Why is tax avoidance a reason for letting people off tax?

The reason given for cutting the 50p rate of tax to 45p was avoidance. It wasn't clearly phrased as such - most of the talk was about how it had raised less money than expected, or had changed behaviour in ways that harmed growth - but that is what it was nonetheless. To many, this will seem strange. "You avoided tax, so we will make you pay less". But it is an integral part of the line of thought that lies behind the cut.

Art Laffer first made the argument that cutting tax rates could boost revenue. The reasoning is broadly that, when the marginal tax rate (the amount you pay on each extra pound earned) gets too high, people start doing things to reduce their taxable income.

The palatable version is that they work less, because an extra hour of work no longer pays as well as it did, and this is probably true; there are certainly anecdotal tales of highly paid consultants turning down work later on in the year to spend more time at home.

The less palatable version is that they avoid more tax, because spending the money and effort required to set up a limited company, be paid "overseas", or funnel your income through a Swiss bank account in the name of your dog becomes more worthwhile the more it saves you.

Both of these "behavioural changes" are factored in to the Laffer curve, the rough prediction of how much revenue will be gained at various marginal tax rates. HMRC produced three such curves, each based around a different "taxable income elasticity" (TIE), a measure of how much an individual's behaviour changes given the tax rate:

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They based their analysis around a TIE of 0.45 (a figure basically plucked from thin air - HMRC admit the evidence to choose is "extremely limited", and the studies they cite range from -0.6 to 2.75), which showed a peak of revenue at around 48 per cent. Quite why this then led the Chancellor to cut the rate to three per cent below that is unclear. If he wanted to raise revenue, his own analysis is showing that he's done it wrong.

The problem is, one thing which affects the TIE is the ease with which one can avoid tax. Make tax avoidance harder, TIE goes up, and the peak revenue rate increases. In fact, given the anti-avoidance measures announced at the budget yesterday, TIE will already be higher than it was at the time of the analysis, boosting the argument for keeping the 50p rate.

There is one massive category of avoidance which can't be cited as a reason for cutting the rate, however. The HMRC's stats show that £6.6bn less income was declared in 2010-11 due to it being "forestalled" - paid the year before, so as to take advantage of the lower rate. This is avoidance on a massive scale (Richard Murphy points out that it is £1.6bn more than the estimation for all tax avoidance in 2011), yet, contra Tim Worstall, it has no bearing on the decision on whether or not to cut the rate, because it can only ever be done once.

By cutting the tax so early in its life, Osborne has ensured that we make the decision unable to know the full effect of cutting it. We can guess at how much will have been raised for the 2011-12 tax year, when forestalling was harder (although not impossible, and HMRC warn that it "continues to reduce revenues in 2011-12 and beyond"), but by the time we know for sure, it will be too late. The 45p tax will be in, and there won't be a "normal" year of the 50p rate to compare it to.

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At last, Jeremy Corbyn gets the biography he deserves

Liam Young reviews Richard Seymour's Corbyn: The Strange Rebirth of Radical Politics.

Corbyn: The Strange Rebirth of Radical Politics is the fullest and fairest account of Jeremy Corbyn’s rise released to date. In avoiding much of the rhetoric espoused in similar accounts focusing on Corbyn’s early career this book provides a frank account of how the unlikely leader took charge of the Labour party. It is a very readable account too. Richard Seymour writes plainly but effectively and his writing is both accessible and incredibly informative.

Seymour attempts two monumental tasks in this piece: first he attempts to account for Corbyn’s rise and then he attempts to predict where such a rise will take him, the Labour party and the wider left. Zoe Williams wrote that Rosa Prince’s Comrade Corbyn was an account of “ex-girlfriends, the state of his flat” and featured “very little ideological insight”. Seymour does the opposite. In simultaneously engaging with Marxist and Gramscian theory, Seymour provides readers with something of academic value in the place of such gossip.

For any supporter of Corbyn, the first few chapters are a trip down Memroy Lane. Reading of the last minute rush to get Corbyn on the ballot paper sends the heart beating once more. While perhaps a niche political event, supporters know where they were the minute Corbyn’s place on the ballot was confirmed. The fact that we know the outcome of the uncertainty that surrounded the leadership election makes for palpable reading.

Seymour’s work is not simply the polar-opposite of Prince’s hit-job though. It would be wrong to suggest that it is a positive, self-fulfilling account of Corbyn’s rise. In many ways it is a hard hitting and realistic look at what lies ahead. For supporters of the Labour leader much of Seymour’s analysis will be discomforting; indeed the writer concludes that it is likely “labourism” will outlive “Corbynism”.

Such a view is hardly surprising though. Seymour’s repertoire of anti-establishment work suggests that it was always unlikely he would find a comfortable home in an establishment party. In this sense it suffers from being an account written by an outsider looking in. While the Marxist analysis of the Labour party is thought-provoking it seems too lengthy and seems to fit with an orthodox view surrounding the inevitable death of the Labour party.

Seymour’s concentration on “movement-building” is pertinent though. Utilising Jeremy’s own words on such a phenomenon is an effective tool. In drawing this distinction Seymour pokes at an open wound on the left asking exactly where all of this fits. It is about time that frank discussion on this topic was had. While there is a range of different opinions on the matter, Seymour’s intervention is an important initial step. It is an awkward conversation that the left can put off no longer.

The criticism levelled at the media is also well founded and long overdue. Seymour’s take on long established journalists who refused to accept Corbynmania makes for entertaining reading. On a more important note the fact that he credits social media as a central part of Corbyn’s campaign is interesting. The importance of this often overlooked element has been a point of debate within “Team Corbyn” and Seymour is right to poke at it.

Seymour’s work is, on the whole, a refreshing take on the events of last summer and a thought-provoking piece on the future of the Labour party. It is important to note that rather than viewing this book as an account of Corbyn’s campaign it should be seen as a review of the context surrounding Corbyn’s victory. Given that context is open to interpretation it is only fair to add the caveat that it should be read with an understanding of Seymour’s ideological foundation. Though I disagree with his conclusion concerning the Labour party’s future, I found it an important read. With an accessible yet authoritative tone Seymour manages the task of providing an academic insight into Corbyn’s election. Such analysis is far more valuable than words wasted on rumour and gossip – Seymour does well to avoid this and should be proud to have done so.

Liam Young is a commentator for the IndependentNew Statesman, Mirror and others.