I don’t often watch Newsnight, but I did a week ago on Friday. I was sufficiently outraged that I needed to vent on the Internet a little bit.
I was already aware that there are some obvious problems with the UK tax code – for example, it’s over 11,000 pages long, and so complex that the only people who seem to understand it are those whose job it is to do so.
However, I wasn’t truly aware of how screwed up the whole situation is. The four big accountancy firms (Deloitte, Ernst and Young, KPMG, and PwC) second staff to the treasury to help them draft the tax laws. Then, after these secondments are over, they come back to the firms with inside knowledge, and charge big businesses large amounts of money in order to advise them on the best ways to reduce the amount of tax they pay.
Let’s assume I am creating tax laws, charging businesses for tax advice, and also that I have little to no moral compass. What should I do, in order to make as much money as possible?
- To ensure that big businesses continue to pay me to advise them, I need to make the law as complex as possible; if other accountants or (heaven forbid) ordinary people are able to understand it, they might be able to undercut me on price!
- To maximise my value to these businesses, I should make large loopholes in the law. The more money they can save as a result of having taken my advice, the more I can justify charging for it.
So except for the firms giving the advice, and the big businesses which they are advising, everybody in the country loses. The massively complex laws mean that no small business is able to operate without the expertise of an expensive accountant. Ordinary people, unable to afford the advice necessary to make use of loopholes, must pay the full rate. Public services suffer due to increasing numbers of cuts. Meanwhile, the accountants are paid absurd salaries for work which does nothing to help the UK economy as a whole.
Is this really happening? Margaret Hodge is an MP who thinks something ought to be done about it. There’s a video of her being interviewed in the article I linked to above. She had this to say:
[There are] 9,000 people working in the UK alone. They earn 2 billion pounds from this industry, and if you look at what they earn globally, because they’ve got people in the British Virgin Isles, and the Bahamas, and everywhere else…
(She smiles at this point, presumably in simultaneous awe and disgust at the sophistication of this whole setup)
…it’s worth well over 20 billion pounds.
It came out with KPMG; they had put somebody into the treasury, to help advise on how to write the law for a new tax relief. This was a tax relief to encourage businesses who invented new products to commercialise them. It was called the Patent Box. The guy who wrote the law immediately left the treasury, went back to KPMG, and wrote a brochure, saying ‘Patent Box—what’s in it for you?’, then sold it to KPMG’s clients as a tax avoidance scheme. That is just not on.
I probably could have just about coped with all this if it weren’t for the utterly indefensible attitude of the politicians who are supposed to stop situations like this from arising. In the words of a Conservative MP (annoyingly, I can’t remember his name) who was interviewed on the aforementioned Newsnight episode:
I think that it’s a healthy state of affairs…it’s a good thing that some of our brightest and best get to see the public sector in action.
He’s not the only one, though. David Gauke, another Conservative MP and the Exchequer Secretary to the Treasury, is reported (also in the article I linked to above) to have said:
I don’t see there’s a conflict of interest there.
I’m struggling to get my head around these statements.
Do they have an ulterior motive? Are they being encouraged by the businesses which enjoy the ability to avoid tax not to do anything about it? Or are they just intensely stupid? Either way, the question remains: Why is it that these people are running the country, when it is so abundantly clear that they should not be doing so?