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December 08, 2006

Richard Murphy

Start with the wrong question and you'll never get the right answer. The question asked is this:

How much does tax evasion cost the UK? Start at £75 billion

Well, no. The correct answer is nothing. 'The UK' is all of us, the entire economy, tudo, everything. If some money is not paid over in tax that doesn't mean that the UK has lost or cost anything. If the money is in my account, or Richard's, rather than the Treasury's, there is no loss there at all. (There's a likely argument that it has actually gained, given the relative productivity of government and private spending but that's a story for another day.)

What Richard means is, how much does tax evasion cost the UK Treasury? To which the answer might well be £75 billion. But it would be a tragic and awful world where it really was true that the UK Treasury and the UK are regarded as one and the same thing, wouldn't it?



December 8, 2006 in Taxes | Permalink

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Comments

If the companies who aren't paying tax have foreign investors then presumably 'the UK' is losing out since the money will be going abroad. Admittedly this will only be a proportion of the tax evaded and the rest will, as you say, stay in the UK.

Posted by: newparadigm | Dec 8, 2006 3:53:42 PM

Whatever it is, the figure's been plucked out the air.

Posted by: Dennis Howlett | Dec 8, 2006 4:01:45 PM

I'd guess that a good chunk of the massive VAT carousel fraud finds its way abroad, so that will cost us UK taxpayers as the Treasury has to make good the shortfall from somewhere.

Though Dog knows how much it is.

Posted by: Jeff | Dec 8, 2006 7:49:12 PM

Which raises the philosophical question, Tim, of tax in itself. Without any tax, how are public works funded? Would it be a series of private companies who ran them and how would they turn a profit?

Tim adds: No, James, it doesn't raise that question. That is a rather different one from the identification of the tax exchequer with the nation, don't you think?

In the one we have l'etat, c'est moi. In the other we have moi, c'est moi, eh, bien (my French fails here) how do we pay for l'etat?

Posted by: james higham | Dec 8, 2006 8:29:56 PM

I think it was you earlier this week who was saying things should be presented in a way people can understand, so really what they should say was "The average taxpayer could be paying £1,750 more tax because of tax evasion"

Posted by: Matthew | Dec 9, 2006 12:44:33 AM

Tim:

You're taking for granted that the tax evasion activity was costless, so that no rent dissipation was involved. I don't think that's a reasonable assumption.

Posted by: guest | Dec 9, 2006 12:53:52 AM

In anyone else's hands, Tim, I'd call this "utter pedantry".

But since you're a succesful economist, I'll assume that there's a profound point being made that I'm missing.

Tim adds: Tsk. I'm not an economist. Just an interested amateur.

Posted by: Flying Rodent | Dec 9, 2006 12:58:01 AM

Matthew, Tim's point was that it doesn't cost the average tax-payer anything.
Guest's point I think somewhat limits Tim's, but if you ignore the costs (which are considerable, but are not likely to be £75 Billion) of evading tax, then the evaders will be saving exactly as much as the others are paying in addition.

International tax issues (an area in which I have a little training) complicate matters a little, but can be reasonably ignored. UK Taxpayers benefit considerably from their ability to evade the taxes of others, substantially offsetting the others who evade British taxes. It is also worth noting that large numbers of foreign tax evaders use Her Majesty's territories to evade taxes and launder money, much to the profit of Her Majesty's treasury. The Isle of Man does not have to get by entirely on TT tourism.

Posted by: James of England | Dec 9, 2006 2:59:47 AM

Maybe i should have said 'typical' not 'average' as surely the distribution matters though James? If it is more skewed than the distribution of tax-paying, which seems likely, then there will be losers. E.g. If 1,000 people aren't paying £75bn of taxes they owe, then everyone else is paying £75bn more, presuming the government is raising the same revenue.

Posted by: Matthew | Dec 9, 2006 9:27:58 AM

I should add I don't disagree with Tim's point about the term 'UK'. I think this is most silly when the press talks about a debt crisis, when in fact (presuming its not foreign debt) most of the debts are matched by UK savings - might as well talk about a glut of savings. Though again distributory effects will play a part.

Posted by: Matthew | Dec 9, 2006 9:29:40 AM

75 billion is about 20 percent of total tax take ... off the bat that is way too high an estimate of tax evasion.

Posted by: johnnybonk | Dec 9, 2006 4:30:30 PM

"the money will be going abroad"

Just "going"? To random addresses can we suppose? Might I expect to be sent some? And how exactly? Wrapped in brown-paper bundles?

Posted by: John Fembup | Dec 9, 2006 8:35:52 PM

Matthew, yes, I think that I'd agree that there are high distributionary costs to the level of tax evasion suggested. If it is 20% of the full take, then I'm guessing that it includes some fairly generous estimates for middle class evasion, too. I don't know if the middle class evasion is less than or more than the costs of evasion, but I can imagine that being the ballpark.
Still, it's then a different problem than the one Tim addresses. If we're doing that, then I'd add that widespread tax evasion creates a more positive environment for other illicit financial transactions and thus promotes crime, terrorism, etc. If your argument is that tax evasion is often an unfortunate thing, then I agree with you.

Posted by: James of England | Dec 11, 2006 12:03:56 AM