As John Gapper in the FT has noted:
The news that Dave Hartnett, the UK's chief tax collector, has become a consultant to Deloitte, is hardly shocking because so many now pass through the revolving door. In France, when public servants cash in by taking private sector jobs, it is called pantouflage. In Japan, it is amakudari (“descent from heaven”); and, in the US, it is normal.
For all that, it is worrying. Not because it involves crude corruption, but because the benefits of knowing how things work at the top, and knowing the people in charge, are valuable. The fact that those benefits can easily be sold to outside bidders changes the incentives to become a public servant disturbingly.
Gapper concludes we cannot stop this.
And I do not agree. Courageous States should pay enough to keep staff.
And contract people so they cannot move in this way.
But as has so often been the case in recent years, Hartnett is creating debate in ways he cannot welcome. His capacity for making errors of judgement is extraordinary
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I haven’t followed the work of ACOBA (the advisory committee on business appointments) since I had a paper published in 2009 that featured their work. However, now they are back in the news some of your readers might be interested in having a look at their most recent annual report, available here:
http://acoba.independent.gov.uk/media/2672/acoba%20thirteenth%20annual%20report%202011-12.pdf
Two things are worth noting in the context of your comments about the French and Japanese approaches. First, the remit of ACOBA is extremely limited, as the following excerpt from ACOBA’s annual report make clear.
9. The Committee is limited in the restrictions it can recommend under the
Business Appointment Rules by Human Rights legislation and the possibility of action in restraint of trade. Based on legal advice, the Rules confine its recommended restrictions or conditions to a maximum period of two years from an individual’s last day of paid service. However, the Committee can, if so minded, recommend that a particular appointment is unsuitable and should not be taken up.
10. The Committee’s remit is to provide advice. It does not have a role in policing or enforcing.
It should also be noted that despite a change in the rules under which it operates it can be argued that ACOBA has been deliberately kept as a nuetered organisation by successive governments, despite attempts by some of its past members to argue it should be strengthened. Indeed, in the mid 2000s the Blair government sought to alter its remit and introduce a system similar to that in the US (i.e. almost completely open “traffic” between private and public sector). The then membership of ACOBA strongly resisted this and the proposal was eventually dropped.
Second, as a brief review of the cases that ACOBA looked at in 20011-12 illustrates, its existence is fairly often ignored. That is, people go out and sort out employement elsewhere before ACOBA is even consulted (see the case of Sir Andrew Cahn, p.43 2011-12 annual report). They are then presented with a fait acompli and simply asked to comment.
Finally, anyone who does take the time to read the ACOBA annual report may well be as taken aback as I was in 2008 (when I reviewed all their reports for a period of six years) that anyone would believe that the “behavioural restrictions” they attempt to place on ministers and civil servants are actually followed. I dare say some honourable people stick to them as best they can, but as they are not policed it can hardly be seen as a robust system.
My conclusion back in 2009 was that the remit of ACOBA was not fit for purpose. My opinion has only strengthened over recent years.
Spot on Ivan
If the best public sector workers were paid at commercial rates there would be public outcry, but the public sector would actually be far more cost effective because you could get rid of the unproductive staff.
Quite honestly I don’t see it happening.
It would if I was in charge
You are not immortal – the protection of civil servants against unfair dismissal was introduced to protect them from politically-motivated sackings, such as occurred in the Church of England under the Commonwealth – and if Parliament revoked that protection then your successor could sack public servants on political grounds. One (allegedly the major) reason for the incompetence of the US Postal Service is that the appointees are politically selected and frequently changed following a change in administration.
Actually I don’t see a public outcry if the best public servants were paid at commercial rates – there is a lot of public outcry about people being paid at *non-commercial* rates (e.g. in ascending order “Cedric the pig”, solicitors getting £1m pa from legal aid fees, Bob Diamond/Lloyd Blankfein) but none about Judi Dench or David Beckham.
Today’s Guardian reports another example of the carousel between HMRC and the corporations – this time from the energy companies:
‘…government was recently embarrassed when it was highlighted that the former head of RWE npower, Volker Beckers, since January was working as a non-executive director for HM Revenue and Customs.’
Read the full article at: http://www.guardian.co.uk/business/2013/may/29/energy-crackdown-government-end-tax-scheme#ixzz2UlbdxIwX
its an interesting dilemma. arguably HMRC cannot attract the top tax professionals as it is (largely related to remuneration at the moment I think its fair to say).
how attractive is it if, assuming the pay was sorted out, you could never leave HMRC and enter private practice – I think hugely unattractive, particularly given the frequency of HMRC redundancy rounds.
