Ordinary people are the true victims of off-shore tax avoidance schemes, a tax expert and anti-poverty campaigner has warned in the wake of the Paradise Paper revelations.
According to political economist Richard Murphy, director of Tax Research UK, wealthy people “cheating inside the law” by hiding funds in off-shore havens are driving up the taxes of law-abiding citizens.
“In terms of total tax, the vast majority is paid by ‘ordinary people’,” Murphy claims. “Around £700 billion in tax is paid in this country each year - of that, the majority is paid by ordinary, working people.”
His assertion comes as MPs and members of the public expressed outrage in the wake of the ‘Paradise Papers’ - 13.4 million files that reveal how the powerful and wealthy have secretly invested vast sums in offshore tax havens.
Labour MP David Lammy led the charge on Twitter this morning, saying “it is the poorest who pay the price”.
“My constituents struggling to make ends meet and reliant on stretched public services have every right to be furious about Paradise Papers,” he wrote.
“I’m sick and tired of promises but no action - we are seeing tax avoidance on an industrial scale and it is the poorest who pay the price.”
People also expressed anger on Twitter:
Murphy claims that a “straightforward equation” shows how ordinary workers are the ones feeling the effects of off-shore schemes.
“The simple fact is that governments set the amount of tax they want to collect,” he said.
“If they can’t collect it from the wealthy, who manage to hide their money in tax havens, they’re going to have to collect it from somebody else.
“Who are those other people? They are those who are working for a living, who are living in the UK, who are law-abiding and are doing what is required of them.
“So, the reality is that the tax payments of those people who comply with the law go up because some people are cheating inside the law.”
According to Murphy, “a lot” of middle class people in normal jobs are paying higher rates of tax than the wealthy “by a long way”. “There is an imbalance,” he added.
Meanwhile, HM Revenue and Customs (HMRC) claims that the total tax revenue for 2016/17 was £574.9 billion.
The department offered a breakdown of sources in its most recent annual statement (see below).
But Murphy, who is also a professor of political economy at City University, London, believes that the most “dangerous” element of tax avoidance schemes is that they could encourage others to follow suit.
“If some are not contributing, if some are free-riding, that encourages others to think: ‘Why don’t I cheat too?’ That’s the most important aspect of this,” he said.
“It’s rather like the MPs expense claims,” Murphy explained. “The amounts of money that were lost by the MPs expense claims were tiny, insignificant, totally trivial. But the point was, if they could cheat, why shouldn’t other people cheat? That’s what people said.
“And this is true with regard to the Paradise Papers. The wealthiest are cheating, are hiding and not being fully honest - why shouldn’t everybody else not cheat, not hide and be fully honest?
“So we see a knock-on effect and that’s what worries me most.
“Whether its a bit of self-employed income, rental income, a bit of tutoring on the side - all those bits don’t get declared and that’s why it’s so dangerous.”
According to Murphy, “almost half” of self-employed workers in the UK already hide some income from the HMRC.
A recent report from the Institute of Fiscal Studies (IFS) found over 50% of self-employed taxpayers working in construction, transport and hospitality were underpaying.
Murphy believes that while offshore havens cannot be banned, pressure must be put on the business model “until they’re deeply unattractive and people just give up”.
“It would mean that small businesses would know they are working on an even playing field with big business and that would be fundamental,” the tax expert explained.
“There then wouldn’t be a bias in favour of the wealthy, the large, the rich and the old and the new, younger business would have a much better chance of actually competing fairly.
“That would be good for the vibrancy of our economy as a whole,” he added.
But a government spokesperson told HuffPost UK that over the past seven years, an additional £160 billion has been secured for “vital public services” thanks to HMRC tackling tax avoidance, evasion and non-compliance.
“This includes more than £2.8 billion from those trying to hide money abroad to avoid paying what they owe,” they said in a statement.
“There are 26,000 HMRC staff tackling tax avoidance and evasion, and we have provided an extra £800 million to fund their efforts.
“A fair tax system is a critical and key part of our plan to build a fairer society, and we are clear that everyone must pay what is due, at the right time.”