The stifling impact of being run by so-called “moderates” continues. On the BBC TV this morning, the programme is leading with the fact that a government finance minister, some hopefully soon-to-be-gone creature called David Gauke, is attacking people who have ever paid a builder, plumber or garage mechanic in cash so as to avoid paying VAT. Mr Gauke told his TV interloctor, in words that may haunt him, that he has never done any such a naughty thing, oh no.
The context for this is that the UK government has recently announced a campaign against what it defines, with worrying vagueness, as “aggressive avoidance” schemes. Not just “avoidance”, which is what happens if you hold a tax-advantaged fund such as a Self Invested Personal Pension, or if you do not smoke (avoiding tobacco duty), or don’t drive (avoiding petrol tax) or drink (etc). No, “bad avoidance” is if you structure your financial affairs in such a way as to pay as little tax as you can do so without actively defrauding anyone. An interesting notion. As we know, the UK comedian Jimmy Carr was recently hit by exposure of his tax-planning, and other celebs and sports folk have sometimes got into similar sorts of arrangements.
In as much as governments need to exist at all – and I am not an anarchist – there is a legitimate argument about the least-bad way to do this, and the simpler and flatter the tax regime is, the better. A huge chunk of this tax planning industry from which people like Jimmy Carr make use would vanish in a puff of smoke if our system was overhauled on the sort of lines recently proposed by the 2020 Tax Commission.
The trouble with the stance taken by Mr Gauke is that he presumes that there is some correct chunk of our wealth to which the State has presumed to take a share, and that any action we take to avoid tax might increase the tax burden paid by our fellow citizens. But what this man seems to ignore is, a), that an economy is not a static pie where my action must negatively affect someone else (that old zero-sum problem again), but an economy is something can grow through mutually beneficial trade, and that that, b), in a tolerably free society, the level of tax that citizens will pay has its limits, even if people don’t go in for some of the more artificial wealth structures to minimise tax (bearing in mind that it costs money to get an accountant/lawyer to set these schemes up).
Also, suppose that, instead of getting a builder into do a bit of work for cash to smarten up my flat or tackle an issue, I try and get a mate around to do the job for me in return for buying him a nice bottle of wine or editing some material for him/her? Is this not also wrong in the eyes of Mr Gauke? I guess it is. Even before I have done anything, the State is saying: “I want a piece of whatever action you engage in”. Taken to extremes, this penalises work over leisure. It is not surprising what the results are.
At root, this is a matter of basic political philosophy. In the main (there are exceptions), the current Conservative Party and its Liberal Democrat coalition partners subscribe to a deeply paternalistic, communitarian outlook of the sort that Barack Obama, in his recent communitarian-leaning “you did not build that” speech, could identify with. This is also a sign of how under Cameron, the Tory party has reverted to the older, more trade-disdaining traditions of old and away from its Thatcherite strains. How’s that working out for us?
People who make a living by getting paid in cash to fix windows, respray cars or mend pipes are not an evil. In the vast majority of cases, they are doing something about which someone like David Gauke, David Cameron or Barack Obama have been ignorant of all their lives: earning a living, and providing people with goods and services in a free market. They might as well try and understand life on Mars. It is shame we can’t send them there.
Update: The Daily Telegraph weighs in. It is not impressed by Gauke.
Why do so many good old houses (and other buildings) get left to decay?
One reason is the 20% tax on repairs.
This government minister does not see taxes (i.e. money taken by the threat of violence – and used to pay his wages) as immoral – oh dear me no.
Nor does he care about the cost of goods and services – a 20% sales tax is nothing to someone who can claim things “on expenses”.
“But if everyone paid their taxes tax rates would be lower”.
If anyone really believes that, I have a nice bridge to sell you.
The government only last week announced nine billion in railway spending and FIFTY BILLION in corporate welfare (sorry “loan support”).
No matter how much money they had they would (to adapt Violent Elizabeth Bott) “spend and spend until I am sick”.
All the while pretending they are following a policy of “cuts” and “austerity”.
