Tax and ethics

Last night I spoke at an event hosted by Promoting Economic Pluralism and The Mint magazine, alongside Richard Murphy. Richard has already published several blogs about the evening, including his speaking notes, and I’ve put my own contribution into blog form below. While we didn’t exactly reach a consensus, there were many points on which we agreed, and an interesting debate ensued. 

At the end of the evening we were asked about our own priorities for tax reform. Addressing the imbalance between the taxation of different forms of work (on which I’ve blogged before) would be high on my list. But the prospects for any radical, or even half-sensible, tax reform are bleak while the political bandwidth is fully occupied by Brexit. So I think the top priority should be to ensure we don’t back-slide on the progress that’s been made on international tax issues, and the role that the UK has played in achieving that (as I argued at the All-Party Parliamentary Group session in January).


Is there a place for ethics in tax?

My starting point is that there is definitely a place for ethics in tax, just as there’s a place for ethics in all aspects of public life.

One of the problems we currently see – for example, in Trump’s USA – is that the question of what is acceptable conduct in public life tends to be conflated with what’s legal or illegal, or even with what is or isn’t criminal. So we eagerly await the outcome of Robert Mueller’s investigation, as though anything short of a criminal indictment is “OK”.

But that’s not the right test. There is a bar way below that – what is “acceptable” conduct – whether we’re considering what’s acceptable within the norms of a liberal democracy, or within a profession.

This is as relevant to tax as it is to any other aspect of politics and public life – and I would emphasise that I do see tax as part of politics. I’m not sure this is recognised as much as it should be within what I would call the “tax bubble” – that is, the world of people who spend their lives thinking about tax. For example, at a recent tax conference I was surprised to hear a speaker lament the fact that “tax has become too political”. I think that’s a revealing comment, and it’s a view that’s quite prevalent across the tax profession: “tax would be OK if only the politicians kept out of it”.

Those of us in the tax bubble, in the UK and beyond, within and outside government, have collectively been slow to recognise, and adapt to, the fact that tax has moved into the political spotlight. Since the financial crash and, in the UK, the onset of austerity, tax is no longer a technical backwater but has become a topic of intense public interest. That’s simply a fact.  We can’t hide from it, and it’s counterproductive to push against it.

We’ve slowly moved away from that insularity, and the political will to address aggressive tax planning by multinationals has led to some significant developments at OECD and in the EU. But there’s further to go, and the fact that the tax world was slow to adapt has left a legacy of distrust.

What should the ethics of tax be?

If, as I’ve argued, there is a place for ethics in tax, what should the ethical principles of tax be? This is more difficult: there are no easy answers, and plenty of room for debate.

As a student in the 1970s, I recall telling my father he should aim to pay as much tax as possible. But my views have moved on in 40 years.

If the government provides tax reliefs to incentivise certain commercial activity (such as tax credits for Research and Development) then it’s perfectly ethical to use them, as long as you’re genuinely undertaking that activity. But if you contrive to make it appear you’ve undertaken the activity that gets relief, without actually doing so, that crosses the ethical line.

Of course, the boundary isn’t always clear-cut in practice. For example, the intention of the legislation may not be clear. The issues are particularly difficult when applied to multinationals and how much tax they should pay around the world and in individual countries.

It’s also important to bear in mind that the ethical bench-mark is not a legal test: ethical arguments don’t win court cases. This is not to say that ethics has no bearing on litigation. It makes sense, for example, for HMRC to take really obnoxious avoidance cases to litigation as it’s more likely the result will be in their favour. Moreover, judges are likely to be influenced to some extent by the tide of public opinion. But judges can’t create law in order to defeat schemes they find “unacceptable”, and I’m not sure it would be right for them to be able to do so.

What about the ethics of tax professionals within government?

I managed a lot of tax professionals in HMRC – about 2,500 in my last job, as Director of Large Business. In my experience, those working “at the coal-face” as tax professionals had the very highest standards of ethics and integrity. Many of them could have earned twice their salary by moving to private sector. But they were motivated by public service, by their job of bringing the money in and trying to ensure that large businesses pay the tax that’s due.

However, I do accept there is an issue of public trust, and this hasn’t been helped by recent press stories. Against that background, my saying “HMRC tax professionals have highest ethical standards” isn’t going to cut much ice. And, of course, trust isn’t just about the ethics of the tax professionals themselves: there can be wider organisational issues that erode trust. So I think the time has come for an independent review of HMRC’s work with business – not because I think there’s an underlying problem, but to help restore public trust in HMRC.


The question of public trust is partly about transparency. HMRC is bound by very strict rules on what it can disclose about individual taxpayers, and there are good reasons for those rules. But they limit what HMRC can do to demonstrate the high ethical standards of its tax professionals – hence my suggestion of an independent review.

More generally, transparency can play crucial part in ethical tax. The tax director of a public company once told me that his guideline in undertaking tax planning was whether he’d be able to explain and justify it to his mother. This may sound rather a homespun idea, but it’s actually not a bad principle (assuming of course his mother wasn’t an expert on multinational tax avoidance).

The key point here is to be able to justify tax conduct to those outside the tax bubble. Now that there is so much focus on tax in the press, that principle might translate to “don’t do anything you couldn’t explain to your customers/employees”.


But alongside transparency, and to ensure transparency is as effective as possible, I would say there’s also a need for greater public understanding of tax. That requires better communication between those with specialist knowledge of tax and those with wider political interests.

Without this understanding and communication, debate can be polarised and problems may be misdiagnosed. For example, political debate in the UK often calls for the government to take measures unilaterally. There is a place for that, but there’s also a need for international tax issues to be tackled on a multilateral basis, because multinationals can exploit the over-arching international tax framework, and the gaps between national tax systems. Tax specialists have been saying this for some time, but the message hasn’t always got through to the political debate, or has perhaps sounded defensive and complacent.

To sum up, if we are to have a more ethical tax framework, there’s a need for tax specialists – both in government and in the tax profession more generally – to communicate more effectively. The communication needs to extend beyond the tax bubble, it needs to be clear and non-technical, and it needs to engage with the wider political debate.

That’s why I’m keen to support events such as this, and to discuss these ideas with a wider audience.


[An afterthought: in preparing the talk and this blog, I’ve been pondering the basis for ethical conduct, in tax and elsewhere. Is there a general guiding principle? I haven’t studied the philosophy of ethics deeply, but I do remember translating a lot of Kant as part of my German studies. His categorical imperative is a good starting-point for ethical conduct in any sphere: “Act according to the maxim that you could also wish to be a universal law” (or in the original German: “Handle nur nach derjenigen Maxime, durch die du zugleich wollen kannst, dass sie ein allgemeines Gesetz werde.“).]



Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s