Labour will bring in tough new penalties to tackle and deter tax avoidance

Britain has always succeeded, and can only succeed in the future, as an open and internationalist and outward-facing trading nation, with enterprise, risk and innovation valued and rewarded.

But at a time when wages are stagnant and there are too many insecure low paid jobs, we cannot take public support for this open, global vision of a dynamic market economy for granted.

Business and politicians alike cannot afford to bury our heads in the sand and ignore the legitimate and mainstream concerns of people across our country that our economy is not currently working for them.

That’s why Ed Miliband and I want big changes to create an economy that works for working people and a recovery for the many, not just a few.

In July we published our document on reform of business tax which had four key principles: attracting long-term investment with the most competitive corporate tax in the G7, supporting enterprise and innovation, simplicity and predictability, and fairness so that everyone pays their fair share.

Tackling tax avoidance is a key part of our economic plan. A fair and robust tax system is vital if we are to bring down the deficit, safeguard our National Health Service and maintain public support for the dynamic open economy we need.

At the moment, we are going in the wrong direction. The amount of uncollected tax – the so called ‘tax gap’ – rose again to £34 billion in the latest year on HMRC’s own estimates. It’s up by £3 billion under this government and tax campaigners have suggested the true figure could be much higher.

That is why we have highlighted a series of areas where this government has failed in their responsibility to act swiftly and decisively, but Labour will deliver, such as closing down the Eurobonds loophole, addressing umbrella companies and false self-employment, tackling dormant companies and stopping avoidance by hedge funds.

We also need global reforms so that multi-nationals not only play by the rules, but the rules bring transparency and mean they pay their tax where their activity takes place. That is how we will judge the current Base Erosion & Profit Shifting (BEPS) process at the OECD and we will continue to push for developing countries to be fully involved.

But this agenda will only be delivered if HMRC has the powers and resources it needs to act. We have supported the introduction of a General Anti-Abuse Rule (GAAR). Those who set up abusive schemes should run the risk of being caught by such a rule.

But it is currently a GAAR without teeth. Those who are caught have to repay the tax they tried to avoid, but they do not face a penalty. There is still no disincentive to try and game the system. That is why Labour will bring in a tough penalty regime for the GAAR, with fines of up to 100 per cent of the value of the tax which was avoided. For the first time this will provide a tough and genuine deterrent to those who try to abuse the system and avoid paying their fair share of tax.

The public want us to be tough on the small minority of people who cheat the benefits system. They want us to be just as tough on companies and individuals who evade or aggressively avoid the taxes they should rightly pay.

Through measures such as this we can ensure that no-one pays zero tax at the top so we can get the deficit down fairly, invest in our NHS, and maintain public support for the dynamic open economy we need.

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Posted November 13th, 2014 by Ed