"This is a ridiculous conflict of interest which should be banned"

Margaret Hodge on "unhealthily cosy" Big Four/Treasury staff relationships.

The Big Four’s relationship with government is "unhealthily cosy" and detrimental to the public good, according to a damning report into tax avoidance from the Public Affairs Committee.

The PAC conclusions paint a picture of an HMRC that is too woefully under-resourced to tackle tax avoidance, and a group of the largest accountancy firms that are looking to exploit the Revenue's weaknesses to help reduce their clients’ tax payments.

The report says HMRC cannot hope to compete with the resources the Big Four has and says in the example of transfer pricing alone, there are four times as many staff working for the four firms then in the Revenue. This imbalance of resources means HMRC is “not able to defend the public interest effectively”, says the PAC.

The report is particularly critical of Big Four staff being placed on secondment at the Revenue, saying it is not acceptable that tax experts help government devise tax law while at the same time advise clients on how to avoid paying these taxes. It says, “the four firms appear to use their insider knowledge of legislation to sell clients advice on how to use those rules to pay less tax.” The cross-party committee of MPs call up the example of KPMG, which it says seconded staff to advise government on tax legislation including the development of Patent Box rules, and then produced marketing brochures relating to these rules and suggesting it is a business opportunity to reduce UK tax.

The report is also very critical of the Big Four willingness to create schemes for clients, which HMRC will likely disagree with.

The Revenue is portrayed as being overwhelmed by tax avoidance in the report, and is engaged in a ‘cat and mouse game’ with tax avoiders. The Big Four accountancy firms, which earned over £2bn from tax work in the UK last year, are heavily criticised for seconding experts to government to advise on tax making, before then advising their clients on how to avoid those same tax rules.

“We have seen what look like cases of poacher, turned gamekeeper, turned poacher again, whereby individuals who advise government go back to their firms and advise their clients on how they can use those laws to reduce the amount of tax they pay,” the report reads.

"The large accountancy firms are in a powerful position in the tax world and have an unhealthily cosy relationship with government," said PAC chair Margaret Hodge. "They second staff to the Treasury to advise on formulating tax legislation. When those staff return to their firms, they have the very inside knowledge and insight to be able to identify loopholes in the new legislation, and advise their clients on how to take advantage of them.

"This is a ridiculous conflict of interest which should be banned."

The report goes on to suggest the Treasury should introduce a code of conduct for tax advisors, “setting out what it and HMRC consider acceptable in terms of tax planning”. Compliance with this code could determine whether or not the firms are able to work on government or other public sector work.

The report says that although the four firms insisted they no longer sell the very aggressive avoidance schemes that they sold ten years ago, “we believe they have simply move on to advising on other forms of tax avoidance that are profitable for their clients.”

“The firms declare that their focus is now on acceptable tax planning and not aggressive tax avoidance,” PAC chair Margaret Hodge said. “These protestations of innocence fly in the face of the fact that the firms continue to sell complex tax avoidance schemes with as little as 50% chance of succeeding if challenged in court.”

The UK’s tax system overall is too complex and outdated, and should be radically simplified, the PAC concludes. “HMRC appears to be fighting a battle it cannot win in tackling tax avoidance,” says the report. “There is a large market for advising companies on how to take advantage of international tax law, and on the tax implications of different global structures."

The report calls for clarity over the line between acceptable tax planning and aggressive tax avoidance.

The Office of Tax Simplification is held up as a useful step in the right direction, but the PAC says it is "disappointing" that the department has fewer than six full time staff, and has therefore been unable to take a “radical approach to simplifying tax law.”

The PAC also urges the UK to take the lead in demanding urgent reform of international tax law.

The PAC held a series of committee hearings in November and December 2012 with representatives from the big accounting firms, government and different companies to assess the challenges of tax avoidance. The investigation into tax payments came about in response to controversially low tax payments from several high-profile companies, including Starbucks, Google and Amazon.

“All four firms said they discussed reputational risks with their clients, and that there was no longer any appetite for schemes where the sole purpose was to reduce tax. It is difficult to square this with some companies’ tax practices, for example those we heard about in our hearing with Google, Amazon and Starbucks,” today's report concludes.

