Why is HMRC in the dock?

Economics, Inequality, Poverty in the UK

Chris Johnes argues that as services disappear and the economy stagnates, we could all be paying the price for keeping big UK businesses sweet.

Today in the High Court the UK Uncut Legal Action campaign group took on HMRC, the Government’s tax collectors, in an unprecedented legal case. The story dates back to 2010 when the then head of HMRC, the now notorious Dave Hartnett, struck a deal with Goldman Sachs which UK Uncut lawyers argue saved them up to £20 million pounds in tax. Although, in 2012, the National Audit Office accepted a judge-led investigation into tax settlements, which maintained the
Goldman Sachs deal was reasonable, today’s case was UK Uncut’s attempt to overturn that decision through judicial review.

£20 million may sound like small-fry to those familiar with corporate profits. But to the 13 million people in the UK today in poverty and struggling to make ends meet it represents a small fortune.  More so, if proven, it signifies a system skewed in favour of the wealthy, where the least well off bear the brunt of austerity while the richest can seek favour to shirk their dues.

The ‘sweetheart’ deal

We heard lawyers claim today that Hartnett allowed the banking giant to shave this sum off interest due in unpaid tax on their national insurance payments for UK staff bonuses, so breaking HMRC’s own rules.

Corporate profits rose by almost 60%, but… corporation tax paid into the Treasury rose by just 5%…He acted alone and without the approval of HMRC’s High Risk Corporate Programme Board, who had dismissed the proposal. The story caused outrage at the time, especially when it became obvious that Hartnett had taken direct control of negotiations himself and personally “shaken hands” on the deal. There is also the possibility that similar agreements may
have been made with other large companies to help reduce their tax bills; often again with the direct personal involvement of Mr Hartnett, the most ‘wined-and-dined’ civil servant in Britain. We hope that these claims will now be investigated thoroughly. 

Even more disturbingly if true, it was argued in court today that the Goldman Sachs deal was struck specifically to ‘save face’ and stop Goldman Sachs withdrawing from a new code of practice aimed at reducing tax avoidance by banks, recently announced by Chancellor George Osborne.

These deals appear to be at the most extreme end of an approach by HMRC that saw big businesses treated as “preferred customers” to be supported in managing their tax bills, whilst smaller companies and individuals were policed in a more aggressive way. 

It may come as no surprise that during the ten years up to 2011 corporate profits rose by almost 60%, but the amount of corporation tax paid into the Treasury rose by just 5%, with the burden of that tax shifted strongly towards smaller companies. Now is the time to investigate why and how this gap was allowed to develop.

If true, for a Government department to give such favourable treatment to rich and powerful companies – effectively offering them a different tax regime to everyone else – is totally unacceptable. It undermines the concept of a fair and functioning free market if one set of businesses pays more or less than their competitors because of their size.

As services disappear and the economy stagnates, they are all paying the price for keeping Goldman Sachs sweet. It also sabotages a fundamental tenet of democracy: equality before the law. HMRC’s partial behaviour began under the previous Labour Government and has continued under the coalition, with favourable treatment for big business trumping fundamental principles and the now quite desperate need to raise money.

We are the ones paying for this

And who is really paying for this? Partly, of course, those businesses competing against the Goldman Sachs of this world who do pay their tax and thus can’t compete on a level playing field. But arguably more, the ordinary citizens who see services cut by more than would be needed if our taxes were collected fairly.  

The low paid mother struggling with the costs of childcare, the families living in cramped housing and the young person trying to get work who finds training courses have been slashed. As services disappear and the economy stagnates, they are all paying the price for keeping Goldman Sachs sweet.

We welcome UK Uncut’s actions in using the Courts to hold HMRC to account and look forward to the verdict.  It is a shame however, that we have to rely on pressure groups to scrutinise basic adherence to the rule of law and democratic principles. The fact that a civil society organisation can take the Government to court is a mark of a free society to be proud of. But in this case, it could also be a sign of a deep failing of governance which hurts us all.

Author: Chris Johnes
Archive blog. Originally posted on Oxfam Policy & Practice.