Holes, spades, and generous gifts

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The first law of holes states that when you’re in one, you should stop digging. Like most laws, rules, regulations and probably gravity itself, it’s one that Farage seems to think somehow doesn’t apply to him. The more answers he gives about that dodgy donation of £5 million, the more difficult questions arise. He claims that he didn’t use any part of the £5 million to buy the £1.4 million house that he bought in 2024, and that he actually purchased that out of his £1.5 million fee for appearing on I’m a Celebrity. It didn’t take a lot of financial forensics for journalists to demonstrate that that wasn’t exactly true – that money remained in the account into which it was paid.

I almost hesitate to say this, but that might be a little unfair. Someone who suddenly finds himself £1.5 million richer can afford to spend £1.5 million more than he would otherwise have been able to spend: it doesn’t have to be the exact same pounds and pennies or come from the same account. That concept is one with which most of us will probably be familiar, albeit on a much smaller scale. A windfall of £50 might do nicely for a meal out, we might think, even if that £50 is initially used to pay a bill and the meal out comes a month or so later.

The problem for Farage in using that explanation is that what is true for £1.5 million is also true for £5 million, and adds to the need for him to explain that other little windfall. Whether it was for his security (as he originally claimed) or a reward for campaigning for Brexit, as he is now claiming, matters little (apparently, being paid handsomely for delivering a result which might benefit a donor only counts as proper corruption if the quid pro quo was spelled out in advance – a rather curious, not to say large, loophole). The bottom line is that a politician paid £5 million by someone (who just might benefit by rather more than that if said politician reaches a position of power) gives that politician an extra £5 million of spending power. Whether Farage did or did not spend it on security (and the change of rationale rather suggests that he cannot demonstrate that he did) is irrelevant to that basic fact – he had an extra £5 million to spend, unconditionally according to him, on whatever he wanted. And, on the basis of his latest attempt to ‘explain’ the basis of the gift, it was directly related to his political activity over a lengthy period. I find it hard to believe that even the UK could really dream up a set of rules which means that rewarding a politician for taking a particular political position is somehow a non-declarable gift, but I guess the investigation will tell us the answer to that.

In the meantime, if he didn’t own the company, surely someone would be trying to relieve him of his spade.

When does a gift become a tip, and therefore taxable?

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A new law comes into force today regarding the distribution of tips in service industries. Some less than entirely scrupulous employers have been keeping all or part of the tips themselves rather than passing them on to employees. Whether tipping is a good thing or not is a matter of opinion; some of us would certainly prefer that the staff are paid a proper wage in the first place, even if that means prices go up a bit, rather than the staff being dependent on the arbitrary generosity of customers. Leaving that aside, tipping is currently a fact of life, but happens in two ways. Sometimes, cash goes directly into the hands of individual employees, but increasingly customers can choose to add an amount to the bill, and the total gets shared out and processed by the employer.

Tips have long been taxable (as the name suggests, income tax is a tax on income, not just on earnings), and one advantage of employers doing the collection and paying is that the tax can be, and generally is, processed through the employers’ PAYE systems. Cash put directly in the hands of individual staff members, however, is only taxed if it is properly declared to HMRC, and there must be at least some doubt as to how much gets declared in practice. As a general rule, ‘gifts’ are not taxable (although there are exceptions, especially when gifting is used as a means of attempting to avoid paying tax), but ‘gifts’ received by an employee as a result of his or her employment – which is what tips effectively are – are unquestionably taxable, although it does open up something of a grey area.

It made me wonder, though: if gifts received as a result of the job a person does (i.e. they would not be received by the same person if he or she were doing a different job) are taxable, why are gifts received by MPs not subject to income tax? It is clear that they effectively boost the spending power (and thus the ‘real’ income) of the recipients and that they are only given because of the job the individuals are doing, so why are they not treated as income? Why should a waiter earning at or around the minimum wage, say, who receives a tenner at the end of a meal, have to pay 20% tax on it, whilst a person on a substantial salary who receives clothing worth £30,000, to pick a recent example at random, pays nothing? It wouldn’t be a huge money-spinner in the scale of things, but if the Chancellor is serious about closing loopholes on tax avoidance and clamping down on benefit fraud, perhaps she should also look a little closer to home at the people around her.

The generosity is all one-sided

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Any display of excessive generosity towards a decision-maker is always likely to look suspicious, even if there is no obvious or immediate way in which his or her decisions are likely to benefit the donor. In dealing with gifts and hospitality in the context of business relationships with suppliers, the key word that was always drummed into me was ‘reciprocity’. That is to say that no gift or hospitality should be accepted if it was of a higher value than I would be able to offer, and wherever possible, reciprocation should actually take place. So, gifts such as calendars or desk diaries from suppliers or would-be suppliers were acceptable, but bottles of whisky or cases of wine were not. And if a supplier took me to lunch after a meeting, it was expected that I would take him or her to lunch after the next. It’s low level stuff, and even then can never completely erase a potential perception of buying favours, but it's a clear enough rule, and it was always fairly easy to understand where the lines were drawn.