If they dont sort the pay and add the restrictive convenant nobody would ever join !
How courageous is the Courageous State really?
It’s just that a truly Courageous State would insist that popular people, celebrities and the like, would make their contribution, even at the expense of something the Courageous State and its people would like. Thus cricket clubs would be told that they too need to make their just contribution in line with the law. Millionaire athletes (Usain Bolt) would be told that they will need to pay tax on earnings in the UK, even at the expense of staging the Olympics. And certainly a grand prix athletics meeting wouldn’t be exempted. Neither for that matter would Champions League football finals, even if UEFA then did take their ball somewhere else.
Politicians caught not walking the walk on tax would also be exposed by a truly Courageous State. However, you made it an express condition of commenting on your blog that it “isn’t about individuals” and Ken Livingstone’s name was not be be mentioned – which rather contrasts with your call for Dave Hartnett to be subject to IPCC enquiry doesn’t it!
Finally, the Courageous State would have the courage to post this comment and not moderate it away because the Courageous State finds it embarrassing or can’t think of a quick response.
Market economies can only function efficiently when all economic rent is collected for public benefit. That includes the excess earnings of Usain Bolt.
Why should the earnings of someone who isn’t British and doesn’t reside in the UK be taxed here rather than in the country he’s from and lives in?
I know HMRC’s answer (“Because we can”, broadly), but a) it doesn’t seem entirely fair, and b) it’s out of line with the thinking of pretty much every other jurisdiction (which kind of backs up (a)).
Because it is earned here
Is the point not that HMRC seeks to tax endorsement income earned abroad, on a basis which no other country considers appropriate?
No
Firstly, Usain Bolt’s earnings are not economic rent unless you assume that he was born endowed with a herculean physique that he has done nothing to improve. Well, I was born with a superior physique and I can tell you that one has to train very hard to achieve good performances, let alone world-beating ones: the higher one goes, the harder it is; I was a top-quartile marathoner in my forties and early-fifties: my club’s training sessions were led by a guy who had already done his major training session for the day.
Secondly, if there should be a tax charge on the non-existent economic rent that Usain Bolt receives, it should be paid to Jamaica, not the UK.
Actually, the UK tax charge on Usain Bolt has NO relation WHATSOEVER to how much is earned here. Which is why it was waived for the Olympic Games. It is based on how many days he spends/competes in the UK and if they had not been waived the HMRC rules would have transferred wealth from a poor country (Jamaica) to a rich one (the UK).
Westlancs
you seem to be happy with the well rewarded not contributing.
although I like football (and I was an athlete) and enjoy and appreciate their skill, I don’t value it as much as the work of nurses, teachers of children from deprived areas who succeed in giving them opportunities and people set up businesses and employ others.
The wish for courageous state, or Richard could have called it a moral state, is not something to be embarrassed about. Not so sure about the morals implied by your post.
But the Government makes more in tax from holding the Champions League final than it does from the tax that the footballers would otherwise pay.
We looked into it here at work.
The exemption actually brings in more tax to the UK, because it attracts the event here (and we gain in VAT, tourist spend increasing hotel profits, etc). Presumably a Couragous State would make coherent tax policy in order to maximise tax revenue).
No, maximising revenue is not a goal of tax
Justice, redistribution and representation are others
Would that not be a rather unfair restriction on employment?
If you contract people so they can’t get jobs outside the Civil Service, you’re effectively indenturing them: they are entirely dependent on the Civil Service for work, so if they get made redundant they’re stuffed.
Conversely, if you gave them a guarantee of employment to protect against that, the Civil Service could become full of seat-warming slackers. And at what level would this kick in? Inspector? Board Level? Admin clerk?
I agree that HMRC staff are generally underpaid, though. But the pensions are nice.
The restriction would be above a certain level
And for at ;east 3 years
So once you reach a certain level in the Civil Service, you get a guaranteed job for life if you want it or 3 years of gardening leave should you decide to quit?
Sounds marvellous. How do I sign up?
You’d have the shock of your life
I would if your rules came in, yes.
I was until yesterday probably too naive in my belief of the overall goodness and honesty of public servants like Mr Hartnett (whom I do not know). One of your other commenters kindly referred me to some links from Transparency International. Boy, my opinion has changed!
