I’ve just been next door to the high court (a perk of being at the LSE!) to watch the UK Uncut Goldman Sachs judicial review. For all those who lament the quality of public debate on questions of corporate taxation, this is surely a desirable outcome: a painstaking debate through which the judiciary will decide who is right. Maybe it makes the case for putting corporate tax settlements in the public domain…but that’s another blog altogether.

What’s really reflected by the Goldman case is a debate about the integrity of the UK’s corporate tax policymaking and administration. At senior levels in both the Treasury and HMRC, civil servants mix with individuals from the top accounting firms and large businesses – on Treasury working groups, on the HMRC board, through secondments, not to mention Dave Hartnett’s acceptance of more corporate hospitality than any other civil servant. All these arrangements have been criticised by people outside the tax profession, while it seems Ministers, civil servants and tax practitioners – the ‘tax elite’ if you like – have closed ranks in defence.

All this sounds very much like what international relations theorists call an ‘epistemic community’. In the classic text on the subject, Peter Haas in 1992 defined epistemic communities based on the following criteria:

1. a shared set of normative and principled beliefs which provide a value-based rationale for the social action of community members;
2. shared causal beliefs, which are derived from their analysis of practices leading or contributing to a central set of problems in their domain and which then serve as the basis for elucidating the multiples linkages between possible policy actions and desired outcomes;
3. shared notions of validity – that is, intersubjective, internally defined criteria for weighting and validating knowledge in the domain of their expertise; and
4. a common policy enterprise – that is, a set of common practices associated with a set of problems to which their professional competence is directed, presumably out of the conviction that human welfare will be enhanced as a consequence.

I think it would be quite easy to identify all four for our ‘tax elite’ – although I’ll have to leave that for yet another blog post. The key point from the definition, however, is that an epistemic community is bound together by more than shared knowledge or profession: it also includes shared values and a worldview through which knowledge is filtered.

Epistemic communities are associated with the increasing influence that technical experts have in some areas of policymaking  (“consolidating bureaucratic power” as Haas has it). This is sometimes seen as undesirable, as it detaches policymaking from democratic accountability. And that hypothesis is my interest here.

Because the community’s self-perception is founded on ‘expertise’, any criticism of its actions – even by legislators themselves – is put down to ‘lack of understanding’. It becomes self-reinforcing. The most vocal members of the ‘tax elite’ regard most criticism as the product of commentators with a lack of understanding and/or an inherent anti-establishment, anti-corporate bias. Well yes, those elements do exist in many cases, but that doesn’t mean that there isn’t a grain of truth to anything the “tax muggles” say.

Un-PACking the secondments debate

For example, I don’t think the recent Public Accounts Committee report on the accountancy firms did a good job of analysing the issue of secondments from the Big 4 into government. Ben Saunders has quite a reasonable rant about it here. But I wonder if the tax elite would have been any more willing to accept the content of the PAC’s conclusions had they listened carefully to their witnesses, and then respectfully disagreed with them nonetheless.

In dismissing the PAC report, Mike Truman says that “[secondees’] role was to advise on the commercial implications of the proposals.” How can he be so sure? Maybe he took the word of his fellow ‘tax experts’ at KPMG on trust. I encountered a Treasury secondee from KPMG when I was lobbying on behalf of ActionAid, and I’m quite confident that he was much more implicated in the policymaking process than that, consistent with the claims on his LinkedIn page.

Also reflecting on the PAC report, Wendy Bradley argues that:

the accountancy and tax professions…think of themselves as professionals…that they are more like the barrister who can give objective advice to a party to a court case whether the person is innocent or guilty.  They certainly do not recognise themselves in the “poacher turned gamekeeper” that PAC perceives.

For me, the secondments issue is not about the Big 4 gaining inside knowledge of HMRC, but about information flow in the other direction. It turns on whether you think that there is a clear boundary between technical advice and lobbying. In the epistemic communities framework, no such boundary exists. According to Haas:

It is the political infiltration of an epistemic community into governing institutions which lays the groundwork for a broader acceptance of the community’s beliefs and ideas about the proper construction of social reality.

Richard Brooks’ new book argues that just such an infiltration has occurred in HMRC and the Treasury. If so, it’s not at all unreasonable to think that the beliefs, ideas and values that have emerged within a community that is paid for its ability to keep corporate tax bills low might diverge from those of the general public and of the legislature.

For example, here are Canadian tax professionals Brian Arnold and Larry Chapman, in an article that criticises much of the campaigning on Starbucks:

The role of tax professionals in assisting multinationals to avoid tax may require some serious soul-searching. Without our “creative” talents in manipulating legal relationships, complex legislation and tax treaties, this type of international tax avoidance would not be possible.

Wendy Bradley offers another example, the supposedly neutral value of tax “competitivity”:

Meanwhile the big glaring elephant in the room is the [government’s] commitment to a tax system which is “more competitive, simpler, greener and fairer”.  In Taxworld, a “competitive” tax rate is a lower tax rate – a rate which competes for business with other tax jurisdictions. Yes, it’s official coalition policy that, in the great multinational tax race, the UK should do its best to win the race to the bottom.

So what now?

I absolutely agree with all those bloggers who point the finger for much of this at parliament. As Wendy says:

The responsibility for the existence of tax legislation and for the quality of that legislation lies with the people who make it, with Parliament.

[…] each Budget [the Government] publish their proposals, consult on them, and then bring the legislation to Parliament along with a TIIN which tells you what the legislation does and why, how much it will raise and how much it will cost, and who will be affected.

Does Parliament ever look at them?

Do MPs ever challenge the legislation, and if they do, are any changes ever made?

That would make an interesting study, although I think we already know that on complex areas of corporate taxation the answer is no.

To help achieve a better political debate, Mike Truman and Heather Self advocate an “adopt an MP” scheme whereby tax professionals would provide “clear, dispassionate advice on the tax system”. Sounds great in theory, but the epistemic communities framework challenges the notion that such advice exists.

What I think is really needed is an open, honest exchange between the tax elite and the tax muggles. Yes it would help for the former to educate the latter on technical matters, but that should go hand in hand with discussion on the level of “normative and principled beliefs” about corporate tax. And on that, the tax profession might do well to adopt a little more humility.