Can I begin by sympathising with the organisers of this evening’s dinner?

They had high hopes of the after dinner speech being delivered by a senior member of the Government. Someone who could speak frankly and with authority about the pressing tax issues of the day. Shortly in advance of the first budget of a new Government. They had those hopes and – if it consoles them – I had those hopes too. I know it’s heresy to blame the electorate – but it is their votes (a mere 2 million of them) that stood between you and a much more interesting after dinner speech.

But the organisers must muddle on. And so must I.

The hysteria around tax towards the end of the election campaign will be fresh in all of our minds. In a rather poor Channel 4 story, the sins of his father were visited upon David Cameron. As, indeed, the sins of her forebears were visited on Margaret Hodge. And Ed Miliband. ‘What is to be done?’ was the question I heard asked time and again by thoughtful professionals – like you. And my answer was invariably that which Jack Nicholson gave at the end of his best film: “Forget it, Jake. It’s Chinatown.”

It was Chinatown then. But is it Chinatown now?

A number of things have changed. Margaret Hodge has gone, for one. More meaningfully, the election campaign is over. And those rather silly stories do seem… rather silly. I was asked a week or so ago to comment on a tax avoidance story by a leading Conservative politician – one of the really big names – and by a leading broadcaster too but I said I didn’t want to be involved.

So things have calmed down. But I don’t think they will return to where they once were. It’s as well to remember that “The more things change the more they remain the same.” That line is often attributed to the 19^th French journalist Alphonse Karr. But modern audiences will credit the late 20^th century librettist Jon Bon Jovi. But those who fritter away their one and only life rowing with strangers on Twitter – where’s Stephen Herring? Strangers and friends – will know that tax continues to form a central thread in a continuing political narrative around inequality.

That narrative isn’t going away. And so we should expect continuing media interest in our field. Not at the feverish pitch we’ve seen recently. But not absent either.

So how do we, as a profession, participate in the debate? That’s what I want to talk about this evening.

There are a lot of different debates.

There’s a debate about political involvement in our tax system. “Those bloody politicians,” you will hear said, “they’re ignorant and they make bad law. We need to help them get better.” You may hear that said. Some of you will even have said it. And there’s a debate about us as a profession – what moral component is there to our actions in offering tax advice? And should regulatory oversight of our profession increase? There’s a debate about whether there’s any place for morality in tax.

How do we participate in that debate? Let’s start by looking at the first one – about tax and politics.

Let me take an example. Last week the IFS and CIOT ran a joint event to try and identify some tax policy priorities for the new Government. One of the issues – a perennial – that came up was about merging National Insurance Contributions and income tax. The proponent (this time) was Gavin Kelly, he’s the Chief Executive of the Resolution Foundation. If you don’t know it, the Resolution Foundation is a hugely impressive charity that examines the evidence around, in particular, in-work poverty.

Gavin Kelly joined representatives of the Taxpayers Alliance, the Institute of Fiscal Studies, the (Thatcherite) Centre for Policy Studies, PWC, the Centre Forum (a liberal think tank), Judith Freedman, UKIP – I could go on – in making that call. That’s a pretty broad church. And who here thinks it would be a good idea? They are after all both income taxes.

It would mean that (at least) five significant curiosities would be brought to light.

• It would expose a not terribly progressive tax system: once you include primary and secondary NICs, income tax starts (for the employed) at over 40% on income above £10,600. And it rises to more than 53% – even ignoring the 100-120k anomaly.
• It would expose the bias in favour of unearned income (which doesn’t suffer NICs).
• It would expose differing rates of tax for the employed and self-employed: sometimes differing by more than 11%.
• It would reveal that raising the income tax personal allowance doesn’t actually help the poorest.
• And it would demonstrate that we pay really quite high rates of income tax.

How would Government address the fall-out from each of these curiosities? Would it live with a single income tax that evidenced them? If not, how would it alleviate them? What would the costs be? Let’s just look at those curiosities in a little more detail.

• A not terribly progressive tax system? Would the Government reduce the basic rate of tax? (It’s difficult to see it pushing up the higher rate or the additional rate.) What would be the cost of this reduction? Might it be a spur for adopting a flat tax?
• A bias in favour of unearned income. How would living with this bias play with an electorate that already tagged the Conservatives – unfairly or fairly – as being the party of the rich? Could the Government increase income tax on unearned income without sledge-hammering the five year tax lock? If it could, would this play in the City: how would it be received by the very wealthy who already pay a huge proportion of our aggregate income tax take? Would it drive them to leave the country?

