The scandal of our craven tax collectors 
The Inland Revenue is bending the rules to favour corporations

There is the smell of scandal in the Inland Revenue. Two scandals, in fact.
There is a political scandal - that the Revenue has adopted a policy of 
favouritism towards multinational corporations because the government is
too weak and too scared to make them pay their taxes for fear that they 
will take their investment elsewhere. 

And there is a scandal of organisational failure. We can all see the rail
network chaos, but the shambles of the Inland Revenue's work against tax 
cheats is invisible, with the result that its history of mismanagement and
underfunding is unrecognised and uncorrected. 

These scandals matter because the Inland Revenue provides the fuel for the 
whole public sector. On the best estimate, its favouritism and its failure 
are depriving our schools and hospitals of more than £20bn a year. 

Within the tax world, the smell of these scandals is unmistakably strong. 
If you ask specialist accountants or tax inspectors if they have heard of 
them, it's like asking an ordinary civilian if perhaps they have heard of 
Elvis Presley. But outside that specialist world, the smell is still only
faint, because the board of the Inland Revenue is doing what all bad 
organisations do when they are in trouble - they are trying to hold the 
lid down on the truth. 

In July, in this paper, I wrote two long articles disclosing the detail of
these scandals. The chairman of the Revenue, Sir Nicholas Montagu, replied
by writing a long article in the magazine, Tax Journal, in which he simply
bypassed the facts. So, in September, I wrote him an open letter in the same
magazine, urging him to answer a short list of specific factual questions. 

As a simple example of the rule-bending for large corporates, I suggested
that multinationals were not being fined like other taxpayers when they were
caught out being fraudulent or negligent in their returns. I asked him to 
tell us what penalties the 2,000 largest corporations had paid in the 12 
months to March 2001. 

As an example of the weakness of the Revenue, I suggested that the Revenue 
was concealing a disaster in its collection of unpaid National Insurance. 
Two years ago, its annual report announced that it had found £259m under
this heading, but last year it published no figure. So I asked for it. 

I asked him how much undeclared tax had been unearthed by the 1996 
Spend-to-Save initiative, which redeployed 2,000 staff and was supposed to
yield an extra £2bn over the following three years; I suggested that the 
truth was that the exercise had been a monstrous failure. I asked him to
give us figures for the number of cases that had been settled by the two 
most heavyweight compliance departments; for the number of unfilled posts
for tax inspectors; for the frequency of their inquiries into business; and
simply for the number of taxpayers who have been prosecuted for the new
offence of fraudulently evading income tax. 

The chairman of the Inland Revenue has simply refused to supply any of these
facts. The Inland Revenue is a public service, funded by public money, 
collecting money for the public sector. When things go well, it is happy to
publish the figures in glossy annual brochures. But when things go badly - 
and right now they are going very badly - the lid comes down. It's insolent,
it's undemocratic, it's a mask for organisational failure. As the Revenue's 
own report on New Performance Measures for Compliance puts it: "What gets
measured gets done... If you can't recognise failure, you can't correct it." 

As things stand, the evidence of favouritism towards multinational companies
is alarmingly clear. The Guardian reports in July drew on the Revenue's own
paperwork to show how it was agreeing "not to examine in any detail" some 
corporate tax payments that were suspected of being faulty; giving special 
deals to chosen companies in breach of its own policy; cutting corners in
new law that was designed to clamp down on multinational tax avoidance; and
providing a general undertaking not to impose penalties in most cases where
big companies were caught being fraudulent or negligent. 

In the same way, we laid out the evidence of the calamitous decline in the 
Revenue's compliance performance. Its success rate is now back at the same 
level it reached nine years ago - although then the national tax bill was 
only a third of its current size. The yield for every single specialist 
compliance department has fallen. This is not the fault of the inspectors
but of successive boards that have mismanaged and underfunded the compliance
divisions. There is something badly wrong with the management of any 
organisation that delivers such a powerful pattern of decline. 

We might conceivably do something about it - if only Sir Nicholas Montagu
would tell us the truth. 

mail@nickdavies.net 
Nick Davies
Thursday October 17, 2002
The Guardian

http://www.guardian.co.uk/Print/0,3858,4525810,00.html

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