The Government must recognise the true villains of the Disguised Remunerations Scheme story

After witnessing the Government's actions over the last nineteen years, one might conclude that the Conservative party has been locked in a monomaniacal pursuit of the elimination of government debt regardless of who ultimately pays the price for that and how high the human cost of that pursuit is. The Government has realised now that it can avoid going into debt by instead forcing vulnerable citizens, those implicated in the use of disguised remuneration schemes, into debt, and taking that as tax.

Disguised remuneration schemes are forms of payment where the standard wage agreement is replaced with a loan, the terms of which are such that it is unlikely to ever be repaid. The upshot of this is that the payment is not then subject to income taxation or national insurance contributions. The historic use of these schemes, in some cases dating back twenty years, has recently come to light, drawing the attention of the current Government . Naturally enough, HM Revenue and Customs feels that they are owed the equivalent in tax that these payments would have attracted were they given as standard wages, and have sent those employed under these schemes massive one-off taxes to compensate.

Many of these employees - from both the public and private sector - cannot afford the charges they are accused of owing. They are social workers, construction workers, nurses, not rich tycoons hiding capital gains in far off tax havens who have the kind of wealth that corresponds to the values being demanded. They are hard working people on mid-to-low incomes and without significant savings, who are being charged amounts up to £100,000.  Acknowledging this tremendous burden, HMRC - with the express consent of the Treasury - has offered official advice to those who cannot afford the amounts being asked. That advice is to go into debt, either via remortgaging or by taking out sizable loans, telling these workers that “It is expected that you use every means to meet your obligations and pay the tax and interest liabilities that are due. This may include raising a loan or selling other assets.” For some, this will result in bankruptcy. Others face the prospect of working long into the retirement they were expecting to enjoy in just a few years. One man struggling under the weight of this Government pressure has killed himself, a Lord’s committee was recently told.

The Government's latest efforts to raise revenue and reduce the deficit are to retroactively target low income individuals and demand that they borrow to pay vast sums so that the Government doesn't have to.

To create the country that its residents deserve, we need to tax, and indeed tax at higher rates than we currently do, so that we can raise the standards of public services to levels that the public expects and deserves; adapt to the demographic changes that will drive up the cost of social care and state pension provisions; and generate the revenue for the additional spending that will be required as we find ourselves responding to a changing climate. The effort to raise this revenue is obviously undermined and damaged by tax avoidance and we should condemn those who seek to avoid contributing their fair share. But in this situation, the British state is targeting the wrong people.

It is important to be clear about what has happened here, and it’s easiest to do so by considering the two faces of the problem. Businesses were unable to pay wages at rates sufficient to attract the talent necessary for their work. To get around this, they artificially inflated the wages that they offered through a convoluted legal structure that avoided taxation on the payment they offered, creating a higher disposable income for workers through shady means.

The employee - the person who checks in on your grandmother once a day to help out with medication and meals, or the person you see most mornings at the construction site you walk past on your way to work - is just a person who wants a job, because they want to put food on the table for their family, to pay their bills, and to live a satisfying life. They get a job in which they are told they will be given payment in return for their labour, and are either unaware of or don't care about the legal niceties involved, and in any case don't get the option of opting for a traditional, lower wage instead. From their perspective, it’s just another job, in which they can go to work, get paid, and go about their lives.

I have no doubt that there's a bad guy in this story, but I cannot believe that it is the workers who contributed their labour and were just normal citizens making ends meet. This, however, is not the view shared by Government. As the House of Lords' economic affairs committee noted in a report that blasted HMRC for a culture of harshness (unfortunately another Government department has already laid a claim to the description ‘hostile environment’), the Government has done nigh on nothing to pursue the developers and promoters of these disguised renumeration schemes.

It is unclear how the Government intends to justify the enforcement of such an approach. Typically, taxation can be justified by the satisfaction of two conditions. Firstly, for tax to be considered legitimate, we require that the income or wealth of an individual is made possible by infrastructure maintained by the state, and hence contribution to the cost of that infrastructure is only fair. For the individuals implicated in the use of these disguised remuneration schemes, it is the case that their income was only possible due to state-maintained infrastructure, but here we encounter questions of timeliness of the demand of payment, and questions of intent and blame. It seems unreasonable to suggest that the intent here was in any way malicious - particularly for the many who were unaware of the use of the scheme - and the blame must be that of the unscrupulous businesses that used these schemes, and not that of the individuals who had no choice in the matter.

Secondly, however, we note that we normally consider the income or wealth gained by economic activity to be evidence of an ability to pay a contribution to the maintenance of the state, and hence our second condition for the legitimacy of taxation is that those taxed can in fact afford it. For the individuals the Government has decided to pursue, this second condition is clearly not satisfied. One woman is being charged one and a half times her annual pre-tax income. One man is being charged £100,000. These people can't pay these amounts, and despite HMRC's advice suggesting they go into massive debt, financial lenders have almost all told the Financial Times that they would not be willing to lend amounts of the size needed in this situation. Even supposing that the first condition we posit is satisfied, the second certainly is not, and we cannot consider the Government’s levy on these individuals to be legitimate taxation.

Ironically enough, this pursuit of justice by HMRC and the Treasury has raised legal questions of its own. The attempt to levy taxation on income from twenty years ago has been described by some as retroactive, and while HMRC maintains that it has always considered these schemes tax avoidance, some of those affected have questioned whether their actions amount to a retrospective change in the law. More recently and perhaps more compellingly, MPs have called into question the legality of HMRC offering what they consider debt advice, as this body is not on the FCA's list of approved debt advisers. It should be noted that this potential breach occurred only recently, and some time after the Lords condemned the culture of harshness.

Parliament has taken notice of what we should consider yet another of this Government’s many scandals. Nicky Morgan - the Conservative who chairs the Treasury select committee (and often an advocate of common sense in these matters) - has questioned how justifiable it is to pursue debts stretching back twenty years. Shadow Financial Secretary to the Treasury Annelise Dodds has asked the Government what exactly it has done to pursue the promoters of these schemes. A cross party group of 120 MPs have given their support to a campaign to change the law before the tax comes into effect. Parliament is not standing by while this injustice is carried out.

Given the human cost; the positive terms in which this approach is likely to fail; the normative terms in which this has already failed and will continue to fail; the pressure from the public; and the pressure from both houses of Parliament, why is the Government pursuing this policy? The chances are - as the Lords committee suggested in their report - that the Government are pursuing these individuals because they are the easiest target. In much the same way a mugger might choose a victim who seems ill equipped to defend themselves, the Government has targeted low-income individuals that are least able to contest claims, and most likely to be intimidated by the force of letters bearing the crest of Her Majesty's Revenue and Customs. While offering secret subsidies to car manufacturers and tolerating the almost non-existent tax receipts from technology behemoths, the Tory government has calculated that the billion pounds - less than a seventh of a percent of the Government’s revenues - that they hope to raise from this charge is worth the tens of thousands of families' lives that it ruins, because they're less able to respond than the firms that inflated wages with these schemes.

Going into bankruptcy to pay tax - a levy on income - is an absurd suggestion. Claiming to care about the just-about-managing citizens of the UK while bankrupting them is absurd. Paying for public services with money that has been taken from the wrong people, with money that is the result of a loss of home ownership, or the choice between heat and food, is not just absurd, it's immoral. While Parliament has the comparative strength that it currently has, it is vital that there is a strong cross-party push for legislation to pursue the real villains in this story, and grant amnesty to those who just wanted to earn a wage for a hard day's work.