HMRC's 'Tax Dodgers' list shows the absurdity of the UK's tax position
HMRC have published a rogue’s gallery of its most wanted ‘tax dodgers’. I’d better issue to a caveat before the ASI – which doesn’t have a corporate view - get accused of advocating criminality or I get arrested for inciting criminal behaviour by the (thought) Police, probably under the Terrorism Act. So, I can firmly state that I in no way condone criminality or criminal behaviour or support such individuals’ actions.
Although tax law is notoriously opaque and verbose it is quite clear that these people are criminals and have deliberately set out to commit large-scale criminal offences. That said, many otherwise law-abiding individuals are engaged in tax evasion on a daily basis, as we were recently reminded – what separates this from these most-wanted criminals is, in the eyes of HMRC, surely only a matter of degree.
Let’s look more closely at what these people have been up to. Of the twenty, eight seem to have been involved in VAT fraud, fourteen are wanted for smuggling (almost all alcohol and tobacco) and three offenders were involved in fraud using tax credits or money laundering. Unsurprisingly, avoiding indirect tax via VAT fraud and smuggling is the most popular past-time for criminals. This straw-poll is backed up by the official statistics on the ‘tax gap’ here, estimated to be around £35bn in total. The tax gap on VAT is believed to be 16%, that on duty for cigarettes 10% and beer 14% and on hand-rolled tobacco an amazing 46%. On indirect taxes the tax gap is estimated at 10.9% and on direct taxes 6.5%.
However, without getting into a debate about where the UK might be sitting on its Laffer Curves it is quite obvious that there are some very pernicious effects of our tax rates. Whilst simultaneously failing to maximising its revenue and disincentivising growth creation by law-abiding tax-payers, the UK Government is creating the perfect conditions for the growth of a criminal class. This is true both at this very high level, where criminals are encouraged to operate by such very high rates.
If VAT was, say, 2% rather than 20% would so many people be willing to undertake such risky and illegal activity – not to mention that they would probably find it easier to gain jobs in the legal economy? At the very least, such behaviour shows that we need to end the punitive campaign against smokers, drinkers and drivers: we are merely playing into the hands of criminals as we have done with the campaign against (other) drugs. Instead, I’m waiting for the day when people are willing to start smuggling butter, sugar, salt and cocoa into the country.
This problem is also true at the very mundane level of everyday tax evasion by cash payments to tradesmen – are we going to put them on a website? Or simply impose punitive fines on already hard-pressed business people, no doubt at greatest cost in administration than the actual revenues from the fines? Does such prevalence of this activity instead not indicate that perfectly law-abiding consumers and traders are anxious to avoid paying such extortionate rates of taxation. The Government has taken a grossly high-handed approach and condemning people for behaviours that they would not necessarily wish to engage in. However, if you wish to repair your roof or paint your house, it’s not surprising that people wish to avoid adding 20% to the cost (I speak as a new home-owner who has recently shelled out thousands of pounds of my already heavily-taxed income in SDLT and VAT).
We need to turn such attitudes on their head – these people are sending a clear message to government ‘we are being taxed too much’. Ignore what is said about how much we value ‘public services’ or how much the ‘cuts’ are resented. These are the true, revealed preferences of the population at large. We are paying too much tax and are being criminalised trying to get away from it. We’ve had enough.
Girls surpass boys at A Level: how surprising is that?
OK, perhaps I shouldn't use a distaff side Johnson as a source of fact but this did rather strike me:
It’s A-level results day! If this year is anything like previous years, people will aerate about two things: grade inflation, and girls doing better than boys. Naturally, I disapprove of grade inflation except when it benefits my own children (at the time of writing I don’t know my daughter’s grades…) but when it comes to girls’ success as a cohort, I exult openly.
As a general rule one of the things that we know about education is that girls do better under a system of continuous assessment and boys under a system of competitive examination. This is of course not necessarily true of any one individual: but it is on average across any particular age cohort of children. If you want the girls to do better than the boys then skew the testing system to course work. Want the boys to appear to do better then forget the homework and see what they can regurgitate in two three hour periods in the summertime.
