Yesterday Zac Goldsmith issued a Press Release with some details of his tax returns for the past five tax years. I’ve set it out below for those who haven’t seen it. But what do we know about his tax affairs? And what can we learn from the Press Release?

He inherited non-dom status from his father, Sir James Goldsmith. And it is a matter of public record that he benefits from an offshore trust (the “Trust”) established by Sir James to provide Zac and his siblings with an income. Some estimates suggest the Trust has a value of around £300m.

Zac says he relinquished non-dom status with effect from the tax year 2009-10. We don’t know when this happened – but it is likely to have taken place after May 2006 when he was placed onto the so-called A List for the selection of Conservative Party candidates. The decision may have been precipitated by his expectation of his finances becoming a matter of greater public interest. It may also have been affected by changes to the non-dom regime with effect from 2009-10 that rendered it less attractive. In any event in 2010 Parliament enacted the Constitutional Reform and Governance Act which deemed MPs and members of the House of Lords (although not Mayors) to be UK domiciled for income tax, capital gains tax and inheritance tax purposes.

The Tax Consequences

To understand what all of this means in tax terms, it’s best to divide the income and gains made by the Trust into three categories:

(1) those that the trustees who run the trust appoint to Zac and he doesn’t bring into the United Kingdom;

(2) those that the trustees who run the trust appoint to Zac and he does bring into the United Kingdom; and

(3) those that the trustees who run the trust don’t appoint to Zac at all.

The Trustees are likely to have only a minimal liability to tax on these three categories. But what about Zac?

Before Zac became UK domiciled, type (1) income and gains would have escaped liability to UK tax whereas a UK dom would have paid tax on them. Zac hasn’t disclosed his tax records from the period for which he was a non-dom – but even if he did we wouldn’t learn much. Type (1) income and gains wouldn’t appear on his UK tax returns.

But now that he is a UK domiciliary, type (1) income and gains, along with those in type (2), will be subject to UK tax. And we can see from the letter below that he has received between £53,000 and £2.2m per annum from the trust and paid appropriate amounts of tax.

But the interesting category is type (3).

It is highly likely – although I could not say that I know this – that the Trust is a discretionary trust. What that means is that the trustees can choose whether and when to ‘appoint’ income and gains to Zac – and they are likely to have regard (amongst other things) to what is convenient to Zac. Should it be convenient for him to receive income and gains later, the money he might otherwise have taken now will continue to sit abroad, largely or wholly untaxed, and roll up tax free until such time as – perhaps – Zac ceases to be UK resident when the money could be received by him free of UK (or perhaps any) tax.

Indeed, the Trustees taking Zac’s wishes and needs into account is the most likely explanation for the bumpy profile of his receipts from the trust.

It should also be noted that, broadly to such extent as the property in the Trust is not based in the UK, it will escape liability to UK inheritance tax. Ordinarily a discretionary trust is subject to a charge of up to 6% every ten years – but this is not so for a trust established by a non-dom.

What should we make of this?

Let’s assume Zac is leaving money in the Trust until he needs it – which on the basis of very limited information available is possible or probable – is this aggressive tax planning?

I think not.

It wasn’t Zac who set up the Trust. Responsibility for the fact that, in consequence of it being offshore, the Trust does not generate a liability to UK tax  on (most) income and and gains cannot be laid at his door. And the same is true of the fact that the arrangements avoid an inheritance tax liability.

And few would argue that any of us have a positive obligation to maximise the tax we pay. Drawing down money as we need it, and remaining mindful of the tax consequences of doing so, is the sort of decision all of us with pensions are now going to have to make.

Some will think that it is enough that he is receiving very substantial amounts of unearned money. For myself I’d rather judge him on the quality of his policies.

But that’s not a technical question – and it’s one on which we can all form our own view.

What, on any view, Zac should be applauded for is the decision to provide a degree of voluntary disclosure of his tax affairs. But better still would be disclosure of his actual tax returns – rather than merely extracts from them.

Now let’s see what Sadiq Khan provides.

Zac delivers on tax transparency commitment

Zac Goldsmith has today published the details of his tax payments, delivering on the commitment he made to do so last week.

A letter from Zac’s accountant, prepared at his request, confirms the details of his worldwide income, capital gains, and tax payments in each of the years since he first held public office.

