When citizens pay their taxes and hand over their hard-earned cash to the government, they do so on the basis that at some level they have faith in our system of democratic governance – a system in which government is entrusted to make decisions about how to use that money in the best interests of all the people and to keep citizens safe.
The collection of tax is one of the most important things a government does. It is crucial that people trust that system, that they believe if they pay their fair share, then so will their neighbour, so will local businesses and so will big multinational companies.
The global crisis, austerity and series of high-profile stories in the newspapers about the complex ways that multinationals and millionaires use to avoid paying their fair share, means that this trust is currently being tested at an unprecedented level.
It is the job of government to make sure that everyone pays their fair share, but this government is failing to do so. You only have to look what has happened to the amount of tax that should be collected in comparison to how much is actually collected, the tax gap, which rose from £31bn in 2009-10, to £33bn in 2011-12 and to £34bn in 2012-13 to see the extent of their failure.
Not only is this government failing to tackle the tax gap, but it also overpromises and under delivers when it comes to its much-lauded international tax deals. The famous Swiss deal made between the United Kingdom and Swiss governments in 2011 that came into force in 2013 has raised less than a third of the amount the government said it would – that is a shortfall of over £2bn.
The reality is that David Cameron and George Osborne have totally failed to tackle tax avoidance in the last five years.
So what would a Labour government do differently? We would take action in the first finance bill to close loopholes we know are used for tax avoidance, increase transparency and bring in tougher deterrents. We will also draw up legislation for consultation on clamping down in some of the most complex areas.
This will include measures that make tax havens with links to the UK put crucial information about who owns the companies based there in the public domain. We will put penalties in place so that those who do choose to try to game the system pay the price. A Labour government will stop hedge funds avoiding hundreds of millions in tax on shares, so that they pay the same amount as individual investors and pension funds. We will close loopholes which are exploited by some large firms to move profits out of the UK and avoid corporation tax and stop so-called ‘umbrella companies’ being used to avoid tax and national insurance by exploiting expenses rules. Finally, a Labour government will scrap the government’s failed ‘shares for rights’ scheme which has opened up massive opportunities for tax planning.
In addition, a Labour government would undertake an independent review into the culture and practices of HMRC with regard to tax avoidance. Such a review would start immediately after the general election and report directly to the Chancellor.
Earlier this month, we challenged the government in an opposition day debate in Parliament to take action on tackling avoidance and back the measures that we are committed to introducing in our first finance bill. But they voted not to, further proving that only a Labour government will tackle tax avoidance and build a tax system that people can trust.
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Shabana Mahmood MP is a shadow treasury minister
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