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10 April 2012

If Osborne is opposed to tax avoidance, why did he reward it?

The Chancellor says he's "shocked" by tax avoidance. So why did he cut the 50p rate?

By George Eaton

George Osborne’s claim that he is “shocked” by the level of tax avoidance in the UK is evidence of either extreme naïveté or extreme cynicism. Are we really to believe that it was only after studying millionaires’ tax returns that the Chancellor realised that some of them pay “virtually no” income tax? And does he really think the voters will believe him? 

He told the Daily Telegraph

I was shocked to see that some of the very wealthiest people in the country have organised their tax affairs, and to be fair it’s within the tax laws, so that they were regularly paying virtually no income tax. And I don’t think that’s right.

Admirable words, but if Osborne is opposed to tax avoidance, which he has described as “morally repugnant”, why did his Budget reward it? The principal reason for the abolition of the 50p tax rate was that high-earners are avoiding it. As Osborne stated in the Budget

HMRC find that an astonishing £16 billion of income was deliberately shifted [emphasis mine] into the previous tax year – at a cost to the taxpayer of £1 billion, something that the previous Government’s figures made no allowance for.

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But this is an argument for reducing tax avoidance, not for cutting taxes for the top one per cent. While the rich could avoid the 50p rate in the first year of its existence [by bringing forward income from 2010/11 to 2009/10 in order to pay the 40p rate], this is not a trick they could have repeated. Yet Osborne has cut the rate all the same. It is as if he has rewarded welfare cheats by increasing their benefits.

Osborne’s insistence, then, that he is “going after” tax avoiders is simply an attempt to change the subject. If the Chancellor really wants to ensure the rich pay their fair share, he should reinstate the 50p rate.