Zac Goldsmith said:

‘I have today published my tax return details, prepared and verified by PwC, who have represented me all my adult life.

‘I gave a commitment to do so and today I deliver on that promise. I look forward to all mayoral candidates doing the same so London voters can judge us equally.

‘As was well known to voters in my two elections as an MP, I became ‘non-dom’ automatically because of my father’s international status. It was not a choice, and I relinquished it seven years ago. I was born, grew up and have always lived in London – except for two years travelling abroad in my early 20s. Because of this I derived very little, if any, benefit from this status as my income came to the U.K and was therefore taxed here.

‘It is no secret I was dealt a good hand in life, but I have been determined to play it well. I have stood up for my local community in Parliament for six years, delivering on my promises to them – which is why they returned me with one of the biggest increased majorities at the last election. I am proud of my record and I will stand up and deliver for all of greater London, just like I have for Richmond, should I be elected mayor in May.’

ENDS

And the attached letter provides as follows:

This was the bit of the OBR’s November fiscal outlook (in Table 4.8) that rescued Osborne’s Autumn Statement with tens of windfall billions.

These modelling changes projected substantial increases in in-year and future year tax revenues.  As you can see from the chart above, these projected increases in future revenues were substantially attributable to “modelling” changes to NICs and VAT (explained at, in particular, Box 4.2).

They rescued Osborne by enabling him to kick the tax credits can down the road (and by creating room for further spending), as the Resolution Foundation identified.

On Friday, the OBR released its Monthly Public Finances Release enabling us to see how those November forecasts are bearing up.

In short, not so well.

For each of NICs and VAT, the 2015-16 out-turn looks unlikely to match the OBR’s upgraded November forecasts.

To hit those forecasts:

• NICs (or Compulsory social contributions as it is described above) receipts in February and March would have to grow 5.9% from 2014-15 compared with November’s full year forecast growth of 4% and growth so far this year of 3.5%.
• VAT receipts in February and March would have to grow 5% from 2014-15 compared with November’s full year forecast of 3.9% and growth so far this year of 3.7%.

As I pointed out here (but others have shown far more elegantly) the OBR’s forecasting record is consistent only in its tendency to optimism.

I went on to observe, of that windfall, that:

Predictably enough, the OBR’s January release evidences only that November marked a continuation of that optimism. And, once again, it seems likely the Chancellor will fail to achieve his windfall growth in tax receipts that were projected only in November.

With an annual budget of £3.1bn in 2014/15 HMRC raised £518bn of tax (and paid out £43bn in benefits).

The £3.1bn number is so low in good part because around 98% (237,000 enquiries of 11m returns) of personal self-assessment returns go unchecked. We allow them to go unchecked because we believe the overwhelming majority of taxpayers to be compliant. This is often what we mean when we talk of tax being “voluntary”: by and large, no one checks what we say about what tax we owe.

This state of affairs is not unusual to the UK. It is baked into almost all tax systems. It works well when what the OECD calls ‘tax morale‘ – citizens’ motivation to pay their taxes – is high. But if tax morale declines, the tax gap (the difference between what should be and is paid) is apt to widen, receipts to fall and costs to rise.

But tax morale is affected by (amongst other things) the confidence that we have in our tax authority and our perception of whether others are paying their dues. So, when HMRC faces challenges to its competence or honesty – like that represented by the press coverage of the Google story over the last few weeks – the stakes are very high indeed.

One of the most predictable consequences of these stories is the immediate fracture they effect between tax professionals and the public. The instinct of the former, by and large, is to leap to HMRC’s defence. But I’m less interested in them. What I am interested in is why it is that the public distrusts HMRC  – and how it is that we might address that distrust.

***

The lack of trust centers on a suspicion of sweetheart deals: done for enormous sums of money and behind closed doors.

These days such suspicions fall on fertile ground. Once we talked of the tax net – but today corporation tax is more a slalom course. Shift right, shift left, right again and you arrive at your destination of a tax burden that seems, in the process, somehow to have slipped a zero or two.

We might blame politicians, or taxpayers, or their advisers. We might properly call a curse on all their houses. But not on HMRC’s. Blame does not fall upon the policeman for defects in the law.

Nevertheless, it is public confidence in HMRC that suffers. And it is this that we must address.

