The Telegraph and Observer both have commentary on the publication of Tony Blair's accounts today and I'm quoted in both. That's because a couple of years or so ago I won a prize from the Guardian for fathoming out why he structured his business affairs in seemingly bizarre and inexplicable fashion and so I a seem to have become the person to quote on the subject.
My original analysis is here. It's not light reading. The key point was a simple one though, and that is that Blair adopted a massively opaque structure to ensure that much of his activity is hidden from view in an arcane and rare corporate structure called a limited partnership (which is not the same as a limited liability partnership) and by exploiting legal but dubious legal loopholes he has ensured contrary to the spirit of the law that it does not need to file its accounts on public record even though all its members are limited liability entities. It is the clear intention of the law that they should be published in that situation, but his lawyers or accountants found a way round that.
That has always raised the question, why does he need that secrecy?
Now further questions have arisen since in the pile of companies he owns is a management services company - which seems to supply most of its services to the limited partnership and is paid more than £10 million for doing so. Its total income in its 2011 accounts was £12 million, it had costs of £10.9 million and paid tax at a fair rate on the resulting balance of profit. But what papers have picked up on is the fact that in a management services company you would logically expect most costs to be for people - since they're the management that's being supplied, after all. But as the The Observer notes, largely quoting me:
Windrush Ventures Ltd spent almost £3m on staff, rent and other services but had total administration costs of almost £11m. "Just what is this company doing?" Murphy asked. "You would expect total costs to be around double the costs of employing staff. But in this case total administrative costs are £10.9m. That's a very high ratio indeed." He added: "We have no idea where this money is coming from or how it's being spent. The structure seems designed to impose a veil of secrecy over its accounts."
More than £7 million of those admin costs seem hard to explain in a management company. It would be a might lot of consultancy if that's what's being bought. And if it is - why is that the case, and who is benefiting? I think those are fair questions for a person in the public eye making his money as a result of public office.
As the Telegraph notes Blair's defence is:
The Windrush accounts are prepared in accordance with the relevant legal, accounting and regulatory guidance.
It's profoundly disappointing that he relies on such a legalistic defence. It's up to him how much transparency he provides and he has op[ted for the absolute minimum he can get away with. When the debate now is about good capitalism he shows he is a long, long way from being anywhere near the demands for accountability that imposes. And that is why it's fair to raise the issue.
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And no sign of any offshore vehicles, which rather goes to prove that secrecy isn’t just an “offshore thing”.
I think this story encapsulates something about what happened to Blair and New Labour.
This is absolutely a test of ethics which he has failed – that he sees fit to play these games despite everything that has happened in the last 4 years is instructive.
There is something for Ed M to explore here along with the wider tax avoidance debate as many have mentioned previously. It needs a courageous politician to grasp the nettle and challenge unethical behaviour of this type regardless of any party loyalty – it could be a watershed moment for British politics if he’s brave………..party conference here in Manchester later this year, echoes of Brighton in 85………..
Edm will do nothing about anything. He is a sap, a punchbag, much like michael foot, designed to fail.
He was gifted the tinsel crown of the loyal opposition through the long term ambitions of the blairite tendency. They did not want to waste his brother’s political capital in opposition.
A theory I do not agree with – I saw how vexed the David M camp were, and are
On the evidence so far you’d say he won’t be that courageous politician. Will he concede the battle of ideas without firing a shot ?
i dont agree that LP’s are a “rare corporate structure” – they are used all the time in lots of different industries for various reasons.
19,000
Almost all for tax fiddling related to hedge funds
That’s it
dont be ridiculous – they are commonly used as JV vehicles where the JV parties are limited companies.
Oh that’s a use
Not the most common, I suspect
Limited Partnerships are transparent for tax purposes. There is the “check the box” option under the US tax code but it is not available to tax paying entities.
I really fail to understand how they could be used to fiddle taxes.
Then you fail to understand the massive abuses tick the box also allowed
A good detailed analysis, Richard. I am inclined to agree with the view you have reached. In the past I have asked why loopholes have been left in the offshore discretionary trust legislation and it can only be assumed that it is done for a purpose. Cases using the structure appear to need to be 7 figure sums or greater with setting up charges of about 10%.
The method of compounding an LP and LLP in this way may well be using another of these “deliberate” loopholes.
Your point that he has opted for the minimum required transparency regarding his own affairs is instructive.
Why should he disclose more than is required ?
And with regard to him not adhering to the spirit of the law – as there is no such legal concept, it is bogus, a fiction. One must assume you want him to comply to Richard Murphy’s so-called “spirit” or what you would like the law to mean, not what is the statute books.
The case for the spirit of the law existing has now been conceded – a GAAR will happen
Respectfully, I have won this argument and you’d better get used to it
Absolutely not. The proposed GAAR does not remotely introduce the concept of “spirit of the law”. You have misunderstood Aaronson.
The GAAR is intended to apply to abusive and artificial taxation scenes and arrangements and it doesn’t introduce interpretation according to the “spirit of the law” (whatever this phrase is supposed to mean)
“GAAR is not to be regarded as a rule of construction, or
interpretation, of statutory language. Rather, it operates on the
hypothesis that the particular tax rules engaged by the arrangement
would, on conventional purposive interpretation, succeed in achieving
the advantageous tax result which it set out to obtain.” (Aaronson para 5.4)
“At first blush one might think this could be achieved by asking whether
the arrangement is designed to achieve a tax result which Parliament,
or the legislation, did not intend. The insuperable problem here,
though, is the established principle of statutory interpretation in the UK
which holds that the intention of Parliament can be discerned only from
the language of the legislation itself. Ex hypothesi the GAAR is
designed to deal with cases where the language of the legislation
would, under normal principles of interpretation, indeed achieve a
favourable tax result (e.g as in the SHIPS 2 scheme). So this question
could never be answered in the affirmative” (Aaronson 5.15)
Accordingly, I have modified it so as to refer to arrangements made to
secure tax benefits which can be regarded as a reasonable response
to choices afforded by the legislation. (Aaronson 5.21)
Having spent some time with Graham Aaranson discussing this issue let me assure you I do understand what he says, and what he meant
And the spirit of the law is exactly what he intended to enact – and is doing, although he uses language that recognises that officially you can’t do that – which is exactly why he’s adopted this tortured approach.
I incidentally think you could enact the spirit of the law – as indeed the courts have already done, for example in the Halifax VAT case.
@ JayPee
It is interesting to read the alternative viewpoint. Thanks for expressing it so succinctly.