Tax Avoidance Penalties

Yesterday the Government published a Consultation Document which took two big steps to tackle two different, but related, problems.

The first addresses misbehaviour by taxpayers who tend to hear what they want to hear and disregard the rest.

Assume you’re a taxpayer and you have a dodgy tax adviser who tells you that if you engage in a piece of tax planning you can declare your tax liability to be 10 when it would otherwise be 100.

Of course you want to believe him – and so you don’t take the care you should to check whether he’s telling you the truth. What he is telling you is convenient for him to tell you (he charges a fee) and it’s convenient for you to hear it (it reduces your tax liability).

As things stand, if the tax planning doesn’t get challenged, you save 90. If it is challenged successfully you are back where you started, owing 100.  This penalty regime is designed to ensure that you ask the questions you should before you put 10 rather than 100 on your return; to give you reason to exercise caution when confronted by a tax adviser whispering sweet nothings into your ear. If the Government’s proposals are adopted, you might end up paying 190 rather than saving 90.

The second regime tackles that dodgy tax adviser. And those he takes advice from. And those he relies on to execute his scheme. Banks, accountants, solicitors, advisors, IFAs, trustees, and even barristers. The Consultation Document describes these as “enablers” of tax avoiders.

Very often these individuals are subject to no regulation. Its remarkable but true that you have to be regulated to be a dental hygienist but you don’t have to be regulated to offer tax advice. So there can be a complete absence of regulatory control of some enablers.

But the real issue is this. A tax advisor gets his fee for telling you that you can declare 10 rather than 100. He’s in the money from the start. And if you should happen to sue him later, he might have wound himself up, or he might shelter behind the advice given by a barrister, or he might point to the small print in the scheme documentation telling you that (despite the fact he’s charging you a fee) you must take your own tax advice.

So he gets handsome reward and very often without any personal accountability for the consequences. This state of affairs can encourage abysmal behaviour by highly paid professionals – some examples of which I set out here.

And for the taxpayers who are led astray – and many young men and women have made fortunes from their abilities as performers or footballers and lost them in consequence of a decision no worse than a poor choice of financial advisor – this asymmetry is both unavoidable and profoundly unfair. And it places huge pressure on HMRC and on tax collection.

So the problems are very real problems.

And the solutions in the Consultation Document are very real solutions. We must await the draft legislation – it can somtimes deliver less than is promised by the publicity grab of the Consultation Document. But my instinct is that, for behaviour within the compass of the Consultation Document, these measures will prove to be a real game-changer. (Indeed, they may well go too far – but that is a point for another day.) So, looked at in the round, I applaud them.

But let me strike a few notes of caution.

First, the measures look to be targeted primarily at individual rather than corporate avoidance. Individual tax avoidance – the data suggests – is yesterday’s problem. But the same cannot be said to be true of corporate avoidance. I’d like to see an extension of the targeted avoidance behaviour to corporate profit shifting.

Second, the proposed legislative solutions are consistent with the overall pattern of behaviour of the Government. That pattern is to ‘resolve’ often quite difficult, and factually nuanced, problems with legislation rather than with feet-on-the-ground resource. Legislation can be a good tool, but it’s also a blunt tool and it can lead to unfair or otherwise poor outcomes. Over time, our tax system suffers. HMRC is profoundly under-resourced – and legislation can go some way towards protecting against the consequences but not all the way.

Finally, Government needs to do much, much more to address the opacity that surrounds its efforts to tackle avoidance. Until we can see that HMRC is tackling avoidance – until we know that Google or Facebook or Uber is paying the ‘right’ amount of tax – people are going to remain sceptical about the efforts that are, or are perceived to be, being made by HMRC. Until Government tackles this issue, however many legislative steps it takes, I am afraid we are going to go on being sceptical about its conduct. I have addressed that issue at length here.

An Open Letter to the 48%

Dear Friend,

What you feared of Brexit? It looks likely to come true.

Already the signs are there. Of slowing investment, falling employment, increases in inflation, slumping public finances, a falling housing market (hurting house-building), a likely break up of the United Kingdom, diminished tertiary and research sectors, and a rise in racism. Government’s response to date has been to signal tax cuts to benefit large corporations and the wealthy. These will compound the hit to public finances even more and benefit (and not for the first time) the old at the expense of the young and the rich at the expense of the poor. Investment in public services and infrastructure will suffer. Alongside all of these we exit the Union, which emerged from the ashes of two World Wars to deliver 70 years of peace and security to its members, to a world of increasing and terrifying insecurity.

You may, or may not, have a problem with how the Referendum campaign was fought. But one thing is for sure. The choice was flawed. It was between a known world (in the EU) and an unknown world (whatever being outside the EU involves). And it was made poorer still because Leavers presented a slew of unknown worlds: lower and not lower immigration, inside and not inside the single market, money spent and not spent on the NHS, retained and not retained regional investment and agricultural subsidies. The list goes on. No one – least of all the Leave campaigners – could agree on what we were being offered.