Is the process for signing off deals flawed?

Here’s what happens before HMRC signs off a sensitive deal with a big Corporate taxpayer.

• The Case Team should follow HMRC’s Litigation and Settlement Strategy which states that HMRC is not allowed to haggle or do deals.
• It then reports to the Tax Disputes Resolution Board which makes recommendations to three Tax Commissioners, including the Tax Assurance Commissioner, who must agree unanimously.
• Afterwards, decisions are reviewed by HMRC’s internal audit team – its work is overseen by the Tax Assurance Commissioner – and is reported to HMRC’s Audit and Risk Committee who can recommend further action.
• The Tax Assurance Commissioner publishes an annual report detailing this governance in action.
• And externally HMRC’s actions are scrutinised by the Public Accounts Committee, the Treasury Select Committee, and the National Audit Office.

In the abstract this looks like a good and rigorous process. Whether, in actuality, it represents proper scrutiny depends on who occupies these roles.

We can generate a dozen different layers of assurance. But if we populate them with individuals with a cookie cutter outlook the result will neither look like – nor represent – good scrutiny. The reality is that few people move into HMRC from the outside world – the traffic is almost all the other way – and the pool of Tax Commissioners is drawn almost exclusively from HMRC and the tax profession. I am aware of no-one who occupies a role of strategic importance in the process of approving deals whose background is such as to reassure the public that they are likely to provide independently minded challenge.

This isn’t a criticism of HMRC: it doesn’t make these appointments. But this state of affairs reflects badly on an appointments strategy that asks outsiders to be reassured by the fact that insiders say things are working properly.

You want to reassure outsiders? Put them at the heart of the approvals process.

Does HMRC get its decisions right?

My criticism of the fact of the homogenity of HMRC’s decision makers goes beyond a procedural one.

We ask for diversity in decision making not merely because it signals that decisions will be made properly – although it does that. We also ask for diversity in decision making because it brings meaningful challenge to decision making – and should bring about better thinking and better decisions.

Writing before the General Election I noted that in the last decade there had only been one tribunal challenge to an assertion of an entitlement to non-dom status. The 3,600 names on the Falciani list led to only one prosecution. And I am aware of only one transfer pricing challenge ever having been brought before a Tax Tribunal.

These statistics do not suggest to me a Department which is sufficiently mindful of the need for it to manage public perceptions of its fairness.

I do not know whether HMRC has struck a good deal with Google UK Limited: I have reason to think HMRC may actually have struck a rather better deal than the £130m headline suggests (I may write more on this). But I do know that against the background of investigations into Google’s French and Italian sister companies, the revolving door between senior Google management and Government positions, and the very modest tax liability attaching to Google’s enormous (and enormously profitable) UK revenues, a high level of public interest was inevitable.

Given the extent to which our overly strict taxpayer confidentiality laws (to which I will turn) inhibit HMRC’s ability to explain or justify its actions to a sceptical public, HMRC should, I think, have taken the view that it was in the public interest that tax justice should be seen to be done. I hope HMRC will do so in the future.

Has HMRC become politicised? 

HMRC is a non-ministerial department. The reasons why it has that status are given as these:

The debate around tax has become ever more politicised. A consequence has been an increase in the need for a tax department – one which wishes to preserve the confidence of the public – to remain scrupulously neutral.

Regrettably HMRC has done exactly the opposite.

I have heard directly from one Commissioner the pressure he feels himself under to remain on the right side of Ministers. One does not have to look too hard to find instances which suggest HMRC has yielded to this pressure. This document, for example, issued in the run up to the 2015 general election contained, in section 3, a number of future policy commitments. These are not within HMRC’s province and it is unfortunate that the document bears HMRC’s crest. Although I hear repeatedly that the politicisation of the Department began under Gordon Brown, we do not have to cast our minds that far into the past to find a notable example of a Minister taking political credit for what he (then) considered to be the successful conclusion of a deal with a particular taxpayer. And this document (in the “Ministerial Involvement” section) also states that HMRC provided then private information to Ministers, possibly to help with a Press Conference.

When HMRC enters the political fray, when it aligns itself, or allows itself to be aligned, or is aligned by Ministers with party political objectives it must understand that a loss of public confidence is the inevitable corollary.

