Vodafone, HMRC and regulatory capture

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Questions have been raised this morning about whether I have seen the latest comments in Private Eye on the relationship between Vodafone and HM Revenue & Customs. The short answer is,I have, and I'm guessing that people are asking for my interpretation.

Let me be clear about two things. The first is that I have not discussed this issue withRichard Brookes at Private Eye, who is, I'm sure, the person responsible for this story. I know Richard, we do discuss issues, but we have not discussed this one.

The second is that nothing I am saying is a criticism of Vodafone. They make clear that they do avoid tax, just as they make clear that they think that this is legally acceptable and part of their duty to their shareholders. I disagree with them about that, but this is not the point in question. The issue being discussed is not how Vodafone managed its affairs, but how they were managed by HM Revenue & Customs.

We now know that the only official statement we are likely to get, at least at this point of time on this issue is the claim by HMRC that the £6 billion tax liability Private Eye says has been foregone is an “urban myth”.

The Private Eye’s response could not be more robust. It has firmly reiterated its claim. In my opinion, and I stress that this is only my opinion, and based purely upon the evidence in Private Eye, there is only one reason for them doing this, and that is that they are very confident that they are right based upon very high-level sources, and probably documentation,that they must have in their possession.

Everything about their statement suggests that this is the case. I know Private Eye is used to being sued, and I know it would be difficult for HMRC to litigate this case, but that does not change my opinion. I am now quite confident that Private Eye is saying that it has clear and unambiguous evidence that a tax liability of up to £6 billion has been waived as a consequence of the issue under dispute and the other issues that have, apparently, been resolved with Vodafone at the same time. And I'm equally confident based on the form of wording that they used  that they have documentation that suggests that this arose as a consequence of the intervention of Dave Hartnett and that in the process he overrode objections from tax officials previously involved in the case by imposing upon the negotiation new participants who were always likely to reach a deal.

His reason for doing that is open to speculation, and I have no doubt we will never know the real answer. Nor do I see any reason why Vodafone should supply it.

But there is a critical question that does remain, and that is whether HM Revenue & Customs has been subject to regulatory capture at the very highest level. The possibility has to exist. Look at the non-executive directors of HMRC. They include people with backgrounds at Tesco, HBOS, Lloyds TSB and Deloitte and PWC. Barclays have certainly been represented in the past. With these backgroundsis an environment which is pro- tax, pro-government, pro-compliance and anti-avoidance and hostile, when appropriate, to tax abuse, offshore or business interests likely? Respectfully, I suggest that it is very unlikely. And in that circumstance Dave Hartnett has done no more than play to the crowd that is supervising his activities.

The trouble is, it is the wrong crowd, and a crowd without any apparent balance at all.

And therein lies the problem. I’m not saying these particular people are at fault. But when they are appointed for representing a business culture — which they must be as their CVs emphasises the point, and then you note the allegations against HMRC and you note the fact that big business is the only part of society to enjoy tax cuts and the only interest represented on the board of HMRC and it’s reasonable to question the culture they represent and the culture that appointed them. And what is clear is that neither reflects society at large, and hat is worrying.

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