And you are voiceless. Not one of our major political parties makes these points. Our MPs, some notable exceptions aside, shelter behind the flawed product of a flawed process. They dare not even point out, of a Referendum that they chose to make discretionary, that its result is not mandatory.

Theresa May has said that Brexit means Brexit. That may be so – but it leaves unanswered the question what does Brexit mean? Jeremy Corbyn, quite remarkably, trumped the demands of even the most vigorous Leave campaigners and demanded we trigger the exit mechanism immediately. The SNP has half an eye to a second independence referendum. The Liberal Democrats remain, for the time being, irrelevant.

And huge choices remain about the future shape of our relationship with Europe. Those choices were not put to the public in the Referendum. But this appears not to trouble the Government. These choices, it says, do not require the approval of our elected Parliament. instead they are purely personal decisions for the Prime Minister. A Prime Minister not selected by the electorate. Not even selected by the hundred thousand plus members of her own Party. Effectively selected by the Chair of the Conservative Parliamentary Party who, in breach (as I read them) of Conservative Party rules, crowned her Prime Minister following Andrea Leadsom’s decision to withdraw.

If that’s democracy, I’m a banana.

Who stands in the way of this extravagant assertion of personal power?

Not Her Majesty’s Opposition. The Labour Party is in crisis. Jeremy Corbyn barely pretends to lead a Parliamentary party. Carried aloft on the shoulders of his supporters – numbering perhaps half a percent of our population – he has almost entirely absented himself from the important business of holding the Government to account.

And whatever you think of Theresa May – and there is much to like about her Centre-Left program – good policy is unlikely to emerge from a process denuded of proper challenge. Our system of democracy was designed for two political parties. Not one.

None of this is good. Indeed, if your concern lies, as mine does, in proper Government it is very bad indeed. Open a newspaper. These are not the days to beta-test the hypothesis that our constitution will function fine without an Opposition.

To change it, two things must happen.

The Labour Party must return to the business of vigorous, challenging, healthy Opposition. And there must be a mainstream political voice demanding a democratic mandate – not merely that of the Prime Minister appointed by personal fiat of the Chair of the Conservative 1922 Committee – for whatever emerges from our negotiations with our European partners. ‘That deal – or the status quo?’: this is question that must be put before Parliament or the electorate. Anything less is to thumb our nose at the idea we are governed by democracy.

These are the things that must happen. And you can deliver them. You can bring them about.

There is a Labour leadership election.

One of the candidates, Owen Smith MP, who will likely go forward to challenge Jeremy Corbyn, has promised that a Labour Party he leads will offer the electorate a referendum on the terms of the deal we negotiate with our European partners. Once the shape of that deal is know, he says, the British people should choose between that deal and our present relationship. This will remove the taint of personal fiat from what is likely to be the most important decision concerning the future of the United Kingdom that any of us will see in our lifetimes.

And there is every reason to believe he will be in a position to offer that prospect to the British people in a General Election.

Leave aside the prospect of a snap election. Even were the formal process to start today, Philip Hammond has suggested the Brexit process will take six years to conclude. And, following discussions with Nicola Sturgeon, Theresa May has said the process will not even be started until there is a UK approach to negotiations. And the assessment, of course, is a political one but I think our European partners will be happy for the British people to be given a choice between the status quo and a revised deal. That, after all, is what has happened with second referendums in the past.

So, a Labour Party, led by Owen Smith, offering to the British Electorate in a general election a choice. A choice between a new deal – whatever shape that deal takes – and sticking with what we have.

If you have been (for longer than six months) a member of the Labour Party or an affiliated supporter then I urge you to vote for Owen Smith. But even if you are not, you can still vote. To do so you must become a registered supporter. And the window for doing so will open here on Monday at 5pm. For £25 you can vote in the Leadership Election. That money, if you can afford it, will be well spent. The race is very tight indeed so your vote will count. You can also register here to receive prompts and notifications to register and vote. Please, take that step too.

I do not urge this action because it helps the Labour Party, although it does. I do not urge the action because I support Owen Smith, although it will help him. I urge it for two reasons. It stands the best chance of restoring functioning Parliamentary democracy and it stands the best chance of delivering to the British people a choice about Brexit that democracy demands that they have.

So Friend, please: if you care about these things, I ask you to register as a supporter. And to recruit others to do the same. These are matters too important to be ignored as parochial Labour Party concerns. They are central to the financial and cultural and political health of your country. The vote is likely to be close. And these are actions you can take. You can act to restore and preserve that health.

Please do share this post. Please share it on email, on Facebook, on Twitter, and orally too. Reach out. Smile. You can help.

Thank you for reading.