Transparency

It would be difficult for any department to retain public confidence against the background that I have described. Such an outcome could only be achieved if the workings of that department were transparent. But HMRC’s are not.

This provision imposes strict duties of confidentiality on HMRC. Breaching them is a criminal offence punishable by up to two years in prison. Perhaps unsurprisingly in the circumstances, officers at HMRC tend to take a conservative view of the limitations imposed upon them by the duty of confidentiality.

The consequence is that HMRC regards itself as unable to respond to press coverage which suggests it has struck ‘sweetheart’ deals. This state of affairs is not conducive to public confidence in HMRC. (Nor, one might think, is it necessarily in the interests of individual taxpayers. The fact that HMRC was unable to respond to media briefings by Google made it more difficult for me to get comfortable with the explanations Google provided. I cannot have been alone in this and it may well be that it affected the tone of the media coverage afforded to Google.)

This state of affairs is undesirable. As a judge noted here:

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.

And it is illogical.

Once HMRC takes a dispute before a tax tribunal, the duty of confidentiality (meaningfully) disappears. The rule that tax appeal hearings should be in public is scrupulously observed. Members of the public can sit and hear all the evidence. The documents in that hearing – witness statements, skeleton arguments, appendices to witness statements – become a matter of public record and are available to anyone who makes an application for them. It is difficult to see what coherent principle there might be that could preclude public disclosure of any material until a taxpayer decides to disagree with a HMRC determination but then throw open the doors to public scrutiny. What is it in the act of a taxpayer disagreeing with a HMRC decision that so fundamentally alters the public interest in confidentiality?

Government is handing over to HMRC powers beyond the strict power to determine tax liabilities. Our policy making in the field is increasingly directed towards discouraging taxpayer behaviour which looks to ‘walk the line’. This discouragement often takes the form of increasing the risks attached to such behaviour. These are good and sensible responses to the increased moral opprobrium with which such behaviour is regarded.

A logical further step along this road would be to remove the protection of confidentiality from those taxpayers who cross the boundary. If an enquiry into a self-assessment return reveals a taxpayer to have wrongly declared a materially lower than the correct tax liability, HMRC should be able to make this fact, and the details of it, public.

It is beyond doubt that Google UK Limited, which has a simple business model, engaged in multiple acts of fiscal boundary testing. It is clear (as I explain here) that there are at least two discrete instances of it telling HMRC that the tax it was due to pay was lower by tens of millions of pounds than the tax it was actually liable to pay. I find it difficult to see how the balance of public interest lies in protecting the confidentiality of the author of that behaviour at the cost of a loss of public confidence in HMRC. There is no sensible clear-eyed assessment of the public interest that leads to that outcome.

***

These are serious challenges. The stakes are high. This is no time for the sort of complacent response urged upon Government by several commentators. Assume that they are right to assert – without any better knowledge than you or I – that the public is wrong to believe that sweetheart deals are being done. Where does that take us? The public nevertheless believes it and a loss of confidence in HMRC is the inevitable corollary.

We can avert our eyes from reality; stumble on, and watch as the situation worsens. Or we can recognise that the world has changed and take steps to address the undoubted challenges that HMRC faces.

What follows is a Guest Blog by Bruce Carr QC on the Trade Union Bill 2015-16.

Mr Carr QC was asked by the Secretary of State for Business, Innovation and Skills and the Minister for the Cabinet Office under the Coalition to conduct an Independent Review into the Law Governing Industrial Disputes. The purpose of the review was to:

make recommendations to ensure effective workforce relationships.

THE TRADE UNION BILL – GOOD OR BAD FOR INDUSTRIAL RELATIONS?

With the Trade Union Bill now at select committee stage in the House of Lords and the government facing a major industrial relations problem as it seeks to impose contractual changes on junior doctors, it is a good time at which to consider what impact the proposed trade union legislation will have on relationships between employers, employees and those who represent them.

