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Tax avoidance plans rubbished as 'too timid' and 'a drop in the ocean'

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A day after Danny Alexander, the chief secretary to the Treasury, appeared before the Lib Dem conference promising new measures to tackle tax avoidance, a former economic advisor to Margaret Thatcher has rubbished the coalition's efforts as "a drop in the ocean".

John Christensen has advised both the UK and Jersey governments on tax, and has also worked within the tax haven industry. He believes around £120bn a year is lost as a result of tax avoidance -- twice the amount estimated by HM Revenue & Customs.

Speaking at a Lib Dem fringe meeting, Mr Christensen said tax avoidance had become too "respectable" and described plans to increase the number of investigations on top-rate taxpayers to raise an extra £7bn a year by 2014-15 as "too timid". He also criticised the UK's "permissive" tax laws and loopholes, which mean the country now leads the world on tax evasion.

As a first step, Mr Christensen said the government needs to reverse job cuts at HM Revenue & Customs -- which unions estimate at 30,000 over the past five years -- to increase the number of investigations and prosecutions of large companies and wealthy individuals.

He also wants the government to introduce a more robust criminal deterrent, and to start naming and shaming those who avoid tax in the same way as it does benefits cheats.

"HMRC are doing deals and settling out of court with people who have been avoiding tax for many years," he said. "There is a fundamental injustice here."

Perhaps more significantly, however, Mr Christensen wants the government to introduce a general anti-avoidance principle (GAAP) into UK law to clamp down on those who take advantage of loopholes.

Described as a 'super law' by some, the objective of GAAP is to prevent highly paid tax lawyers and accountants coming up with complex schemes to subvert the intention, if not the letter, of UK tax law to secure tax advantages for their wealthy clients.

One popular loophole exploited by large companies and supermarket chains to avoid VAT on items under £18.50 is to ship products such as DVDs and CDs to Guernsey and Jersey before posting them back to the UK for sale.

Mr Christensen says the loophole was created in the 1960s ostensibly to stop flowers being shipped to the UK perishing during delays at customs, but now benefits big corporate players at the expense of small businesses located on the British mainland.

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