Taxing Our Patience: HMRC & The £6bn Question

[First printed in The Morning Star, 16/06/2012]

This week’s look at our top tax officials’ secret deals with Big Business was the very apotheosis of civil service reports: a detailed sequence of events explained in crisp, clear language that managed to offer complete absolution or utter condemnation, depending on how quickly you skimmed it.

For the Public Accounts Committee’s Margaret Hodge MP, the National Audit Office’s findings were “extremely worrying”; for the Adam Smith Institute’s Tim Worstall it unmasked campaigners UK Uncut as nothing more than “ignorant teenage Trots.”

Worstall’s complaint is ultimately for the courts to decide, now that a spin-off legal team have won permission to argue that one of the cases – a £20m write-off for investment bankers Goldman Sachs – was not just “mistaken” but illegal.

Yet far from a clean bill of health, the bulk of the report, largely cobbled from the testimony of retired senior judge and tax specialist Andrew Park, damns HM Revenue & Customs’ head hobnobbers with faint praise — where it finds anything to praise at all.

“Overlooked governance arrangements” riddle the five cases examined: in one, permanent secretary Dave Hartnett brokered a settlement without separate negotiation or even anyone with tax expertise on the HMRC side, and without any note of the meeting; in three others he attended settlements which were signed off without referral to the board set up expressly to vett such deals. In a case broadly acknowledged as the Goldman Sachs deal, the department had no actual records of either Hartnett’s initial “handshake” meeting or the subsequent meeting of executives who decided not to reopen the case, despite legal advice that they could — and no rationale was even offered until three months after the decision.

The grittier details of all this – the names of corporations and people involved, individual disputed figures and records of the meetings in which they were discussed – remain a closely guarded secret.

Vodafone has admitted to wringing a £1.2bn payment from a £6bn dispute in ‘Case D’, and Goldman Sachs’ identity as ‘Case E’ is public knowledge — but without any indication of the disputed figures in the other three cases, we must rely on the words of Justice Park himself as to whether HMRC is employing double standards for those with enough dosh. And it’s these which Worstall and his fellow ideologues have leapt on as vindication.

Justice Park insists the final payments represented a “reasonable” settlement: “These large tax settlements are complex and there is no clear answer as to what represents the ‘right’ tax liability.

It continues: “Where the Department and the taxpayer disagree, they can either reach a compromise settlement that both sides can accept, or pursue the issues in litigation, which is likely to involve a long and very expensive process of appeals through the courts.” True enough.

But surely the battle could not be as expensive as the outstanding tax bill itself — otherwise the company wouldn’t bother fighting it. The issues themselves might be complex but the risk-reward analysis couldn’t be clearer: if the HMRC wins, it provides a legal precedent for dealing with any similar disputes and thereby increases the tax take even further.

If the HMRC loses, there’s an undeniable short-term setback to the department’s coffers — but only in the short-term. Such cases would necessarily highlight gaps in existing tax law that MPs are then obliged to shore up through legislation — which ultimately sees the tax take increase after all.

The current system of secret settlements does neither while tacitly encouraging further experiments in tax avoidance technology. Meanwhile the public finances continue to worsen as a result of the diminished tax take, which in turn means fewer resources for the department charged with topping up the Treasury in the first place.

This downward spiral of systemic under-resourcing is meanwhile set to accelerate with plans to strip another 10,000 jobs over the next three years from an organisation which has already lost 30,000 posts since 2005 — all in the name of, er, stretching public spending.

All of this is naturally beyond the scope of the NAO’s report — which does not apparently extend to the bleeding obvious.

But what it does clearly say, without making any presumptions about the legality of HMRC’s actions or the character of its executives, is what campaigners like UK Uncut have said all along: that HMRC’s top tier dwells in the grubby world of realpolitik, where a company’s tax bill is determined not by how much it makes or what its activities cost the public purse, but by what fraction the firm is willing to throw at its legal department.

Corporations caught tax-dodging say they owe it to their shareholders. Rather than being “reasonable”, perhaps it’s time to ask what the taxman owes us.

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