Peter Jones: Sauce for goose is sauce for gander

Graham Aaronson, a London lawyer, may not be a household name here in Scotland, nor in London for that matter. But tomorrow when Chancellor George Osborne delivers his Budget, you will hear a lot about him and, more precisely, a report he has written for the Treasury about abusive tax avoidance which I think is not just disgraceful, but an evil which threatens to break up society. And you will also learn about a new acronym – GAAR.

This stands for a “general anti-avoidance rule”. The intention, recommended by Mr Aaronson, is to set down in law a rule which prevents the devising of schemes that have the sole purpose of allowing people to avoid paying what they would normally be due to the tax man. Put like that, you wonder why such a rule was not written into law years ago as, indeed, Canada and Australia have already done.

The need for the UK to have one became glaringly obvious in February when Treasury minister David Gauke suddenly and unexpectedly announced that he was closing a tax loophole which, Barclays Bank eventually admitted, it has been using to avoid paying an estimated tax bill of £300 million.

Then, at the weekend, reports claimed that various pop stars and other celebrities had been putting their properties into companies registered in offshore tax havens, some of which are more usually associated with criminal money laundering, so that they could avoid paying stamp duties and capital gains taxes.

Both practices invoke justifiable public anger. When ordinary punters like us get pursued by HMRC for every last penny of tax, it is outrageous that rich companies and individuals are able to use complex legal and accounting arrangements to avoid paying millions in tax while we are unable to use the same schemes to avoid paying a few hundreds.

Of course, all governments are anxious that people should pay their due share. But because there is no general rule governing that, there has been a constant battle between the rich and HMRC waged in the courts, with the government occasionally stepping in with ad hoc new rules. As Mr Aaronson writes in his report, it has been “a sort of fiscal chess game, but with an ever increasing number of moves and pieces”.

Writing such a rule, however, turns out to be equally complex. One main reason is that all governments provide incentives which have the effect of helping people avoid paying taxes. Put up to £50,000 annually of your money into a pension scheme, for example, and the government exempts an equivalent amount of your earned income from tax. That provision is quite sensibly, put there so people are encouraged to make their own pension provision rather than rely on the increasingly strapped state.

There are a myriad of other such incentives, most of which are the staples for the tax avoidance industry. Some of them, experience has shown, have perverse and undesirable effects. About three decades ago, tax allowances were introduced to encourage the planting of forests, the reason being that Britain was rather short of timber for housebuilding.

But then forests started popping up in all sorts of places, including the Flow country of Caithness, an expanse of bog and moorland which is important for all sorts of nature conservation reasons and which was threatened with destruction by tree planting. This was not being done simply to grow timber, but to enable rich people to cut down their tax bills. The scheme was stopped.

Tax avoidance, when it gets abusively exploited, threatens much greater destruction. Arguably, it undermines the whole basis on which modern society is constructed, which is that in order to receive social benefits, from health and education services free to the users to roads to travel about on, we agree to pay taxes.

Anybody who has the income and the wealth to pay taxes, which are supposedly applicable to all income-earners and wealth-owners, but does not, is getting a free ride on our backs. It does not matter that they may pay for their own educational and medical services. That is an option they are free to exercise. It doesn’t excuse them from paying taxes as the state is still obliged to provide them with all the services it makes available to all other citizens.

Neither does thinking that the services are terrible, or unnecessary, or that some others should be provided, constitute a basis for engaging in tax avoidance. There is a system for exercising these complaints; it is called democracy.

Barclays Bank claimed in its defence that it had voluntarily disclosed the tax avoidance that it was undertaking to HMRC and that it had been advised by tax professionals and lawyers that what it was doing was perfectly legal. Well, things can be legal, but that doesn’t necessarily mean they are morally right.

In fact, I think they were downright unsavoury. Barclays had not only proclaimed its desire to be a “good corporate citizen” but had signed a code of conduct that it would not embark on tax planning that aims to achieve a tax result that is contrary to the intentions of parliament. Arguably, this is precisely what it did do, and in so doing it achieved a competitive advantage over rival banks with more scruples.

Had it continued down this route, it would have forced other banks to follow, two of which, RBS and Lloyds, are majority owned by us, the taxpayers. We would have become complicit in a tax dodge for which we would have had to pay more of our own income in taxes to compensate for the taxes Barclays was avoiding. This isn’t corporate citizenship, it is a perverse Robin Hood act of robbing the poor to help the rich.

Exactly the same argument applies, even more strongly, to pop stars, footballers and celebrities also engaged in tax avoidance. This country has given them the security and the stage for them to develop their talents and earn a fortune; they should pay their taxes so that future generations can follow in their path. Anything else is simply selfish sneering at us poor mugs.

So all praise to Graham Aaronson and his proposed GAAR. I hope Mr Osborne applies it until some grotesquely obese pips squeak.