The tax gap is the difference between what HMRC collects on our behalf and what they ought to be able to collect, where “ought” is defined in different ways by different people. If you’re HMRC then the tax gap is £32 billion (PDF document) and if you’re Richard Murphy, author of the 2008 TUC report The Missing Billions, then it’s nearer £70 billion, according to their different calculations.
ARC, the union of senior officials in HMRC, argues that if the government would spend £312 million on recruiting, training and supporting staff, then they could close the gap by more than £8 billion. £8 billion is a worthwhile chunk of the gap whether the gap is 32 or 70, as well as representing a return on investment that ought to make the argument a no-brainer.
Unfortunately the responsible Minister, the Exchequer Secretary David Gauke, thinks computer technology which has, for example, made it unnecessary to manually reconcile end of year PAYE returns, means there’s no need for apology for cutting HMRC staff, which to me is about as sensible an argument in this context as saying that London Transport doesn’t have to pay to feed horses any more so it doesn’t need to staff its tube stations.
At a meeting called by ARC recently, Richard Miller from ActionAid did sterling work in reminding us that the tax gap is not just a boring technical argument amongst UK tax professionals but an international problem. In particular, he reminded us that developing countries paying three times as much in tax lost to tax havens than they receive in international aid. He argued there is a growing consensus that some tax planning by multinationals is unethical even if not actually illegal, and that public perception of unfairness should not be discounted.
This is the sticking point, though. While those of us outside the magic circle of tax professionals have an understanding of fairness and think we can recognise it when we see it, it is a firm belief in tax professional circles that “there is no equity about a tax” (a much quoted line from a 1920s tax case); that equity or fairness has no place in discussing the application of tax law. You pay what you are obliged to pay by the law; if the government gets the law wrong, there’s no obligation to pay a 'fairer' amount outside of what is legally due. Further, you are also entitled, if you can manage it, to arrange your affairs so that a particular piece of the law does not actually apply to you.
This is not what you and I might understand by 'fairness' – but the government isn’t talking to us about policy making. Although they have much improved the policy making process in terms of publishing their workings and consulting with industry groups, they are not so open to views from those of us outside the magic circle; the muggles who simply pay what we owe and wonder whether we’re still supposed to be boycotting Starbucks.
A Panorama documentary to be broadcast this evening (16 September 2013) apparently shows one of the senior tax wizards giving advice on how to keep your money out of the “grubby mitts” of the Chancellor, in a piece of undercover reporting that has led to his resignation.
He is David Heaton, a partner in the accountancy firm Baker Tilly and the outgoing chair of the ICAEW tax faculty. So it’s not as if he doesn’t know about tax policy making and about the practicalities of implementing the tax rules he has helped to draw up. (Incidentally, wasn’t it her argument that people are helping make the rules and then advising how to get around them that caused Margaret Hodge from the PAC to be named “tax prat of the year” by Taxation Magazine?
The post that Mr Heaton has resigned from as a result of the documentary was being a member of the advisory panel for the new General Anti Abuse Rule, a collection of the great and good who will “provide opinions on cases where HMRC considers the GAAR may apply” – or in other words decide where the boundary is in cases of dispute over what tax planning is fair and reasonable.
The list of members of the panel looks like a who’s who of tax wizards: Patrick Mears came from the law firm Allen and Overy, Michael Hardwick from law firm Linklaters. There is Brian Jackson from Burberry and Gary Shiels, a business consultant, both of them with accountancy backgrounds, and Sue Laing and Bob Wheatcroft are both partners in different accountancy firms.
So the decision on whether a tax scheme is a creative use of existing legislation or is abusive or unfair will rest purely with a group of accountants, lawyers and business people. There are no NGOs or trade unionists, no-one representing civil society or outside of the magic circle of people who understand there is no equity in tax.
But just look at this list of thirty-five consultative forums that HMRC runs to take feedback from different stakeholder groups. And then click on a couple at random and have a look at who they are talking to. Some of the entries seem out of date – the Individuals Stakeholder Forum, for example, last met in 2011. But then the Real Time Information group (on the updating of PAYE that requires employers to inform HMRC about your wages as soon as they’re paid) met in July 2013. Look at the membership of the panel and ask yourself, who is representing us? How about the Pensions Industry Stakeholder Forum, where the closest thing to an actual pensioner is the LITRG – the Low Income Tax Reform Group – which is a worthy body set up by the Chartered Institute of Taxation and sponsored by PcW and HMRC.
In his book The Great Tax Robbery (Oneworld Publications, March 2013), Richard Brooks notes that "... the institutions that shape the tax system have been captured by the tax industry and corporate interests. Policy is determined through committees and consultation processes in which the tax avoidance industry’s representatives dominate, before being nodded through by parliament without proper debate. This cosy cartel urgently needs dismantling" (p. 257).
Would not replacing David Heaton on the GAAR advisory panel with someone representing the rest of us rather than the tax wizards be a really good place to start?
© Wendy Bradley is a former member of HMRC’s Better Regulation team. She is undertaking doctoral research into the relationship between tax simplification and better regulation. Her tax blog can be read here: http://tiintax.com See also: http://www.taxation.co.uk/taxation/biography/wendy-bradley