Taxman shoots himself in the foot


Housing and Planning

Ignoring the precise merits of the legal case surrounding Mr. Gaines-Cooper – the businessman who may be asked to pay £30m in back tax, which was covered in all the main newspapers yesterday – the UK tax authorities are likely to be shooting themselves in the foot by aggressively pursuing non-doms and non-residents.

Non-doms and non-residents come in for a lot of stick from the media – as well as from the tax authorities. However, the position of these people (including Lord Ashcroft) is entirely reasonable. Non-doms and non-residents pay tax on their UK activities but they do not have to pay tax on what they earn abroad. People who are not permanent residents in the UK should only pay tax on the money they earn here because they are not, in the main, the beneficiaries of most government services which tax revenues finance.

But the crux of the matter is that taxes in the Western world are just too high. If the government is spending, as it will next year, over 50% of national income, people will spend huge sums to avoid and evade the consequent taxes. The tax authorities will spend equally large sums chasing them. The only winners will be the lawyers.

Indeed, efforts to bring these people into the tax net will ultimately cost the government money. Tax rates of 50% are counterproductive even when levied on people settled in and committed to the UK. If you try to tax mobile people such as non-doms and non-residents, they will simply leave the country altogether.

Even if tax rates remain high, the rules surrounding the payment of taxes should be clear and transparent. Adam Smith’s canons of taxation are a good basis for policy. He will be turning in his grave at the news that somebody could be required to pay tax on income earned 17 years ago when, in good faith, he followed the guidance from the tax authorities.

10 thoughts on “Taxman shoots himself in the foot”

  1. Posted 18/02/2010 at 11:49 | Permalink

    If ‘the power to tax is the power to destroy’, as Chief Justice John Marshall of the United States said a long time ago, I wonder whether the ability to evade taxes (illegally) is also the ability to create?

    A reputation for harassing business people and others will in the long run cause all sorts of problems for the authorities.

    Having followed their activities over the past fifty years, my own opinion of British governments could hardly be lower than it is now!
    They are dishonest and incompetent and, wittingly or not, do an enormous amount of harm.

  2. Posted 18/02/2010 at 12:58 | Permalink

    Correct. Which is why we should replace the entire tax system with

    a) a flat rate income tax on UK source income and
    b) a single flat tax on UK land and property values (you can’t take UK land and property abroad!).

    That way there’d be no need to distinguish between residents and non-residents, domiciles and non-domiciles etc.

  3. Posted 18/02/2010 at 13:08 | Permalink


    What would happen to old people on low incomes with big houses if a flat-rate land/property tax was introduced? Would they be thrown out of their homes and their property confiscated?

    And what about semi-subsistence smallholders who wanted to ‘opt out’ and live off the land? Would they be allowed to pay the land tax in carrots and turnips?

  4. Posted 18/02/2010 at 13:39 | Permalink


    as it happens, I don’t agree with land value tax but your last point is exactly the idea in terms of the economic justification. Say Baldrick is growing turnips on top of land that could be used for a diamond mine. The tax is levied not on the income from the turnips but on the rental value of the land which depends on its possible use as a diamond mine. The tax is therefore levied without any penalty for putting the land to its best value use – the diamond miner pays exactly the same tax as the turnip grower. As such, there is no disincentive to maximise the value of output unlike with a tax on rents, work and profits.

  5. Posted 18/02/2010 at 13:42 | Permalink

    @Richard Wellings: be very careful with those arguments, or you may get run over by the Mark Wadsworth LVT steamroller………………

  6. Posted 18/02/2010 at 14:04 | Permalink

    Jim – Thanks for the warning! I should explain that I don’t have a strong view on LVT and accept that there could be economic advantages if it replaced other levies (see Philip’s comment). My previous comment reflects an interest in how specific problems associated with LVT could be resolved in practice without undermining property rights. If LVT did mean forcing many elderly people from their homes, it would be almost impossible to implement politically.

  7. Posted 18/02/2010 at 14:45 | Permalink

    @Richard Wellings: the turnips vs diamond mine analogy nicely encapsulates my opposition to LVT. I maintain that I should have the right to use my diamond mine as a turnip patch if I so choose, and not be forced to sell it, or mine diamonds against my will, in order to pay the LVT. In my view the property rights of the individual outweigh the overall (potential) positives for society as a whole from LVT.

    I am for the individual against the collective, and I see LVT as a form of the collective imposing their view on what ’should’ be happening on a piece of land, rather than the right of the individual to choose his or her land usage, and be taxed on the income produced thereby.

  8. Posted 18/02/2010 at 15:45 | Permalink

    Anyone who followed the guidance of the tax authorities and who had already already put funds into a money purchase pension scheme on the basis that it wouldn’t be taxed until taken as income, has been hit by Brown’s tax on these schemes. You can’t get the money out and it is now being taxed when we were promised that it wouldn’t be.

  9. Posted 25/02/2010 at 05:45 | Permalink

    I am not going to defend the government’s win in court. Mr. Gaines-Cooper has every right to the full enjoyment of his money. It is wrong for government to hound people for tax money.

    Nevertheless, Mr. Gaines-Cooper ought never to have remained a UK citizen. He should have expatriated and given up his UK citizenship.

  10. Posted 31/03/2011 at 09:49 | Permalink

    You are right to be careful about the Mark Wadsworth steamroller. The man devotes a huge amount of energy – you can see this on his own blog – to arguing that a lot of problems can be solved by LVT, an idea attributed to Henry George, a writer and pamphleteer of the late 19th Century. While some advocates of land taxes are quite sympathetic to free markets and even call themselves libertarians, I find there to be something deeply socialistic about their underlying assumption that everyone has an equal right to the rise in the value of “unimproved land”. For instance, they claim that when a person owns a piece of land, that the legal rights to that property are guaranteed by the state, and that the landowner’s ability to charge rental income on that land is, in part, due to the actions of states. As a result, if the rental income, and the capitalised value of said, rises due to “external” factors not caused by the landlord, then such an increase should be seized, in a tax.

    The Georgists also draw an incorrect inference from the correct fact that land is, at any point, scarce vs other things, such as labour. Indeed. But the scarcity of land is not fixed; it depends on human population, demand for certain types of activity, the relative cost of developing and reclaiming land, etc. But the LVT advocates treat land as different, and should be taxed as a common resource unlike say, human income or movable goods.

    I would urge the IEA to take a thorough look at this whole subject, getting views from both sides.

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