Richard you are completely right — these senior civil servants do need to be managed very carefully — there is no way to properly run a Courageous State without taking proper care with the secrets of how things are done at the top. And there is no point having secrets if every stickybeak in town knows about them.
And you are right — the problem need a combination of carrot and stick.
Carrot in terms of better pay.
Stick in terms of prohibitions if any senior civil service dares to get a job in the private sector within the 3 year period you suggest.
However, I do wonder what sanctions would need to be in place if a civil servant breached this rule you propose. Fines might not work — the Deloittes of this world would simply just pay them and it would just be another hiring cost. Presumably the system would need stronger teeth.
Perhaps some time in jail for either the civil servant involved, or the person in HR who hires them? Or both?
“If you can’t beat them, join them”, it’s Gresham’s dynamic. Anyhow, he can’t be that bad if he is to be retained as an advisor for that HSBC’s Financial System Vulnerabilities Committee.
But he’s not advising Deloitte on how to avoid tax is he? Deloitte knows perfectly well how to avoid tax already. Hartnett’s technical ability is famously poor (witness the JPMorgan fiasco).
He is becoming someone that Deloitte hire out to developing countries (presumably for a fee) in order to help that country set up its own tax collecting network.
This is a non-story.
But Deloitte undermine developing countries ability to collect tax
That is a story
Because he will be helping them maintain their abuse
That is NOT what is stated. What is stated is that Hartnett will advise developing countries, with the implication that his experience in dealing with tax evasion and avoidance in the UK will help them reduce tax avoidance by phrasing their regulations better.
You seem to be assuming that a very senior civil servant who reached *all* his senior appointments under Gordon Brown is dedicated to helping the rich avoid tax. Why?
Because Deloittes are
And Deloitte’s tax haven activity and transfer pricing activity harms developing countries
So what you are saying is that developing countries will pay Deloitte for advice on how to design their tax systems, and Deloitte will give them Hartnett who will give deliberately bad advice to them in order to make it easier for Deloitte’s other clients to avoid tax?
Or have I misunderstood?
I am saying elites may be very happy to have an adviser who, for example, objects to country-by-country reporting
Firstly, Deloitte’s tax business is less than one-quarter of the total and its total business in developing countries is less than 1% (UK 90% and Switzerland 9%). So the interests of the partners is in building a new stream of business by getting a gamekeeper to use gamekeeping skills rather than turn poacher. I fear that your view of your profession is as coloured by your past experience as a tax advisor as mine is by my habit of finding errors in audited accounts which has become a standing joke in certain circles.
Secondly, under Thatcher companies were required to provide country-by-country reporting for all countries where either sales or profits or net assets amounted to 10% of the total or for groups of countries with similar characteristics where no one of them reached that level of significance. Under Brown, that requirement was changed to merely reporting a split between the entity’s home country and the rest of the world. I find it hard to believe that Hartnett, or any other worker in HMRC, was responsible to any measurable degree.
What matters is that the company be required to file accounts with each country’s revenue that are accurate statements of income and allowable (tax-deductible) expenditure and that an HONEST tax inspector then calculates the tax due; second priority, after the Honest tax inspector are clear and simple tax rules (including those on transfer pricing); third is designing the tax system to optimise the economic result, balancing tax take with generating economic growth and high employment so that wages get a fair share of economic output and they are widely shared. Informing you and I and Wall Street analysts of the location of each companies’ revenue and profits in each of 189 countries comes fairly low down *my* list of priorities.
You get your point on CBC wrong
That was an IFRS change – not a Brown one
Hartnett worked at HMRC for 36 years and left with pension paying out £80,000 a year, which at current annuity rates works out to a pension pot of £2.5m. If that isn’t enough of a carrot, along with the fact he had earned £160,000 a year in salary, then I am not sure what will be.
Sticks and carrots are for sadly abused donkeys – have we humans not got beyond that psychology?
Will Mervyn King be joining any financial organisation post -retirement?
“No, maximising revenue is not a goal of tax”
Really, have you commmicated that to HMT and the CotE? Every govt. bar none sees tax as a means to take money we the public don’t want taken off us to spend on things that we what (but don’t want to pay for) plus things that we don’t want (and don’t want to pay for).
That’s why HMRC has way more powers than the Police: the Police protect the public, HMRC in the main is designed to protect the vast majority of the govts. cash flow.
Which one of those things do you think those in No. 10 and No.11 Downing Street consider to be more impportant to HMG – the people or the cash?
Tax has to be raised
but that is by no means the sole reason for tax