Here we go again. Yet another “war on benefit fraud”, with David Cameron pumping his biceps and promising an “uncompromising” clampdown on “welfare cheats”.
Fair enough: if benefit fraud is, as reported, £1.5bn a year then that’s money that would be better spent elsewhere. But as many have pointed out, the amount stolen through benefit fraud is far lower than the amount stolen through tax evasion – a reported £15bn a year, equivalent to 3% of total tax liabilities (compared with 0.8% for benefit fraud).
Yes, the authorities take action against tax evasion as well as benefit fraud, but we don’t have the same steady drumbeat of propaganda implying that benefit fraud is to blame for most of society’s ills. Where are the bus-stop ads with freefone numbers for shopping tax cheats? Where the outraged middle-market tabloid headlines? Are HMRC using credit reference agencies to help catch tax evaders?
In short, the emphasis on benefit fraud is as much concerned with blaming the poor for their own problems and delegitimising welfare benefits, and claimants, generally (“They’re all at it, you know”).
However, in pointing this out we need to be careful that we do not make basic errors that let our opponents off the hook (“You don’t know what you’re talking about, LOL!”). In particular we need to be careful in distinguishing between tax evasion and tax avoidance, rather than falling into the trap exemplified by this tweet doing the rounds today:
Tax evasion – failing to pay tax which you are legally required to pay – is fraud and a criminal offence. Tax avoidance is a different matter: it is “simply” minimising the amount of tax which you are legally required to pay in the first place. Nothing illegal about it, at least until the occasionally-mooted “general anti-avoidance measure” sees the light of day.
And in broad terms there is “good” tax avoidance and “bad” tax avoidance. “Good” tax avoidance is what most of us do in one shape or form. If you put your savings in an ISA rather than a conventional deposit account, you’re “avoiding” paying tax on the interest. If you pay your pension contributions through a “salary sacrifice” scheme rather than as a deduction from pay, that’s tax (or, to be precise, national insurance) avoidance. If you invest in a company through an EIS, that’s tax avoidance. These things are all above-board and recognised by HMRC as legitimate means of minimising one’s tax exposure.
“Bad” tax avoidance is what many large corporations and rich individuals do, using complex and artificial arrangements to exploit loopholes in tax legislation. Perfectly legal but (in the view of many people) ethically murky. Not that it’s easy to draw a clear line between “genuine transaction carried out in a tax-efficient way” and “artificial transaction carried out purely to exploit the tax rules” – which is why the “general anti-avoidance measure” never progresses beyond party manifestos.
So in summary: yes, we need to point out repeatedly that for every pound lost in benefit fraud there is at least £15 lost in tax evasion, and probably even more lost in “bad” tax avoidance. To put it bluntly, we need to make it clear that depriving the exchequer of revenue is mainly something that rich people do rather than poor people. But if we’re not clear in the distinction between “illegal” and “legal but probably shouldn’t be”, then it’ll be all-too easy for the Tories to avoid, and indeed evade, this issue.