Labour Party leader Ed Miliband
Labour leader Ed Miliband has pledged to raise £7.5bn from tax avoidance crackdowns, but can he? REUTERS/Peter Nicholls

Tax avoidance is the jam tomorrow of British politics. Its near-mythical vagueness allows it to be used and abused by office-seeking politicians who promise voters everything and suddenly realise they have no money to pay for it.

It allows politicians to reach into the tax avoidance abyss and pluck out any number they need. "We'll spend £2bn on hiring more doctors and nurses." Great. So how are you going to pay for it? "Well we'll raise £2bn by cracking down on tax avoidance."

You may remember Chancellor George Osborne's assertion that an information-sharing deal between Switzerland and the UK, which exposed the accounts data of Britons hiding undeclared capital in Alpine bank vaults to HMRC, would raise £5bn ($7bn) for the Treasury.

To date, just £800m has made its way to the UK because most of those British taxpayers with offshore accounts in Switzerland just shifted the money somewhere else, even further away from the magnifying glasses of HMRC's army of Inspector Clouseaus.

Once again, our heads must meet the desk because Labour is promising it will raise no less than £7.5bn from a number of anti-avoidance measures to fund the policies in its manifesto, the centrepiece of which is a boost in NHS investment. The party sensibly stopped short of promising a free unicorn for every citizen.

These measures will be part of Labour's Finance Bill, which it is promising to push through parliament if it is elected after 7 May. But there are already holes in what is being proposed. One of the loopholes Labour leader Ed Miliband wants to close is the Eurobonds exemption, which he thinks he can raise £500m from.

bitcoin UK budget george osborne
George Osborne's information-sharing deal with Switzerland failed to raise the big bucks he estimated Reuters

It is where companies avoid a 20% tax from HMRC on debt interest payments by using a 1984 law that allows this levy to be ducked if the money is routed through a recognised stock exchange.

The exemption is used by offshore-listed private equity firms that own companies operating in the UK. They lend money to the businesses they own, which then pay it back – often at high interest rates – and so whittle down their taxable profits.

But governments have looked before at this exemption and decided to keep it in place for two key reasons.

One is that it makes it easier and cheaper for firms to borrow money in overseas credit markets because they do not have to pay a tax on interest payments, an ability to raise capital to invest in things such as job creation and output growth that could be hampered if the exemption disappears.

And the second is that other countries offer the same exemption on Eurobonds, so even if the UK scrapped it, its own firms would still not pay the tax because they would simply go elsewhere – meaning HMRC would not be losing out on any potential revenue.

Miliband also plans to scrap a tax relief for hedge funds that exempts them from stamp duty when they transfer shares to an intermediary, such as a broker, as part of a financial transaction.

But it is not just hedge funds who use this exemption. Pension funds, financial institutions and ordinary investors also benefit from the relief, the abolition of which threatens to disrupt and penalise the savings of ordinary consumers.

HMRC has a battle to keep a handle on tax avoidance Reuters

These are just two examples of tax avoidance crackdowns that show it is much messier and more complicated than the simplistic-but-pleasing political soundbite suggests.

If anyone would know that the party promises on tax avoidance are empty, it is the respected Institute for Fiscal Studies (IFS), an economic think tank often cited by the very same politicians they regularly despair at.

"Frankly, they're not at all credible, I mean all of the three main parties are just making up numbers, quite honestly," Paul Johnson, director the IFS, told BBC News.

There are two central truths about tax avoidance crackdowns. The first is they never raise as much money as they are supposed to. And the second is there are always unintended consequences, like firms pulling investment in the economy.

This is not to say governments should not try to prevent tax avoidance where possible and reasonable. Stopping the avoidance of tax speaks to our sense of fairness. Why should big companies or financial institutions get away with it when everyone else cannot? Why should they not pay their fair share?

But the complex realities of global economic, financial and taxation systems make tax avoidance crackdowns little more than idealistic and politically expedient fig leaves to hide unfunded policy commitments behind.

They will have to be paid for eventually but by more borrowing or other tax revenue. If any politician tells you they will raise money to pay for something by tackling tax avoidance, you should ask them what their back up plan is - because they will need one.