The Bill has been described in trade union circles as an exercise in ‘settling old scores’. That perception is perhaps understandable given the far reaching range of measures proposed. The Bill covers a number of diverse aspects from strike ballots to picketing to union funding to the role of the Certification Officer. It is not an unreasonable observation that the Bill contains nothing at all that can be viewed as positive from the perspective of those sitting in Congress House, home of the TUC. And all this arises against the background of an extended period of historically low levels of industrial action, even after nearly six years of austerity and much anguish within the ranks of, in particular, public sector workers following an extended period of significant pay restraint. In its briefing on the Bill for its second reading in the House of Commons, Liberty stated that:

“…this relatively short Bill has the potential to cause significant damage to fair and effective industrial relations in this country and would set a dangerous precedent for the wider curtailment of freedom of assembly and association.”

When one looks at the collective effects of the legislation, it is understandable that Liberty should have reached this conclusion.

Changes to balloting and notification

Consider first the changes to industrial action balloting – if a trade union wishes to avoid being sued for inducing a breach of contract by calling industrial action, there will have to be 50% turn-out of voters (clause 2, Trade Union Bill 2015/6) and a total of 40% of the electorate voting in favour of the action (clause 3) where the action relates to “important public services”. However, the government has thus far refused – apparently for reasons relating to security – to take steps aimed at increasing the turnout by allowing the ballot to be conducted with the use of electronic voting. This despite the fact that the balloting process (at least in relation to any ballot of over 50 members) is overseen by an independent scrutineer who is required under existing legislation to certify, amongst other things:

“that the arrangements made with respect to the production, storage, distribution, return or other handling of the voting papers used in the ballot, and the arrangements for the counting of votes, included all such security arrangements as were reasonably practicable for the purpose of minimising the risk that any unfairness or malpractice might occur” (section 231(1)(b) TULRA 1992)

The government has suggested that the threshold/turn out requirements contained in the Bill are justified as a means of ensuring an effective democratic process is undertaken prior to any industrial action. But if the trade unions are correct that electronic voting would increase voter turnout, what could be the objection to it, assuming that any security concerns about the process could be met? Surely this would have the effect of extending the democratic process within the ranks of union members? In the foreword to “Secure Voting – A Guide to secure online voting in elections”, the Conservative MP and Chair of the All-Party Parliamentary Group on Democratic Participation, Chloe Smith, eloquently make the case for electronic voting as follows:

“We shop, we bank, we date, we chat, we organise with ease [on line]. However, we vote entirely on paper. It’s alien to young people, and indeed anyone who appreciates the capability of the internet. It’s also ineffective: we communicate online with people all the time but we lack the final “one-click” to clinch the deal in democracy when the time comes.”

That reasoning would appear to be as applicable to voting in industrial action ballots as it is to voting in Parliamentary elections.

It is also proposed that union members – and the employer – be provided with a ballot paper which sets out what form the industrial action is intended to take and when it is to take place (Clause 4). On the basis that the ballot lasts an average of 3 weeks and the ballot paper is provided at least 3 days in advance of the opening day of the ballot, coupled with the new requirement that 14 days’ notice is given of any industrial action (clause 7), the employer will have a minimum of roughly 5 ½ weeks in which to prepare for what is to come. In addition, it may soon be the case that the employer will no longer be prevented from bringing in agency workers to cover the consequences of the industrial action. (This issue has been the subject of consultation but the government has yet to confirm what its intentions are in relation to it)  All of this will of course mean that the possibility of strike action no longer carries anything like the threat that it once did and the balance of power in industrial relations terms is therefore significantly shifted in the direction of the employer.

Compressed timetable for strike action

Under the Bill, any action will need to be completed within 4 months of the date of the ballot, leaving the union with just 3 ½ months in which to take action, following which it will be required to re-ballot (clause 8).  For a number of reasons, this is likely to have an adverse effect on industrial relations. First, a union, in order to allow itself the maximum room to manoeuvre in relation to proposed industrial action, will have to set its sights as high as possible and identify the extremities of what it plans to do and when. Having done so in the ballot paper, it will then be loath to shift its position for fear that the employer will take legal action on the basis of inaccurate information having been provided at the time of the ballot, and/or on the basis that the particular action no longer has the support of the ballot.

