A Modern Moral Maze

It is difficult not to have some sympathy with David Cameron over what I suppose will soon be known as “Carr-gate”. In today’s 24/7 media world there is a constant demand on political figures to provide a running commentary on populist media campaigns.

Nevertheless by personalising his message, the Prime Minister has unwittingly opened up a dangerous flank. No doubt some elements of the press will now feel it is fair game to expose and weigh up the “morality” of tax arrangements of Tory donors, high profile Tory supporters and Tory MPs alike.

But here is the bigger picture: the UK’s proud, traditional place as a bastion of commercial certainty, attracting investment from every corner of the globe, will be further undermined by high profile rows like this. If investors sense that UK policy over tax and regulation is becoming ever more arbitrary – and governed by sentiment and the news cycle as much as strict rules enforced by the courts – we shall all be the losers.

The furore over Stephen Hester and Fred Goodwin at the beginning of the year also flies in the face of the key coalition message that the “UK is open for business”. The government needs to nip this dangerous misconception in the bud.

Meanwhile the Treasury is committed within a year to introducing general (tax) anti-avoidance provisions, whilst too often coalition Ministers seem to conflate the concepts of “avoidance” and “evasion” in debating taxation policy. It is clear that any such general power of anti-avoidance will result in retrospective taxation; this is wrong in a free society and will further risk damaging our nation’s reputation as a free, open, transparent place to set-up, develop and run a business.

As a matter of urgency the Treasury needs to promote a better pre-clearance regime to allow companies, individuals and tax advisers to road-test their proposed schemes. HMRC has to invest time in developing and managing relationships with accountants and tax lawyers. The ideal situation is that aggressive tax avoidance schemes are stopped in their tracks BEFORE they are marketed to the Jimmy Carrs of this world. That requires constant dialogue and the re-establishing of trust between HMRC and tax intermediaries.

Amidst all the furore of recent days it is worth remembering that the underlying lesson of all this is that the UK tax code and regime remains far too complicated. We need (as we were promised before the Election) a simpler, flatter tax system with more transparency, fewer loopholes and as a result less incentive or desire on the part of taxpayers and their advisers to avoid ever increasing headline rates of tax.