Chancellor Bottles Tax Avoidance In The 2011 Budget

It was budget day yesterday in the UK.

Overall I thought George Osborne did a pretty good job.

We know that the economy is in a bad way thanks to the spending splurge by the Labour government at the wrong time in the economic cycle - so much for Gordon Brown's golden rule of keeping national debt below 40% of GDP.

But I was very disappointed with what I've heard and read about actions taken on tax avoidance.

Just to be clear, tax avoidance is legally paying as little tax as possible and tax evasion is illegal paying as little tax as you can get away with.

We hear a lot about the workshy benefit spongers who rip-off the honest, hardworking majority of tax payers but little about the other end of the spectrum - the wealthy people (including the bankers and football players) who use every trick in the book to avoid paying a fair amount of tax on their income.

It is a moral dilemma.

First I believe that everyone has the right to structure their affairs in a way to pay the least tax they should. If you've got too much income, it's better to give the money to charities who will spend it wisely than to governments who will fritter it on politically correct but wasteful schemes.

Second, I believe that accountants have a moral, ethical and professional duty to make their clients aware of ways that they can reduce their tax bills. It's not the accountant's job to make moral judgements on whether their wealthy clients should dodge tax.

But I also believe that those who can afford to pay more ta should pay more tax without having tax rates so high that they destroy incentives and initiative.

The problem lies with the creators of the tax policies.

The rule makers who create the opportunities for the tax avoidance industry - which is exceptionally well rewarded by the way, thanks to "value pricing" where the tax saved is split between the tax payer and the accountant.

George Osborne said that tax avoidance cost HMRC £14 billion in 2008 - that's 14,000,000,000.

Not much more than a drop in the ocean to the annual deficit (how much extra we owe this year, let alone the national debt (how much we owe in total). It drives me mad that the media, politicians and political commentators confuse the two concepts.

But when you stop playing with telephone numbers, it's a hell of a lot of money when you turn it into real things - like extra nurses or policemen or chaanges in VAT.

I don't understand the details but George Osborne announced policy changes which he expects to raise £1 billion.

We're losing £14 billion and the chancellor says he is taking action on £1 billion - just 7.1%.

What a cop-out.

And that's assuming that we believe his £1 billion estimate of what he can recoup.

It's easy to claim, much harder to do.

Richard Murphy of Tax Research UK was particularly condemning of the Chancellor's actions. He said

"It's the biggest boost in the arm for the tax abuse industry that it's had in a long time... These are token gestures. If he was really serious, he would give HM Revenue & Customs a couple of billion a year to tacke this. I reckon they could raise £20 billion."

Ouch.

This is money the country needs.

I welcome the actions George Osborne has taken to make it easier for entrepreneurs to secure financial success. Profit is the reward for risk taking.

It is the system that's wrong.

He had a chance to change the system but he bottled it.

What do you think?