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Tax avoidance and benefit manipulation: a double standard?

Posted on 28 June 2017 by Aaron Reeves, Associate Professorial Research Fellow in Poverty and Inequality, London School of Economics and Political Science .
Tags: British Social Attitudes, benefits system, tax

British people appear far more interested in who gets benefits than who pays taxes. Almost every television channel has produced shows dealing with either benefit fraud (lying to the benefits office) or benefit manipulation (using legal loopholes). We are yet to see a show dedicated to tax avoiders or evaders. Of course, who pays tax is not been completely absent from public debate. The Panama Papers combined with a series of high-profile, tax avoiding celebrities have pushed this issue more firmly onto the agenda. Notwithstanding these events, the focus remains on the bottom of the income distribution rather than the top, suggesting that tax avoidance and evasion and benefit manipulation and fraud may not be considered moral equivalents.

This intuition turns out to be broadly correct. In the 2016 British Social Attitudes survey, respondents were asked their view of someone using a legal loophole to either reduce the amount of tax they pay or increase their benefit payments. Just over 60% of people believe it is wrong for the benefits recipients to use a ‘legal loophole’ while just less than 50% believe it is wrong for someone to use loopholes to avoid paying tax.

This non-equivalence also applies to illegally failing to declare cash-in-hand work. Consider someone who gains £500 by not declaring some casual work that has been paid in cash. If this person is unemployed and claiming benefits then nearly 68% of people believe it is wrong to hide this from the benefits office. But, if this person were in paid work then only 56% of people believe it is wrong to hide this extra cash from the tax office. Despite the fact that both are illegal, only half of people think tax evaders are doing something wrong.

What is particularly striking about this last finding is that it does not seem to be affected by how much people are hiding. If the person doing the extra work received £3,000 instead of £500 then more people certainly think this is wrong. But, the normative gap between benefit fraud and tax evasion remains stable.

But what about the behaviour of respondents; what would they do if they had gained £500 cash-in-hand for some casual work? Around 20% would not tell the benefits office if they were unemployed and around 24% would not tell the tax office if they were in paid work. Here, the gap between benefit fraud and tax evasion diminishes, suggesting people are much less willing to do either, even if they do not believe it is wrong per se.

One thing we cannot say based on these data is whether norms around taxes and benefits have changed over the last few years. Certainly, it is not implausible that the Panama Papers made tax avoidance and evasion much less acceptable. But benefit fraud and avoidance have been longstanding concerns in public discourse, a trend that goes back to the earliest days of the modern welfare state. It is therefore less clear whether Benefits Street and other shows like it have undermined the moral equivalence between tax and benefits.

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