It is government ministers (such as this maggot) who lack morality.
They will carry on spending till the entire system collapses – and they will still be screaming that if only people had paid more in taxes…..
“But what is the alternative?”
Spend less.
Guernsey does not have VAT – not 20%, not even 1%.
“But Guernsey is a major financial centre”.
It was not before World War II – and back then it had virtually no income tax either.
“But Guernsey was not a Welfare State back then”.
EXACTLY.
“There is such a thing as society – it just is not the same thing as the state”.
I remember someone saying that – the boss of this minister.
But the Prime Minister seems to have forgotten his own words (if he ever meant them).
Apparently his wife is a lawyer specialising in tax avoidance. All completely legit, of course, but where does it come on the morally repugnant scale? Is it only repugnant if the leetle peeple do it?
When an amateur avoids tax, it is morally repugnant. When a professional does it, it is “tax planning”.
Had a discussion about this idiotic commentary with a few expats yesterday evening over beers.
General feeling is that by increasing VAT to penal levels the government has brought this on themselves. Equally, it should be remembered that a self employed plumber has to have a turnover of £73,000 per year before they even register for tax (although many do register so that they can reclaim input tax), so outside of the South East of England how many plumbers are actually VAT registered.
Throughout the discussion the point about MP’s charging their household bills, food and duck ponds to parliamentary expenses was brought up several times. If that is legal, but morally unacceptable what is the difference?
This all has shades of John Major’s back to basics campaign and needs to backfire on the coalition in the same way. How long before an MP gets outed for paying his nanny in cash to avoid the PAYE burden? I’m guessing sometime tomorrow.
Going off on a slight tangent towards the ‘you did not build that’ nonsense, which of these scenarios most closely resembles our experience?
a) Government, in it’s wisdom, decides that a road/railway/airport/internet will increase trade and therefore wealth in an area and, using money collected from the citizens, sends an army of bureaucrats to build said infrastructure.
b) Citizens/businessmen petition government to have a road/railway/airport/internet built in order to increase trade/wealth. Government sends an army of bureaucrats to deny permission to build said infrastructure until a massive, (and expensive), series of hoops and hurdles has been jumped through and over and then sets up an endless series of inquiries, tribunals and consultation exercises which delay the completion of said infrastructure for as many decades as possible.
c) Citizens/businessmen petition government to have a road/railway/airport/internet built to no useful purposes whatsoever. Government sends an army of bureaucrats to seek kickbacks, shady deals, votes, etc.* and if all their needs are met the high speed railway to nowhere gets built.
So for those people like Obama or Warren or Gauke, (and what’s a Conservative minister doing reading from the same page as that pair of socialists), who think that all the wealth created is theirs and they let us keep a bit out of kindness and then we ungrateful plebs try and keep some more of their money, at least try and demonstrate a modicum of propriety, a minimum of competence and a tiny portion of humility before you start slagging us off.
*etc. being “Funny enough, my brother in law has a building business which can do the job nicely.” “My Dad has some land which is ideal for the purpose.” “I’ll be retiring/kicked out in a few years time, a nice non-exec directorship will be most welcome” etc. etc.
Around five or so years ago the Isle of Man reduced VAT to 5% on permanent repairs/additions to property.
A couple of years later the then Chief Minister said that, at 5%, the government had taken in more actual money than when it was at 15 or 17.5 percent.
He followed the announcement with the remark that people don’t object to paying a fair tax.
I expect that it’s hardly worth the effort of avoiding it also.
The 5% rate remains to this day.
did it ever occur to him that a lot of small scale builders/handymen might not have sufficient turnover to pay VAT? Median UK income – about £26,000. VAT threshold £75,000. (Yes, I know t/o is not the same as earnings.)
And they probably don’t wan the hassle of bouncing cheques/n or bank charges.
Asking the builder to take cash for knocking the VAT off the bill is not tax avoidance, its tax evasion, by both parties, though in practice one assumes the builder would normally get prosecuted, not the householder. Ergo its as immoral as any law breaking is.
