ISAs, tax avoidance and beards: why some criticisms of UKUncut are just stupid

This post was written by Owen on February 13, 2011
Posted Under: Economy,Philosophy

LibCon today has a link to a poll commissioned by the FT showing that around 60% of those questioned agreed that it was wrong for companies in the UK to avoid tax, despite its legality, while only 15% disagreed. This, as the FT points out, is good news for UKUncut and their anti-tax avoidance campaign (though their focus seems to be shifting to banks at the moment).

As now seems to be inevitable every time UKUncut is mentioned, a LibCon reader’s left a comment on the post trotting out the usual line that we all avoid tax to one degree or another, (by having ISAs, for example), so it’s absurd to criticise companies when they do the same thing as everyone else but on a larger scale. The argument here is basically that questions of degree are irrelevant: anything anyone does to reduce the amount they pay in tax is tax avoidance, and given that no one has any problem with that, UKUncut can’t consistently criticise the likes of Vodafone, Boots and Philip Green for what they do. This is an argument employed time and again by opponents of UKUncut (many of them in comments threads on LibCon), and it was also used by Jeremy Paxman in his discussion with the group’s spokesperson on Newsnight the other week (see about 1:50 onwards in this clip).

This is crap. More specifically and less vulgarly, it’s the continuum fallacy, also (according to Wikipedia) rather wonderfully known as the fallacy of the beard. There’s nothing inconsistent in holding both that someone on a modest income who puts a few grand by in an ISA for a rainy day is acting perfectly ethically and that a company which registers itself in Switzerland to reduce its tax bill by hundreds of millions of pounds is doing something wrong. It is, as Wikipedia points out, exactly as stupid as claiming that there can be no such thing as ‘a heap of sand’ because you can’t specify how many grains of sand you need before they become a heap.

Some individual tax avoidance probably should be condemned (as Philip Green has been – though targeting every well-off plumber who takes payment in cash under the table when they could afford to pay the tax is probably tactically unfeasible), and maybe some corporate tax avoidance shouldn’t; where and how the line should be drawn is an extremely tricky question. But the mere fact of that question’s existence doesn’t undermine UKUncut’s case in the slightest.

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Reader Comments

Captn Tripps

Some tax avoidance is good, while some is bad. If only there was some kind of authority which determines which is which?

Oh wait, what about Her Majesty’s Revenue and Customs?

This is the main problem in the UKUncut campaign. Large businesses avoiding paying as much tax as possible, regardless of how distasteful it appears, is perfectly legal. Forcing a few high street shops (or banks) to shut for a few hours every few weeks is totally the wrong approach towards changing flaws in our tax code.

You really can’t expect to guilt trip a large company to pay more tax… if that is the intention then UKUncut just forsake sense for publicity.

#1 
Written By Captn Tripps on February 13th, 2011 @ 6:52 pm

See, here you’re what we in the trade call ‘wrong’. Tax avoidance is by definition *legal*, the argument is that it’s wrong. Morality and law aren’t the same thing; in theory the former should inform the latter (though that nuance seemed to have been lost on Paxman in that youtube clip above). And no, I don’t think UKUncut magically expects companies to grow a conscience (though I’ve yet to see any evidence that all companies do their absolute utmost to avoid tax at all times – it seems to me that it’s just that free-market dogma says they should). I always assumed the aim (well, one of the aims anyway) of UKUncut’s actions was to raise awareness of these companies’ actions among the general public (who are also consumers) and bring popular pressure to bear on the companies to make them change their behaviour. Kind of a well-established campaigning strategy really.

#2 
Written By Owen on February 13th, 2011 @ 7:07 pm
Captn Tripps

Well-established, sure, but in my memory it has not been effective.

It is in the interest of every business, from sole-trader to corporations to pay as little tax as possible. Some call it dogma, some call it good business. Accountants are paid good money to recognise such loopholes.

Are they expected to ignore these opportunities? Will “We paid £Xm tax last year” be the new “carbon neutral” as a marketing strategy to capture new customer’s imaginations? Do you think UKUncut are legitimately seen as a threat by those targeted? Are Vodaphone’s customers leaving in their droves, because this issue is such an important decision factor for them? Is it just a matter of time before they have to close all their offices, ruing their hubris causing their profits to fall?

I say no on all counts.

#3 
Written By Captn Tripps on February 13th, 2011 @ 10:34 pm
Rob

I see your point, but there are two (in my opinion) decent counter-arguments:

Firstly, if we start from the assumption that ISAs are OK, how does this help us to decide what’s OK for a large corporation? On the face of it, several million pounds is considerably more than the hundreds of pounds per year I save by having an ISA rather than a regular savings account. However, a company is considerably larger than I am; it owns more property, employs more people, has greater costs and performs many more activities than I do. *Of course* the scale of tax avoidance is larger for a company than it is for an individual, for no greater reason than that such companies are liable for far more tax in the first place. The scale *alone* is not enough to make a convincing argument that such avoidance is wrong.

Secondly, and – to me – more importantly, there’s a question of principle. When we establish laws and moral codes, we do so knowing that we cannot predict all possible future behaviour of those who will follow these codes. The deal is that “the rules are the rules” and everyone follows them. The rules are applied equally and without prejudice. If you don’t like those rules, there are established procedures (viz. passing legislation) by which they can be changed. The rules are such that tax avoidance is legal, and the scale of tax avoidance is irrelevant to this. There’s no real provision for arbitrary or retrospective judgement that some level of avoidance constitutes “too much”, provided that no laws were broken.