• What about differing rates of tax for the employed and self-employed? This is an enormously vexed question. There are those who say the difference is not justified – and that it simply leads to people gaming the system by entering into contracts of self-employment in circumstances that look more naturally like employment. And sometimes they are right to say so. There are others who say we need to reward risk taking. And there’s a very compelling school of thought that, but for the flexibility of the UK labour market, the country would not have enjoyed the huge decline in unemployment that we have seen. What would requiring all of those individuals to be treated and taxed as employees do for the labour market? This is a huge question, which Government would need to grapple with before it could contemplate merging the two income taxes.

• What about the effects of raising the personal allowance? The Government has promised to raise the personal allowance to £12,500 by the end of this Parliament. But tax at a rate of 20% would still be paid on the employment income of those earning around £8,000. This Government wouldn’t be the first to adopt the politically attractive route of cutting the headline rate and recouping the cost of those cuts in the detail. And it won’t be the last. But raising the NICs floor so it matches the income tax floor would be another hugely expensive commitment. Will Government tackle it? It’s not impossible to imagine it might – but certainly not in order to deliver the technical win of unifying the two taxes.

• And, finally, the very high rates of income tax that we pay. People might be shocked to hear that employment income above £10,600 bears an effective tax rate of over 40%. One can see that shock as being enormously politically helpful to a party that believes in a smaller state. So there is an argument in favour of merging the two taxes. It would absolutely be a helpful stepping stone on that path. But, gosh, this Government has some rather uncomfortable shoes to don before it takes that first step.

So. Look at the world through Government’s eyes. All things being equal, it would undoubtedly prefer to simplify the tax system. No serious doubt about that. But unless we face up to these anomalies. We’re asking it to invest rather a lot of political capital in a tidying up exercise. And that’s even before we look at what a merger would mean for pensioners.

“Ah!” you may say, “But politicians do tidy up the tax system.” But let’s look at the evidence.

Take, by way of example, the Autumn Statement changes to the slab system for SDLT. They were sold to the press as “reforms that aim to address the distortions of the old system” (that’s the Financial Times). Or a “scrapping of the much hated ‘slab’ system in which stamp duty bills rocketed as soon as the price hit a new threshold” (the Daily Mail).

But, of course, if they were really about removing the slab system, why were they structured in such a way that they cost £800m per annum? There’s no reason why reform of the the slab system could not have been accomplished in a revenue neutral manner. £800m is a pretty chunky sum – 2/3^rds of what Labour claimed the Mansion Tax would raise. So there were obviously some other policy objectives that were being met at the same time. Policy objectives that it might have been expedient to hide behind a story about merely rationalising a bonkers tax.

When we look at the pure tidying up exercises have been done over the last few years – we have the Tax Law Rewrite project; we have the work of the OTS; but (with great respect to the extremely talented people engaged in each of those projects) they are real tidying up exercises which haven’t really faced these huge political challenges.

So the more interesting question then becomes, how do we as a profession work to achieve that change? If we want this change, how do we de-risk it for Government? Because that’s what has to happen to achieve the technical change that we (as a purely politically neutral profession, of course) want.

And that is where we can come in. Because, so long as the public doesn’t know of these anomalies a merger of the two income taxes carries political risk. So I see a role for us in pointing out these consequences – explaining them to the public through the media. Working to improve transparency.  I should also add that any discussion about what tax changes Government should make that doesn’t condescend to look at the political consequences of making that change runs the risk of being a wasted discussion.

Let me turn to a further debate in the media. About the moral content of our actions as a profession.

Now, we’ve all seen advice about the prospects of some piece of tax planning working. With the benefit of hind-sight, some of the advice we’ve seen might look a little optimistic. Indeed, with the benefit of hindsight, some of the advice we’ve given might seem a little optimistic. But it’s a small group of advisers only who haven’t been interested in the quality of that advice – and who have given unjustifiably positive advice for money. Vanishingly small if you look at the tax profession as a whole. So let’s leave them aside.

What about the work that the rest of us do? Do we have a role to act as moral overseer to our clients? I find that a rather difficult proposition. Here’s some things I can readily accept – and let me make explicit this is my personal view. You may well have – and you are clearly entitled to have – a different view.

