Thanks to everyone who took the time to read my blog yesterday. As I seem already to have gathered a number of readers, I thought it might be helpful to say where I hope I’m going, and what I want to do along the way.
My aim is to educate and inform my readers with the hope of improving the quality of debate around tax and tax avoidance. To be effective participants we don’t need to be tax experts. We do need commonsense, clear headedness and a little help.
A little help? Let me propose three golden rules. One: we should understand how the choices we make about our tax system affect the functioning of our economy. Two: the tax system ought to be conceptually fair. Three: it ought to be properly administered.
I start with these golden rules because (although no-one could disagree with them) they’re frequently ignored. They are ignored because they’re inconvenient. And they’re inconvenient because the debate is unnecessarily politicised: the participants all too often sacrifice the chance to propose sensible policy advances at the altar of playing to their constituencies. Bluntly, in order to give their constituencies what they want, they ignore what they know is right.
Let me give examples of each of the golden rules being ignored.
My first. Yesterday I read a prominent (and expert) commentator on the left arguing that we should close the “loophole” of the Enterprise Investment Scheme.
Closing a loophole sounds like a good thing, but what’s actually at stake here? To quote HMRC’s website: “The Enterprise Investment Scheme (EIS) is designed to help smaller higher-risk trading companies to raise finance by offering a range of tax reliefs to investors who purchase new shares in those companies.”
Helping smaller, higher risk trading companies raise finance also sounds like a good idea. So you might have thought that, before arguing for the closure of EIS, there should be an assessment of its efficacy and the consequences of withdrawing it. But there was no assessment.
My second. The ongoing debate around Google’s tax affairs. Eric Schmidt, Google’s Executive Director, has argued that Google is “fully compliant” with the law. He’s ignoring whether the law is conceptually sensible or fair.
My third. Again, the ongoing debate around Google’s tax affairs. And the suggestion from the Public Accounts Committee that it was “extraordinary” that HMRC “did not challenge” Google over its tax affairs.
HMRC might be a convenient scapegoat but take a look at the facts for a second. We have a government department, with expert staff, with full fact finding powers, and under huge political pressure in relation to Google’s tax affairs. We have an enormously well-funded Google which is bound to have taken advice before implementing the arrangements in question which has argued forcefully that it accounts correctly for the tax. We have a Public Accounts Committee which isn’t as expert as either Google or HMRC and is only in possession of the facts it asked for. Against that background, isn’t the more likely explanation that HMRC looked very closely at Google’s tax affairs – but the tax system just doesn’t function as the Public Accounts Committee thinks it should? In other words, it’s the second rather than the third golden rule that’s being breached?
To be an effective participant in this important debate, you need to be better at diagnosing the (real) disease, better at prescribing the (effective) medicine – and you also need to understand the (economic) side effects of the prescription. I hope my golden rules will help you do this.
So where am I going?
I’m going to continue on my path of seeking to improve the quality of debate: I make no apology for being ambitious. As a member of Progress, I have a particular interest in its Tax Avoidance Charter and I’m going to test its efficacy against my three golden rules. Disappointingly, I will show that, it, too, is often a function of considerations of doctrine rather than efficacy. And then I’m also going to advance a number of proposals of my own for how we might more effectively tackle ‘bad’ tax avoidance.
Do follow me on @JolyonMaugham