Editorial: Tax attacks

David Cameron has made clear that cracking down on “tax dodgers” will be a big theme of this year. He kicked it off with a showy speech in the snows of Davos in January. He has one good chance to make progress this summer, when Britain hosts the leaders of the G8, the group of (self-defined) economic powers. The trouble is that his remarks don’t suggest he knows how to do it—or is prepared to take the steps he should.

He should read Paul Collier (£). Very likely, in a sense, he already has; in his Davos speech, he complimented the economist by name for his work on curbing tax avoidance, and Collier is also advising the government on the G8 agenda, although he writes here in a personal capacity. But Collier has done here what Cameron has not, at least in public: spelled out the steps that might recoup some of an estimated $21 trillion of global potential tax revenues. Britain is in a strong position, given that many lawyers and banks that help to set up offshore companies are in London. There is little incentive for Britain to act on its own as companies, or their profits, would slither to other domains. But it should apply leverage on the others to act.

The G8 should change the tax codes to make these manoeuvres illegal. But Cameron is shying away from this point; on his recent Indian trip, he said that he would not change the law. What, then, is he relying on to oblige companies and people to pay more tax? If the answer is only public condemnation of those felt not to pay an undefined “fair share,” that would be regrettable. In civilised countries, the payment of tax is one of the central bargains between people and government. When many countries are struggling to pay down deficits, it is inevitable and right that governments look everywhere for more revenue.

At the same time, the terms of that bargain need to be clear. Companies have a legal obligation to shareholders to do what they can within the law to maximise profit. Individuals have a right to be confident that if they have observed the law, they have discharged their legal obligations to the Revenue. That does not represent all their obligations to society, of course, but they are entitled to know where the legal obligation ends and the moral one begins.

That is one reason why Peter Kellner’s polls (£) are disturbing. People, it seems, condemn much more strongly the legal avoidance of tax by big companies and rich individuals than they do the breaking of the law, on a small scale, by people not so well off. A sense of fairness underpins that reaction, of course. But the lack of interest in the legal boundaries is unhealthy, and encourages a nasty sense that the court of public opinion is always right.

Cameron should change the law to tighten the loopholes that Collier clearly describes. To rely instead on people to pillory those companies or individuals who transgress an invisible line is not good for the country, and not just because it jeopardises the foreign investment that Britain needs. Anything else is an evasion of the responsibilities of his own job.