Tough On Tax Avoidance

'Tough on tax avoidance, tough on the causes of tax avoidance' - this is the phrase that jumped into my mind yesterday when I heard about the tax avoidance debacle - which hijacked Ed Miliband's big speech on welfare benefits.

At a stroke Labour lost the high moral ground which Ed Miliband had used to attack the tax avoidance efforts of big multi-national companies like Google and Amazon - when the Labour leader was forced to admit that he effectively condones the same behaviour when it comes to raising party funds.

The problem in that this game of high-profile public criticism is you can't be 'a little bit pregnant' yourself - which is a shame in some ways, from Labour's point of view at least.

Because that very effective slogan from the days of New Labour - 'Tough on crime, tough on the causes of crime' - is now dead and any hope of a re-write has now had to be abandoned and thrown straight into the bin.

Here's what The Guardian newspaper has to say.

Ed Miliband benefactor admits donating shares to save on tax

George Osborne demands Labour hands over £1.5m saved in tax via payments from businessman John Mills' company

ByRajeev Syal

The Tories and Labour became involved in a political battle over their donors on Thursday after Ed Miliband's most generous corporate benefactor admitted to handing over money in shares to save on tax.

George Osborne has written to Miliband demanding that Labour hand over up to £1.5m in tax alleged to have been avoided on a donation from the businessman John Mills' company.

The chancellor called for money to be given to HM Revenue & Customs after Mills told the Daily Telegraph it had been "tax efficient" to give Labour shares in his shopping channel firm JML. The admission is an embarrassment for Miliband, who last month criticised the internet search engine Google over its tax affairs.

The former Labour councillor said that if he had paid the £1.65m donation in cash, it would have meant that the government took almost half.

Asked why he made the donations in shares, Mills told the Telegraph: "To be honest with you, it is the most tax-efficient way of doing this. Because, otherwise, you get no tax relief on donations to political parties for understandable reasons.

"If you donate to a political party out of a tax-paid income, up until April it was 50%, and now it is 45%. That means if it is £100,000, the Labour party gets £55,000 and the government gets £45,000."

A spokesman for the Electoral Commission said it had been contacted by Labour prior to accepting the donation.

A Labour spokesman said: "John Mills' tax affairs are a matter for him. John has a been a Labour supporter for many years and we are grateful for his support."

In a letter to Miliband, Osborne wrote: "Can you confirm that the Labour party advised Mr Mills on how to avoid tax on his donation? Most importantly, will you now pass the amount of tax that has been avoided to the exchequer?"

The chancellor said the actions appeared to be "directly at odds" with Miliband's public statements, adding that the money was "needed to fund vital public services such as the health service and our schools".

Labour hit back by claiming that the Tories advise donors on their website on how to avoid paying tax on legacies.

According to the Conservative Party Foundation's website, it has "an inheritance tax-free status, which means that any legacy left for the party through it is free of inheritance tax. This is something you may want to consider talking to your solicitor about."

Miliband argued that Labour would be paying tax on dividends from the shares. "The reason John Mills gave us these shares is because he wanted the Labour party to have a steady stream of income, which we will get from dividends," he said. "The Labour party will be paying tax on these dividends, will be paying tax every year on these dividends, and that is what we will be doing."

He added: "My understanding of this – and this is what we checked with John Mills – is the reason he gave us the money in that way was because he wanted us to have a steady stream of income. Lots and lots of organisations receive donations on this basis."

A number of Tory donors have been criticised for paying large donations but not enough tax.

Sir Philip Green, the Topshop billionaire appointed as a government adviser in 2010, has been accused of avoiding a personal tax bill of £300m in 2005 when his Arcadia fashion business paid a £1.2bn dividend. The record-breaking payment was made to his wife, Tina, who lives in Monaco.

Labour last night defended the unusual donation method using shares, insisting it had been "declared in full" to a party funding watchdog, was in line with the rules and that they would pay tax on any future dividends.