Is it permissible for tax authorities to withdraw money from people’s accounts?

There has recently been a bit of a brew-ha-ha surrounding the HMRC proposal that they should have the right to directly take money from the accounts of taxpayers who are in debt. Some people are outraged by the proposal but I would cautiously accept it and I thought I would outline why.

In my forthcoming book I set out some principles of taxation and it is useful to consider the proposal in light of these. The principles that are immediately relevant are that the tax system should be just and that it should not interfere with people in making their plans. I would argue that the first principle mentioned tells in favour of the proposal and that the concerns raised under the second principle do not render the proposal impermissible.

A just tax system will be one in which the right people contribute the right amount of tax. People who consistently fail to pay their debts to the tax authority clearly undermine this. Furthermore, by failing to pay they increase the costs of tax administration and thereby reduce the net contribution they make below that which they could reasonably be expected to make. Making the tax system more effective by reducing costs and increasing revenues is a good thing all round and if the proposal can achieve this then there are good reasons to allow HMRC to take money from the accounts of non-payers.

The other principle that I mentioned is that the tax system should not interfere with people’s plans. It could be that if the tax authority takes money from someone’s account then this will render them unable to do something they were planning to do with the money. However, I do not find this argument compelling as an example of breaking the second principle. If people are given plenty of warning that they will have the money taken, perhaps with attempts at contact made through several forms of media, then there is no problem here. People should not be making plans with money that is not theirs and if people have a tax debt then the money is not theirs. In an ideal world the correct tax would be withheld at source but where this doesn’t happen the person who has the tax money does not have any prior right to this money.

A further related point is that people should not be making plans with money that isn’t theirs, and so the proposal would not violate the non-interference principle. This may lead some to suggest that my defence of the proposal also implies that all debtors should have the right to take money from people’s accounts. This would clearly be untenable and so how can the seemingly similar proposal be acceptable? Courts should have the right to seize assets from financial institutions where this has gone through the correct procedure, and HMRC can undertake these proceedings.

Why should HMRC be able to do what other debtors cannot? One reason is the one set out above; people have duties to contribute their tax revenues to society and these are a stronger claim than other debts that people have entered into as part of a contract. But these other debts are based on contracts that people have entered into freely, albeit ones that should be enforced by the state if one of the parties fails in duties they have adopted through the contract. The requirement to pay tax is not of this nature however—tax is not an agreement entered into between two parties but a moral requirement for people to pay their due to the rest of society. Everyone is required to pay no matter whether they would like to or not and so it is not like society has made the mistake of making a contract with someone of poor character.

There are of course reasonable worries about proposals such as this, and sensible rules must be applied to ensure that mischief is kept to a minimum. However, there is no good reason to assume that the proposed HMRC powers are morally impermissible.