One Ann Kittenplan sees some sort of equivalence between ‘tax avoidance’ and benefit fraud: see her comments on my post about the moral vacuum that is Graham Norton, including:

I do have a problem with unfairness…

a) what are the relative costs to the economy of benefit fraud, tax avoidance, and tax evasion?
b) What is the relative coverage given to benefit fraud, tax avoidance, and tax evasion?

If the issue was lawbreaking then it is reasonable to expect a proportionate focus on tax avoidance (the spirit of the law) and evasion in a subsequent post isn’t it?

For instance, what about the topical practice of being paid via a limited company? Tax avoidance. How about a post on that and how it differs from the actions outlined in the OP

Let’s rise to the challenge.

Ever since we can remember the state in its wisdom has asserted to itself the right to use force to take money away from people to spend on its own purposes. Here’s a handy if lighthearted guide to the history of tax, going right back to ancient Egypt’s cooking oil tax and Lady Godiva.

Most of the taxes thereby extracted down the centuries have been taken in conditions of no democracy whatsoever. I rule, I need money, ergo I tax. I’m strong, you’re weak, you pay me. Some of the money thereby raised has gone on common purposes (roads, armies); some has gone to enrich the ruler and his tax-collectors.

If you are at all interested in how we got to where we are now on taxation and many other phenomena, read this superb book by James Scott which describes how the growing need for taxation – and therefore measurement – helped define all sorts of things, including our very names: 

As James Scott explains, the emerging French state centralised in Paris wanted more money. So it taxed (say) grain. But this meant imposing nationally standardised ways to measure precisely how much grain had been paid in tax (and then demanding a nationally standardised system of names to make sure that everyone had paid). Hence the ejecting of France’s myriad local weights and measures, and the arrival of our friend the kilogram.

It turns out that people do not like the state demanding money with menaces for purposes which are not necessarily wise or properly run, and that in a democracy the people have some modest say in how much money the state takes. There never have been enough ‘rich’ people to pay the taxes the voracious state requires, so not-so-rich people too have to cough up. Over time all sorts of complicated rules have emerged to set down the conditions under which people pay.

Mulling over this situation, the state acknowledges a problem. It wants lots of taxes. But it also mustn’t overdo things (lest the rabble revolt) and it needs to keep the goose laying golden eggs. So it craftily sets up various incentives for savings, using the tax system: if you invest in X (say an ISA) you pay less tax than you otherwise might do. Plus incentives for setting up a new business (if you risk your own money and effort, you should be ‘encouraged’). Plus incentives to attract wealthy people to come and live in the UK – the more of them we have, the more money they’ll spend here which creates work for others. Cross the channel to France and buy a load of booze and you can bring it back tax free.

And so on.

In its blundering stupidity and inability to stop growing, the modern state in the UK and USA has created labyrinths of tax complexity which are navigable only by expert accountants who do nothing much else and expect to be paid for their efforts. It is worthwhile for wealthier people to use such accountants to find ways fully compatible with the law to advise how best to arrange their affars to minimise tax payments.

NB this does not mean that ‘society’  or ‘the economy’ are losing out. ‘Society’ and ‘the economy’ are not the state, however much some people seem to identify them.

Wealthy people usually don’t hide their money under the bed. They instal fancy new kitchens or buy expensive cars or use bespoke tailors and dress designers. They buy iPads and download lots of apps, creating work for sassy app designers where we have a global lead. Their money, in short, sloshes around the economy and ends up in other people’s pockets no less effectively (and in my view more effectively) than it would if the state had grabbed even larger slabs of it.

So to respond to Ann Kittenplan:

I have no idea what tax evasion (ie illegally avoiding paying tax) ‘costs’ the economy. Tax evasion takes many forms.

There will be a good number of criminals purloining money illegally. Then there is the stunning phenomenon of carousel fraud, involving the tax system itself and its interaction with eg ‘climate change’ tax and other unwise financial incentives. Not to forget the billions of pounds ‘lost’ to the state by cigarette and other smuggling, another industry created directly by huge tax rates.

Sure, there will be a micro number of oligarchs who have billions tucked away far from the taxperson’s grasp. But most wealthy people living openly in the UK are wealthy enough to pay accountants a lot of money to find ways to make sure that everything they do is squared away with UK law in all its sprawling complexity.

So I tend to be wary of the very notion that not paying tax ‘costs’ the economy anything. Huge amounts of tax evasion are found all around us in home helps and smaller traders getting paid in cash and then spending their money without declaring it. You might well argue that this ‘costs’ the economy nothing – it is the economy!

Illegal tax evasion does not help the state, true. But the modern state is veering out of control, and losing legitimacy. So it’s not surprising that people will strain not to subsidise it.

Tax avoidance is another thing altogether. It is no more than people using the rights the state has given them to organise their affairs in ways which reduce their tax burden, thereby freeing up more of their money to invest in other things and so (in principle) create new working opportunities for others. The law deliberately creates certain incentives in this sense – using those incentives complies with both the spirit and the letter of the law.

So Ken Livingstone and other famous socialists such as myself who have our own companies are directly benefiting the economy by doing just that. (Although in Ken’s case some people think that he needs to answer some questions as to the propriety of certain activities done by his company.)

So far so obvious.

What about benefit fraud? It seems to me that this is in a different moral category. It involves people who are not working stealing from people who are working.

If you work hard (eg as a plumber or even as a banker) but avoid paying all the tax due, you are at least (a) working, ie paying your own way in life, and (b) contributing to society via your work and the wealth your work generates. The benefit cheat who is not working (or who is working but still claiming benefits) is primarily a leech, a second-hander explicitly exploiting fellow citizens’ good will.

This explains why vox pop radio phone-ins feature so many animated ‘ordinary’ people indignant about benefit fraud. They see it in their own communities, and feel it quite differently.

Likewise you hear heartbreaking stories about small business people driven to distraction if not bankruptcy by oppressive tax rules and practices and other state impositions which add amazing costs to even the simplest arrangements (thereby reducing the likelihood of people being employed). You’d have to be stupid to employ someone in a small business these days. Much better to engage them as an outsourced company or sole trader and let them take the administrative hassle.

Indeed, the ‘economy’ increasingly is driven by these micro-businesses, one good reason why the state will proceed very carefully in stepping up tax rates on these people. It will be both damaging to any growth prospects we still may have, and incredibly unpopular with the most dynamic risk-ready section of the population.

In short. I have sympathy with people who for reasons of genuine ill-health simply can’t work. I have notably less sympathy with people who are not sick but don’t work at all. If they can not find a regular job and really are unable to find basic paid employment even of a part-time nature, they should go outside and do volunteer work or even pick up litter for a few hours each day. They are getting unearned benefits from society to which I am contributing thousands of pounds a month – society should get some benefit back from them. Plus they will feel better about themselves if they are doing something useful for their neighbours and local communities.

Here, of course, the state steps in once again to make even such ad hoc ‘free’ work problematic. You can’t help out at schools or in the NHS without exhaustive checks to ensure you’re not a perv. You can’t pick up litter without Health and Safety training. You can’t do anything which might undercut the status of those with state jobs. Blah blah.

Cheating? Fairness? In my view More State = a trend towards More Cheating and Less Fairness.

Does that answer the questions?