That we really do know that this is true comes from the way that a few years back the system of examinations in Enlgand and Wales was deliberately changed to reflect this very point. GCSEs, A Levels, are now more based upon coursework than they used to be. The actual exams themselves now have less importance in the system than they used to. The stated objective of this change was to lessen the skew in favour of boys that a purely examination based system entailed.
So it is possible to exult about the girls outdoing the boys these days if that's what you want to do. For it would be an example of a government policy, a very rare one indeed, actually achieving the goal originally set out. The educationalists wished to reduce the achievement gap between boys and girls. They did so.
Hurrah.
However, do note how they achieved their goal. Not by improving education in any manner. They did it by changing the scoring method.
Maybe not so hurrah, eh?
This appalling decline in productivity
Much ink is being spilled as people try to work out how to reconcile two conflicing economic statistics. GDP is still going down yet so is unemployment. If more people are employed they should be producing more thus GDP should be rising. Unless, of course, productivity is falling at the same time but that would be very odd indeed.
Finally, it is possible that falling productivity has been one of the many malign effects of the recession. If output per worker has dropped markedly, then it is possible to square rising employment with falling output, even though there has not yet been a really convincing explanation for why employees should have lost their skills or their motivation in such a profound way over the past five years. If both the GDP and the employment figures are correct, then productivity is dropping by more than 1% a quarter, a truly catastrophic performance.
The thing is though, this very odd indeed, this truly catastrophic performance, it's not a happenstance, some unlikely side effect of our current problems. This is actually planned, forced upon us even. It's deliberate.
Take, as an example, they way in which we are told that green energy is more jobs intensive. Without bothering to look up the numbers we're told that powering the country by nuclear plants employs 3 people, doing so with solar 50,000 and with windmills 2,000,000. There might be some exaggeration for effect there but we all have heard the story. Green energy will produce more jobs for the same amount of power. We are told this is a good thing.
Yet greater jobs intensity is exactly the same thing as falling labour productivity. If it takes 10 people to make a unit of electricity one way and 20 people another then the productivity of labour in producing electricity in the second method is half that in the first.
It's not just energy that is afflicted with this nonsense either. The usual suspects are similarly telling us that we must farm organically, something that requires more labour for the same output. That we should use small local shops instead of supermarkets: we're told we must do this because small local shops are more labour intensive: read lower labour productivity. We should purchase artisanal products, not mass manufactured ones: by definition, products with lower labour productivity. Every hand spun yurt knitted out of lentils is indeed more job intensive and thus lowers labour productivity.
Now quite how much of what we can see in the unemployment and GDP figures comes from this effect is another matter. But do understand the basic point. What even The Guardian calls a "truly catastrophic performance" is what the various greens and Greens are urging upon us as our future lifestyle. They want to lower labour productivity. They insist that it must happen.
They really are campaigning that we must all work harder in order to have less.
This is neither happenstance nor coincidence: this is enemy action.
Making society friendly again
Imagine a society in which welfare was provided not by the state, but by competing private organisations performing services such as insurance, savings, pensions, primary medical care and unemployment aid, and whose success and continuing function depended on how well they provide these services.
Welfare would be provided at a much more intimate level and would be results-orientated as consumers demanded better services with their wallets. Levels of social capital and community action would be higher, as current taxpayers would no longer feel as if they had already ‘played their part’ by paying taxes — which, in our state-centric system, are distributed ineffectively and often to rent-seekers. Participation in these societies could create a stronger feeling of ‘belonging’ among their members.
This kind of system was a reality before the birth of the welfare state, which began with Lloyd George’s provision of National Insurance in 1911 and set firmly on its path by William Beveridge’s social policy report in 1942. The ‘friendly societies’ that preceded the welfare state provided specialised welfare benefits that directed capital where its members’ values lay, in a pluralistic way that was starkly different to the monolithic approach of the modern state.
The competitive nature of these private welfare societies meant that they aimed to provide top quality service in a capital efficient way. This competitiveness also meant that there was a very large profit incentive to find cheats and strip them of their benefits, which in turn would mean more help could be diverted to the truly needy. In turn, unemployment was dealt with faster and more personally, aided by the inter-member sense of community. Further, members could choose where their money was going and join those societies that were most in line with their values.
