Jimmy Carr has egg on his face, but will the Prime Minister rue his attack on the comic for tax evasion, asks Dani Garavelli
HOW Jimmy Carr must regret his moment of madness. Not the one that saw him sign up to a tax avoidance scheme (though he has expressed his remorse over that lapse of judgment too) but the one that saw him don a blond wig and become Cashier Number Four, a Barclays employee explaining the tax “scam” which allowed the company to pay less than 1 per cent tax on its multi-million pound profit at the same time he was paying much the same on his own substantial earnings.
It is the two-minute clip, first shown on the 10 O’Clock Live show, that has allowed so much focus to be placed on the comedian’s own tax arrangements. Not only has it allowed those contemptuous of his behaviour to brand him a hypocrite, but it has made it impossible for him to claim convincingly that when he signed up to the controversial Jersey-based scheme, he believed he was doing nothing wrong. For in the sketch, Carr is scathing of the bank, and of the “aggressive team of blood-hungry, amoral lawyers” which facilitated its tax avoidance efforts.
It is ironic then that – just over a year later – David Cameron should be questioning Carr’s morality on exactly the same grounds. Of course, the Prime Minister’s comments could in themselves be viewed as hypocritical, since his own father profited from offshore investments which helped send Cameron to Eton.
Cameron’s condemnation was also selective, given that he failed to criticise Take That singer and Tory campaigner Gary Barlow for investing in a similar scheme. Nor was he as vocal when it emerged Topshop tycoon Sir Philip Green had channelled a £1.2 billion dividend through a network of offshore accounts, via tax havens in Jersey, to the bank account of his Monaco-based wife Tina.
Yet judging by the vilification Carr received on Twitter, Cameron has captured the zeitgeist. Campaigns by the likes of UK Uncut, which attacks austerity measures, and Tax Research UK have raised awareness of tax avoidance by outing individuals and companies. And savage cuts in frontline services have drawn everyone’s attention to the link between unpaid revenue and the potential disintegration of the welfare state.
So, after decades in which paying tax was seen as an unwelcome legal obligation (and one any sensible person would minimise), is it now regarded as a civic duty? Is tax avoidance – as the Prime Minister suggests – a moral issue?
To free-marketeers, the question is a non-starter. “We avoid paying taxes all the time,” says Andrew Lilico, an economist with Europe Economics. “Indeed, in many ways the system is set up to encourage us to do just that. Every time we buy an orange juice drink as opposed to fresh orange, because an orange juice drink has no VAT and so is cheaper, we avoid tax – is this immoral? Of course not.”
“Personally, I don’t think you have any particular obligation to pay any more tax than the law demands.”
But to others – including Richard Murphy, of Tax Research UK – this is the rhetoric of the morally bankrupt. “If there is no VAT on a product it’s because parliament intended there should be no VAT on it, ” he argues. The same cannot be said when we employ accountants to seek out ever more creative ways of avoiding tax we were meant to pay, especially given the admission of Roy Lyness, of Peak Performance which runs the K2 scheme Carr used, that his company played a game of “cat and mouse” with HMRC, finding a way round each new regulation.
For Murphy, the litmus test for the morality of tax avoidance is to consider what would happen if everyone practised it: “What if everyone did what Jimmy Carr did? Well, we wouldn’t be able to pay for the NHS, pensions and so forth. We would have a break-down of society as we know it – and that would be an immoral act.”
You only have to look at Greece, where about a quarter of all income is in the black economy (compared with around 12 per cent in the UK) to see the impact tax avoidance/evasion can have. “But because, by and large, people in this country do pay their taxes we have a problem, but not a crisis,” says Murphy.
The Jimmy Carr scandal broke last week as part of an undercover newspaper investigation into K2.
The 8 Out Of 10 Cats host, who performed at the Jubilee concert, is one of 1,100 people exploiting the loophole said to keep £168 million a year from the Treasury. They pay their earnings into a trust which “lends” it back to them. Because the loan can technically be recalled, the money is not liable for tax.
The exposé also turned the spotlight on 62 music industry partnerships the HMRC claims act as tax shelters, and suggested that 1,000 people, including Take That stars Barlow, Howard Donald and Mark Owen, had contributed £480m to them in recent years.
