Adopt an MP

KEY POINTS

• Volunteer to “adopt an MP”.
• Report agrees that HMRC needs more resources to tackle avoidance.
• Unsupported allegations against secondees from big 4 firms.
• Inevitable misreporting and exaggeration in mainstream media.

Credit where credit is due: this is someone else’s idea. After a very enjoyable debate a couple of weeks ago on legal professional privilege, the organisers, Pinsent Masons, took the speakers out for an even more enjoyable meal.

I started talking with Heather Self, a non-lawyer partner in the firm, whose career has included spells in accountancy practice, industry and with HMRC, about the poor quality of the public debate on tax avoidance, and especially about the lack of knowledge shown by most MPs.

Heather’s suggestion to improve their knowledge was that tax advisers should each “adopt” a local MP, explain to them the real facts behind the tax issues that hit the public eye, and generally act as a sanity check on some of the nonsense pumped out about tax.

Last Thursday, we had our first Taxation Live! event (I say “first” because I hope that it will become an annual event); Lin Homer, CEO of HMRC was our keynote speaker.

In a speech about the relationship between the profession and HMRC, she also commented on the poor quality of the debate about tax, and urged advisers to talk to people about tax whenever they could. I tried out the idea of “adopt an MP” in a question to her, and while she was far too canny to endorse it on the spot, she agreed that it sounded like an interesting idea.

So, ideally, we would spend some time thinking about it and discussing it with others, but last Friday, the Public Accounts Committee (PAC) issued their report Tax Avoidance: the Role of Large Accountancy Firms, the quality of which only shows how urgent it is that we get this off the ground.

Heather has kindly agreed to me running with her idea; all credit for the inspiration is hers, any blame for mistakes in the execution is mine. I am urging you to commit to adopting an MP now, and we’ll work out the details as we go along. There is a lot more about this idea at the end of this article; but it’s going to have to be a case of “ready, fire, aim”.

PAC report

I don’t suppose regular reader will need reminding of my views about the way in which the PAC interrogated the Big 4 tax partners, and I don’t intend to repeat what I said. Let me instead be more analytical, and even, where I can be, complimentary (though the latter will not take long).

In one area, I think the PAC is absolutely right: HMRC is under-resourced. The final sentence of the final conclusion of the report is:

“Government must ensure that HMRC is properly resourced to challenge the advice given by the four firms and others to companies and individuals seeking to aggressively avoid tax.”

While I would question the obsession with the role of the big 4, it is absolutely right that HMRC needs to be able to commit time and well-trained staff to defend the tax system.

Treating the department just like any other when it comes to staffing ignores the fact that these are the people who bring in the money to pay for everything else. More and more HMRC decisions look as if they have been made on the basis of short-term return on investment, rather than on maintaining trust and integrity in the tax system overall.

Downhill from there

But from there on, I’m afraid it is downhill all the way; a slow decline to begin with, but it gets steeper. On the subject of international tax rules, there is a welcome understanding that “the witnesses made some useful suggestions about how to ensure tax and profits are recognised in the right place” and also that they supported a change in international tax laws.

That is at least a step forward from Margaret Hodge’s comment when the Big 4 proposed such a change during the evidence session; “Yeah, put it off for 10 years for you all, so you get another 10 years of income”, but the committee still seems to think that a standalone UK solution can be found.

Its main recommendation on the subject is that tax law should be “simplified”. Had it stopped to listen to evidence from the big 4 partners on this subject, rather than asserting during the hearing that “you do not have any vested interest in reducing the size of the tax code; turkeys do not vote for Christmas”, it would have discovered that this is a holy grail after which the various accountancy and tax institutes have quested in vain for many years.

The problem is that, as soon as you descend from the level of platitudes to hard-nosed changes, you come up against the unfortunate problem that, unless government is prepared to cut the tax take substantially, simplification means there are both winners and losers.

The PAC rightly looks to the Office of Tax Simplification (OTS) as the body which should put forward proposals for simplification, and I have some sympathy when it questions the importance of identifying every one of the 1,042 reliefs in the tax system.

However, that ignores both the fact that dozens of reliefs were identified for removal through this process, and also that lobbying by those who would be adversely affected meant that some of them (like land remediation relief) ended up being retained.

The committee also said that the OTS should be more radical in its proposals, yet the most radical proposal it put forward for the merger of tax and national insurance was watered down to a proposal for an almost irrelevant merger in the way they were operated, which in turn seems to have been overtaken by RTI.

These failures were political, and an outsider reading the PAC report would probably not immediately appreciate that it is politicians who actually make tax law.

