Sunday 20 February 2011

Sunday, February 20, 2011 Posted by Jake 1 comment Labels: , , ,
Posted by Jake on Sunday, February 20, 2011 with 1 comment | Labels: , , ,

As it gets towards 4pm, when there is nothing but crumbs left on the biscuit plate, a civil servant’s thoughts turn lightly to the commute home. This is the moment the highly compensated teams of private sector lawyers, accountants and bankers focus laser-like on their incentives and try on their wheeze of the day. Hopeful that Her Majesty's tax officials have no desire to enter into another detailed debate, potentially threatening their chances of getting to the 17.25 train out of Victoria Station early enough to get a seat. Hopeful that in their haste to finish the day's session without appearing to be slackers, the taxmen will pretend to understand things they don't entirely.

Lord Oakeshott, who in February 2011 resigned as the Liberal Democrat Treasury Spokesman, has the insight on this. An insight that cost him his job.  The Coalition Government said that Oakeshott’s departure had been a mutual decision.  Perhaps something along the lines of:

Oakeshott: “This makes me sick to the stomach. I resign!”
Treasury Munchkin: “Good riddance!”

While that exchange is just a guess, the following quotes from Oakeshott are minuted and publicly available. Made in an interview with the BBC’s File on Four, Oakeshott commented:

“HMRC are miles behind the curve on this. It’s like a fat policeman chasing a speeding Ferrari..”

In reference to documents leaked from Barclays Bank, detailing some of the bank’s tax avoidance schemes, Oakeshott commented during a session of the House of Lords:

Oakeshott made these comments in the House of Lords using Parliamentary Privilege, as he would have faced prosecution had he made them anywhere else. Barclays had taken out a court injunction forbidding publication of any part of these documents, which had already been widely distributed on the internet.

Barclays denied dodging tax. But the full success of their evasive manoeuvring became clear this week. On the 11th January 2011, the Barclays CEO, Bob Diamond, appeared before the UK Parliament’s Treasury Select Committee. Under questioning by the Labour MP Mr. Chuka Umunna, Diamond stated:

It turned out that less than 6% of the £2bn Diamond was trumpeting was actually corporation tax.  Barclays provided this information in a letter dated 15th February 2011:

The rest was largely made up of payroll taxes paid by its staff, such as PAYE taxes and national insurance. Barclays claiming credit for taxes paid by its staff is as fatuous as the Department of Health claiming brownie points for billions of taxes paid by doctors and nurses.  Arguing that the Financial Sector can justifiably take credit for the taxes of their employees makes the dubious assumption that if these people didn't work for the banks they would be unemployed and not paying taxes from alternative employment.

Barclays directors presumably plan, on that final day of judgement, to get through the Pearly Gates into Heaven on the basis of good deeds done by their staff.

But let’s not pick only on Barclays.  In July 2007, the National Audit Office’s report, “HM Revenue and Customs, Management of large business Corporation Tax” stated that of the UK’s 700 largest companies, almost a third paid no corporation tax at all. Avoidance is not only endemic, but it is legal. In such companies, anyone who doesn’t do it as far as is legally permissible is not fit to run a company.

In that same Treasury Committee meeting, Diamond was asked about Barclays putting an injunction on The Guardian preventing it from publicising the documents detailing Barclays’ tax avoidance strategies.

Q555 Mr Umunna: ...If it wasn’t engaged in tax avoidance, why then did your bank injunct The Guardian in March 2009 when they sought to disclose the activities of that division within the bank?

Bob Diamond: Again, that’s not why we did it. I’m happy to explain. The information that The Guardian released had two features to it: first, it was already known to HMRC that it had the documents; we had sent them before the transaction. Our injunction was because someone stole confidential client information, which is against the law.

Perhaps the unembarrassable Barclays was actually seeking to save the blushes of the fat policemen at HMRC, who already had the details of the avoidance strategies and had accepted them?

Governments of all hues have treated the commercial sector with kid gloves. Perhaps it is because political parties need to raise money, and a large proportion comes from a small number of wealthy people - who need to make their money somehow. The excuse given to the public for this 'hands-off' regulation, and puny enforcement has been the contribution companies make to the national coffers. Healthy profits, we are told, make for healthy taxes.

However, the reality is that corporation tax contributes less than 10% of tax revenues. 

The Financial Sector, the greatest of the rippers-off of us Britons from cradle to grave, is lionised for paying 20% of all corporation tax. But 20% of 10% is a measly 2% of all tax revenues.

We can see whether allowing the Financial Sector to rip us off is made worthwhile by its contribution to the tax take from these figures:

With this single simple scam reported by Which?, UK banks cover virtually the entire the cost of the whole Financial Sector's corporation tax.  
The convoluted nature of UK tax law means the civil servants of HMRC will never be able to match the tax-wrangling talents of the commercial sector. The problem won't be solved by recruiting more and better wranglers into HMRC - an arms race HMRC can't hope to win. It will be solved by simplifying tax law. Tax shouldn't be a game of poker, it should be a simple game of snap. 
The question is, do the political movers and shakers who make the rules have the will to do it?

1 comment:

  1. BBC Report: A committee of MPs has criticised "cosy" deals between HM Revenue & Customs (HMRC) and big businesses over how they settle their tax bills.

    An example is Goldman Sachs being let of around £8m in penalties, arising from a dodge where they employed London based staff via a company in the Virgin Islands to avoid paying taxes on their bonuses. HMRC claim Goldman was let off the £8m as a result of a mistake by one of their "fat policeman" staff.


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