We have a duty to help our clients transact at the point on the risk spectrum that works for them. So if an idea works by delivering a result that the draftsman can’t have intended I think we have to tell our client that the transaction is counter-purposive. If a transaction achieves a result that we think the draftsman intended but it achieves this through taking steps that serve no commercial purpose, I think we have to tell our clients that the transaction is artificial.

There are a number of reasons why I think we have to do this. One is that these features will have an impact on the propensity of a court or tribunal to accept that the planning delivers the desired outcome. In my experience, if a transaction has these features it is less likely to work. Another is that I think we have to help our clients make an informed decision: informed with regard to its reputational risk for them, with regard to its relationship with HMRC, its impact on their senior staff, its potential to impact on their pre-tax profitability. And so on.

But I don’t find myself able to go further and say it’s morally wrong of our profession to advise a client who wants to engage in an anti-purposive or artificial transaction, a client who’s properly informed. Just like it’s not morally wrong for a journalist to write a silly story about tax avoidance because that’s what his or her editor has asked for. The moral agent is the client or the editor – it’s his or her moral call.

Nevertheless, it is the profession that gets tarred. So here’s what we do:

• we don’t deny there’s tax avoidance. If we do then we are taking on the moral taint of our clients. It’s commercially tempting – but it brings the profession into disrepute.
• we make sure our professional conduct rules are fit for purpose. This is what we’re being encouraged to do by the Government – reasonably so, I think – and I think there’s more to be done here. I’ll come on to talk about what this looks like. If we don’t, we risk having them imposed on us from above.
• we listen and engage with public concern rather than just badging the public as ignorant. I’ve never been persuaded of anything by being told I’m ignorant. Even if I am. Perhaps especially if I am.

A couple of asides: first, I do understand that some (possibly many) of you won’t accept there’s any morality in tax. In other words that there’s a perfect alignment between tax law and morality: the fact that something is legal makes it moral. You will appreciate I don’t agree. But perhaps more importantly, I don’t think it’s a winnable argument with the public. It’s the equivalent of shouting at the telly – it may make you feel better but you should proceed from the premise you will accomplish no more than short term relief.

Second, I accept that between the plainly anti-purposive (or artificial) and the plainly pro-purposive there is a huge spectrum. That raises an additional layer of complexity that I haven’t addressed.

I just want to finish with some remarks about professional regulatory regimes.

Shortly before the election the Government said this:

HMRC “is asking the regulatory bodies who police professional standards to take on a greater lead and responsibility in setting and enforcing clear professional standards around the facilitation and promotion of avoidance.”

The response from the profession has been mixed.

The ICAEW responded:

“ICAEW already has a Professional Code of Conduct in relation to tax advice, which is revisited and updated on a regular basis. We are keen to work with Government to ensure that the code continues to be fit for purpose and retains public and political confidence.”

And reading between the lines that means: we’re not quite sure what more you want of us. And it might well be that, reading between the lines of the Government statement, they’re not quite sure either.

The CIOT and ATT issued a joint statement saying much the same – but over slightly more paragraphs. I haven’t been able to find any response from the ACCA, the BSB or the SRA.

Roll back the clock a little. With the help of the profession I drafted some Badges of Tax Risk: a series of questions I envisaged clients might ask of their advisers to satisfy themselves that they understood the advice they were getting. It is a very common complaint of individual taxpayers who engage in transactions that don’t work that they didn’t understand the advice they were getting. And sometimes that complaint is justified.

What then happened was that an influential member of one of the professional bodies suggested that it might become a regulatory requirement for members to go through those badges – or a variant on them – with clients before offering tax advice. That was all in the Autumn of last year. I’m not sure what then happened – but it might be an idea worth revisiting.

The reason – a reason – I bring that up in this context is that it then creates a narrative of what our profession does that we can take to the public. Skeletally, the narrative looks like this:

• the tax system is complex. That complexity sometimes creates opportunities for taxpayers to transact in different ways which involve them paying larger or smaller amounts of tax;
• it is for taxpayers to choose – and not for us to tell them – how much they want to pursue lower tax bills;
• it is our job to give our clients clear advice about the risks of pursuing lower tax transactions – and we are professionally obliged to do so;
• but ultimately it is for them to decide how they want to transact bearing in mind those risks.

Thank you.