However, HMRC has insisted it is "winning the battle against tax avoidance" and the numbers of secondees within the department is very small.

This story originally appeared on economia

Photograph: Getty Images

Helen Roxburgh is the online editor of Economia

Shazia Awan
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I'm a Welsh Asian - so why doesn't the Welsh Assembly have a box for me to tick?

A bureaucrat's form clumsily equates being Welsh with being White. 

As someone born in Caerphilly, who grew up in Wales, and is learning Welsh, I feel nothing but Welsh. I am a proud Welsh Asian – and yet the Welsh Assembly appear to be telling me and many like me that that’s not an option.

An equalities form issued in Wales, by the Welsh Assembly, that does not have an option to identify as non-white and Welsh. What kind of message does this send, especially at a time of public worries about integration? Sadly, I am not so surprised at this from an institution which, despite a 17-year history, seems to still struggle with the very basics of equality and diversity.
 
By the omission of options to identify as Welsh and Asian, Welsh and black, Welsh and mixed heritage (I could go on), the Welsh Assembly's form has told us something wider about the institutional perception of our diverse communities in Wales. There are options on the form for "Asian or Asian British Indian" and "Black or Black British Caribbean", to give but two examples. And also for "White British", "White Irish" and "White Welsh". But not for "Asian Welsh", or "Black Welsh". Did it not occur to anyone that there was something wrong? 

It seems like a monumental error by the Welsh Assembly Commission, which designed the form, and a telling one at that. 

A predominantly white institution (there are two non-white Assembly members out of 60 and there has never been a female Black, Asian or minority ethnic Assembly member) has dictated which ethnic group is deemed to look Welsh enough to tick their box (for those of us Welsh Asians, it seems the only box to tick is that most Orientalist of descriptions, "Other"). 
 
Over the summer, meanwhile, we saw the First minister of Wales Carwyn Jones rather clumsily assemble his Brexit advisory group. This group was made up of predominantly white, middle aged men, and not a single person from a black, Asian and minority ethnic background. It seems that despite the box ticking exercises, the First Minister is taking advice from his “White Welsh” group. 
 
And it matters. The Welsh Assembly was established with a statutory duty to promote equality in Wales. In June, 17 out of 22 local authority areas in Wales voted Leave. Post-referendum, our proud Welsh BAME communities have been affected by hate crime. The perpetrators wish to draw a distinction between "them" and "us". Our national parliament is doing nothing to challenge such a distinction. Does it really think there are no non-white Welsh people in Wales? 

In Wales, we have a huge sense of overwhelming pride in what it means to be Welsh, from pride in our rugby and football teams, our language, to our food and our culture. Many friends over the years from different backgrounds have come to Wales to either study or work, fallen in love with our country and chosen to make it their home. They identify as Welsh. The thing about those of us who are Welsh and proud is that we understand that we are stronger in our diversity and stronger together as a Welsh nation. It’s a shame that our Welsh Assembly is not operating with that same sense of understanding that we have in our communities in Wales. 
 
No doubt the nameless form creator simply copied a format seen elsewhere, and would argue the omission is not their fault. Yet in these tense times, such an omission seems to arrogantly suggest Welsh is something exclusively White. 
 
The Welsh Assembly has a long way to travel on the road to creating a fairer society. From these kind of blunders, it seems clear that it is not even off the starting line. 
 
Shazia Awan is an equality activist and Consultant advising on equality and diversity issues. She is launching Women Create, a social enterprise to help women and young people from disadvantaged backgrounds into enterprise and employment. She  is Vice President of the Council for Voluntary Youth Services in Wales, is an Ambassador to Show Racism the Red Card and she was the first Asian woman to address a Welsh Tory party conference. 

 

Shazia Awan is an equality activist. She is launching Women Create, a social enterprise to help women and young people from disadvantaged backgrounds into enterprise and employment. She is Vice President of the Council for Voluntary Youth Services in Wales and she was the first Asian woman to address a Welsh Tory party conference. You can follow her @shaziaawan.