Sorry, Ken — own up or accept the consequences

You can’t run against Boris as the banker-bashing candidate but avoid your own income tax.

You can’t run against Boris as the banker-bashing candidate but avoid your own income tax.

What is it with politicians and their taxes? In January, the US presidential candidate Mitt Romney was forced to disclose that he had paid a de facto tax rate of just 15 per cent over the past few years – less than half the 35 per cent income tax prescribed for the highest earners. Then, in February, the Sunday Telegraph revealed that Labour's mayoral candidate, Ken Livingstone, had avoided at least £50,000 in tax by having himself paid for his various jobs through a personal company.

That Romney, a multimillionaire Republican and former private equity boss, would want to minimise his tax bill is to be expected. But Livingstone, champion of the poor and long-standing Labour Party advocate of equality and social justice? Et tu, Red Ken? Really?

Livingstone's supporters justify his use of a company on the grounds that he is a "brand" – he gives speeches, writes books, presents radio programmes – and that he has employed not only his wife, with whom he jointly owns the company, Silveta Ltd, but several other aides and researchers. It is possible that he paid the (then) top rate of 40 per cent on his company-derived income in 2009/2010. But this doesn't change the fact that the £320,000 in cash (as of June 2010) sitting in his company is subject to a much lower rate in corporation tax.

I like Livingstone. But to pretend this isn't tax avoidance is disingenuous. And his allies just don't get it. I spoke to friends and colleagues of Livingstone's who seem to be in total denial. "It's a completely logical way of arranging your tax affairs if you have multiple incomes and expenses," says a source close to the ex-mayor. I asked another ally how he could justify such tax-dodging behaviour. "Er . . . ah . . . um . . ." His voice trailed off. "It's, er, normal."

Not normal

It might be "logical", from a narrow, self-serving, money-grubbing perspective, but it is far from "normal". Not for the vast majority – the 99 per cent? – of taxpayers in this country, whether they are on PAYE, self-employed or sole traders. Normal people tend to pay income tax on their income, not corporation tax.

The big problem for Livingstone is that he has been a vocal supporter of UK Uncut, which campaigns against not just (illegal) tax evasion but also (legal) tax avoidance – by Vodafone, Topshop and other big companies. "These rich bastards just don't get it," Livingstone wrote in 2009. "No one should be allowed to vote in a British election, let alone sit in our parliament, unless they are paying their full share of tax." The former London mayor called for everyone to "pay tax at the same rate on their earnings and all other income".

The word "hypocrite" is being whispered – and not just by the usual suspects on the right. "I think it's bad for him," says a former adviser to Livingstone who worked with him at City Hall. "People expect more from Ken." If he was a Tory or, say, Tony Blair, this wouldn't matter – but it is an axiom as old as party politics that left-wing politicians are, rightly, held to higher standards. Principles matter.

And so, too, does perception. So what on earth was Team Ken thinking? Why did none of the former mayor's aides raise any objections to his legal yet dodgy tax arrangements? The simple truth is this: you cannot run as the populist, banker-bashing candidate, the one who backs higher taxes on "rich bastards", if you're quietly channelling hundreds of thousands of pounds of your own earnings into a company jointly owned with your wife. You just can't.

In his defence, Livingstone has pledged to be a "one-job", full-time, full-term mayor and has announced that he'll take a pay cut of at least 5 per cent, if re-elected to the £143,911-a-year post, to save taxpayers money. He would also slash the number of mayoral staff earning more than £100,000 to try to cut the gap between City Hall's top and bottom earners.

Nonetheless, if I were Livingstone, I'd write a cheque to Her Majesty's Revenue and Customs and deliver it to HMRC headquarters in person, with a camera crew in tow. Regardless of his allies' protestations, or his pledges on pay, he has to kill this tax story. And fast.

That this news has broken when Livingstone should be on the offensive against Mayor Boris Johnson and his top team – over their financial interests – is deeply frustrating. According to a recent investigation by the Sunday Times, Johnson and his principal advisers "are busy supplementing their pay with business interests ranging from a hedge fund to a supplier of dog blankets".

Chicken feed

There's Kit Malthouse, London's deputy mayor for policing, on £53,439, who has six outside directorships, including a job as finance director of a hedge fund called Alpha Strategic. Malthouse has admitted to having held four meetings concerning his outside interests in his taxpayer-funded offices. Do I hear the words "conflict of interest"?

Then there's Christine Chau, who earns between £102,558 and £111,044 as the mayor's "assistant director for London engagement" (what is that, by the way?) and is the founder and main shareholder of Charley Chau, "supplier of beautiful bedding for dogs". Its website lists her as one of the contacts for the business.

Let's not forget Johnson, with his £250,000 "chicken-feed" salary from the Telegraph, for whom he writes a weekly column.

Put in perspective, the Livingstone tax row is a huge distraction. It should annoy and upset progressive voters – but it doesn't give Johnson his Get Out of Jail Free card. The mayor, as even a Downing Street official recently conceded to the Times, lacks a simple "retail offer" for voters; his plans for a second term, the official said, are "underwhelming".

Under Johnson, train fares have risen and police numbers have fallen. Unemployment in the capital is now higher than the national average (10 per cent, against 8.4 per cent) and it is expected to rise further as the Conservative-led coalition's spending cuts bite.

Do Londoners want a mayor who will stand up to austerity and who wants to restore the Education Maintenance Allowance and reduce fares, or a mayor who will defend the coalition's regressive fiscal policies? Do they want a mayor who is willing, belatedly, to hold the bankers to account, or a mayor who wants to scrap the tax on their bonuses and abolish the 50p tax rate? Do they want a full-time mayor who's paid less, or a part-time mayor who's paid more? From where I'm sitting, the choice on 3 May remains clear.