Vince Cable: Government cannot wash its hands of tax

Progressive taxation will not, of itself, neutralise the problem, which has to be dealt with at source

Related Topics

I am not surprised to discover that leading accountants are advising high earners in the City how to reduce the tax they pay on their bonuses. That is what tax accountants do. And that is what bankers do. Neither profession is affiliated to the Boy Scouts.

It is the Government which needs to explain why tax revenue is disappearing.

One major reason is that the 50 per cent top tax rate, in isolation from wider tax reform, was tokenism: waving the red flag rather than cracking the whip. An obvious loophole, so obvious that it hardly needs experts to identify it, is the disparity between income and capital gains tax rates. Payment in shares which appreciate in value generate a capital gain taxable at 18 per cent instead of the 40, then 50 per cent, paid on earned income over £150,000.

The danger of allowing big differentials to arise between taxes on earnings and capital was clearly understood by Nigel Lawson and the last Conservative government, which taxed them at the same rate. This Government's enthusiasm for incentivising entrepreneurs led to a tapered rate, then widely abused and now abolished, leaving a gaping hole in the defences against tax avoidance.

Another tax boost to bankers' bonuses is continuing higher rate relief on pension contributions. The Government has removed relief for earnings over £150,000 but that still leaves over £100,000 which enjoys the relief.

And those with entitlement to non-dom status will also have calculated that it is worth paying the Government's poll tax of £30,000 if they can continue to channel income or capital gains offshore, outside UK tax.

I am not a tax accountant and I am almost certainly underestimating the scale and scope of tax avoidance under the highly abusive, complex, structured arrangements designed by specialists for the banks' clients and staff. The Government has, in recent years, moved towards an Australian-style general anti-avoidance rule in order to help HMRC combat abuses and it is unclear whether these new bonus-related schemes have cleared that hurdle. If they have, someone in HMRC is being taken for a ride.

Progressive taxation has a role in tempering the bonus culture but it will not, of itself, neutralise the problem which has to be dealt with at source. Bonuses for trading have provided incentives to take excessive risk which has put financial institutions in danger, and made the taxpayer liable. More sophisticated share price-related bonuses have elevated short-term financial targets above sound long-term investment. The sense has been completely lost of bonuses as rewards for exceptional performance.

The Chancellor is eloquent in his condemnation of the results, but he declines to use the powers that are available to him through government shareholdings in the publicly owned banks or the Government's wider role, through the Bank of England, as guarantor and lender of last resort to banks in crisis.

He must demonstrate this week that he is willing to act and not continue to behave like someone competing with Pontius Pilate in a handwashing competition.

The writer is Treasury spokesman and deputy leader of the Liberal Democrats

React Now

  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Recruitment Genius: Senior Digital Marketing Consultant

£28000 - £45000 per annum: Recruitment Genius: A Senior Digital Marketing Cons...

Recruitment Genius: Assistant Stores Keeper

£16640 - £18500 per annum: Recruitment Genius: An Assistant Stores Keeper is r...

Recruitment Genius: Claims Administrator

£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

Recruitment Genius: Software Developer - C# / ASP.NET / SQL

£17000 - £30000 per annum: Recruitment Genius: Developer required to join a bu...

Day In a Page

Read Next
Mosul falls: Talk of Iraq retaking the town, held by IS since June, is unconvincing  

Isis on the run? The US portrayal is very far from the truth

Patrick Cockburn
Ed Miliband:  

Ed Miliband: I pledge to make Britain a more just and equal country

Ed Miliband
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Russell Brand's interview with Ed Miliband has got everyone talking about The Trews

Everyone is talking about The Trews

Russell Brand's 'true news' videos attract millions of viewers. But today's 'Milibrand' interview introduced his resolutely amateurish style to a whole new crowd
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living
Increasing numbers of homeless people in America keep their mobile phones on the streets

Homeless people keep mobile phones

A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before
'Queer saint' Peter Watson left his mark on British culture by bankrolling artworld giants

'Queer saint' who bankrolled artworld giants

British culture owes a huge debt to Peter Watson, says Michael Prodger
Pushkin Prizes: Unusual exchange programme aims to bring countries together through culture

Pushkin Prizes brings countries together

Ten Scottish schoolchildren and their Russian peers attended a creative writing workshop in the Highlands this week
14 best kids' hoodies

14 best kids' hoodies

Don't get caught out by that wind on the beach. Zip them up in a lightweight top to see them through summer to autumn
Robert Fisk in Abu Dhabi: The acceptable face of the Emirates

The acceptable face of the Emirates

Has Abu Dhabi found a way to blend petrodollars with principles, asks Robert Fisk