Faced with HSBC's enablement of tax avoidance on an industrial scale, the best that the right-wing press (but not all of it) can come up with by way of a response is to get Ed Balls' window cleaner to claim that he's never asked him for a receipt. This is because Balls has reminded the world that tax avoidance is not just Swiss bank accounts and spending time out of the country, it's also about a grey economy that exists within and between cash in hand transactions. Ordinary people avoid tax too. The upshot of this turn in the debate is that Labour should get its own house in order (see also the slanderous attempt to smear Ed Miliband).
The problem is that grey markets are larger in depressed economies. The best way to revive a flagging economy is invest in public services and public sector projects. However this cannot be done if tax revenues are suppressed by avoidance. The largest losses to revenue collection can only be estimated, but even the most restrained estimates of the extent of tax avoidance dwarf the cost of benefit fraud.
Meanwhile the grey market is a death by a thousand cuts: many small amounts lost on a multitude of occasions and adding up to a significant figure. This raises some important questions. Which form of avoidance has the greater overall cost? And which is easier to address?
I don't have those answers. (Or rather I can’t separate my answers can from some of my ideological beliefs.) However, it should be obvious to anyone that inequality is rife in this country (expand your scope to the entire word if this proves to be an uncomfortable truth) and that this has concentrated wealth in the hands of the richest (The richest one per cent own X per cent of the assets etc). We are creating a system of patronage, of money flowing downwards from the rich directly where they want it to go: tax avoidance is allowing the state to be bought from underneath of it. The governments enabling this — every UK government for at least the last 35 years, New Labour included — promised us freedom from the tyranny of the state but delivered us to the tyranny of the market instead.
I think both forms of tax avoidance stem from inequality but that corporate tax avoidance on the grander scale also actively propagates inequality. The ultimate solution is to lower taxes to level that everyone is happy to pay, on both the micro- and macro- scale. Nevertheless I think that it is important that we reduce inequality before we reduce taxes, and that we do so before it’s too late.
Please note that this blog post (as with all others) is an expression of my opinion and not that of my employer. This is a personal blog. In the interests of full disclosure I bank with HSBC and buy coffee at Starbucks: this will change soon!