Tax, toffs and the Tories
by Peter Kellner in Commentary, Editor's picks and Politics
Mon June 25, 9:35 a.m. BST
As the news agenda turns to tax avoidance, it seems David Cameron has reason to smile – but for how long, asks Peter Kellner
The immediate impact of the rows over tax avoidance has been to help the Prime Minister. In YouGov’s latest survey for the Sunday Times, his net approval rating stands at minus 18 (38% say he is doing well, 56% say badly). Though this still leaves him in negative territory, it is a marked improvement from a week earlier, when his rating was minus 25. Indeed, Cameron is more popular, or less unpopular, than at any time since the much-criticised Budget three months ago.
The Conservative party also seems to have regained some of the ground it lost earlier in the spring. It is now averaging 34%, compared with 31-32% for much of the past three months.
The only thing that seems to be different about the past few days is that the news agenda has moved away from economic gloom and the Leveson Inquiry, both of which fed us a diet of news stories that did ministers no favours, and onto tax avoidance.
The Prime Minister’s condemnation of Jimmy Carr may well have done him some good. Although we find that only 38% back his decision to attack behaviour that is immoral, albeit legal, this is a higher figure than normal backing Cameron when he engages in controversy. On this occasion he has sided with the vast majority of voters and against the privileged few.
However, he would be unwise to rest on his laurels. There are clear signs in our latest poll that, in the long term, a moral stance will not be enough, and that effective action must follow.
- Although a majority, 60%, think the rich have a moral duty to pay their fair share of tax and not use artificial tax avoidance schemes, a substantial minority, 36% think the tax avoiders have acted reasonably, on the grounds that ‘it’s the Government’s job to pass stricter laws if they want the rich to pay more tax’
- By 67-26%, the public agrees that ‘tax avoidance is morally at least as bad as, or worse than, cheating to obtain welfare benefits’
- Only 32% agree that ‘the best way to reduce tax avoidance is to cut the top rates of tax, so the rich have less incentive to avoid tax’
- When we asked people what the top rate of tax should be, ‘taking account of the problems of tax avoidance’, 42% think it should be 50p in the £ or higher, while 11% think it should be 45p. Only 29% think it should be reduced below the 45p that George Osborne promised in his Budget.
These figures – and voters’ responses to financial issues down the years – contain a clear lesson. For Cameron to turn his immediate, but possibly fleeting, rise in his approval rating into lasting gains for him and his party, he must find effective ways to force the rich to pay their fair share of tax – and to do so by means other than cutting the top rate further.
Success would bring a triple benefit: it would help to reduce Britain’s deficit further, it would help the Tories to recover their reputation for financial competence, and it would show that ministers really are on the side of voters as a whole and not just the rich.
In YouGov’s regular tracking questions on party images, the Tories’ worst score is the 52% who think they, more than any other party, ‘appeal to one section of society, rather than to the whole country’. Just 20% say this applies most to Labour, and 7% to the Lib Dems.
In short, the challenge facing Cameron and Osborne is to find ways to close the tax loopholes – and actually to achieve this, not just to promise it. This means not just passing the right laws (perhaps including stripping British dependences such as Jersey and the Cayman Islands of their status as tax havens), but also giving Her Majesty’s Revenue and Customs the backing to clamp down much harder and quicker on artificial tax avoidance schemes.
For example, HMRC currently has the powers to impose stiff penalties on those caught evading taxes (that is, lying, or otherwise acting illegally). Why not extend the penalty system to schemes that are shown to be set up for the sole purpose of avoiding taxes? New Zealand has just such a system since 1997, with a sliding scale of penalties for ‘abusive tax avoidance’. Australia is also able to penalise the worst forms of avoidance.
In Britain, suppose the rich who use artificial schemes were forced to pay a penalty of, say, 50% of the avoided tax, as well as the back tax itself. Would Jimmy Carr and the others in the Jersey-based K2 scheme have been as keen to use it had they risked ending up millions of pounds worse off than if they had paid their taxes normally in the first place?
One would have thought that the best way for Cameron and Osborne to achieve their goals is to create conditions that deter tax avoidance, and not just to catch tax avoiders. But whatever precise measures they enact, they will have to be seen to work, or they may find that the sentiments that caused last week’s rise in popularity subside well before the next election.