Tax avoidance on the other hand (a plumber keeping his turnover below the VAT registration threshold so as to be able to not charge VAT for example) is entirely legal. So I fail to see how it can be immoral. If the law allows it, and its immoral, the law is immoral, not the person availing themselves of that law. If David Cameron doesn’t like Jimmy Carr’s tax scheme, change the law, not call him names.
I’m glad this Minister has come out and said this. Because it now puts the ‘tax avoidance is immoral’ brigade on the other side of the fence from everyone else. Pretty much everyone, certainly the vast majority of people, have paid cash to people knowing it wasn’t going to be declared, or have done little jobs ‘on the side’ of their normal PAYE jobs. Calling them all immoral has inoculated them against other claims of tax avoidance by other perhaps more deserving targets (Jimmy Carr et al).
Incidentally most of the people I talked to about Jimmy Carr were of the opinion ‘I’d do the same if I could’. I don’t think the bien pensant brigade realise how hated taxes are among the tax paying classes, at all income levels.
Does this mean if you repair your house yourself, you are “avoiding taxes”?
Are you cheating the state out of “their cut” by not hiring someone ?
John Galt:
Exactly what I was wondering. It seems to me there are two possibilities.
One is that doing something for yourself is “tax avoidance,” they just haven’t figured out how to tax it yet. Although, when you consider that a person who’s paid to do the work has state-mandated worker’s insurance, state-mandated holidays, and so on, one could argue that DIY work is already taxed.
The other is that there’s something fundamentally different about work that’s done under a contract between two parties that makes taxing it more “moral” than taxing something you do for yourself. But I don’t know what that would be.
The question he was asked was, “Have you ever paid a tradesman cash…to avoid tax?” The question he chose to answer was that he had never asked a tradesman for a discount for paying cash.
On the subject of the morality of taxes, I’d like to do a little survey. For this discussion we’ll assume that taxes are morally acceptable to begin with; I just want to focus on the relative objectionable-ness of different kinds of taxes.
It seems to me that, of three basic kinds of tax — income tax, sales tax, and taxes on wealth (such as property tax) — the most objectionable is taxes on wealth, and the least objectionable is sales taxes. I’m interested in what order other people would put them in, and why.
It’s mostly an intuition, but I do have some reasons for putting them in the order I chose. Taxes on wealth are the most objectionable because (a) you’ve probably already been taxed on the transactions that allowed you to obtain that wealth and (b) assets are the last refuge you have in opting out of the whole tax regime. Taxes on sales are the least objectionable because they can be avoided by simply forgoing consumption, and because they encourage saving.
A colleague of mine, hearing me talk about this, defended Gauke by saying that Gauke objected to people offering a discount to anyone paying cash rather than some more “acceptable” fashion. Well, obviously, if a person pays cash and the businessman/woman does not need to declare it because there is no paper trail, then the VAT amount will be taken off the price.
I suppose the argument there is that it would be more moral for the person to either pay a higher price for a piece of work or not do it at all. Many will take the latter course, particularly when budgets are tight.
As my colleague pointed out, though, a regular, reputable business that takes in less declared income than HMRC thinks it ought, given its assumptions about the business, could still find itself in trouble.
The basic underlying problem is that with taxes at such levels, it is hard for good people to be fully “honest” with the state.
Quite so and…
…as it is not immoral to break most laws, merely illegal… ergo I really have no problem with tax evasion or tax fraud or anything that stops me from getting my money confiscated by the actual immoral parties involved. Tax evasion is no more immoral than hiding from a violent mugger.
“Ergo its as immoral as any law breaking is.”
I agree completely with James Trevelyan’s take on this. This gets to the malum in se versus malum prohibitum dichotomy: the former is inherently wrong (murder, theft, etc.) whereas the latter is “wrong” only because some law says it is. Taxation is in the latter category. Personally, I feel that it is not only right, but borders on being a moral imperative, for people to minimize the amount of taxes they pay, especially when governments have grown as huge and intrusive as ours have. It is our obligation to do our best to starve the beast.