Friendly societies still exist today, providing financial services and thriving on an ethos of mutuality, economy and community. However, they are held back from their vast potential by the nanny state that pervades our society under the guise of ‘wealth redistribution’, in reality providing an inferior service than could be achieved privately, increasing our reliance on the state and discouraging charity and community values. Many in the UK and elsewhere see state welfare provision as the backbone of our country and fervently expound its virtues, because they have never known anything else. But a look back into history shows that privately owned welfare societies worked in the past, and could work for us once again.
Social capital and the free market
The concept of the positive form of social capital, as championed by Robert Putnam in books such as Bowling Alone, is the notion that economic and collective benefit can be derived from networks of relationships, reciprocity and trust within and between communities.
The creation of social capital is often associated with government intervention and even the enforcement of a certain set of moral principles based on the whim of the current government. The government's Big Society program has been scorned from its very initiation because of its disconnection from reality and lack of government backing. However, the Big Society program failed not because, as often argued, that social capital cannot be created without private wealth and public investment, but because it intended to redistribute wealth rather than promote healthy competition. The creation of social capital does have its place in capitalism, but it is not something that can be forced.
Let me explain. By promoting free market competition, big businesses are given no safety net; they must depend totally on Darwinian capitalist principles. This encourages cooperation to strive forward for that mutually beneficial prize and increases the amount of wealth and innovation in the system. At the individual level, libertarianism creates a similar pattern, giving people an incentive to volunteer their services and to create social networks. The creation of social capital should be at the forefront of the mind of anyone who wishes to create a libertarian system as it is only with a healthy dose of social capital that we can avoid the concentration of wealth that is feared by many Marxist theorists.
Conversely, by funding a selective welfare state through obligatory public funding, voluntary commitments seem unnecessary and makes the ‘norms of reciprocity and networks of civil engagement’ that Putnam states are crucial to the creation of social capital much harder to form and we may actually see the destruction of social capital. Staffan Kumlin and Bo Rothstein have noted that ‘people with experience with selective welfare... will to a greater extent perceive themselves as having been mistreated’ and this in turn affects levels of interpersonal trust.
The creation of a free market system and the abolishment of a selective welfare state can and will create the social capital that will further reinforce libertarian principles. Governments must not be tempted to intervene in an attempt to create social capital as by doing so they will undermine the delicate balance of reciprocity. Social capital is not something that can be enforced, but can grow organically through the perception of universal benefit and fairness.
Illegal everything
I'm away in Ireland at the moment, but I enjoyed watching this video last night and thought readers of the blog might too. It's a surprising look into the American regulatory state, with plenty of points that will be (sadly) familiar to viewers on this side of the Atlantic as well. (Quite a few of the points are also rather surprising to see on Fox News — in a funny way it's quite a subversive film.)
In praise of packaging
The proposal to require 'plain' packaging for tobacco products has now completed its consultations. The ASI submitted evidence against plain packaging, and we published Chris Snowdon's report on the subject.
The case for plain packaging is weak since it has not been tried anywhere. Proponents claim that glitzy packaging leads people to take up smoking, whereas the tobacco companies say it is about promoting their brands over others. Supporters cite tests in which subjects said they felt 'negative' about cigarettes in plain packs. I myself would feel pretty negative about having to look at other people's packs showing tumours and corpses.
Counterfeiting and smuggling would be easier with plain packaging, reducing tax revenues. Already one cigarette in nine is smuggled or fake. The civil liberties issue makes a strong case against plain packaging. Although proponents tell us that it will only apply to tobacco products, activists in Australia, which took the lead in plain packaging laws, are now campaigning for graphic warnings on alcohol and for what they deem to be 'junk' food to be sold in generic packaging.
Packaging can influence choice of brand by projecting an image that users want to identify with. The feelings that go with a product are part of the intangible value that it adds. Malt whisky in India is seen as an 'aspirational' product associated with success and ambition. Young Indians enjoy feeling part of that world, in addition to enjoying the whisky itself. Similarly tobacco companies like to project an image for their brands. Friends of mine who started Regius Cigars wanted to convey an image of top quality, and designed distinctive packaging in black and gold. Plain packaging would require them to forego the distinctive imagery that marks out their brand and gives it class.
I applaud the New World vintners for the innovative and bold wine labels they have adopted. They brighten up the table, and I doubt they make people drink more wine. I do think that putting disgusting pictures on them would make people 'negative' toward them, however.