Second, faced with having to complete any industrial action within the effective period of 3 ½ months (allowing for 2 weeks’ notice to be given to the employer), the union is likely to take the view that it should do as much as it can by way of strike action in advance of any re-ballot. Irrespective of the sensitivities of the industrial position, action would take place within the prescribed period where it might not have done had the window of opportunity not been closing. The fact that the union will have to re-ballot – with its attendant costs – if the dispute is not settled will mean that the union will want to maximise its leverage during the period of validity of the first ballot. Conversely, an employer watching the sands of time running out for the union in relation to its first ballot, may well take the view that it will delay, prevaricate or not shift its position, knowing that the union will be forced as a matter of statute to go back to its members after 4 months from the date of the first ballot. From the perspectives of both employer and unions, the industrial strife may not be resolved and may in fact be worsened as a consequence of requiring everything to take place within the prescribed period.

It is also likely to be the case that the requirement to provide a “reasonably detailed indication of the matter or matters in issue in the trade dispute” (clause 4) will prove to be yet another area for litigation as employers seek to argue that the description is either inaccurate or lacks clarity. Furthermore, if during the course of the dispute, one or more of the “matters in issue” is resolved, no doubt employers will seek to argue that the ballot mandate no longer has validity, leading in turn to litigation and/or yet more re-balloting.

Lessons from the Junior Doctors’ dispute

The current junior doctors’ dispute provides a useful template to illustrate of what might happen in the future. The ballot result was announced on 19 November 2015, with 98% voting for strike action based on a high turnout of 76%. A four month time limit would expire on 18 March 2016. There would be no incentive for the union to sit down and negotiate rather than take planned action knowing that as each strike day is cancelled, its opportunities for further action will be fast disappearing. If having conducted some negotiations, it decided to add new dates in substitution for the originally planned dates, it would face the argument that the membership had not voted for this. Equally, employers would be able to comfort themselves with the knowledge that the mandate was soon to expire and the union forced to incur the significant expense of re-balloting its 37,000 junior doctors. Could it seriously be said that the 98% voting in favour of the action in November 2015 could not be regarded as a proper mandate for action beyond that date if, as appears likely to be the case, the dispute is not settled before 18 March? Were the proposed legislation in place, the BMA would already have to be making preparations for a further ballot of its members.

Changes to check off arrangements

Any union operating in the public sector will also be facing the additional prospect of re-balloting in circumstances in which its funding has suffered a steep reduction as clause 14 of the Bill seeks to prevent any employers operating within the public sector from making deductions from salary for trade union subscriptions, irrespective of the wishes of the employer.

Picketing

There are new measures to be introduced in relation to picketing which will result in further costs and administration for unions. They will be required in relation to every location at which picketing is to take place, to provide a “picket supervisor”, complete with badge or arm-band, who must be “familiar with any provisions of a Code of Practice issued under section 203 TULRA 1992 that deal with picketing”. Again, using the doctors’ strike as an example, this will mean that the union has to provide many hundreds of suitably qualified and ‘badged’ supervisors.

Industrial consequences

All of this, it seems to me, is likely to cause trade unions to look to alternative mechanisms in order to advance their case industrially. The Bill does nothing (and could not in any event do anything that would impact on the rights of freedom and expression and association contained within Articles 10 and 11 of the European Convention) about “leverage” campaigns which were at the centre of the rationale for the Review to which I was appointed in 2014. Such campaigns may involve the use of tactics outside the traditional model of industrial action and may include protests, lobbying of third parties in the supply line and forms of direct action involving managers or shareholders. The irony of the present Bill is that if anything, it is likely to increase the use of leverage campaigns as unions seek to avoid what they see as the unfairness of a collection of measures which erode both the lawfulness and the impact of strike action as well as draining off substantial amounts of income through the changes to check off arrangements (at least in the public sector).

Wider implications for trade unions and the Labour Party

The sense of unfairness that pervades the union movement in relation to the current Bill will be reinforced by the concern that the prospects of a change of government at the next election will be reduced should clause 10 of the Bill become law. Under this provision, union members will be required to ‘opt in’ to making contributions to a union’s political fund. The view of the Electoral Reform Society is that “only a small minority are likely to ‘opt in’.” (As set out in their Briefing to the House of Lords Select Committee).

Their view is also that this could result in an annual reduction of £6 million in the Labour Party’s income. Whilst the authors of the Bill may have had the intention of simply modernising current arrangements and improving union democracy and accountability, the fact that the Labour party faces the prospect of such drastic financial consequences as a result of what is proposed, will serve to reinforce the union view that it is intended to be something more. The BBC Parliamentary Correspondent, Mark D’Arcy has recently made this observation:

“The bottom line is that for Labour the loss of millions of pounds in political funding as a result of the changes proposed in this bill could destroy its ability to compete with the Conservative Party; so whatever the rights and wrongs of opting into, rather than out of, a political levy, this will be a bare-knuckle battle for very high stakes.”