Legally, the line is drawn between “avoidance” (legal) and evasion (illegal). But to me the only meaningful line is the likelihood of being caught and the severity of punishment if you are.
Why would anyone expect anything either sensible or liberal from “Retrospective Taxation” Gauke ? I do hope that his gruesomely opportunistic political career will reach an ignominious end once Cameroon and Osborne meet their even better deserved nemesis.
And add the “extra” banking credit card, checking fees
that financial folk drool over in the pursuit of cashless,
fully monitored, electronically “attachable” socioty.
Of course, paying in gold is FORBIDDEN! (US)
Imagine the SHOCK from those nice (US)folk who spent an astonishing “premium” for “beta” electric/hybrid autos, only to have “green” politicians slap on a
“You’re NOT using enough (taxed by the gallon)petrol” tax. I think it’s higher than the special “fuel users licence tax” for folks with diesel motor personal automobiles.
Yes, imagine my surprise when my property was going to be assessed a (I s**t you not) view tax, based on the determined dollar value of the panorama of the
(somewhat ironic) Moat Mountains. The tax scheme was defeated, only to appear camoflaged in the “new property assessment” rates for the purpose of taxes.
The no.1 reason small businesses go broke is cashflow. ie. people delaying paying their invoices. If someone has done a good job for me I am happy to pay cash. Insisting on paying some other way and giving the banks a cut just because Mr Gauke says so is morally repugnant. I wish we had a government on the side of small businesses rather than the parasite class.
Cash is legal tender, a cheque is not.
A tradesman or anyone else has a perfect legal right to **insist** on being paid in cash.
Quite correct Ben. There is no legal right to insist on paying by cheque or debit card.
If someone wishes to be paid in cash that is their affair – as is the payment (or nonpayment) of VAT.
Kevin B.
“Why is a Conservative reading from the same sheet as socialists like Obama or Warren/”
I do not know whether this minister is a “Conservative” or a Lib Dem (hard to tell the difference as Cameron and co are Lib Dems).
But I can tell you why a “Conservative” would be reading from a socialist platform.
Because they are really Conservatives.
If someone really does reject socialism the media call them “far right” (to smear them as Fascists – which is a sick joke as the Fascists were socialists).
For example, this week’s Spectator magazine has a front cover article supposedly attacking Barack Obama.
If one reads the article (which I did – yes I know, stupid of me….) it actually claims that the Republican party was taken over by the “far right” (undefined) and that Mitt Romney can only become a “great President” by being, in office, “the worst nightmare” of this sort of Republican.,
As the “worst nightmare” of conservative Republicans is socialism, the meaning of this article is clear.
Work like a dog to get rid of the socialist Obama – only to have a socialist Romney take his place, or at least a nonsocialist Romney who will (for the sake of “moderation”) continue to allow the establishment elite (the university crowd, “mainstream” media and so on) impose socialism by the installment plan of Fabianism (or “Progressivism” as they call Fabianism in the United States).
Actually I think that is too grim.
But then I thought when David Cameron talked about “social justice” he did not really mean it.
Then he started handing out copies of Cass Sustein’s “Nudge” book to ministers.
And not as a warning – but as a plan of action.
Why are the establishment elite (such as the person who wrote the cover article for the Spectator) so utterly evil?
I do not know, but I do know we do not have to wait for the next world to see justice (of a sort) being done.
Their insane policies (the credit bubble financial system, and the out of control Welfare State) will lead to collapse – and the collapse will be soon.
In 2013 this will become obvious – regardless of who is elected President.
“But Paul, vermin such as the Specator writer will escape to some private island – while you starve to death in the gutter”.
I know that – but at least they will see their dream die. No more “food stamps” no more “free” (taxpayer fianced) health care (Medicare, Medicaid, let alone forceing private ERs to hand out “free” care as the 1980s Act does), the collapse of the whole system.
I did not say that there would be full justice – only justice “of a sort”.