A significant amount of (electronic) ink has been spilled since Friday on Google’s tax arrangements. It was revealed that the multinational had arrived at a tax settlement with HMRC for £130m. Lawyers, academics, economists, civil servants, politicians, accountants and tax advisers have (enthusiastically) discussed the intricacies of the deal, although the paucity of details has meant that arguments on all sides have been forced to rely upon assumptions, hypotheticals and even guesswork. Whether this is cause for greater transparency is a matter for another day however. The catalyst for this post is the interjection by George Osborne. At the World Economic Forum in Davos on Saturday, Osborne lauded the deal:
This is a major success of our tax policy.
We’ve got Google to pay taxes and I think that is a huge step forward and addresses that perfectly legitimate public anger that large corporations have not been paying tax. I think it’s a really positive step.
I hope to see more firms follow suit and of course I’ve introduced a diverted profits tax which will require this going forward. So I think it’s a big step forward and a victory for the government”
The reason that this is concerning relates to the fact that HMRC is a non-ministerial governmental department. In the words of HMRC:
“this makes it different from most other government departments, which work under the direct day-to-day control of a minister. The Queen appoints Commissioners of HMRC who have responsibility for handling individual taxpayers’ affairs impartially. This means that ministers have no involvement in taxpayers’ cases.”
This is worth emphasising. A minister does not control HMRC’s day-to-day collection and enforcement activities and there is no political involvement in taxpayers’ cases. During a reading of the Bill creating HMRC in 2005, former Attorney General Lord Goldsmith remarked that it was:
Osborne’s intervention calls into question the independence of HMRC collection and enforcement activities and undermines this “important principle”. In making its claims, the tone and tenor of the speech imply political involvement in the settlement. Although he did introduce the Diverted Profits Tax, that affects tax liability going forward from April 2015, not retrospectively to which the deal largely relates (it settles the tax dispute up to June 2015). By publically praising the deal at Davos, there is an uncomfortable implication that HMRC were under political pressure to arrive at the deal in time for his speech. The fact that it was Google itself that initially announced and endorsed the deal has the effect, not of detracting, but rather of supporting this assessment. It gives the appearance of a prior agreement on both sides to publicise the deal. Furthermore, this is not the first time political involvement by Mr Osborne has called into question the independence of HMRC operations (see: UK Uncut, especially para 22).
In and of itself, undermining the arm’s length relationship between politicians and non-ministerial departments is problematic. It has further implications however for the mechanisms for accountability. As a non-ministerial department, the traditional elements of individual ministerial responsibility are eschewed. No cabinet minister bears ultimate responsibility for actions taken by HMRC. Rather, that rests in the hands of civil servants, who cannot be voted out by the ballot box, forced to resign or sacked by the Prime Minister. Accountability must be sought through alternate avenues. To this end, select committees exercise Parliamentary control. In the case of HMRC, that is the Public Accounts Committee and the Treasury Select Committee, and these bodies regularly interrogate the Commissioners of HMRC over the performance of the body.
Osborne’s inference however blurs the line between policies for which he is accountable and actions for which HMRC is accountable. In so doing he attempts to take the fruits of a PR opportunity but without being held responsible for its minutiae. He holds no duty to Parliament if in time it turns out to be a poor deal for the exchequer. Further, by encroaching upon the territory of the Commissioners, he has placed them in the unenviable position of being forced inevitably to defend the deal before the select committees without divulging its details, restricted by reason taxpayer confidentiality. This invites another NAO report!
This idea of having one’s cake and eating it too ultimately calls into question the appropriateness of an arm’s length relationship between ministers and HMRC. In principle, I would disagree with the notion that HMRC should have direct political oversight. But Osborne’s actions mean that this objection in principle could be outweighed by the practical reality. Other common law countries, such as Canada, do have an element of political involvement in overseeing the actions of revenue-collecting bodies, and their worlds have not caved in. Perhaps it is time to interrogate the received wisdom that HMRC must be independent.
Stephen Daly is a PhD candidate at the University of Oxford and blogs regularly at http://taxatlincolnox.wordpress.com/
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