not quite so ordinary) as bad as Green? If not, what distinguishes us from him?

    Tax evasion is already illegal and should be pursued with as much vigor as benefit fraud (which is also illegal). If we are aware that tax allowances are being abused in unexpected ways, then we should close or restrict those loopholes and people using them should stop, or expect to be pursued for illegal tax evasion. Whilst they remain legal, however, I see no moral or legal difference between them and other (legal) tax avoidance methods such as the ones I use.

    • Uponnothing says:

      @ Alex B:

      I would argue that there is a substantial difference between taking advantage of government schemes to encourage saving (cash ISAs) and investment in the stock market (Stock market) which are capped at relatively low amount to creating complicated and frankly dishonest business ownership structures in order to avoid tax.

      Furthermore, tax is not paid on pension contributions, but tax is recovered eventually because pensions are taxable when they are being paid back to the person, again, this is a government created incentive to encourage people to pay for their own retirements rather than rely on the state picking up the tab.

      And a final point: any money you put into an ISA (whether cash or stocks and shares) has already been subject to income tax, so the only tax you are avoiding is the tax on interest, which, given the relatively modest sums involved with the majority of ISA holders is a pittance anyway.

      All of these vehicles have been created by the government to encourage responsible saving for retirement and to help buoy a fragile investment market. The government still knows that the vast majority of income received by the average person is taxable because you cannot put all of your salary into pension contributions because you need the money to live on and it is therefore subject to income tax.

      Furthermore, the person putting money into an ISA is unlikely to be creating a personal tax arrangement in which all of his salary is paid to a wife living in Monaco in order to avoid tax.

      Politicians claimed expenses according to the law, yet the press and public happily went after them because some claims were not considered to be following the spirit of the law, or in blunt terms were really taking the piss. So why not admit that arrangements like Sir Philip Green’s are against the spirit of the law and are not set up by the government in order to help the average person save a few quid and save to pay for their retirement.

  • James says:

    @Alex B,

    “I choose to hold a large proportion of my savings in a (tax-free) National Savings Index-Linked Savings Certificate”

    Good. You’ve loaned that money to the government rather than a bank. The bank would have taken that money and invested it in an attempt to make a private profit. The government (in theory) takes that money and attempts to invest it for the good of society as a whole. In recognition of the fact that this investment has already contributed to the exchequer, you are not taxed on the interest earned. Seems pretty fair to me. What contribution are Phillip Green’s tax arrangements making to UK Plc?

    “…an even larger proportion in a (tax-free) Cash ISA, and I occasionally buy Additional Voluntary Contributions for my (tax-free) pension fund.”

    These are both ways in which the government has tried to make it advantageous for people to save for their own future/retirement. Without such incentives, no rational person would bother and either the government would be forced to provide for ALL pensioners, or nobody would be able to retire before death. So once again, you are helping the country as a whole by helping yourself. Mr Green’s arrangements cannot be so characterised.

    “A few years ago, I took advantage of a government-sponsored scheme to lease (and eventually buy at a “assumed market value”) a bicycle from by way of salary sacrifice from my gross pay.”

    I can’t think of any advantage to society of more people exercising regularly or of more people cycling to work rather than driving…oh, wait a minute…yes I can. Healthier people cost the NHS less and have fewer sick days (costing you and your employer less). Fewer cars means less congestion and therefore less pollution and easier movement of goods, meaning a more efficient economy.

    On the other hand, Phillip Green has a luxury yacht in the mediterranean, partly financed by his tax aviodance. I really am struggling to link that to any benefits in the UK. Perhaps you could help me?

  • Alex B says:

    @Uponnothing:

    Glad to see that you, at least, don’t regard ordinary savers as tax avoiding scum. Though I do wonder about some of the reporting which often lumps together evasion, legitimate tax planning and the know-it-when-I-see-it grey avoidance usually to make scapegoats for party political purposes.

    “[A]ny money you put into an ISA (whether cash or stocks and shares) has already been subject to income tax, so the only tax you are avoiding is the tax on interest”

    Ah, but one could make the same point of Green’s business interests; he probably started those businesses off using retained earnt income (which was presumably net of income tax), investment income (presumably net of capital gains tax) or inheritance (which would have been subject to at least inheritance tax, and maybe other taxes paid by the estate prior to inheritance).

    “All of these vehicles have been created by the government to encourage responsible saving for retirement and to help buoy a fragile investment market.”

