Peter Hoskin

A tax battle that the government won’t be able to avoid

The government is very pleased with itself today for closing a couple of tax loopholes such that Barclays will have to pay £500 million more to the Exchequer. And little wonder why. Not only does it support their rhetoric about a ‘tougher approach’ to tax avoidance, but — on the principle that ‘every little helps’ — it also hammers another few chips from the deficit.

Broadly speaking, this sort of action is uncontroversial. In the battle of wits over taxation, the government is well within its legal rights to close loopholes, just as companies are well within theirs to exploit them. But this case is complicated by the fact that the law has been changed retrospectively, precisely in order to secure that half a £billion from Barclays. As Allister Heath says in his City AM column today, that could ‘set a dangerous precedent’.

It also raises questions about the tone and emphasis of the forthcoming Budget. David Cameron said last month that ‘one of the things we’re going to be looking at this year is whether there’s going to be a more general anti-avoidance power that HMRC can use, particularly on very wealthy individuals’ — which is fine. But if the Budget also comes with greater taxes on wealth, or few tax breaks for business, then it is likely to escalate the wider argument about which tax systems are best for growth that is already simmering in Tory circles.

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