From the TUC

Imaginative MP expenses are not that different from tax avoidance

12 May 2009, by in Economics, Politics

There is no doubt that the whole political system is suffering a crisis of confidence following the daily updates on MPs’ expenses in the Daily Telegraph.

It is not unreasonable for MPs to receive expenses to help offset the costs of living in or near their constituencies and in London. Indeed it was the labour movement that originally fought for salaries for MPs in order to stop politics being the exclusive plaything of those with private means.

Some of the more straightforward expense claims clearly reflect this. But others show a variety of abuses:

  • seeing the allowance as a way of topping up their pay, no doubt in the belief that they are underpaid for what they do.
  • seeing it as a way of building a property nest-egg for when they retire or lose their seat
  • seeing it as a way of funding a property development business through serial purchase and disposal of second and third homes
  • and crucial to their public interest defence of buying the evidence from someone clearly guilty of theft, the Telegraph has revealed the abuse of switching the designation of homes between prime and second homes when either faces a big repair bill.

Almost every MP has defended what they have done by saying it is within the rules. This is what every company or individual accused of tax avoidance does. Remember tax avoidance is getting round tax law, while tax evasion is breaking tax law.

This is all part of a wider cultural change caused by the great growth of inequality under the Conservatives and Labour’s failure to do much about it, despite some admirable if limited moves on poverty.

MPs mix with the new rich, and too many of them want some of it too. Even entirely legitimate claims such as Gordon Brown’s cleaning bill will resonate badly with the great bulk of the population who simply have no contact with people who can afford to pay £6,000 for cleaning.

But some of the greatest drivers of the attitude that it’s alright to play the system are newspapers like the Daily Telegraph with their constant diet of tax avoidance tips.

Here’s one taken at random:

Tax changes announced in the Budget mean high earners should consider turning income into gains.

Accountants said this manoeuvre cold cut tax bills by more than half because Capital Gains Tax (CGT) is levied at a fixed rate of 18pc while the top rate of income tax is currently fixed at 40pc and set to rise to 50pc in April 2010. Carl Bayley, a chartered accountant from TaxCafe.co.uk advises high earners to consider investing in property.

He said: “This allows you to convert heavily taxed income into leniently taxed capital gains. A property investment funded with debt will produce only modest amounts of taxable income after deducting interest costs. When property values rise eventually, such investments will yield capital growth which will only be taxed at 18pc when sold.”

Another option is to invest in a family-owned business which could hold even greater scope for tax relief- as entrepreneurs relief means you may only pay 10pc tax.”

2 Responses to Imaginative MP expenses are not that different from tax avoidance

  1. Tax Research UK » Imaginative MP expenses are not that different from tax avoidance |
    May 13th 2009, 9:03 am

    […] see I‘m not the only person to have noticed this: Nigel Stanley at the TUC has done so as […]

  2. Imaginative MP expenses are not that different from tax avoidance | | called2account
    May 13th 2009, 11:40 am

    […] see I‘m not the only person to have noticed this: Nigel Stanley at the TUC has done so as […]