current affairs politics social justice

What do you want to see in Osborne’s 2012 budget?

I was on a business panel on local radio last night, and the opening question was this one: what would we like to see in George Osborne’s budget in a month’s time?

It’s a question plenty of people are asking right now. It’s the season to get all your budget ideas out for discussion, and lobbyists of all sorts dust down their old favourites – cuts to business tax at one end of the political spectrum, lifting the poorest out of tax altogether at the other. Groups like the AA or the RAC will be demanding a freeze in fuel duty and issuing press releases about ‘the war on motorists’. Public health bodies will be pleading for higher taxes on alcohol and tobacco. Brewers and tobacconists will be hoping for the opposite.

What would I like to see? The first thing that came to mind last night was that we’re missing a trick by letting the debate pull back and forth between taxes and cuts. Somewhere between those two, there’s a missing piece: collecting the tax that we’re already owed.

Taxes can go missing in a variety of ways. Here are the main three:

  1. Tax avoidance.  These are entirely legal accounting work-arounds to minimize tax bills. Britain is estimated to lose around £25 billion to avoidance every year.
  2. Tax evasion. This is the illegal kind, and includes things as mundane as smuggling your cigarettes past customs through to falsifying your accounts. The UK loses 15% of its tax revenue through tax evasion, which adds up to an impressive £70 billion.
  3. Unpaid tax. Finally, you can just not pay your taxes and hope to get away with it. If HM Revenue and Customs is understaffed, they might not get round to it. In 2009, the UK was owed £28 billion in unpaid taxes.

As you can see, we’re talking serious amounts of money here, but it’s money that we’re already owed. No new taxes required, no new cuts – just demanding that people pay what they’re supposed to. You might wonder why the government doesn’t deal with it, and then you remember who the culprits are – the richest, the big corporations, and even politicians themselves. Hence the endless talk about benefits cheats, and no mention of the vastly bigger issue of tax dodging.

What could we do to fix it, if we were so inclined? We could start by beefing up the government’s tax department. Under Labour, HM Revenue and Customs was cut down in size to save money, a trend continued by the current government. It’s a false saving. According to one estimate, hiring 25,ooo more tax inspectors would cost around £0.6 billion, but would bring in £20 billion in unpaid tax. The same principle applies at the council level, where staff shortages prevent local authorities from chasing up unpaid council tax bills.

Companies House, Britain’s register of licensed companies, has seen budgets cuts of 25%. This has left them understaffed in dealing with tax queries. Research last year showed that half a million UK companies had folded in 2010 with taxes left unpaid, but there was no way to chase them for it. Just 33% of British companies paid their taxes in 2010, and over half didn’t file a tax return. So why on earth are we cutting jobs at Companies House?

Other things we can do include closing down the tax havens, many of which are under British control. And we could end the domicile rule, which allows wealthy individuals to register their official residence overseas, and pay no tax on their UK earnings. The TUC estimates that this would bring in £3 billion.

Put all these various things together and we’re talking about tens of billions of pounds into the public coffers. It would be enough to fund all those apparently controversial things that the tabloids claim we can’t afford, like foreign aid or subsidies for wind power, or abolishing the bottom rate of tax. And we’d still have change leftover.

So will Osborne include any of these things in his budget? We can hope.

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