The Chancellor is expected to take a tougher stance on tax avoidance, with potentially more criminal sanctions and greater tax transparency announced. This might be welcomed by the general public, but could these moves pose a wider threat to taxpayers?
The balance between the citizen and the state is going to be one of the critical themes in tax policy over the lifetime of this government. The state must have powers to collect tax and sanctions to enforce compliance, and equally the citizen must have the protection of knowing the state isn’t making excessive demands and have a right of independent review. I’ll be watching the Budget very carefully to see early signs of how the government approaches these critical areas.
I expect to hear more on the enforcement side of the equation. So anticipate further announcements about criminal sanctions - particularly whether there’s been any rethink on the proposed strict liability offence for offshore evasion and/or the lack of immunity from prosecution under any future general disclosure facility. I also anticipate further tightening on avoidance, with further emphasis on naming and shaming those - including agents - who HMRC believes have transgressed.
But what about the citizens? The new digital tax accounts should give a much better understanding of a person’s financial relationship with the state which is a welcome move, but I want to be certain that all citizens benefit from this new approach. It’s far too easy for those at the top of HMRC to assume that everybody is digital and ignore the needs of the sizeable element of the population who can’t or are unable to make the digital switchover. There was an extraordinary remark recently from British Telecom’s Group Director of Regulatory Affairs, who said: ‘we believe obsolete regulation should be rolled back, rather than clinging on until the last user dies’, which more or less implies that people would just have to accept the switch off of the existing telephone service because the company couldn’t wait until every last non-digital user had died before making the change. HMRC has generally been more sensitive, but the temptation to force things through without taking the public with them is an ever-present danger.
The other critical balancing point between the citizen and the state relates to confidentiality. We live in an era of ever greater transparency and there are tensions between this and the traditions of HMRC confidentiality. The very tense exchanges between senior HMRC officials and the Public Accounts Committee over the tax affairs of specific multinational companies demonstrate this. The ‘naming and shaming’ rules for deliberate evaders and multiple avoiders are a sign that in a small way, the absolute principle of confidentiality no longer holds. In some jurisdictions, of course, everybody’s tax returns are in the public domain. Now I don’t expect such a radical change to be announced next week, but I wouldn’t be surprised if over the lifetime of this Parliament some very tentative steps towards starting a dialogue about some form of tax transparency are made.
Emerging from this is also a question of how much HMRC can be regarded as synonymous with the state. HMRC has always been politically independent. You only have to look at American politics to see the dangers of politicians looking into personal tax files to dig up dirt to use on their opponents. We’ve been mercifully free of this in the UK, but one of HMRC’s stated roles is to support the UK growth agenda and that set off alarm bells for me. You may say that HMRC is right to identify companies which have not, say, claimed R&D tax credits and suggest they put in a claim. Nothing wrong with that? Well not as such, but it could be seen as the thin end of a very dangerous wedge, under which HMRC uses its resources, and the vast data which it holds, as an agent of government propaganda. I’m sure that nobody in the current government has that intention but we all know what they say about the road to hell…
So I’m not predicting much in the nature of immediate change, but I think that we could be in for some very radical thinking about the role of the state in relation to the individual’s tax affairs over the next few years.