Jolyon

Note: Please, add your thoughts below. But posts are moderated and abusive posts will be rejected.

How did your constituency vote in the Referendum?

This is the Leave vote for England and Wales (by constituency and political party)Capture

And this is the Remain vote

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If you click here you’ll be taken to an interactive and enlarged version of these maps. Click on your constituency and you’ll see its Estimated (and if available Actual) Remain and Leave Votes; a sense check against another similar exercise (this carried out by Chris Hanretty); and the 2015 General Election results for your constituency.

The Leave/Remain data was not, or not often, collected by constituency and so you’ll need an explanation of how these maps were constructed. Click here for that explanation (by the brilliant @ZackKorman). He also explains why the map does not extend to Northern Ireland and Scotland.

Especially interesting are these tables which show, for England and Wales, how many constituencies of each political party voted Remain and Leave and how many constituencies of each runner up political party voted remain and leave. CaptureI’m not going to do the editorialising. I’ll leave that to others.

Enormous thanks to Zachary Korman who you should certainly follow on twitter: .

Jolyon Maugham QC

 

How to beat Corbyn

It’s not difficult. It just requires clear-sightedness and a little courage.

We voted for Brexit. But 48% of us who voted in that referendum – more if recent polling is right – have a result we don’t want. And many of us are now profoundly worried about what the future holds.

No political party speaks for us or for our concerns. Even though we number over 16m – a hundred times or more what will separate Corbyn and his leadership challenger, whoever that be.

If you’re not a member you can vote in Labour’s leadership election as a registered supporter. A £3 voter. Engage us – or even 1% of us – and Corbyn will return to obscurity.

Promise us that a Labour Party you lead will campaign to return to the nation once the outline of a deal on Brexit is known. Another referendum on that deal. That promise is a good promise to make. There was no known Leave proposition. No world we could weigh on the scales against the one we have. When that world is known, the electorate should get to choose which it wants.

A political party that speaks for you, on an issue that dominates your thoughts. For only £3.

That’s a proposition with a lot of buyers.

 

Conservative Party Leadership Rules

If you thought Labour Rules for selecting leaders were bad, you’re going to love these

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They really are dreadfully drafted but here’s what I think they mean.

The key is Rule 3.

It’s the duty of the 1922 to present a choice of candidates to the Party. The Party is defined (clause 1) as the Conservative and Unionist Party. And it shall consist of its members (clause 3). So, read naturally, the duty of the 1922 Committee is to give a choice of candidates to its members. This interpretation is rather supported by clause 10 (and the reference to “elected by the Party Members and Scottish Party Members”).

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And also the following words in Rule 3 (“selects candidates for submission for election”). And Rule 5 which makes it clear that the final choice rests with members.

The Rule 3 duty arises: “Upon the initiation of an election for the Leader.” This language most naturally refers to the point at which a vacancy for party leader arises and the process for selecting a new leader starts. Read as such, the 1922 Committee has a duty to put two candidates before the Members. In a world in which there was only one nomination – or only one valid nomination – for Leader then rules 4 and 7 make clear you don’t need an election. But we are not in that world. There were a number of nominations – and it was not suggested they were not valid.

Does the 1922 Committee (by Schedule 1 a Committee comprising all Conservative Members of Parliament) have power to change the Rules? Only if the Rules enable it to – and they don’t (see Rule 90). The 1922 Committee has a limited power to set out the procedure for choosing candidates to submit for election to the members (see Rule 3). But it’s pretty punchy to suggest this gives it power to ignore valid nominations given it has a duty to present to members a choice of candidates.

So what happens next? The safe thing to do would be to call for nominations again. It feels to me rather risky just opting for Michael Gove: who knows who Andrea Leadsom’s supporters would have voted for without her in the contest?  And if there are no nominations then we may well be able to enthrone Theresa May. But if there are, a choice would have to be put to members.

These are my thoughts. But do treat them with care. It’s early days. If I change my view I’ll say so here.

Postscript. I understand that the Chairman of the 1922 Committee has stated that the leadership contest is over. He may have had in mind Rule 35 of the 1922 Committee procedure for Conservative leadership elections which provides:

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but, if my analysis above is correct and I have seen nothing to cause me to change my view, this Rule is beyond such powers as are available to the 1922 Committee. But in practical terms it is, of course, a moot point whether anyone will challenge the Chairman’s decision.

Article 50. Our Letter to the Government.

Earlier today I tweeted out the text of an email I’d sent to those who had helped fund this Crowd Justice campaign.

I promised to name the legal team you had funded and reproduce a copy of our letter to the Government.

Our legal team (in alphabetical order) is as follows (with further names to be added).

Paul Bowen QCGerry Facenna QCBen Jaffey, John HalfordTim JohnstonHelen Mountfield QC and Jack Williams.

The letter reads as follows.

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