“That rose you plucked?
It withered.
That girl you (made love to)
She imitated the rose
Don’t blame the
pluckers
Or the (lovers)
Peace be upon them
Roses wither even on the stem.”
From The Book of Faults by Bachchoo

Economics is a science of paradoxes. Keynes tells us that to get out of debt you should create some more. The Right-wing conservative chancellors and economists tell us that if you want increased amounts of tax from the rich, lower the percentages they have to pay.
Behind the first paradox is the philosophy of stimulus and growth. Behind the second is the idea that the fat cats will stop dodging tax if the official figures they have to cough up are reduced. I sort of support the first argument but am sickened by the second. If a government thinks that the fat cats are dodging tax because they have to pay 50 per cent of their massively inflated incomes and will dodge less if the charge is reduced to 45 per cent, they should change the tax laws and throw the dodgers in jail.
Now that the euro is in trouble there is ceaseless debate about the economies of Greece, Spain, Italy and even France. Out of these mainly obscure debates simple facts emerge, like fish bobbing their heads above a turbulent stream.
One is that very many firms, amongst them Amazon and Vodafone, who do billions of pounds of business in Britain, “legally” pay the British exchequer a very small proportion of the tax they should be paying. Accountants make a distinction between tax avoidance and tax dodging. For a country in serious debt, this distinction is a disgrace. All avoidance ought to be seen as illegal, but this government doesn’t have the guts to make it so.
This week two “celebrities”, Gary Barlow from the pop group Take That and Jimmy Carr, a popular comedian, were exposed by the Times as serious tax-avoiders. The paper targeted Barlow because he was chosen by the Royal Household to escort the Queen as the host of the pop concert at her diamond jubilee celebrations and they picked out Carr because his recent comic act depicted bankers with large bonuses as hypocritical parasites — they wanted to call the pot black as well.
The Times exposed Barlow as an investor in Icebreaker, which puts money into the music business. Icebreaker then declares losses and shares these with its investors, allowing them to write off tax from their earnings.
The exposé doesn’t detail the workings of the scheme but says that the “investors” then get loans from the company making the losses and these are tax-free.
If this is not perfectly clear to the reader, let me confess that it is not perfectly clear to the newspapers who have tried to explain it or to me. I can, however, tell you of my experience with a similar scheme.
Some years ago, I was hired as a screenwriter for modest remuneration by a British film company. The screenplays were written and production teams hired, often through my recommendations. A film was budgeted for, shall we say £1 million. Everyone involved in the actual production — writer, director, line producers, director of photography, actors, editors etc. — would be paid contracted sums. So far so good. There would be a finished film at the end of the process.
The government of the time, in order to stimulate the British film business without handing out subsidies, encouraged the growth of the country’s film industry by offering businessmen who invested in film companies a tax break. At the time they could invest 40 per cent of what they owed the government instead of paying it to the taxman. So a person owing the Inland Revenue £1 million in tax would pay £600,000 in tax and invest £400,000 in a British film. There was a clause which stated that this deferred tax would be collected 15 years later.
The film-making firm would then (using the £1 million film as my example) add a substantial amount to the budget in fees to “co-producers”, “associate producers”, personnel who were designated as “script advisers” and various other imaginative, invented titles and functions. These personnel, whose remunerations were added to the budget were, in fact, the people who had formed the company, their sisters, sons, pet crocodiles etc. They made up phantom salaries and sums for all these and would boost the budget of the film on paper to perhaps £5 million. They would thus create £4 million of fake investment which could then be assigned to any businessman who wanted to “invest in film” in order to offset 40 per cent of their tax liability.
The trick was to make films for £1 million by paying writers etc. much less than established companies would and make them look like £5 million products in what the trade calls “production value”. No one can pout exact figures on this quantity.
Icebreaker, working in the music industry, benefits from the same intractability of value. One can’t say exactly what a hit album or a flop cost to produce. The perpetrators of the scheme and the tax-avoiders shared the vast profits.
Unfortunately, shamefully, in parts of the film industry this was dubbed “the Indian fiddle” because all manner of Indian personnel and some conniving Indian accountants were seen to be enthusiastically operating the scheme. The epithet may be unfair and even racist as I know of other companies, white as the driven snow, who also participated in the scam. To anyone reading this who has grasped the mechanism of the fiddle and is tempted to try it, I can only say “too late”. The government caught on and plugged that outlet.
There are, of course, other fiddles of this sort and Gary Barlow and Jimmy Carr are using them. My prediction is that any political party that makes it a priority to plug all tax loopholes and combat tax avoidance with the enthusiasm of David going after Goliath will win the next British election.