.png)
.png)
RICHARD CURTIS examines a recent Treasury Committee report.
RICHARD CURTIS examines a recent Treasury Committee report. COMPLACENCY, CONCERN, CRISIS. The House of Commons Treasury Sub-Committee has recently published its report, The Handling of the Joint Inland Revenue/Customs and Excise STEPS PFI Project and these words, and others of similar ilk which appear in it, do not make pleasant reading. After their grilling by the sub- committee last December, the contents of the report should not come as much of a surprise to Sir Nicholas Montagu and Richard Broadbent, Chairmen of the Inland Revenue and Customs and Excise respectively.
What's it all about?
Under the Strategic Transfer of the Estate to the Private Sector (STEPS) project, it was decided that the Revenue and Customs would achieve savings and flexibility if they were to sell and leaseback their properties and have the properties managed for them. The ball was set rolling with regard to the 'sell off' of Revenue and Customs properties early in 1999 and after tenders, etc. the Mapeley Group was selected as 'preferred bidder' in mid-2000. A project team of departmental specialists and outside advisers negotiated the contract with the Mapeley Group, under which interests in approximately 700 properties were sold to Mapeley for £370 million. The more valuable properties were transferred to Mapeley STEPS Limited, a Bermuda-registered investment company. The less valuable short leaseholds and those properties that were to be sold in the short-term were transferred to Mapeley STEPS Contractor Limited, a United Kingdom company. These two companies appointed another group (United Kingdom) company - Mapeley Limited to manage the STEPS contract and estate.
So what went wrong?
Pretty much everything went wrong as far as the Treasury committee is concerned. Readers will be aware that the Revenue and Customs as well as the government have been issuing statements saying that they would be attacking tax avoidance. However, it was only a few days before signing contracts that the Board of the Inland Revenue and Customs' Management Committee learnt that the valuable properties would be transferred to an offshore company - so sheltering future capital gains.
Tax avoidance
The Committee accepted that the avoidance of tax here was legal, but felt that the Revenue, being responsible for the Government's policy of reducing tax avoidance, should of all departments have been alert to the difficulties of being a party to such a deal. A Revenue and Customs press release and the subsequent Annual Reports of both departments, which incorrectly announced that the properties were to be held by a United Kingdom company further compounded the problem. The departments also forgot to tell the Paymaster General of the correct position, for which apologies later had to be made. 'Pure cock-up' said Sir Nicholas Montagu.
Letters of comfort
Shortly after the contract was signed, Mapeley explained that it had a serious cash-flow problem. The departments rejected a further cash settlement, but agreed to further negotiations. In the meantime, to reassure shareholders, the departments sent letters to Mapeley confirming that negotiations were underway to resolve the situation and these were referred to in the company's accounts as a basis for its 'going concern' note. Neither Sir Nicholas nor Richard Broadbent were aware of the letters, which the Treasury Officer of Accounts considered could be 'letters of comfort', committing the government to credit . Non-compliance with Government accounting rules here was 'a serious failure' according to the Committee.
Murphy's Law
'If something can go wrong, it will go wrong'. Perhaps we should have some sympathy for Sir Nicholas and Richard Broadbent. As they pointed out to the Committee, European and World Trade Organisation rules governed the negotiations of the STEPS contract and whilst tax evasion would be a good legal reason for discriminating against a bidder, tax avoidance within a legal framework is not. Furthermore, their outside advisers, Deloitte and Touche, had advised them that the Mapeley corporate structure was perfectly normal. However, the Committee felt that the departments should have 'explored the possibility of an alternative structure'. This may be an ideal to aspire to, but I for one would have been very interested to hear the company's response to the suggestion.
What can we learn?
The Treasury Committee certainly feels that there is much to be learned. Their conclusions and recommendations are liberally sprinkled with terms such as 'naivety', 'complacent', 'seriously wrong', 'not acceptable', 'serious failure', etc. But the departments do now have first-hand practical experience of the not always clear distinctions in tax avoidance - one man's 'judicious tax planning' is another mans' 'unacceptable tax avoidance'. And, one suspects, that the final result is that the Revenue and Customs have ended up in exactly the same destination as they would have if they had chosen a route along which no mistakes had been made. It is unfortunate that, when they got to that fork in the road a couple of years ago, the Chairmen 'stepped' unknowingly into a road that would be somewhat fraught with difficulty.
