Danny Alexander: pay tax as I say not as I do?

by Stephen Tall on June 23, 2012

Lib Dem chief secretary to the treasury Danny Alexander wrote a powerful article — Rich tax dodgers are as bad as dole cheats — for this week’s Sun newspaper. His condemnation of those, such as Jimmy Carr, who legally avoid paying their taxes couldn’t have been stronger:

… to most people it’s outrageous that a few of the very richest and their expensive financial advisers are devising ever more obscure and underhand ways of not paying their tax. When it comes to paying their fair share, some of the people who can afford it most think they can get away with paying the least.

Frankly, I think people who dodge the tax system are the moral equivalent of benefit cheats. Both sets of people think they can bend the rules everyone else lives by for their own benefit. That is bad enough on its own but what makes it worse is that it’s people like Sun readers who have to make up the difference.

Fair comment.

But let’s rewind two years, and to the Daily Telegraph’s splash about Danny’s MP’s expenses claim, and his avoidance of paying Capital Gains Tax on a south London property in 2007. Here’s what Danny said then:

I sold the Elspeth Road flat in 2007 and moved to another flat but was advised that CGT was not payable because of the operation of final period relief, which exempts homes from CGT for 36 months after they stop being the main home. I paid all the taxes required but CGT was not payable on the disposal of my Elspeth Road flat.

And here’s how my co-editor Mark Pack — quite rightly — defended Danny, pointing out that not paying something that’s not due is not a story:

Capital Gains Tax rules says that you don’t have to pay Capital Gains Tax when you sell your main home. If that was all they said then they’d be an issue because it’d look like at the point of sale he was saying one home was his main home for tax purposes and another was his main home for expense purposes. And on those grounds Lib Dems should criticise him, because that’s what many of us have criticised other MPs for doing.

But – and it’s a whopping big but – it’s not actually the truth.

That’s because, as Mike Smithson has pointed out, Capital Gains Tax rules say that if the property was your main home up to three years before you sold it, you don’t pay the tax. Three years before 2007 takes us to 2004. In 2004 there was just the one property owned and he wasn’t an MP.

So, as Mike puts it Danny Alexander “essentially is being accused of not paying a tax when no tax was due”.

Jimmy Carr might understandably feel aggrieved at being condemned for accepting legal tax-avoidance advice from his accountant by an MP who accepted legal tax-avoidance advice from his accountant.

A ‘to be fair’ caveat… It’s only fair to note there is a distinction. Jimmy Carr’s tax avoidance scheme was specifically created in order to minimise his tax liabilities. In Danny Alexander’s case, it was a question of working out what capital gains tax he was required to pay once he’d sold his house. Nonetheless, the similarities emphasise Labour leader Ed Miliband’s point this week that “I don’t think it is for politicians to lecture people about morality”.

* Stephen Tall is Co-Editor of Liberal Democrat Voice, a Research Associate for the liberal CentreForum think-tank, and also writes at his own site, The Collected Stephen Tall.