Pulling down the shutters at HMRC
How should the 'elites' address mistrust? And the Government Departments thought soft on them? Pull down the shutters - or let the light shine in?
Nowhere are these question raised nowhere more sharply than in the sphere of tax dodging - avoidance and evasion - by wealthy individuals and powerful corporates. We are worried - and we are right to be worried. The best that can be said about our tax system is that it does not function as it should. But the worst is that HMRC fails to apply the law in an even handed fashion: it is, to borrow Ed Miliband's compelling phrase, strong with the weak but weak with the strong.
Many of us can understand that responsibility for the misfiring international tax system does not lie entirely with our own Government. But the idea HMRC pushes hard against small businesses struggling to turn a profit whilst failing to collect tax from the likes of Google and Facebook is deeply corrosive. And only yesterday the National Audit Office reported that, over the last five years, HMRC had closed 72 fraud investigations into high net worth individuals with only two prosecutions and one conviction.
It's a brave Government that ignores the question 'why should I pay more taxes when he doesn't pay his?' Brave or - given that we check less than 2% of personal self-assessment returns - stupid. And greater transparency is an important - and perhaps the only - way to answer it; greater transparency alongside meaningful scrutiny.
Last month the Supreme Court handed down a decision in the Ingenious case. The case concerned a briefing given in 2012 by the then Head of HMRC, Dave Hartnett, to Alexi Mostrous, a journalist at the Times. During the course of it, Mr Hartnett made some corruscating remarks about Patrick McKenna, a then high profile promoter of tax avoidance schemes. And those observations drew upon confidential material held by HMRC.
You can read the remarks at paragraph 10 and 11 of the decision. They disclose nothing about the tax affairs of Mr McKenna. Or, indeed, of anyone else. They merely signalled that HMRC disapproved of the arrangements promoted by Mr McKenna; that very, very substantial sums of money were at stake; and that HMRC anticipated that it would establish that those arrangements did not work.
The Supreme Court found that, in making those remarks, HMRC had breached its duty of confidence owed to Mr McKenna. Even though, only weeks earlier, the specialist Tax Tribunal had found that Mr McKenna had promoted tax avoidance arrangements; that very, very substantial sums of money were at stake; and that the arrangements did not work.
In practice, such arrangements can be difficult even for highly skilled professionals to differentiate from 'good' tax mitigation. Individuals without professional expertise have little choice but to rely on the advice given to them by their advisers. And their advisers are usually or often financially incentivised to encourage their clients to invest.
The consequences can be disastrous. We know from numerous media reports (see, for example, this) that a number of hugely successful footballers face bankruptcy as a result of participating in Ingenious schemes.
Even in the tax field, some stuff is beyond sensible argument.
HMRC must be able in the public interest to communicate with those it serves.
It must be able to warn taxpayers off avoidance schemes that it considers dangerous, as it sought to do with Ingenious and film schemes more generally.
It must be able to address public concern about possible sweetheart deals - for example, this story that Bernie Ecclestone was able to settle a £2bn tax bill for £10m. It must be both free to engage with and forced to confront legitimate Parliament scrutiny of sweetheart deals.
It must be able to address misrepresentations by powerful individuals or corporates. Tax conduct is reputational and wealthy taxpayers and corporates do publicly misrepresent their tax behaviour. Where these representations damage public trust in HMRC, HMRC must be free to counteract them.
I intend no criticism of the Supreme Court - it addressed a narrower question - when I say it is a mistake to conceive of taxpayer confidentiality as an absolute value to which the public interest must genuflect. Like all values it must be balanced, here with the importance of maintaining public confidence in HMRC. Should this remark be thought controversial I would invite putative critics to grapple with the rule that compels the full public disclosure of the relevant personal financial affairs of individuals of anyone seeking to appeal against a decision of HMRC.
To strike that balance, it is now clear that Parliament must legislate. It must explicitly authorise disclosures of confidential information to protect HMRC's assessment of the public interest. Parliament can, should it wishes, make that assessment justiciable before the courts by listing a range of factors to which HMRC is to have regard in reaching that assessment. Those factors could include the obligation to have regard to the objectives listed above - and also the desire, where consistent with their achievement, to preserve taxpayer confidentiality.
But the status quo, after the Supreme Court's decision in Ingenious, is unsustainable. It will damage HMRC's ability to raise tax, it will foster public distrust in the institutions of Government, and it will inhibit Parliament's already poor scrutiny of a field of proper public concern.
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