The ‘bare knuckle fight’ is likely to be an industrial, as well as a political one. Based on the figures contained in the government’s own impact assessment, the TUC has estimated that the costs to trade unions as a result of the measures in the Bill will amount to £26 million over 5 years, not including any costs incurred as a result of the 4 month re-balloting requirement and not including an up-front implementation cost of £11million. It should therefore come as no surprise that the fight in future may be carried on outside the framework of the 1992 Act. ‘Leverage’ may prove to be a more efficient and cost-effective way of advancing industrial disputes than going through balloting processes which may of themselves, serve only to worsen relationships between workers and employers as set out above.

This is the third in a series of pieces exploring what the Labour Centre might offer to the electorate. The first, sketching out some of the broader ideas, can be seen here. The second, which advances some specific policies to reshape the labour market to support self-employment and improve competition, can be seen here. I will come back to those ideas. But I want now to set out some thoughts on how the Party might respond to public demand for better business.

We are awash with narratives of bad business: of environmental destruction, tax dodging, exploitative labour practices, unpunished regulatory breaches. And even as the events of 2008 disappear into history their effects remain political centre stage. Writing here I described the need to reforge the relationship between society and business as “the defining political question of our time” and “perhaps the one great opportunity open to the Left.”

We’re not short of diagnosis. But we need to move to specific prescription. Not a command and control prescription that positions Labour at war with the forces of capital. But one that looks for inflection points and uses them to influence the shape that markets take.

***

Do you own an Apple iPhone? Or search with Google? Or drink at Starbucks? Or run in Nike?

What responsibility do you have for their environmental damage or poor supply chain management or abusive tax practices?

When you choose their products do you own their policies?

Their commercial performance suggests not. Decry the behaviour though we might, we do not deny them our custom.

What if you own their shares?

By investing, you lower their cost of capital. You reward their management’s assessment of the ‘right’ balance of profit maximising/cost externalising.

Still not convinced? But what if you ran those companies?

What if it were you who, as the Archbishop of Canterbury put it, turned a blind eye to your wild lending, knowing that Government stood back-stop; or who targeted an effective tax rate that compelled abusive tax behaviour; or who chose a supplier on the basis of cost alone, ignoring how they achieved it; or who opted for cheaper, unsustainable energy?

And what if you were only doing what your shareholders were rewarding you for?

If you spread responsibility widely enough no one need bear it. But it’s the law that has done this and what it has shared out it can gather together again.

***

Once upon a time ‘who bears responsibility’ was not a question we had to answer.

Until the mid-19^th Century we did not have limited companies, not as we now know them. The creation of a ‘legal’ person, separate from its owners, was a rare act effected almost exclusively by Royal Charter.

So there was always a man to carry the can. The owner, in law, was the business. There was no separate legal entity. He ran the company and the staff he employed executed his will.

But today we have two actors. And there are important consequences. Consequences that troubled commentators in the mid-19^th Century – but that we seem to have forgotten today.

Moral responsibility is difficult to site.

And criminal responsibility, too, is lost.

Speaking on the Marr Show on 24 January 2016, Rona Fairhead, a Director of HSBC at the time its Swiss unit facilitated tax evasion, said this:

“What happened in HSBC, behaviour that was criminal, behaviour that was against the practices of the bank, we have said as a bank that we accept responsibility and we have said that we are deeply sorry for any reputational damage in what happened.”

Yet no criminal charges have been brought against the Bank – or against Ms Fairhead who chaired the audit committee at the time. And, remarkably, no regulatory action has been taken either – against HSBC or, as far as I am aware, Ms Fairhead. It is difficult to imagine that an individual – as opposed to a company – who admitted criminal behaviour on this scale would escape sanction.

***

The intense political focus on my own field, taxation, has driven some interesting thinking.

Writing in June last year I argued for “measures – likely outside the tax code – which nudge business to become better fiscal citizens through embracing transparency and improving corporate governance.” Would behaviour change if there was an individual whose reputation was on the line? Or if business was compelled to state publicly whether it would adhere to prescribed baseline standards?