It's that reciprocity which is completely missing in the relationship between donors and politicians. If Starmer were spending thousands of pounds on Christmas and birthday gifts for Lord Alli, it might just about be possible to say that they were simply very generous friends. There is, though, no suggestion that that was the case – and if it had been, I’m sure it would have been wheeled out as a defence by now. Whilst we’ve had a grudging decision that Labour ministers will no longer accept gifts of clothing from donors, that is just a small part of the freebies being accepted. It’s true, of course, that there’s nothing new in this. Politicians (of all parties) have been accepting freebies such as accommodation and tickets to events for years. But ‘everybody’s doing it’ is acceptable as an excuse only until it isn’t. The expenses scandal some years ago, affecting politicians of multiple parties, shows how the line of acceptability can and does move.

The line has moved again, even if only slightly, with the decision to not accept gifts of clothing, but Labour’s politicians still seem to be lining up to argue that ‘no rules were broken’, and that the key thing is ‘transparency’, even if transparency about the purpose of gifts was notably lacking in the cases of Rayner and Reeves. Reeves came up with the line that she wasn’t into clothes or shopping, so when a good friend offered to do the choosing and shopping on her behalf, she readily accepted. It’s not a bad answer – to the wrong question. The issue isn’t who did the physical work of choosing and shopping – she’s lucky to have a friend who can be trusted to do that for her – but why the friend ended up doing the paying as well. It’s a question which the answer neatly and completely sidesteps. In any event, simply not breaking the rules cannot absolve those receiving hospitality and gifts from considering for a moment whether doing so is ethical or might be perceived to be a little dodgy. Getting donors to pay for something else other than clothes may conform to Labour’s new rule, but if the effect is to put the same amount of additional spending power into the same pockets, it changes nothing; it merely relabels the same donation.

Donations have always been an important part of political funding in the UK, and short of a system of state funding of parties, they will continue to be so. Maybe it’s just that there is more reporting and visibility, but there is certainly an impression that the extent to which those donations and gifts are going into individual pockets rather than just into party campaign funds seems to have increased. As far as we can tell, there is no obvious quid pro quo for the generosity of Lord Alli, but the question that the recipients should have been asking themselves is a very simple one: ‘if I were not Leader of the Opposition / Deputy Leader / Shadow Chancellor, or even just MP, would I be getting this hospitality or gift?’ There can only be one honest answer to that question, and no amount of transparency or rigid conformity to ‘the rules’ can change that. At some point, maybe not yet because the stench isn’t strong enough, the rules will be changed. That reciprocity test would not be at all a bad place to start.

£16,000 is a whole pile of new shirts

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There is an old joke from the Soviet era about Brezhnev showing his mother around his world. He showed her his enormous office and his luxury Kremlin flat, and then took her by chauffeur-driven limousine to see his country house on the outskirts of Moscow before showing her pictures of his dacha on the Black Sea coast. When he finished, his mother said, “It’s all very well, Leonid – but what happens if the communists ever get back into power?”. It’s not only dictators and would-be dictators who can be swayed by the trappings of office; it can happen even in so-called democracies like the UK.

Boris Johnson was, of course, famous for the extent of his freeloading on ‘friends’. From holidays to weddings, from wallpaper and furnishings to somewhere to live: all were fair game for a man rarely known to pay for anything very much himself. It’s an attitude not limited to Tories, however; Keir Starmer also seems quite happy to enjoy the benefits of the job as well as accepting a range of gifts and freebies from friends and supporters, as Owen Jones discussed in the Guardian last week. It’s not on the same scale as Johnson, nor does Starmer seem to suffer from the same degree of casual indifference to properly and accurately declaring things. There is no suggestion that any rules have been broken, to use the much-loved response of politicians caught doing something which might look a little bit dodgy to some people. But that merely outsources the issue to those drawing up the rules.

It does raise some questions of judgement. Why does someone being paid £128,000 a year need someone else to buy him £16,000 worth of ‘work clothing’? (Even more pertinent to many of us, how would one even set about spending that much on clothes for the office anyway?) And whilst there’s no suggestion of corruption – no hint of any direct quid pro quo – why would someone even want to buy shirts for such a well-paid friend? There is a somewhat shadowy area between a corrupt relationship and a wholly professional one, and expensive gifting falls right into it.

It’s the same issue which led to the downfall of Vaughan Gething here in Wales. It isn’t about being corrupt, it isn’t about doing favours for the donor, and it isn’t about breaking any rules. It is about the potential perception that someone who gives expensive gifts to someone in, or with the potential to be in, a position of power might just have some sort of unvoiced expectation associated with it. It’s about whether someone on a high salary who doesn’t even have to fund his own clothing out of it might have at least a little difficulty in understanding how much difference a loss of £300 in income might make to a pensioner on a low income. Above all it’s about why someone in that position can’t even understand why anyone might ask questions about such gifts. Judgement is about more than following the rules.