Nov 09 2011

UK closes VAT loophole. Hooray

Posted by: Nick Shaxson in: Thoughts

I just got an email from someone which went like this:

Dear Nick,

I have just finished Treasure Islands and wanted to thank you for a very enlightening (and entertaining) read.  It is not an exaggeration to say that it has caused me to fundamentally re-evaluate my world view!  Needless to say, I will be recommending it to all around me.

Coincidentally, I woke up this morning to Radio 4 and a report that the UK government is to close the “Jersey tax loophole” that has allowed online retailers to sell low-value items (e.g. CDs and DVDs) VAT-free into the UK from Jersey.  Am I alone in finding the hypocrisy of this staggering – it’s ok for multi-billion tax loopholes, but one that actually benefits the public at large has to be closed!

Thanks again,

The Guardian has done a decent story on it here. I replied to him like this:

Dear X

Thanks for your kind words.  I have just tweeted the VAT thing and included ‘hooray (for once.)’ This was not something that benefited the public at large. Think about it like this: when a company like Jersey-based sells some DVDs through this loophole, let’s say there is a tax benefit of £100 relative to what its competitors might receive. It might pass on £60 of that to customers, then pay the remaining £40 to its shareholders and executives (I have no idea what the real numbers are). So you get the UK taxpayer losing £100, and then consumers getting only £60 back. That’s a clear net loss for ordinary people as a whole, and a clear gain for wealthy company executives and shareholders (which, in turn, will tend to represent the wealthier sections of society). This is about shifting wealth upwards, for no productive reason.

But there’s another cost to it. These companies can kill their smaller competitors. Those high street record shops (did you ever watch High Fidelity with John Cusack?): many, many of them have gone out of business: killed by the bigger players that are getting subsidies that have nothing whatsoever to do with providing better and cheaper goods and services, and everything to do with transferring money away from taxpayers. It’s an unproductive subsidy, like I described in Treasure Islands. (And when you get multi-billion dollar loopholes, you might see a bigger set of numbers, but the equation remains basically the same.)

So I see this move as a rare ray of light in an otherwise very dark picture. I am not sure the extent to which the UK was forced to do this by Europe; I heard words to that effect once but never investigated.

All the best


P.S. As I posted this, I note that someone put a comment underneath an earlier blog. It goes like this:

“Its good news that LVCR tax loop hole is closing. I’m a Jersey resident. Not all of us are without a moral compass.”

Indeed. In Jersey recently I remember talking to a foreign (Polish) long-term resident who described Jersey as ‘an island without values’. But I also met quite a few people who clearly do have a moral compass. And given the strength of the establishment consensus in favour of finance, and the repression meted out against dissenters, I believe that those in Jersey with moral values deserve extra praise.

And don’t forget the startling costs that are being meted out to ordinary Jersey folk.

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