Brown 'set for £25bn terror windfall'

GORDON Brown is in line for a windfall of up to £25bn a year as tough new financial controls, aimed originally at blocking terrorist funds, deter accountants and solicitors from setting up tax evasion schemes.

The Chancellor, who presents his pre-Budget report on Tuesday, is expected to gain from a new climate of fear among professional advisers who, before 11 September, would have had no compunction about helping clients to dodge the Inland Revenue. 'The two issues, terrorist funding and tax evasion, are connected,' said a tax partner with one of Britain's biggest accountancy firms. 'It is having a profound effect'.

Another top accountant told Financial Mail: 'I do not want to go to prison, and I do not imagine any but the dodgiest accountant would even take the risk of doing so. However long or short the jail sentence, it would be the end of one's career'.

Privately, the Treasury is expecting some 'collateral benefit' from the strict new money-laundering rules introduced as part of the war against terrorism. But it stresses that the prime intention was to choke off funding for terrorist groups, not to bolster tax revenues.

Since 1995, it has been made clear that solicitors, accountants, bankers and anyone else handling the proceeds of tax evasion were as guilty of money laundering as if they had been handling the proceeds of drug dealing or terrorism. But until now, little has been done to enforce this ruling.

Last year, an inquiry set up by Brown and headed by Lord Grabiner estimated the 'black economy' at about 8% of gross domestic product - upwards of £70bn. Assuming a 22% tax rate, this would deprive the Treasury of at least £15bn a year.

But an earlier report by accountants Deloitte & Touche, who were retained by the European Commission in the late Nineties to investigate tax-dodging across Europe, put the amount evaded every year at closer to £100bn, adding up to a total £2,000bn at today's prices for the two decades from 1976 to 1996.

Experts believe Grabiner's estimates are drawn largely from the 'moonlighting' side of tax dodging, while Deloittes' add in the 'big ticket' evasion schemes run for, among others, large companies and wealthy individuals.

Despite the Treasury's efforts to crack down on the 'cash in hand' abuses identified by Grabiner, it is likely the windfall will come largely from 'big ticket' evaders as their advisers take fright at the new climate of intolerance towards financial wrongdoing.

Mike Warburton, partner at accountant Grant Thornton, said: 'The windfall will come, firstly, from a decline in the willingness of professional advisers to assist big clients to evade tax.

'There will be a second windfall with the introduction of euro notes and coins on the continent next year. Some people who have salted away large sums in francs, marks or other currencies are now faced with having to explain to the eurozone authorities where the money came from if they want to change it to euros. Many may bite the bullet and declare it to the Inland Revenue.'

Even on a conservative basis, halving Deloittes' evasion total and assuming just half of that comes back into taxation, the annual windfall would be £25bn.