Book Review: The Great Tax Robbery by Richard Brooks

Frederick Cowell 

Image© DS Pugh

Simon Hoggart’s diary column in a recent edition of the Saturday Guardian, whilst not referencing Richard Brooks’ detailed book, captures its essence

“Suppose you got a letter from HMRC saying: “Your tax bill of £3,258.47 is now overdue. If it is not paid immediately further action will be taken.” At the end is a scrawled note, saying, “but if you buy me lunch, and give me a job when I leave, we can call it quits for £105.”

That’s not a joke – that’s actually a reasonable summary of what the Inland Revenue actually did. As Richard Brooks details in exhaustive depth in Chapter Eight of The Great Tax Robbery the Inland Revenue has form in this area – in 2011 they negotiated what can only be called a sweetheart deal with the authorities in Switzerland which simply wrote off billions of pounds in evaded and avoided taxes. Only last week the heads of government at the G8 seemed to be waking up to the scale of tax avoidance which is astonishing given that just five years ago it was still a fringe concern of a few left-wing campaign groups and a handful campaigning writers.

Brooks is a Private Eye journalist and his painstaking attention to detail and his methodical unpicking of complicated schemes have been excellent at exposing tax dodges. The book is a mine of detail about off-shoring, outwards domestication, tax efficient supply-chain management, transfer pricing and my personal favourite tax efficient off-market swaps (TOMS). In 2002 if you had a hedged debt Prudential would buy Euros from the Royal Bank of Scotland (remember if you have ever paid income tax you’re a shareholder of theirs) at a rate of exchange that was way above the market price meaning that the bank got a massive premium that under foreign exchange tax rules could not be taxed. This scheme, which begins life as insurance against foreign currency, allowed Prudential to essentially facilitate tax avoidance on £65 million. At the beginning of the book Brooks repeats the Winston Churchill quote that it was a right to be able to “arrange his affairs as not to attract taxes … so far as he can legitimately do so within the law” which is the basic philosophical crutch of the tax avoider. But I can’t help noticing something at this point – I can’t even dream of doing this with my income as an academic this right clearly is not a right that I can possibly ever exercise, a position that I assume that many readers are also in. The wealthy however can exercise this right. It could well be argued in response that the wealthy enjoy many things that I don’t – such as access to Ferrari’s and their own swimming pools. Not the point – taxes are laws which we are meant to be equal before. These are laws however to which obedience is relative to the size of your wallet.

This as Brooks identifies is only possible due to massive institutional corruption. With a dwindling number of cases being taken to court by Her Majesty’s Revenue and Customs and an effective collusion between governments and corporations (he is scathing about Lichtenstein’s official connivance with tax avoiders) it is corruption in any meaningful sense of the word. Some governments effectively permitted it, Nigel Lawson gets a pasting in Chapter Two, but it is the story of New Labour that is the most interesting. In their first term they were prepared to be tough on tax avoidance and went ahead with closing loopholes but from around 2000 onwards Gordon Brown became obsessed with growth from the City of London and starting making a series of changes that allowed avoidance to go into overdrive, the most significant being the extension of a 10% capital gains tax rate to profits made over two years. In 2004 the government attempted to act on tax avoidance schemes and attempted to pursue a variety of different initiatives but by 2008 they had lost their nerve. George Osborne has attempted to create his own anti- avoidance rule which Brooks has elsewhere been scathing about, criticising it for going after only the most esoteric schemes, of the sort Jimmy Carr was caught using, rather than the off-shoring schemes used by Amazon and Starbucks on a daily basis. Brooks’ account of the capacity for institutional capture by the tax avoidance industry casts considerable doubt on the pet theory for tackling tax avoidance advanced by the Tax Payers Alliance who advocate lowering the overall rate of Corporation Tax as a no nonsense method for reducing avoidance. If a corporation can get away with not paying tax at a 21% rate what would suddenly change at 15% – after all the legal and political system are now so geared to allow corporations to avoid tax why wouldn’t they?

The book has some frustrating omissions. For instance there is no attempt to dissect the philosophical case against avoidance. Although in the introduction there is an amazing dissection of Sir Phillip Green of Topshop’s fame tax dodge – he transferred ownership of his company to his Monaco resident wife – he and his wife did not do this by accident, they intended not to pay tax choosing to freeride on the UK state, its educated workforce and its laws. But frustratingly this is as far as Brooks goes and there is also no careful distinction drawn between avoidance and ‘set offs’ (ISA’s and the like) leaving Brooks open to the ‘but everyone dodges tax’ critique. There are also some annoying detours around Private Eye’s pet bugbears, such as their hatred of the commercialisation of football, which fit poorly into the books flow. This aside this book needs to be bought and read by everyone, not least because as Brooks argues too few people are angry about avoidance which is what allows it continue.

Richard Brooks ‘The Great Tax Robbery: How Britain became a Tax Haven for Fat Cats and Big Business’ OneWorld Books (2013) 293 pages.

Advertisements

Comments are closed.

%d bloggers like this: