Today’s guest writer is Paul Lawrence. Paul has been a Christian for over 30 years. He has worked in financial services for over 20 years, most recently working in risk management. He also has an MSc in Investment Banking and a strong interest in what a Christian approach money, giving and tax should look like.
What have Starbucks and Barclays Structured Capital Markets (SCM) got in common? No, this is not a joke but a very serious and emotive issue. One was criticised for not making a profit and therefore not paying UK tax and the other was criticised for being too profitable. And what is the difference between tax avoidance and tax evasion? According to Denis Healy the former Chancellor of the Exchequer, ‘The difference between tax avoidance and tax evasion is the thickness of a prison wall.’ However, currently the legal and moral distinctions are being blurred.
Now this may be controversial, but I am going to go for it anyway in the hope that it will act as a catalyst for a productive discussion, but I would argue that neither Starbucks or Barclays SCM has done anything wrong. My stance is not as an apologist for the City but as someone who is trying to cut through some of the political and journalistic hype. Starbucks did not make a profit so, rightly did not pay any tax. They did have a transfer pricing vehicle which allowed their brand to be owned in a different tax jurisdiction and so the UK business paid a foreign business to use the brand. This is legal and in fact many governments allow this as a means for large companies to do business and create jobs in their countries. Barclays SCM was providing a tax planning service to their clients, allowing them to minimise their tax liabilities. Was this aggressive tax avoidance? Most would say yes and at the same time fail to be able to define what aggressive tax avoidance is. Maybe we just know it when we see it. But again, what is the moral position?
I am sure most of us have at some time or other used Gift Aid as a means of ensuring that the charity we support gets the most possible income. If we are higher rate tax payers then we also claim the difference between higher and basic rate tax on our tax returns. This is clearly tax avoidance. Pension contributions and ISAs also have beneficial tax status – this is also tax avoidance. Legitimate business expenses reduce profit and therefore avoid tax. Nobody would raise objections to these forms of tax avoidance.
But what about the moral case? Well, Lord Clyde ruled “No man in this country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or to his property as to enable the Inland Revenue to put the largest possible shovel into his stores.” Ayrshire Pullman Motor Services and Ritchie v. IRC (1929). Surely morality is subjective and depends on the viewpoint of the observer. So what about the Christian viewpoint? Matthew 22 v21 gives Jesus’ reply when asked about the payment of tax “Give to Caesar what is Caesar’s and to God what is God’s”. That to me implies that we should pay the taxes we are required to by law.
So why are people so adamant that there are some who are not pulling their weight in the area of taxation? One answer is political – the old adage that ‘people vote Conservative because they want to pay less tax and people vote Labour because they want someone else to pay more’ may no longer be so clear cut but there are always people pointing the finger at someone else. He or she should pay more but I can’t. This, I suspect, is largely down to ignorance. The majority of the people in this country never have to complete a tax return and many of those who do leave it all to their accountant. Therefore it is easy to be led by politicians wanting to shift the blame for overspending to those who they demonise and say are not contributing enough. How many of us whilst condemning aggressive tax avoidance, turn a blind eye to illegal tax evasion from someone paying ‘cash in hand’ and not declaring it. It is easy to take a ‘moral’ stance against the faceless on issues we do not fully understand.
What would Jesus do?