How not to engage: Bernie, Tax and the Public Interest

Jim Harra, HMRC’s Director General of Business Tax, speaking last night before what one couldn’t politely call a lynch mob, at the joint CIOT/IFS event ‘HMRC Powers – Going too Far?’ observed:

Where we think it’s proper and effective that taxpayer information be disclosed we seek powers to do so.

The language of “proper” and “effective” is, of course, the studied language of a career civil servant. But that fact doesn’t – and nor do I imagine it was intended to – obscure Jim’s recognition of the need for HMRC to engage in a meaningful way with the public it serves.

Organisationally, HMRC get this. Kind of. That Jim Harra was prepared to appear last night to defend the (bafflingly unpopular) Direct Recovery of Debt provisions demonstrates some recognition that Public Engagement is a Thing That Must Be Done. Like Health & Safety. But as to whether it understands what real public engagement looks like on the ground? Of that I am less sure.

We will all remember Dave Hartnett’s disastrous appearances before the Public Accounts Committee and the damaging allegations that he “stonewalled” in such a way as to thwart the PAC’s legitimate interest in whether HMRC was doing ‘sweetheart’ deals with Goldman Sachs. However, perhaps a clearer illustration of its lack of clarity of thought can be found in the Panorama “taxposé” (a word borrowed with thanks from Tim Montgomerie) of Bernie Ecclestone (still available on iPlayer if anyone wants to watch it).

Panorama’s thesis was that Bernie had a $2 billion tax liability – but HMRC had accepted only £10m in settlement of it. And the notion that Bernie had a $2bn liability was a serious one: it was supported by his own evidence, under oath, suggesting he had been told by his advisers that he had such a liability.

So Panorama had serious grounds for suggesting a loss of tax to the public purse of $1.98bn. That’s a big sum: about a quarter of all monies lost to avoidance last year, according to HMRC calculations; more than twice the amount of tax the subject of the Liberty scheme, which has occupied multiple pages of The Times over successive days; more than ten times the projected yield from the direct recovery of debt provisions (the subject of yesterday’s debate); and more than a hundred times the value of the interest wrongly waived by Hartnett in Goldman Sach’s favour. In other words, a sum of a size to be a matter of enormous public interest. And such was reflected in the story being wallpapered across newstands throughout the UK – and the rest of the world.

What did HMRC do in the face of this public interest? Did they act to assuage public fears of an enormous tax loss? They did not. They issued a short press release which stated:

We do not discuss the confidential tax affairs of identifiable individuals or businesses.

The settlement of all disputes is governed by HMRC’s published litigation and settlement strategy, which ensures that we only settle for the tax that is owed and which would otherwise be achieved through litigation.

The way in which HMRC settles and assures tax disputes has been completely overhauled in recent years, making the process more transparent. The effectiveness and propriety of such settlements is overseen by a Tax Assurance Commissioner, who publishes an annual report covering all large settlement cases.

Move on folks, there’s nothing to see here. You can trust us. Even if we have every reason to tell you that.

That HMRC should have done more is beyond serious argument. But could they? Or is there some statutory gag smothering their ability to engage in public debate?

These questions were the subject of a recent Judicial Review action brought by Ingenious Media Holdings and Patrick McKenna against HMRC in respect of an interview given by Mr Hartnett to the journalist who’s been making all the running on tax avoidance matters since, well, forever: Alexi Mostrous of The Times. In that action, the claimants sought to challenge as unlawful disclosures made in an ‘off-the-record’ briefing Mr Hartnett had given to Mr Mostrous in which the former had suggested Mr McKenna was involved in putting together “scams for scumbags”.

The statutory gag in question – one which the claimants were contending Mr Hartnett had unlawfully spat out – is to be found in the Commissioners for Revenue and Customs Act 2005 at section 18 which provides:

(1) Revenue and Customs officials may not disclose information which is held by the Revenue and Customs in connection with a function of the Revenue and Customs.

(2) But subsection (1) does not apply to a disclosure –

(a) which –

(i) is made for the purposes of a function of the Revenue and Customs, and

(ii) does not contravene any restriction imposed by the Commissioners …”

This is not the place for a detailed analysis of what that provision means. All I need do is note the words of Mr Justice Philip Sales. He observed:

In general, it is legitimate for HMRC to seek to maintain good and co-operative relations with the press. The efficient and effective collection of tax which is due is a matter of obvious public interest and concern. Coverage in the press about such matters is vital as a way of informing public debate about them, which is strongly in the public interest in a well-functioning democracy. HMRC have limited resources to devote to the many aspects of their tax collection work, and it is legitimate and appropriate for them to seek to maintain relations with the press and through them with the public to inform public debate about the tax regime and the use of HMRC’s resources. It is also relevant to the exercise of HMRC’s functions to provide proper and accurate information to correct mis-apprehensions or captious criticism regarding the exercise of their functions (such as any misplaced suggestion that they had engaged in unduly lenient “cosy deals” with certain taxpayers), in order to maintain public confidence in the tax system. If such confidence were undermined, the efficient collection of taxes could be jeopardised, as disaffected taxpayers might withhold co-operation from the tax authorities. These considerations provided good objective grounds for Mr Hartnett’s decision to participate in the briefing and to seek to foster the spirit of co-operation with the journalists to which I have referred.

Could this reasoning apply to Bernie’s case? Might HMRC have responded to the suggestion made by Bernie on the day of the Panorama interview that he had not, after all, settled his tax bill? Could HMRC have prayed in aid the damage that would otherwise be done to public confidence in the administration of the tax system and given some assurance that they would look again at any deal done with Bernie?

The answers to these questions, I think, are yes. A court would not have criticised HMRC for engaging in a “proper” and “effective” way with a story run by the nation’s public service broadcaster that raised a serious suspicion of a massive loss of tax.

The rise of tax to the top of the political agenda; the public demand in times of hardship for everyone to pay their share; and the suspicion of two tax systems – one for the wealthy with access to the best technical minds and one for the rest who must with their bills make up the tax underpaid by the wealthy: these things demand a closer and more responsive public engagement from HMRC.

5 thoughts on “How not to engage: Bernie, Tax and the Public Interest

  1. What a fascinating way to move the debate on. Not sure I agree 100% with everything said, I need to think about it for a bit longer, but thanks for shining a spotlight on this.

    Food for thought for someone at HMRC – Jim Harra has shown a deft touch in the past, so I hope he will read and think on this. Lin Homer is up before PAC shortly, after her roasting at TSC, so I suspect that she has her hands full!

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  3. Jolyon,

    Incidentally, the former HMRC lawyer that blew the whistle on the Goldman Sachs deal made a similar but more detailed argument in an article published by the BTR under the title – ‘Transparency and Accountability of Tax Administration in the UK: The Nature and Scope of Taxpayer Confidentiality’.

    At the time, 2012, HMRC’s official position was contrary to his but when Ingenious Media slammed a JR claim on them they adopted the same argument and successfully so.

  4. Interesting

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