It used to be said that you could avoid everything in life except these two constants. Since Margaret Thatcher came to power however, the situation has become a little different…
In the 32 years since Margaret Thatcher came to power, and more spectacularly since the “Big Bang” in The City in 1987, what was once a shady corner of Finance has become a major activity worldwide – “Tax Optimisation”, or Tax Avoidance to you and me.
Simply put, the rich and big businesses, whether Barclays Bank, TopShop or Tesco use legal loopholes and financial skulduggery to avoid paying taxes that you or I cannot avoid. If you run a small business, or manage an outlet for a large company, please be warned that the following may lead you to never voting Tory again…
Historically, the Thatcher/Lawson years were a watershed, with the burden of taxation moved from progressive Income Tax with more paid the more you earn to consumption-based taxes such as VAT, which had its scope moved from” luxury” goods to more and more of the basics of life. Now taxes on consumption may not always be a bad thing, but as a proportion of income, they hit those on middle and poorer incomes at a greater rate than they do the rich. Simply put, you can only consume so much. By 1987, according to statistics released by The Treasury, the burden of taxation was exactly the same as it had been in 1979 – 33%, but it had been shifted down to the lower earning brackets.
It took John Majors’ Government to further reduce the Income Tax bands, so that the higher rate of tax was only 40%. Even under Lawson, there had been a marginal rate of 60% for the very rich corporation tax was also lowered throughout the period, to make Britain a “haven for foreign investment”, along with plenty of our money paid as sweeteners to multinationals to come here. And there it has stayed. One of the major failures of New Labour was its insistence on following Conservative economic policies that hurt those in the middle and below, whilst fawning over those in clover. For all the good done over the past thirteen years reducing Child Poverty, refunding the NHS and Education, our party could, and should have done more.
One of the worst areas of inaction was over closing tax loopholes used by the wealthy to avoid even low rates of tax. So in awe of the rich were Blair, Brown and Mandleson, that they gave peerages to people such as Fred Goodwin, then Head of RBS, Philip Green at TopShop and their international guru, Alan Greenspan.
The international super-rich flocked to Mayfair, Kensington and Chelsea, much to the chagrin of the merely very rich City types, who moaned loudly that they could now “only” afford to live in Richmond or Barnes; oh how we did not weep for them. But in spite of everything done for them, they wanted more. The Billionaires from India, Russia, and China had moved here because their “non-dom” status meant that they could pay almost no tax whatsoever, and homegrown tycoons followed suit. as Robert Peston mentioned in his book about the crash, TopShops boss, Sir Philip Green gets his salary paid to his wife, who for tax purposes is based in Monaco. He is not alone. More worryingly, he is an advisor to the present Government on Business Affairs. This is not just an economic outlook, but also a moral one, as ex-City millionaire David Laws, who was sacked for fiddling £40,000 out of the public purse last year, looks set to rejoin the Government in some position this April.
Yet the Government is unlikely to do much without outside pressure, as a Cabinet with a high proportion of ex-City types, such as Chris Huhne, and sons of stockbrokers such as David Cameron make all the right noises to placate the rich, whilst telling us that “we are all in this together”. Recently it came to light that since 2005, donations to the Tory Party from City sources had reached over fifty percent of its total funding – many from the very hedge fund managers who got us in this mess whilst avoiding taxes here. In January, at the annual Black and White party ( they daren’t call it a ball anymore), secure in Battersea Park, City Internships were auctioned-off to the highest bidder, in aid off Tory Party funds. Perhaps this is the “Big Society”? A short walk away are some of the roughest and most deprived estates in London.
The Mayor of London, Boris Johnson was also in attendance, and as many have noted, has spent much of the past year or so loudly protesting that we must stop “bashing Bankers” over the billions of our money we had to throw at them to save the system. Let us not forget that in 2009 he publicly decried his £250,000 per year stipend from The Daily Telegraph as mere “chickenfeed”. It seems we have not a Mayor for all of London, but TWO Lord Mayors of The City of London…
(Part Two to follow soon…)