    One could make the point that governments maintain the tax loopholes that they do in order to buoy employment and economic production, not to mention other interests (Ever wonder why Vodafone gets an awful lot of public sector contracts, and why they’re apparently more co-operative than some other telcos with respect to data retention for law enforcement purposes? I do). Not to mention the pragmatic point that it’s better to get 20% of something (big) than 50% of nothing at all.

    “Politicians claimed expenses according to the law, yet the press and public happily went after them because some claims were not considered to be following the spirit of the law, or in blunt terms were really taking the piss.”

    Politicians’ expenses were (in the most part) compliant with the spirit of the law also. It was only the spirit of Parliamentary guidelines that they broke. Remember this was also in the context of MPs being encouraged to claim the absolute maximum because *every* government had found it politically inconvenient to keep the basic salary adjusted in line with inflation and London living costs.

  • Alex B says:

    @James

    “What contribution are Phillip Green’s tax arrangements making to UK Plc?”

    You’d need to ask him that to get a precise answer (I’d be quite interested in personal *all* tax returns being a matter of public record, as in Norway), but I’d suggest that at least some of his business interests are contingent upon him being able to continue to arrange his tax affairs as he does currently. Many are consumer-facing and so raise VAT for the government. Those businesses are hopefully also profitable and therefore pay some Corporation Tax as well as the Employer’s NI, not to mention providing employment for people who then in turn pay income tax, NI and spend their wages on VATable goods and services.

    Maybe I’m wrong, and we could change some of the rules, and Green and his ilk would not reduce their investment in UK business. If so, we probably should (I’m a believer in progressive taxation, and I’m playing Devil’s advocate in this thread, to some extent). But to complain that someone shouldn’t arrange their finances in such a way as to *legally* minimise the amount of tax they pay is futile, in my opinion.

    “Phillip Green has a luxury yacht in the mediterranean, partly financed by his tax aviodance. I really am struggling to link that to any benefits in the UK.”

    Lots of frivolous (and some might say – expensive) things I own and consume provide no net benefit to the UK. This sounds more like the politics of envy to me. Do you feel the same way about the material possessions of premier league footballers, pop stars and celebrities?

  • James says:

    @Alex,

    My point was more about your comparison of your own tax-related investment arrangements with Phillip Green’s. You presumably receive the salary which you try to invest tax-efficiently because you contribute something to the economy/society through your work. Since you’re already contributing in this way, why should you be taxed on the compensation you receive for that contribution? That’s seems to me the logical equivalent of the (Devil’s Advocate) argument you’re making for Green.

    I do envy Green his yacht, but it has no bearing on my opinion of his tax arrangements. I only picked it because it’s a form of transport and leisure, like your bike, and partly funded through tax breaks (at least as much as any part of his lifestyle is), like your bike.

    You asked if your personal tax planning made you as bad as Green and if not, what the difference was. If you’re playing Devil’s Advocate, presumably you wanted someone to point out the differences? That’s all I was doing.

    Hope that helps ;)

  • Zoe Williams has an excellent article on this issue in today’s Guardian, pointing out the true scale of “benefit fraud” in relation to the huge losses caused by mistakes at HMRC and DWP: http://www.guardian.co.uk/commentisfree/2010/oct/20/benefit-cheat-stigmatising-slanderous

  • Matthew says:

    @Alex,

    It’s sort of been said but the basic difference between what you describe and the idea of tax avoidance is that those were all set up with the intention that they be tax-free schemes. Tax avoidance centres around breaking the spirit of the law – doing things that were intended to be taxed but, thanks to elaborate and byzantine mechanisms of ownership and legal fictions, getting around the way the law has been framed.

  • Alex B says:

    @Matthew

    Ah, but if that’s the case, then all it takes is for some future government to say “The intent was never for people to have more than a few hundred pounds [or whatever] in an ISA”. This would go against the important principle of not making retrospective changes to law.

    If there’s a problem, look into changing the law. Of course, doing so may come with undesirable consequences which may cancel out the advantages of doing so.

  • Alex B says:

    @James

    “You presumably receive the salary which you try to invest tax-efficiently because you contribute something to the economy/society through your work. Since you’re already contributing in this way, why should you be taxed on the compensation you receive for that contribution?”

    I’m sure Green and others like him would use the same defence. And who’s to say my work is more or less valuable to society than his?

5 Trackbacks