Last Summer Government published a Consultation Document entitled ‘Improving Large Business Tax Compliance‘ which asked whether responsibility for tax strategy should rest with a named individual. And whether businesses should be invited to state whether they might sign up to a voluntary code of good tax conduct (similar to that applying to banks).

But business respondents were overwhelmingly hostile to these proposals. And the Conservatives abandoned them.

A perception that a lack of personal accountability for poor behaviour could engender a corporate tolerance of it drove policy thinking in other areas too.

In July 2014, the Bank of England published ‘Strengthening accountability in banking: a new regulatory framework for individuals’ which identified as a contributing cause to the financial crisis the fact that “individual accountability was often unclear or confused.” That framework went on to observe that: “Both the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) (the regulators) believe that holding individuals to account is a key component of effective regulation.”

Companies cannot carry the can. This should not encourage in those who run them any diminution in the care with which they attend to the moral and legal mores society sets down. But history tells us it does.

***

Companies are creations of law. Through our laws we make them, and through those same laws we regulate their uses. There is no need for companies to become a means for the doing of that which a natural person could not. The privilege of limited liability and separate personality is ours to grant. And there is nothing radical in the notion that we should carefully and in our collective interests dictate the terms upon which that privilege is extended.

The law is not a mechanism for regulating morality. As I observed here (writing about the relationship between tax law and morality):

Discrimination on the grounds of “colour” (to use the language of the Act) did not become immoral only on 8 December 1965 when the first Race Relations Act received Royal Assent.

I start with that truism because it is only if we lose sight of it that we can regard the question ‘Does XCo wrongly avoid tax?’ as properly addressed by the response ‘XCo complies with all relevant tax laws in all the jurisdictions in which it operates’. It is only if one loses sight of it, too, that one can conclude… that there is no use to which morality can be put.

The law of corporate personality need not be used to allow to mask moral responsibility.

We should identify the spheres of corporate behaviour which we consider contain a moral element – environmental standards, a tax strategy, labour standards and others – and ask large companies to publish their policy on it and name the individual responsible for achieving that policy. By taking that step we re-establish clear moral linkage between action and actor.

And separate corporate personality should never act as a shield against criminal responsibility.

If we care enough to attach criminal sanction to types of behaviour we should impose upon directors a positive obligation to take reasonable steps to secure that such behaviour does not occur. The converse – that they need not take reasonable steps to prevent criminality – invites directors to regard that behaviour less seriously than society by deeming it criminal dictates.

Let the law join together what it split asunder.

As I’ve made the point on twitter:

let me spell it out here.

I’ve traced Google UK Limited’s accounts back to 2008. The first sign of trouble comes in 2012 where we see for the first time a provision for underpaid corporation tax:

in respect of employee share based compensation. We can reasonably assume a deduction had wrongly been taken for tax purposes. Call this the First Dispute. And there is a corresponding interest charge to reflect the fact that at least some of this additional tax has been owed for some time:

In 2013, there’s then a new and separate provision “in respect of additional corporation taxes”:

You’ll notice that it occupies a separate line in the accounts to the £24,069,879 figure carried over from 2012 and has a separate description. Call this the Second Dispute.

And there’s also a further interest charge.

which is said to relate to the First Dispute.

Now roll the clock forward to the (as yet unpublished – but I have a copy) accounts for the period ending 30 June 2015. You can see a substantial additional provision to that recorded in the accounts for the period ending 31.12.13:

Although the accounts for the period ending 30 June 2015 don’t explicitly record that the provision is for the Second Dispute, the fact that it is compared with the prior period £1,153,785 (which obviously was for the Second Dispute) strongly suggests that some or all of it relates to that dispute.

As I indicated here, there is also in the accounts for the period ending 30.6.15 a further provision for interest of £13.6m. If you assume that some or all of the £69m related to the Second Dispute the amount of this interest charge would suggest that the Second Dispute, too, is of venerable age. And from the timing of the provision you can see that either HMRC uncovered – or Google conceded – the point late in the day.

So. Two longstanding disputes as to Google UK Limited’s UK corporation tax bill. Both involving tens of millions of pounds of underpaid tax.

One might be unfortunate. But, two?