Mayfair Tax Loophole September 2016
Thank you for contacting me recently regarding tax avoidance, and in particular the Mayfair Tax Loophole.
I share your concerns about tax avoidance. I know from the many letters and e-mails I have received on this issue that there is real anger and frustration at the allegations that some banks, corporations and wealthy individuals may have engaged in aggressive tax avoidance and, in some cases, tax evasion.
The Mayfair Tax Loophole is a current tax loophole which allows private equity managers to avoid paying the proper tax rate. By treating carried interest as a capital gain rather than income, private equity fund managers are able to pay tax on much of their income at just 28% - income which in a good year may be between £1.2 to £15 million or even more. In some cases, fund managers may lower this further to pay as little as 10% 4 (or even 0% if they are not domiciled in the UK). They also avoid national insurance contributions on such income. While I welcome the Government’s plans to close this loophole in the 2016 Finance Bill, I believe that much more needs to be done to tackle tax avoidance and unfairness.
At a time when the Government are proposing deep cuts to our public services and when households up and down the country are seeing their incomes squeezed, it is vital that we clamp down on tax avoidance and ensure that corporations, businesses and individuals pay their fair share of tax. I share the Shadow Frontbench's determination to press the Government for stronger action, particularly at a time when we need to safeguard revenues for our public services.
The 2015 Conservative manifesto pledged to close £5billion of tax loopholes by 2017, yet I was disappointed that the former Chancellor's Summer Budget delayed this target to the end of the current Parliament in 2020. It is also important to acknowledge that the current Government has failed to tackle tax avoidance over the last five years and that they lack a credible plan to do so now. Indeed, the amount of uncollected tax (the 'tax gap') has risen year on year under this Government and has now increased to £34 billion.
I welcome the Shadow Frontbench's pledge to create a fairer tax system and scrutinise the Finance Bill as it progresses through Parliament to highlight the need for improvements. The Shadow Frontbench have committed to ensuring that we close tax loopholes that cost the Exchequer billions of pounds every year, introduce tougher penalties for those abusing the tax system, and continue to end the unfair tax breaks used by hedge funds. I believe that by tackling tax avoidance in a concerted fashion we can both reduce the deficit and protect the family budgets of working people.
Thank you once again for writing to me and for sharing your views. I can assure you that I will continue to follow this issue closely and bear in mind the points you raise.