View from City Road: There's tax gold in those loopholes

Gordon Brown, the Shadow Chancellor, may be on to a winner with his proposals for a clampdown on tax avoidance and tax relief for the better-off. One of the key reasons for the reduction in the top rate of income tax to 60 per cent in 1979 and then to 40 per cent in 1988 was to reduce the incentive for wealthy people to spend a small fortune on tax advisers to shelter a larger fortune from the Inland Revenue. In this respect, the reform has clearly not worked.

The Business Expansion Scheme, originally intended to encourage the funding of risky start- ups, is now abused to provide a tax shelter for essentially risk-free ventures that can give a higher rate taxpayer a rate of return of 13-14 per cent a year. Although BES is to be abolished at the end of the year, the Government could have moved more quickly. Any replacement should rigorously meet the original criteria. Tax relief on private medical insurance is also debatable, as is the tax relief on executive share option schemes.

There could also be a tax yield from a close look at the rules governing trusts, and from a re-examination of the UK residency requirements. Mr Brown argues that Britain is lax. But he must be careful. An exodus of highly mobile City communities like the Greek shipowners is in no-one's interest.