Emily Carver is a broadcaster and commentator.
Are we in the midst of a moral panic over tax?
This week, Nadhim Zahawi was removed from his position as Chairman of the Conservative Party after he was fined by the HMRC for failing to take “reasonable care” over his tax bill.
He reportedly breached the ministerial code seven times, and though he had settled the matter with HMRC, his conduct and repeated failure to declare the investigation was rightly deemed unacceptable for a man in his position.
Now, the hunt is on to find other culprits. With Zahawi out, journalists are scrutinising the tax affairs of other members of the Conservative Party, including a two-decades old tax dispute involving the Party’s treasurer, Graham Edwards.
Stephen Massey, Chief Executive of the Party, has also been under the spotlight over his employment at a firm that advises on “tax-efficient investments”.
Of course, it is hardly surprising that the papers, particularly those with an anti-Tory bias, would seek to elongate the tax affair scandal inflicting the Conservatives. It’s also the case that these stories have appeared at the time of year when many self-employed journalists will have coughed up their own earnings to the taxman.
While few would dispute that our politicians – just like everyone of us – should pay the tax they legally owe, the debate around tax has certainly coarsened.
Many of us have become little authoritarians. Would you like to see the tax returns of every politician? Why not throw in their bank statements so we can judge how they spend every last penny of their income? Should MPs be allowed any other source of income besides representing a constituency?
One might assume that members of the Conservative Party – most of whom have at least a theoretical preference for a lower tax burden and a smaller state – would like to avoid paying more tax than necessary. The fact that the Government is raising taxes at the same time as appearing to avoid paying tax themselves certainly sticks in the craw.
But with the talk of cracking down on tax avoiders (the legal kind, as opposed to tax evaders), and the endless debate over whether the better off are paying their fair share, have we got to the stage where it is now considered beyond the pale to employ the services of an accountant or advisor to minimise one’s tax bill?
Is that any less moral than a construction worker or hairdresser doing the odd job cash in hand? Is the only acceptable option to arrange one’s tax affairs in such a way as to pay the maximum possible amount to the state?
Naturally, the Zahawi affair has bolstered Labour’s calls for the rich to pay more tax. After Rishi Sunak’s wife’s tax affairs came under scrutiny, Sir Keir Starmer and his team decided that abolishing non-dom status would be a popular move. The Labour leader is also under mounting pressure to announce plans for wealth taxes.
But while targeting the rich is no doubt popular (unsurprisingly even more so during a cost of living crisis), will the British economy actually benefit from such policies?
A report by the LSE and the University of Warwick, that was widely cited in the press, claimed that ending the non-dom tax exemption would raise more than £3.2 billion, a calculation that relied on the assumption that only 0.3 per cent (less than one hundred) of those affected would leave the country.
The Daily Telegraph later reported that the number of new non-doms in Britain has dropped by 40 per cent in just one year, likely due to this threatened crackdown, and that since 2017 there has been a net outflow of 12,000 wealthy individuals, including 1,500 in 2022 alone.
It is no coincidence that this coincides with the news that the UK is set to drop from 5th to 30th, out of the 38 countries, in the OECD for tax competitiveness.
One reaction to this exodus would be to say good riddance. After all, according to some on the left, rich people don’t pay their taxes, so who needs them. In reality, the better-off arguably pay beyond their fair share of tax; at the very least, no-one can reasonably argue that our tax regime is anything but progressive.
Taking a look at the data from the HMRC itself, as economist Julian Jessop has analysed, the percentage of total income tax paid by the top ten per cent of income earners has increased from around 50 per cent two decades ago to over 60 per cent this year. At the same time, their share of income has remained pretty stable.
So, in reality, cracking down on the wealthy may mean it is left to ordinary households to compensate for the losses in tax revenue, while the UK becomes less competitive and attractive to entrepreneurs and investors.
All in all, it feels as though we need a reset in this country when it comes to our attitudes towards tax. A nice place to start would be to simplify the tax code, which when I last looked had a word count of over ten million and more exemptions than a manifesto pledge.
But wouldn’t it be refreshing if we could all go back to hating the taxman again?