Jersey is a conduit for over £500bn of foreign direct investment into the UK attracted from all over the world. That amounts to £1 in £20 of much needed overseas investment, creating economic activity, jobs and tax revenues for Britain.
The PAC committee is doing a sterling job of convincing the international business community that Britain is hostile toward international business and any company brave enough to venture into Britain and optimise its tax position through legal means is likely to get a public flagellation with the equivalent of a tax ‘cat o nine’ tails.
Deterring inward investment means deterring jobs and wait for it, increased tax receipts! Were it not for the countering measures championed by Chancellor Osborne with his 20% corporation tax rate we would be seeing some real damage.
I quote from the main findings in the conclusions section of the report:
The tax gap is a theoretical concept to assess tax revenues lost to the Exchequer. It does not cover the full amount lost through tax avoidance. It sets out to measure the difference between the amount collected and the amount that should be collected. The stated tax gap underestimates the amount of money lost to the Exchequer. Despite the Department's increased efforts on reducing the tax gap, the latest figures for 2011-12 shows an increase of £1 billion to £35 billion compared to the previous year. Furthermore, HMRC has not attempted to gather intelligence about how much tax revenue is lost through aggressive tax avoidance schemes, so this is not included in its figures. HMRC is not explicit about this limitation to its current measure.
In fact the HMRC report does calculate tax avoidance as interpreted under current legislation, as the infographic taken from their latest report on the tax gap clearly shows. It just doesn’t count legal business that complies with current tax legislation but which Hodge and Co don’t like.
A few other key facts the PAC failed to headline were that HMRC secured more than £50 billion of additional tax from their compliance work since 2010, including £23 billion from large businesses.
They also halved the number of disclosed tax avoidance schemes and have protected more than £2.4 billion from marketed tax avoidance schemes this year alone.
HMRC were quick to point out in their response that "the tax gap – the proportion of taxes that are due which are not collected – has fallen from 8.3% in 2005/06 to 7% in 2011/12. If the tax gap had remained at the level it was at seven years ago, we would be collecting £7 billion less each year."
"HMRC’s methodology for measuring the tax gap is robust and has been endorsed by the International Monetary Fund (IMF). Contrary to what thePAC report says, the published tax gap does include a measure of the tax lost from avoidance, as well as evasion, but it can only measure non-compliance with existing tax law – it cannot estimate how much tax might be due if tax laws were different."
The only valid criticism I could clock in this report is the significant underperformance of the Swiss UK tax agreement which has only collected £440m vs the £3.12bn predicted.
I would though take issue with the target for this criticism. I have consistently flagged that estimates of returns on these schemes are wildly optimistic. In this particular case the terms of the Lichtenstein scheme are more generous than the Swiss arrangement, so Swiss business is transferring, with the Lichtenstein agreement likely to out perform as a result. Secondly the NGO tax lobby has grossly exagerrated the scale of the problem for campaigning purposes. This has encouraged cash strapped governments and the public at large to believe that tax evasion is a much bigger problem than it really is.
Scrutiny of public services and holding the executive arm of government to account is a vitally important part of a healthy functioning democracy, finger wagging grandstanding is not.
Not only is this committee damaging Britain's reputation abroad, it is undermining the reputation of parliament at home.