The blame for the complexity of the law seems to be laid at the door of anyone but the lawmakers themselves, yet the quality of the debate in the Finance Bill committee was so bad last year that we are not going to report it this year as we always have done previously; rather than looking at the political point-scoring which we fully expect to dominate the debate, we are going to ask commentators to raise and discuss the questions the MPs should have asked.

But it was, inevitably, the approach to those seconded from the accountancy firms to HMRC or HM Treasury that most annoyed me, just as it did during the evidence hearing, and it is instructive to see how the attack built up from the original evidence given to what appeared in the press.

Seconded from practice

At the hearing, Margaret Hodge referred to two members of KPMG staff who had been seconded into HM Treasury, one to help with the patent box and one with controlled foreign companies (CFC).

She highlighted a sentence from KPMG brochures about each subject: “The Finance Company Exemption is an opportunity for additional tax efficiency” from the CFC brochure, and that KPMG can help develop “best use of streaming – preparation of defendable expense allocation” from the patent box brochure.

From this she inferred that “the guy who helped write the law goes back to you and supports your clients in using that law for a purpose for which it was never intended”, an allegation that was never substantiated and was consistently repudiated by Jane McCormick for KPMG, supported by the partners from the other firms.

The role of secondees was not to write the tax legislation (parliamentary counsel do that), their role was to advise on the commercial implications of the proposals.

In the body of the PAC report, this becomes a concern at “the way that the four firms appear to use their insider knowledge of legislation to sell clients advice on how to use those rules to pay less tax”.

As it stands, this is admittedly correct: the committee is clearly concerned even though it has shown no cause to be, and the firms agree they get back staff who have developed a good understanding of the legislation. Nevertheless, the words “insider”, “sell” and “pay less tax” are all loaded with unfair implications.

The body of the report also contains the assertion, in relation to KPMG, that the committee was “not convinced by its insistence that all the advice it offers to clients seeks to fulfil the purpose of the legislation”.

The cross reference was to questions 150-154 in the hearing, where typically Margaret Hodge gave Jane McCormick little opportunity to respond to the questions she was asked.

However, Margaret Hodge adduced no evidence, and Jane McCormick said nothing, to justify the conclusion the committee draws. That was the perception with which the committee started the hearing, and it seems to have had no intention of being diverted from it by the evidence it heard.

Into the press

In the summary of the report (which is really too short to need a summary), this becomes “we have seen what look like cases of poacher, turned gamekeeper, turned poacher again”, carrying with it the implication that advising clients on effectively using legislation intended to reduce their tax bills in order to do precisely that is somehow illegal. In the press release announcing the report, a long quote from Margaret Hodge expanded this into:

“The large accountancy firms are in a powerful position in the tax world and have an unhealthily cosy  relationship with government. They second staff to the Treasury to advise on formulating tax legislation. When those staff return to their firms, they have the very inside knowledge and insight to be able to identify loopholes in the new legislation and advise their clients on how to take advantage of them. The poacher, turned gamekeeper for a time, returns to poaching. This is a ridiculous conflict of interest which should be banned…”

Once the word “loopholes” had been used, again without any evidence to back it up, it was inevitable that the press would “improve” on the press release.

BBC News reported that secondees used their position to “glean inside knowledge and tell businesses how to avoid tax”. The Guardian said “the firms went on to advise multinationals and individuals on how to exploit loopholes around legislation they had helped to write”.

Only Vanessa Houlder at the Financial Times balanced the committee’s assertions with the firms’ response that secondees did not draft law, and, as PwC’s Kevin Nicholson said, the report was “based on a misunderstanding both of what we do and how we do it”.

So far as I know, none of the mainstream media picked up on the astonishing comment issued by HM Treasury’s spokesperson, that the report “bears almost no resemblance to the reality of what government is doing or what is happening. In particular, as a matter of principle, the suggestion that government shouldn’t work with business and indeed anyone affected by its policies is totally absurd.”

Adoption papers

When the standard of the debate is as low as this, we really have to do something – hence the idea of adopting an MP.

MPs need to be given clear, dispassionate advice on the tax system, and they need to have someone to whom they can pose questions and get answers. Is that you?

This isn’t a role for crusaders, and it’s not the opportunity to push your particular view on how the tax system should be structured. Remember that you may be “adopting” an MP on the other side of the political fence from you.

There is no point in offering your help if you can’t put that to one side and give him or her the information that they actually need rather than your own views.

But if that does sound like you, then send me an email. Let me know where you are based, and give me the name of your local MP.

We can, and will, help you with briefing papers and other information; you need to be prepared to put in some time and effort to engage with your MP, and persuade him or her that talking to you will be a good use of their valuable time. Together we will work out the rest of the details in the coming weeks, but let’s see if we can turn this debate around.

Issue: 4400 / Categories: Comment & Analysis , Admin , Avoidance