Highest earners should ‘pay the most’, says Timms

Being rich will not be all its cracked up to be in 2010, as the government takes a bigger chunk away from high-earners and gets key backing from the courts on residency disputes.

If you fit into this bracket, you’ll just have to grit your teeth as the government tries to half the UK’s spending deficit, says Stephen Timms, the Treasury’s financial secretary.

The government’s package of tax rises, including the 50% rate and restrictions to national insurance allowances, is set to rake in £19bn by 2013/2014.

“We’re coming through the worst economic difficulty for 70 years. We do think it’s only right that the highest earners should pay the most,” Timms said at the Taxing Our Way Out event sponsored by the Smith Institute and The Oxford University Centre for Business Taxation.

Addressing an audience of senior figures from the UK’s business, accountancy and academic worlds as last week’s Budget loomed, Timms refused to shy away from saying the rich would be central in efforts to reduce the black hole in the public coffers – which, of course was borne out.

The government’s sustained attack on intricate ways to avoid paying tax is a key feature of deficit-busting moves. The rich, with their offshore accounts and ability to relocate to low tax jurisdictions are prime targets.

“We will also be robustly tackling avoidance,” said Timms. Advisers will stress that avoidance is legal, while evasion is illegal, but the government has waged war with a raft of anti-avoidance measures in the last year.

The description is fitting, looking at the roots of avoidance legislation.
Section 739 of the Finance Act is the principal weapon used by HMRC to counter offshore tax avoidance, but its predecessor S18 was introduced following the First World War, at a time when there was an increasing flow of assets abroad due to the high levels of income tax and surtax.

The war hardened attitudes further, because tax avoidance was considered unpatriotic. Nine cases reached the courts during this period; the Crown was successful in each one, adding more legal weight to the taxman’s efforts.

In the present day, the government’s avoidance crackdown has turned to residency as the ability to jet in and out of the UK for a weekend has become widespread.

The Gaines Cooper ruling earlier this year said the government could go outside the strict 91 day test to decide whether people were resident in the UK. This has led high earners to think again about moving offshore because the goalposts have already been moved in favour of the taxman. For those who decide to stay here, Timms has set out his stall.

But, for all of Timms’ rhetoric, it looks like those who are less well–off will still lose out.

Timms conceded the tax­man had not seen the last of the swingeing staff cuts. Some HMRC staff will ultimately pay with their jobs as opposed to a slice of their salaries. “There are further reductions ahead,” Timms said.
In this case it appears some are just as equal as others.

Further reading:

smith-institute.org.uk

sbs.ox.ac.uk