It would be a duller world if everything activists thought bad for us had to be sold in plain packaging. It would be less informative, and would deny us the intangible pleasures of associating with images and lifestyles we aspire to be part of. It would be a drabber world and one considerably less free.
The problem with relative poverty
Here actually is the problem with using relative poverty as a measure:
Compared to the 1960s, China today has higher income inequality,
but also incomparably lower levels of material poverty. By Brady’s
definition, China was less impoverished in the near-starvation years
of the 1960s than it is as an economic superpower today. According to
the OECD, during the last three decades the share of Chinese living
in absolute poverty dramatically declined from eight in ten to one in
ten (Garroway and de Laiglesia 2011). During the same period, relative
poverty, measured exactly as Brady measures it, roughly doubled.
Although inequality and relative poverty are not irrelevant for measuring
the well-being of a society, we should be apprehensive about a measure
of poverty that is incapable of detecting the largest decline in material
poverty in human history.
As pointed out, a measure of poverrty that not just ignores, but actually gets the sign wrong on, the largest reduction in poverty in the history of our species is of limited value.
Not of no value: as Adam Smith's linen shirt example shows. If you can't afford a linen shirt, but not being able to afford a linen shirt marks you out as being poor, then in that society you are poor if you cannot afford a linen shirt. But as our Chinese example shows only worrying about relative poverty is simply nuts.
Which leads us to something of a conclusion: it's fine to consider the distribution of incomes within a society. But we do it rather too much with the constant political obsession over relative poverty. We need to be paying a lot more attention to absolute standards of living: most especially how these change over time. Most specifically I'm thinking about the effects attempts to reduce relative poverty might affect our ability to increase absolute standards of living in the future.
For as ever in economics there is actually no solution. There are only a series of trade offs. We could, obviously, confiscate all of everyone's money and share it out equally. This is not going to make our children richer than ourselves equally obviously. Similarly, no one at all is suggesting that there should be no taxation at all to aid the lame and the halt of our society even if that might increase future growth rates. It's a matter of balance and to my mind there's much too much attention being paid to the relative part and not enough on the absolute incomes of the future.
We can't be beaten by Americans: we should go much further than this
The White House has just announced:
To fulfill its functions, the federal government asks people to fill out a lot of forms. To get permits and licenses, to pay taxes, and to qualify for benefits and grants, forms are often required. Too often, however, those forms are too confusing and complicated, especially for individuals and small businesses. Today we are doing something about that problem.
From now on, agencies will be asked to test complex or lengthy forms in advance, by seeing if people can actually understand them. Advance testing can take many forms. Agencies might use focus groups. They might use web-based experiments. They might try in-person observations of how users understand the forms. From those tests, agencies will be better able to identify the likely burdens on members of the public and to find ways to increase simplification and ease of comprehension.
We cannot let ourselves be beaten by such a group of rebellious colonials of course.
There's also a story rolling around my memory of Maggie, when in Number 10, insisting that she should try out the draft census form. As a result of which at least one question was dropped for being far too invasive. I would suggest that we build upon that precedent in order to beat those Yanks.
Any and every form that is issued for us hoi polloi to fill out must first be tried out on the relevant Minister (with local councils, the mayor, lead councillor, whatever, and so on through the ranks). No help from officials, no phoning a friend. Just the form and the proposed guidance notes in a locked office. Any form which cannot be so completed must and will be rejected as an imposition upon the populace.
The procedure will not happen once. It is something that will be repeated by every minister upon taking office: yea even if they're just moving around in the same department. Quite apart from anything else I cannot think of a better way for a politician to find out what it is that government actually does.
Now it is true, given the intellectual capacity of all many some most (choose your favourite here) who achieve high office, that we'll end up with a series of forms which can only be completed in thick crayon in words of one syllable. But that's fine: it all takes us a step closer to the paradise that Sir John Cowperthwaite enforced in Hong Kong. He refused to allow anyone to collect economics statistics like GDP on the grounds that if they were known then some damn fool would only have the impertinence to try and do something about them.
For here is the real point about all of this. It is right and proper that there is open government for we most assuredly should know what it is that they are doing to us with our money. But they should know little to nothing about us and what we do for we're free people in a free land and therefore it's absolutely none of their damn business how we decide to spend our lives.