But these public figures are just the latest to be pilloried for their efforts to avoid paying their “dues”. Shortly after the RBS was bailed out, former chief executive Fred Goodwin came under scrutiny for the purchase of a £3.2m house through a trust, with experts suggesting he could be exploiting a loophole used to avoid stamp duty.
More recently, Ken Livingstone’s decision to funnel £238,000 of earnings through a tax avoidance scheme may have cost him the London mayoral election.
Criticism has also been levelled at international companies such as Vodafone, Goldman Sachs and Google, all of which have – quite legally – avoided one tax or another.
Last week, as Carr insisted he had left the K2 scheme, Chief Secretary to the Treasury Danny Alexander suggested tax avoiders were now regarded in the same way as benefits cheats. The sense that these individuals/companies are somehow freeloading is not confined to poverty campaigners and those at the lower end of the economic spectrum. In the US, multi-billionaire Warren Buffett has long lobbied for heavier taxes on the wealthiest, famously pointing out the iniquity of a system that allows him to be taxed at a lower rate than his receptionist.
Professor Brian Ashcroft, of the Fraser of Allander Institute, says the problem with tax avoidance is not so much the impact it has on the economy (the £7bn the Treasury says it is losing through such schemes pales in comparison with our £1.5 trillion GDP) but the corrosive effect it has on society at large.
“It sends a signal to the wider, and currently very unequal society, that there are a large number of wealthy people who are paying very low effective rates of taxation; it makes people think there’s one law for the rich and one rule for everyone else,” says Ashcroft.
For Lilico, people’s tax arrangements are their own business. But Murphy argues that you only have to look at the lengths those who thought up the K2 scheme went to understand how wrong it was. “At each and every step of the process there was a decision made by an accountant and those who agreed to use it – and at each stage of the process they knew the intention of the transaction was to avoid paying tax,” he says.
“In deciding to take part, they were saying: ‘I want to live in the UK; I want all the benefits of living in the UK, I don’t want to pay for living in the UK’, knowing full well they were still going to have those benefits because other people WERE going to pay. To put it bluntly, that’s a decision to cheat and the decision to cheat is immoral.”
For some time now, the Chancellor George Osborne has been promising to crack down on tax avoidance. In the last Budget he pledged to bring in a general anti-abuse rule, which it says will make it easier to close the loopholes.
The problem is, as its critics have been quick to point out, the government is sending out mixed messages, castigating the act of tax avoiding, while rewarding the likes of Sir Philip Green.
Although Murphy places a large amount of blame on what he calls the “pinstriped mafia”, the lawyers and accountants who facilitate tax avoidance, he agrees the Government needs to act. But he remains unconvinced the Tory party has the political will to get to grips with the problem.
“If you look at where the biggest problems are, it’s undoubtedly with corporations and large companies, and yet the new Finance Act will allow large companies to do exactly what Carr was doing,” he says. “For the first time, they’ll be able to set up offshore internal banks for themselves, lend the money back into the UK and pay only 5.5 per cent tax. The government is providing companies with the perfect opportunity to move their money into tax havens and not be taxed in the UK, and yet, at the same time, David Cameron is arguing it’s immoral for Jimmy Carr to do that.”
Despite the furore, it was business as usual for the host of 8 Out Of 10 Cats last week. “I’ve dished it out often enough - let’s see if I can take it,” he said, confirming Friday night’s edition of the topical panel show would go ahead. The consensus in the PR world seemed to be that he benefited both from his mea culpa and from allowing himself to be the butt of a string of one-liners from team captain Sean Lock.
In any case, by the time the show was broadcast public anger had moved on from Carr to the Prime Minister, whose own judgement was by then being scrutinised.
“I think it’s very unwise of very wealthy politicians – many of whom will either themselves or through inheritance benefited from tax-efficient investments – to go around saying these things are immoral,” says Lilico.
“It’s just an open invitation for journalists to start looking into their affairs.”
Indeed this has already started; critics have pointed out that Cameron’s father-in-law Viscount Astor has a home on the Scottish island of Jura, a favourite holiday spot for the Camerons, which is owned by a company registered in the Bahamas.
Millionaire Cabinet colleagues including Andrew Mitchell, Philip Hammond, Jeremy Hunt and Osborne, who has a £4m trust fund, also found themselves accused of avoiding tax. If David Cameron’s intervention marks open season on politicians’ tax arrangements, then he may rue the day he decided to take a moral stand against a comic who paid in tax what he legally had to “and not a penny more”.
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