THE BLOG

Who Collects Our Taxes and Why It Matters

04/08/2015 08:31 BST | Updated 03/08/2016 10:59 BST

The current chair of HMRC is a former senior tax partner in KPMG, a firm whose US branch was fined $456million for criminal tax abuse in the USA as recently as 2005. Also on the board is a former CEO of Npower, who happened to be director of that group's Maltese subsidiaries, which used to route interest payments from the UK to Germany in a manner designed to save tens if not hundreds of millions in tax. Over recent years people associated with PWC, Tesco and Barclays have also served.

Does that seem fair to you? That the large companies accused of tax avoidance in the UK, and those who advise them, have extraordinary institutional influence over the UK's tax authority, whose prime task is to challenge the arrangements of those very same companies? You'd be hard pushed to come up with a better example of poachers turned gamekeepers.

This is the new frontier in tax avoidance, and the left needs to act against it now. Years ago, fiddling your income was all about large companies making use of aggressive techniques to reduce the amount that they might pay into the public coffers. It was good business for everyone involved, and they thought they could get away with it. Then along came the tax justice movement to spoil their show. Whether coincidentally or as a consequence, the 'tax gap' resulting from large UK corporations avoiding tax has been reduced - in 2008 I estimated it would reach £12billion, and now it may not exceed £5billion a year.

This is good news, and shows that tax campaigning can work. But now, as one gap recedes another is emerging into view - worse, this one isn't a consequence of sharp practice by clever individuals, it is government policy. Rather than hiding from the tax man, large corporations have become the tax man.

In recent years, large companies have made huge gains because of the extensive changes in UK tax policy they have secured for themselves. The corporation tax rate for large companies has reduced from 30% to 20% since 2008 and is now set to fall again, to 18%. And whilst UK multinational groups were once taxed, at least in theory, on their worldwide income, they are now only taxed in the UK on the income they have arising in this country: contrast this to the vast majority of individual UK citizens, who are taxed on everything they earn unless they're non-doms.

These changes, plus numerous others, mean that in 2015 the UK corporation tax yield will be £8billion less than was forecast in 2010. Over the next five years, I estimate the savings to companies will exceed £25billion.

How has this happened? Why has big business received such an extraordinary deal since 2010 when no one else has? It's down the way in which tax decision making is now undertaken in the UK.

When HMRC was formed in 2005, its governance arrangements were explicitly based on the interests of big business. It was given a board that was required to have a significant number of non-executive directors, all of whom, including the chair, must be drawn from the big business community. The remaining 31million direct taxpayers in the UK were, in contrast, denied a voice.

Furthermore, HMRC is a non-ministerial UK department and it doesn't have to answer to parliament. Instead, in the absence of ministerial guidance, it has an unusual range of permanent secretaries - loud, dominant, and effectively self-styled policy makers.

The inevitable result is that massively undue influence has been given to a tiny minority of taxpayers in the whole tax setting process. These taxpayers have unduly benefitted, wittingly or unwittingly, as a result of enormous tax cuts that no other group in society has enjoyed.

But there are simple solutions. First, we need to appoint a cabinet-level minister to be responsible for HMRC who would be answerable for it in both parliament and to other departments and agencies. Second, HMRC needs to be subject to more rigorous and independent review than has been provided by the National Audit Office. What we need instead is an Office for Tax Responsibility, well-funded and well-staffed, accountable to either the Treasury or Public Accounts Committee, or perhaps both. Third, any group seeking to make representation during tax consultations should be able to bid for funding to cover the reasonable costs of doing so. Only then will ordinary taxpayers, small businesses, pensioners, charities and others be truly represented in these processes.

Lastly, HMRC board appointments should be subject to a quota system to ensure that a wide range of taxpayer interests are represented. Management experience is not limited to big business, and HMRC must engage with society in all its manifestations.

Tax is too important to be left to very narrow interests, and yet that is what has happened in the UK and worldwide over the last few years. It is high time that this was changed: our tax system is far from progressive, and serves the few rather than the many. The left must fight to make it fairer, and these measures are a good place to start.

This blog has been adapted from an essay featured in the forthcoming Fabian pamphlet 'Tax for our Times: How the left can reinvent taxation'.