UK Politics

Labour pledges tax avoidance fines

Ed Balls Image copyright Reuters

Labour has said it plans to double the fines that can be levied on people who aggressively avoid tax, if it wins the next general election.

Under anti-tax avoidance rules, if someone's tax arrangements are found to be "abusive" they must pay back the tax they have avoided.

But shadow chancellor Ed Balls pledged a "genuine deterrent" by making them liable to pay the same amount again.

A Tory spokesman said it was "feeble stuff" and Labour had no economic plan.

Tax avoidance, unlike tax evasion, is not illegal. Ministers have said it involves "compliance with the letter but not the spirit of the law".

In recent years it emerged that companies and individuals had been greatly reducing their liabilities by making use of legal tax shelter schemes.

Meanwhile the "tax gap" - the difference between the amount of tax owed and collected - rose to £34bn in the year to April 2013.

'Fair share'

The government's so-called general anti-abuse rule (GAAR) came into force in July 2013, after Chancellor George Osborne described aggressive tax avoidance - as well as illegal tax evasion - as "morally repugnant".

It aimed to "deter taxpayers from entering into abusive arrangements, and to deter would-be promoters from promoting such arrangements".

The rule is a broad set of principles designed to prevent tax avoidance, to avoid having constantly to introduce new legislation to tackle individual loopholes.

Labour has previously said it would increase transparency in the tax system and prevent dormant companies from trading without paying tax.

It has pledged to use some of the money raised from a tax avoidance crackdown for its £2.5bn NHS funding pledge.

Mr Balls said Labour had supported the introduction of the anti-abuse rule, but said it was "without teeth".

'Tough penalty regime'

He said: "Those who are caught have to repay the tax they tried to avoid, but they do not face a penalty. There is still no disincentive to try and game the system. That is why Labour will bring in a tough penalty regime... with fines of up to 100% of the value of the tax which was avoided.

"For the first time this will provide a tough and genuine deterrent to those who try to abuse the system and avoid paying their fair share of tax."

The shadow chancellor said aggressive tax avoiders should be treated the same as people who cheat the welfare system.

He added: "Through measures such as this we can ensure that no-one pays zero tax at the top so we can get the deficit down fairly, invest in our NHS, and maintain public support for the dynamic open economy we need."

'Empty promises'

The proposals were backed by leading chartered accountant and tax-reform campaigner Richard Murphy, who was a member of the panel which helped draw up the anti-abuse rules.

"Without such a regime, the GAAR is a toothless tiger providing, at best, Revenue and Customs with the chance to ask those found in default to play by the rules in future," Mr Murphy, who is an adviser to the Trades Union Congress and the Unite union - Labour's largest financial backer - said.

"With significant penalties attached, the GAAR becomes a more potent threat and, regrettably, in the face of ongoing tax abuse, Revenue and Customs needs as many of those as it can get."

However, a Conservative spokesman said Labour leader Ed Miliband had been at the heart of former prime minister Gordon Brown's Treasury as "year after year" they broke promises to deal with tax avoidance.

"If Ed thinks empty promises like this will get him into Downing Street, it's no wonder his own party are lining up to criticise his weak and ineffective leadership," the spokesman added.

Related Topics

More on this story