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Revenue consultations: has the leopard changed its spots?

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There was a time, before 1997, before ‘spin’ infected the civil service, when the content of a Revenue press release would be straight down the line. No ‘spin’, no ‘side’, just the unvarnished essentials and no attempt was made to justify measures by reference to political argument even in the most oblique way.

But the coalition partners in the new government are committed to change, to openness, to honesty. I want to consider this in the context of consultations. In my view, consultations under the last administration were manipulated as part of the political process (small ‘p’). Have things changed?

Consultation can be open and honest or it can be used as a smokescreen: first a decision is taken to implement a measure. But the administration expects strong opposition. So, some of the potential objectors e.g. professional bodies, trade associations, etc., are invited to an unofficial and confidential consultation. Officials then disclose that the policy decision has been taken. It will be implemented, no matter what. But the officials want the measures to be practical and workable, hence the confidential consultation.

Next draft measures are published. Of course those involved in the unofficial/confidential consultation are already compromised by now. The invitation to a confidential consultation is very flattering, and participation is likely to lead to a tacit acceptance that some measures are going to be implemented. Moreover when the measures are announced those who were involved in the prior confidential consultation will be inclined to tone down their representations since they will now almost certainly feel some ownership for the new measures. Once published there may yet be further controversy and the measures are toned down.

Sometimes one is left with the impression that the final toned down measures, at the end of this process, are exactly what the administration had in mind when it started: the whole process seems designed to ensure those measures are enacted as originally conceived: the draconian draft measures (and the earlier measures considered in the ‘private’ consultation) feel like Aunt Sallys – put up to be knocked down.

Various examples spring to mind; one will suffice: ‘IR35’ (payment of earnings through intermediaries) certainly felt like this to me. To summarise, there is a strong suspicion that, in the recent past, consultations, especially private or confidential consultations, have not been about openness, transparency and good government but about political manipulation.

Has anything changed?

The new administration’s commitment to openness and dialogue has been backed up by the publication of the draft Finance Bill, some four months early, for consultation.

And there is no doubt that this is a genuine and open process in respect of some measures. Yet there is evidence that the old ways persist.

Take for example, the ‘disguised remuneration’ provisions (draft Part 7A of the Income Tax (Employment and Pensions) Act 2003). First, have there been secret discussions with favoured groups? Rumours are rife from several quarters that these measures were the subject of informal ‘confidential’ consultations prior to publication. If true, such secret discussions between government and special interest groups, individual taxpayers and the like are the very antithesis of open and transparent government. If I am wrong and no such secret discussions have taken place then Ministers can confirm that in Parliament. If I am right then Ministers should apologise and resolve publicly not to indulge in such intrigue in the future. Open and transparent government is inconsistent with secret discussions or confidential, consultations; call it what you will.

What of the state of the draft legislation?

A technical analysis of the current draft is outwith the scope of this piece. But it is clear that the measures as drafted are ‘over the top’; a few examples will suffice:

  • a loan to an employee from the employer is potentially outside the scope of the provisions but a loan to the employee from another group company is within the provisions;
  • a purchase of an asset by an employee from an intermediary (e.g. an employee benefit trust) for full value gives rise to no charge if the employee pays for the asset first but if the employee pays when he receives the asset or later, he is taxable on the full value of the asset;
  • if an employee sells an asset to an intermediary, such as an EBT, for market value (or less!) he gets taxed on the whole of the consideration he receives and gets no relief for the consideration he gives;
  • if an employee takes a loan from an EBT he is taxed on the full amount of the loan as though it were earnings. If he subsequently repays the loan there is no relief.

This cannot be right...

Whatever one thinks of the broad policy behind these measures, these consequences cannot be right. There are lots more examples of aspects of these measures which are clearly arbitrary, unreasonable and unjust.

The point is this. These measures have been foreshadowed in public statements since March 2010. There has been plenty of time to think the measures through without causing collateral carnage and mayhem. The only reasonable inference is deliberate overkill. (Incompetence is possible but unlikely.) Taken together with the ‘secret consultations’ it feels like political manipulation. We have been promised an end to that.

I hope I am wrong. If so, then the conclusion is that the poor drafting is down to incompetence. If that is right then the message for the administration has to be, do less and do it better. Either way I think we are owed an apology.
As with all comments, the views expressed here are the author’s own.

Michael Sherry, Barrister, Temple Tax Chambers