Moral lather

Exchequer secretary David Gauke seems to want me to feel guilty about paying my window-cleaner in cash.

I have never tried offering him payment by cheque, card or even BACS, but I imagine he wouldn’t be keen, for good commercial reasons.

And unless he has been extraordinarily badly advised, I don’t suppose he is VAT-registered - although maybe a government spokesman will pop up before long to suggest small traders have a moral duty to voluntarily register.

Mr Gauke's remarks follow George Osborne denouncing aggressive tax avoidance as ‘morally repugnant’ and Nick Clegg describing the use of tax loopholes as ‘perfectly legal but morally questionable’.

All of which points to a complete muddle. As (Taxation contributor) Robert Maas has argued, our politicians should stop trying to label avoidance as a moral issue and concentrate on making sure tax legislation is fair and properly drafted.

And yet, there is a place for morality in tax policy.

Just over half way through his 1853 Budget speech (the one that lasted almost five hours) William Gladstone announced the abolition of soap tax.

With hindsight, it’s difficult to understand why soap was ever subjected to its own tax, but at the time it was a significant revenue-earner, contributing £1.1m of the government’s total £52.9m tax take. That’s about the same proportion (2%) that alcohol duties contributed in 2011/12.

Prior to Gladstone’s Budget, several attempts had been made to get rid of soap duty because it was charged by weight rather than value, so cheaper products bought by the poor were disproportionately taxed.

And it made exports uncompetitive, spawned a lucrative trade in soap smuggling – and, to prevent tax avoidance, Parliament had made it illegal to make soap in small quantities.

But Gladstone had an even more powerful reason for getting rid of it:

‘The question of the African slave trade is one which excites different feelings among us… but all agree that the promotion of legitimate commerce would be the most satisfactory, the most effective, and the most desirable of all instruments you can apply.

‘It may be said there is a wide interval between the premises and the conclusion if I say, in order to extinguish the slave trade, repeal the soap tax. But a connexion more legitimate than this any gentleman cannot well imagine.

‘The map would show how many are the rivers of the coast of Africa; those rivers may for the most part each become depots for the trade in palm oil. The quantities you may receive from that source are almost immeasurable.

‘There are the great materials for a trade which, if you only relieve it from restraint, will show that the energy, the capital, and the intelligence of the country are as well entitled to carry away the palm in this particular industry as they show themselves to be in so many other trades.’

Now, that is a moral argument worthy of respect.