Sticking up for David Gauke and his tax-avoidance comments

by Stephen Tall on July 24, 2012

David Gauke, the exchequer secretary to the treasury, is a Conservative minister I’m quite happy to stick up for. He’s in the headlines this morning for an interview he gave to the Telegraph in which he states it is “morally wrong” to pay cash-in-hand to get a nod-and-a-wink no-tax discount:

“Getting a discount with your plumber by paying cash in hand is something that is a big cost to the Revenue and means others have to pay more in tax. I think it is morally wrong. It is illegal for the plumber but it is pretty implicit in those circumstances that there is a reason why there is a discount for cash. That is a large part of the hidden economy.”

His comments have provoked an unfair backlash. Some have wrongly inferred he was saying that paying cash-in-hand itself is wrong: he wasn’t. His point was that knowingly paying cash to get a tax-dodging discount was wrong. Not a controversial statement, surely?

Others have inferred, again wrongly, that this was simply a case of a Tory having a pop at the ordinary public while leaving the wealthy tax-evaders alone. Yet it’s clear, both from the Telegraph interview and from his public statements, that David Gauke is not living up to that easy stereotype. He delivered a speech yesterday at the Policy Exchange think-tank setting out his and the Government’s approach to ensuring all taxpayers pay their share of tax. Here’s an excerpt:

… artificial structures that aggressively exploit reliefs contrary to parliament’s intended purpose through contrived, artificial schemes fall very clearly into the definition of avoidance. Buying a house for personal use through a corporate entity to avoid SDLT is avoidance. Channelling money backwards and forwards through complex networks for no commercial reason but to minimise tax is avoidance. Paying loans in lieu of salaries through shell companies is avoidance. And using artificial ‘losses’ deliberately accrued to claim back tax is avoidance.

These kinds of schemes are where we are focussing our efforts, and they are all, to borrow a phrase from the Chancellor, ‘morally repugnant’. These schemes damage our ability to fund public services and provide support to those who need it. They harm businesses by distorting competition. They damage public confidence. And they undermine the actions of the vast majority of taxpayers, who pay more in tax as a consequence of others enjoying a free ride.

I don’t know much about David Gauke’s politics. He and I were on opposite sides of the debate on the ‘Charity Tax’ (he in favour of it, me against), but he was by far the most impressive defender of that policy before the Chancellor’s eventual U-turn. And it was good to hear him yesterday re-stating what shouldn’t even need to be stated once: that taking up legislated-for tax-reliefs — such as ISAs, pensions and Gift Aid — is entirely legitimate, and markedly different to aggressively exploiting loopholes that fail the ‘smell test’.

It was also good to hear Mr Gauke emphasise the need for increased transparency around tax advice, and set out some clear principles for the Disclosure of Tax Avoidance Schemes (DOTAS) regime:

If there is one lesson to be learnt from the cases exposed in recent newspaper reports, if a tax adviser tells you something that sounds too good to be true, it probably is too good to be true. So one of the major parts of our consultation looks at how we can make people aware where a company has previously peddled schemes that have been successfully challenged – so that they know there is a strong chance that no good will come of it. … the major reforms to the system we consult on today can, informed by our responses, place DOTAS once again at the forefront of anti avoidance measures globally. These and other proposals consulted on will:

  • Strengthen our descriptions to ensure we close the net around the few schemes that are not already captured.
  • Clarify what needs to be disclosed.
  • Require higher quality information on how schemes work.
  • Require a named individual to take responsibility as promoter for the scheme.
  • Demand better disclosure of those who use suspect arrangements.
  • Take further steps to inform the public of the genuine dangers of entering into such arrangements.
  • Ensure taxpayers know it is in their interests not to go near them.
  • And tighten the screw on those who refuse to co-operate.
  • That strikes me as a robust, fair-minded approach to the issue of tax-avoidance, one which seeks to ensure openness and accountability. Perhaps it’s inevitable that the media will focus on just one comment in an interview, rather than reflect the Government’s approach as a whole. Inevitable but a bit depressing. As Iain Roberts (formerly of the LDV parish) tweeted this morning:

    Agree or disagree with what David Gauke has proposed on tax-avoidance — but before passing insta-judgement it’s worth looking beyond the media-spin to find out what he actually said.

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