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Minister urges caution as peers denounce ‘socially useless’ tax avoidance

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The tax avoidance question is ‘critical’, particularly in the current economic situation, but the subject should be kept in perspective, a Treasury minister said yesterday after a Labour peer warned that a ‘socially useless tax avoidance industry’ could harm the performance of the economy.

The debate came as Nick Clegg declared that the coalition was ‘calling time on our unfair and out-of-whack tax system’. The Deputy Prime Minister, speaking at the Resolution Foundation, noted that ‘tales of tax avoidance are filling our newspapers every day’.

Every politician now has a simple choice, he said. ‘Do you support a tax system that rewards the hard-working many? Or do you back taxes that favour the wealthy few?’

A handful of speakers addressed an almost empty chamber in the 45-minute House of Lords debate. Lord Sassoon, the Commercial Secretary to the Treasury, observed that ‘a considerable degree of heat’ generated by the opening speakers ‘may occasionally have obscured the light’.

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The Liberal Democrat peer Lord Dykes said there was widespread public concern that ‘improper tax avoidance is widespread in the UK’. Conservative colleagues in the coalition seemed more interested in cutting benefits than tackling ‘tax dodging’.

His Liberal Democrat colleague, Lord Phillips of Sudbury, claimed that there were ‘tens of thousands of lawyers and accountants who do nothing but avoid tax for their highly paying clients’.

The vast majority of British accountants and lawyers tried to play fair but they were ‘under pressure’ , he said, because ‘an increasing number of professionals will stretch the law beyond reasonability and will take artifice to byzantine and ludicrous lengths’.

Phillips warned that there was ‘a quite staggering disconnect’ between those who work in the City of London and ‘civic society at large’.

Lord Eatwell, Labour's Shadow Treasury Minister, said the Commons Public Accounts Committee's report into tax disputes, published in December, revealed ‘what can only be described as a scandal’. The report demonstrated, he said, ‘a quite extraordinarily cosy relationship between HMRC and major companies in the determination of tax liabilities’.

Competitive advantage could be gained by companies that ‘go down the tax-abusive route’, he argued. Firms attempting to take a ‘high moral stand’ might be ‘eliminated from the marketplace’.

‘All must join the race to the bottom. Tax avoidance by businesses therefore undermines certainty, forces firms to adopt the tax-avoidance policies of the lowest common denominator, undermines any perception of fairness in the tax system and imposes a dead-weight loss on the economy by spawning a socially useless tax avoidance industry,’ he said.

Eastwell said confidence in the tax system was fundamental to democracy. ‘If confidence in the fairness and probity of the state is lost, effective revenue raising is undermined.’


For the government, Lord Sassoon said it was ‘more important than ever and fair’ that everyone paid their fair share of tax.

‘But we have to remember that we must keep this country competitive. We are competing in a global economy, so we have to have a tax regime that is competitive for business, is fair for individuals and incentivises individuals to get off benefits and into work.’

The tax avoidance question was critical, he said but ‘we have to remember the wider context in which it operates’.

Sassoon confirmed that the government was exploring the option of a general anti-avoidance rule and was ‘actively discussing’ the implications of Graham Aaronson's report with businesses and tax professionals.

‘We will respond to the report at the Budget and set out our plans if appropriate. We have said clearly that we would not introduce a GAAR without a further formal round of public consultation, so that is very much a work in progress.’

Sassoon said that the way in which HMRC engaged with the largest taxpayers ‘proactively’ to identify and tackle avoidance was ‘not in any way HMRC being soft on large business or on those with complex tax affairs’. HMRC treated all taxpayers even-handedly.

‘It is through [HMRC's] engaged and intelligent approach to tax avoidance that [additional revenue] is coming in,’ he added.

Clegg said he wanted the coalition to go ‘further and faster’ than planned in delivering increases in the income tax personal allowance. There was an urgent need to rebalance the tax system, he said.

Tackling ‘industrial-scale tax avoidance’ would raise the average taxes paid by the very rich without a further increase in marginal rates, he argued. As well as a possible GAAR, there were ‘a range of other, specific areas where we need to be tough too, not least stamp duty avoidance, particularly on higher end property sales and the transferring of assets and income abroad to avoid UK tax’.