The 'zero-zero' economy: Labour announces new plans to crack down on large-scale tax avoidance

Party leaders talk tough on £34bn uncollected tax bill

Ed Miliband compared workers struggling on zero-hours contracts with people at the top who paid “zero tax” (Luke Macgregor/Reuters )

Tougher penalties for aggressive tax avoidance would be introduced by a Labour Government as part of a drive to end what Ed Miliband has dubbed the “zero-zero economy”.

In his speech today, the Labour leader compared workers struggling on zero-hours contracts with people at the top who paid “zero tax”.

Ed Balls, the shadow Chancellor, announced that Labour would give more “teeth” to the general anti-abuse rule (GAAR) introduced by George Osborne last year. The rule is designed to force tax-avoiding companies and individuals to pay what they should have paid, but Labour argues that it is not an effective deterrent. They say they would change the law so tax avoiders would have to pay twice the amount they had avoided to HM Revenue and Customs.

Labour claims the move would raise “tens of millions of pounds” through extra penalties, but would save taxpayers much more by deterring tax avoidance.

Mr Balls said: "There is still no incentive to try and game the system. That is why Labour will bring in a tough penalty regime for the GAAR, with fines of up to 100 per cent of the value of the tax which was avoided. For the first time this will provide a tough and genuine deterrent to those who try to abuse the system and avoid paying their fair share of tax.”

The shadow Chancellor added: “The public want us to be tough on the small minority of people who cheat the benefits system. They want us to be just as tough on companies and individuals who evade or aggressively avoid the taxes they should rightly pay.”

Mr Balls said: “Through measures such as this we can ensure that no-one pays zero tax at the top so we can get the deficit down fairly, invest in our NHS, and maintain public support for the dynamic economy we need.”

He claimed Britain was “going in the wrong direction” because the amount of uncollected tax had risen by £3bn to £34bn under the present Government.

Mr Osborne has said his new rule would help to combat what he called "morally repugnant" aggressive tax avoidance. The move was designed to reduce legal uncertainty about the difference between aggressive avoidance and legitimate tax planning.

Mr Miliband said: "This zero-zero economy is a symptom off a deeply unequal, deeply unfair, deeply unjust country, a country I am determined to change."