Now, you might think that I’m missing the point, and to a certain extent I am – and deliberately so. I’m talking about the law as it is, without really debating the rights and wrongs of it. From this perspective, campaigning against Vodafone, or Phillip Green, or whoever, is entirely stupid – the problem is the law. I can sit here saying that the scale of avoidance is irrelevant because, in reference to the law, I’m entirely right. But I’m not committing the continuum fallacy or anything like it, I’m just arguing from a different premise. I suspect that those you quote are doing something similar.

I could argue that you’re committing some grave logical error by focusing on individual cases and ignoring the legal underpinning, but I think what you’re really doing is arguing in favour of outcomes that you would consider to be fair. And I totally agree with you – it’s not fair that the law allows the kinds of avoidance that it does (and, perhaps, prevents some others that should be allowed). My point is that if you continue to argue that some cases of avoidance are wrong, without spelling out the clear criteria for doing so, you will always face resistance from those people who favour a clear, understandable and universal set of legal principles – even at the cost of some abuse of the spirit of the law – over a more arbitrary system of unpredictable judgements. There’s a value in simply knowing where we stand under the present system, and if you want to replace it you need to make it clear where we would stand in the future. The notion that tax avoidance is OK, unless it gets so big that it’s not OK, does not constitute a clear enough principle for people like me (otherwise sympathetic to your view) to support.

#4 
Written By Rob on February 14th, 2011 @ 3:17 pm
D

The point of an ISA is to provide tax relief on income from individuals’ savings, up to a threshhold. Practically, it means that the value of these individual investments are less likely to decrease over time, giving ordinary people access closer to the preferential rates wealthier savers get.

The legal framework which allows companies to operate internationally has a lot of intentions, but among them is not ‘so they can register all their profits in low-tax companies and move all their losses to places where they can get tax relief on them’.

ISA Legislation is 1) an intentional outcome of legal framework and 2) probably justifiable to most people as a subsidy for small-scale savings (how progressive ISAs are is up for debate).

UKUncut protests target companies using tax loopholes to make fat profits, 1) abusing failure/incompleteness of legislation and 2) doing so for no good purpose.

#5 
Written By D on February 14th, 2011 @ 8:31 pm
Rob

D, I think we can apply the POSIWID principle here. Whether or not the law was intended to allow certain types of behaviour, the fact remains that it *does*. Until the law is changed, companies avoiding tax are simply exercising their legal rights, and as such there is no meaningful way of stopping this behaviour.

Of course, we can campaign against particular examples. But this will not solve the problem, and at best it will result in a handful of the hundreds of companies using this strategy paying a small portion of extra tax. The strategy is actually extremely arbitrary, because it will focus only on those companies that are most visible (e.g. Top Shop and Vodafone have a UK-wide High Street presence; an equivalent manufacturer or pharmaceutical company does not). Protesting against certain companies may feel good, and may even result in some ‘victories’ now and then, but if you want real change you have to figure out where the current situation came from.

We can either decide that the political system is fundamentally honest and made a good faith attempt at creating a fair tax system which simply failed to live up to its aims, or we might conclude that – sometimes – the political system is too open to influence by lobbyists who persuade ministers to open up loopholes in legislation on behalf of their clients. Given what we know, a bit of both is probably true. But if we want to fix things, fixing the political system has to be the top priority. Campaigning against people for doing simply what the law allows ends up placing the responsibility for change in totally the wrong place.

#6 
Written By Rob on February 15th, 2011 @ 7:04 am
straus

The distinction is between morality and legality.

UK Uncut is conducting a crusade against companies they regard as morally reprehensible. Religious groups carry on similar campaigns against organizations promoting pornography, distributing images of the Prophet and carrying out abortions.

The question is – do these people have the moral right to actively impede other people from going about their lawful business?

Generally, I would be very wary about endorsing this kind of moral absolutism, whatever the cause.

It would be a different matter entirely were UK Uncut merely staging protests that did not actually necessitate the closure of shops, suspension of business etc. But, as far as I can judge, their purpose is actually to disrupt businesses rather than merely draw attention to the issues they feel strongly about.

#7 
Written By straus on February 15th, 2011 @ 11:56 pm
garrilla

Stuff likes ISAs is not avoidance anyway, its relief.

Moving money through accounts, jurisdictions, and other gestalt mechanisms to find, surprisingly, that you have no tax due is avoidance.

#8 
Written By garrilla on February 18th, 2011 @ 12:57 am
cyberbint

If the law were applied equally in all cases I have no doubt that UKUncut would not exist, and the campaign target would be more for a change in the law.
The simple fact is that the law is NOT applied equally in all cases.
Firstly, Corporate & high net worth personal tax law is notoriously complex, and an expensive army of professionals us needed to minimise tax liability. Anything that costs to apply is not equally available to all. The plumber who takes cash in hand is evading tax, which is illegal. Could that plumber afford tax professionals of Green’s advisor’s quality, the plumber’s partner could register off-shore as the contracted corporate, the plumber be paid minimum wage & tax avoided rather than evaded.

Second, even if you dismiss the argument about cost barriers to rule-playing advice, HMRC are also not the bastions of equal application if said rules you make them out to be. HMRC can, and regularly do, ‘negotiate’ settlements with organisations with bigger legal budgets than others. This provides a second way for the wealthiest corporations & individuals to buy their way out of tax liability, where HMRC will ‘settle’ for a lesser, or interest-free staged, payment than strict (and fair?) application of the law requires.

Lower worth individuals & smaller firms are simply not pursued equally to higher worth individuals & multinationals by HMRC, for a host of reasons, very few contained in law.

#9 
Written By cyberbint on April 13th, 2011 @ 9:58 am

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