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One law for the rich...

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Mark Easton | 14:47 UK time, Tuesday, 9 December 2008

A look at the "hidden economy" - but first, some words from George Bernard Shaw.

The law is equal before all of us; but we are not all equal before the law. Virtually there is one law for the rich and another for the poor, one law for the cunning and another for the simple, one law for the forceful and another for the feeble, one law for the ignorant and another for the learned, one law for the brave and another for the timid, and within family limits one law for the parent and no law at all for the child.

House of Commons Committee of Public Accounts HMRC: Tackling the hidden economyI found this exchange in today's Public Accounts Committee (PAC) report [1.44Mb PDF] on the "hidden economy".

A panel of MPs was trying to find out whether the taxman is doing enough to deal with an estimated two million people defrauding an estimated £2bn a year from the revenue.

    MP: If one of my constituents was caught, say, stealing £5 from a post office, they would undoubtedly be prosecuted and there would be consequences of publicity. Yet if a barrister steals several hundred by avoiding his tax, then there is no publicity and he is allowed to carry on regardless. It does seem a trifle unfair, does it not?
    Taxman: I can understand where you are coming from but we cannot prosecute everybody.

15/10/2929 (c) BBC - playwright George Bernard Shaw broadcasting from a studio in Plymouth in October 1929. This photograph is also from a special selection made available at the BBC 60th Anniversary Exhibition, held in Langham Gallery, London W1, 1982There are reasons, and I will come on to those - but when it comes to natural justice, it does seem that GBS was right when one measures the vigour with which the authorities prosecute the rich tax evader compared to, say, the relatively poor TV licence evader.

Q: How many people were prosecuted for TV licence evasion in 2005-6?
A: 157,452. (The Television Licensing Authority claims a 99.9% conviction rate.)
Q: How many people were prosecuted for tax evasion last year?
A: 69.

The amount lost through tax evasion is more times ten times that lost from people not paying their television licence. And the likelihood of a benefit fraudster being prosecuted is thirty times greater than a tax fraudster.

    MP: Our friends in the Department for Work and Pensions are prosecuting 60 cases per thousand benefit fraud cases. You are only prosecuting two cases per thousand hidden economy cases. I am not suggesting that you should rise to the level of 60 per thousand but two per thousand is very low, is it not? This is a tiny chance of being prosecuted if you are in the hidden economy. These are people deliberately evading paying tax.
    Taxman: It is a low number and we do have plans to increase it when we can apply the skilled resource to it.

The difference between tax evasion and TV licence evasion or benefit fraud is that it is hugely expensive to prove that somebody has defrauded the revenue. In fact, the revenue makes a loss on most cases: the cost of prosecution is around £30,000 and the average amount of missing tax detected is just £11,260.

Unless the tax involved exceeds £10,000 and the case has other features, such as involving a tax advisor or barrister, criminal prosecution will not be considered. The consequence, according to the PAC report, is that "there remains very little chance of someone in the hidden economy being prosecuted".

But just how assiduous is the revenue in prosecuting high-profile fraudsters like barristers?

    MP: What... schemes are you going to use in the future to try and tackle the hidden economy, particularly at the upper end of the scale?
    Taxman: We have got several things going on. We have got more than 20 projects. We are trying to do the same with builders and decorators and the like by matching publicly available information, maybe advertisements in the Yellow Pages or elsewhere, with our databases. That tends to be at the lower end. At the upper end of the scheme we have a project looking at barristers, for example 57 barristers who were in the hidden economy at some time in recent years.
    MP: What, barristers doing legal work in this country perfectly normally are not paying any tax at all?
    Taxman: Not paying any tax.

Builders and decorators are targeted then - and barristers too. How many of the 57 dodgy lawyers were prosecuted?

    Taxman: The project that identified 57 barristers as failing to notify has not, at this time, led to any prosecutions.


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