“A meal ticket for life”. So wrote my boss, Mohammed Amin, on my congratulations card when I passed my final chartered accountancy exams way back in 1986. I had pursued chartered accountancy as a career under the influence of my late father, whose mill worker parents had been unable to afford to article him to an accountancy practice immediately after the war, and who had thus begun a 37 year career with Martins Bank (taken over in the late 1960s by Barclays, which was his only change of employer, and that completely beyond his control), terminated only by his premature death, in service, in 1984.
My father would have been spinning rapidly in his grave in 2007, as the extent of the greed, foolishness and sheer incompetence of a large proportion of the world’s senior investment banking fraternity came luridly to light. Already the customer-service driven banks that my father had known had become mere operations to sell more mortgages, pensions etc., a development that was to a large extent the brainchild of the same ‘Sir’ Fred Goodwin who presided so haplessly over the near demise of the Royal Bank of Scotland. And they were also leading lights in pursuing abusive tax avoidance arrangements to deny the Exchequer its fair share of their profits.
So now banks are generally despised and mistrusted, held responsible not only for the ongoing financial crisis but for their subsequent failure to lend to small business, and subject to a levy on their profits as some small recompense for the enormous cost of the Government bale out that was required to save them. So much for the days when the local bank manager was a well-known pillar of his local community. How is a mighty profession fallen!
However, just in case we accountants might have been guilty of a little ‘Schadenfreude’ in surveying the plight of bankers, we can now identify the possible early signs of a similar cataclysm heading in our direction. And as it was always likely to be, it is tax avoidance that threatens to be our nemesis.
Tax avoidance has a long history, as detailed in an earlier post on this blog, but it is only in the past half century that an industry has built up around the concept. The introduction in 1965 of corporation tax, capital gains tax and capital transfer tax, followed by the obscenely high tax rates of the mid to late 1970s made it all too lucrative to devote a professional life to devising and implementing schemes to prevent the rich and their money from being parted by the tax system.
And in the nature of these things, falling tax rates did not make the tax avoidance industry go away; having nailed their colours to the tax avoidance mast, many had a vested interest in keeping schemes going regardless of the extent of the incidence of tax. And there were always clients who could be persuaded that any particular rate of tax was too high for them to pay.
The industry proliferated because large tax savings begat large fees, and it became highly lucrative to devise a particular tax avoidance scheme and then sell it to a lot of people for a large fee. And thus large amounts of formidable brainpower and expertise were devoted to significantly reducing theUKtax revenues available to the government.
For many years the profession was aware that this went on, even the vast majority of it that did not actively participate in such schemes. And it seemed to exist in a sort of moral vacuum, helped by the fact that accountants were and are obliged to give their clients best tax advice, and that it was not therefore a realistic option merely to ignore avoidance schemes and hope they went away, although it was and remains an option to give one’s clients the unvarnished truth about such schemes (notably cost, degree of HMRC interest in one’s tax affairs and uncertainty as regards success).
Because the vast majority of the accountancy and tax professions were not engaged in the development and delivery of such schemes, a clear dichotomy arose between what I refer to as ‘sleep at night tax planning’, referred to in the Consultation Document on a General Anti-Abuse Rule as “the centre ground of tax planning”, and what the government now refers to as ‘abusive tax planning’, typically reliant on artificial schemes and the imperfect interaction of different pieces of tax legislation.
This increasingly became the domain of the biggest accountancy firms and the in-house tax departments of large corporations, who would undertake bespoke planning to suit their own circumstances, although there are also a significant number of ‘tax boutiques’, which offer (slightly) more affordable solutions of an artificial nature to profitable small and medium-sized enterprises.
The moral vacuum persisted until the current financial crisis erupted, at which point large parts of the profession that did not depend upon schemes for their living realised that such schemes were denying large amounts of revenue to a government that badly needed every penny of tax revenue it could lay its hands on. At that point opinion shifted fairly quickly to a very negative view of abusive tax planning arrangements, and from a view that a general anti-avoidance rule would be anathema to an acceptance that a General Anti-Abuse Rule was essential to preserve the integrity of the tax system and to safeguard government revenues.
Needless to say, these views are not shared by those who prepare and peddle artificial tax avoidance schemes; witness the recent series of Times revelations as to how such schemes still proliferate. And just as it is unreasonable to expect the public to differentiate between Jimmy Carr’s abusive planning, Gary Barlow’s Icebreaker investment which sits in they grey area between artificial avoidance and the centre ground of tax planning and Sir Chris Hoy’s tax arrangements firmly in that centre ground, so it is unrealistic to expect the public to recognise that it is a small minority of accountants and tax advisers who are responsible for the proliferation of abusive tax avoidance schemes. No, that is a brush with which the whole profession can expect to be tarred.
So it may well be that a time will shortly come when we will look back nostalgically to the days when the worst that was said about us was that we were exceptionally dull and boring. Let me quote you part of an editorial from Economia, the magazine of theInstituteofChartered AccountantsinEnglandandWales:
“Keen to present his government as more than a one-trick financial pony, (David) Cameron recently tried to explain he was about more than just cuts. Fair enough, but to joke about being more than a bunch of accountants is unhelpful. And George Osborne’s attempts to show off how nasty he was being to his rich friends in his budget, meant his speech was laced with abuse aimed at accountants. Tax evasion and aggressive avoidance are not what accountants are here for.”
Can I suggest that this is not the impression that the general public are getting at the moment? And for all that my numerous banking friends are without exception caring, helpful individuals devoted to client service, they still share in the abuse that is directed at the minority of the banking profession. So why should we accountants expect it to be any different for us, now that public opinion has, quite rightly, been focused on the excesses of a small minority of our number? It is always convenient to have hate figures to concentrate on when times are hard, and politicians tend not to care too much who they might be, as long as they deflect the flak from themselves. So for bankers in the past 5 years, shall we read accountants in the next 5? I for one am not looking forward to that particular experience.