Tax transparency and UK politicians – the need for simplification and clear policy

The last few weeks have seen a flurry of activity and opinion on transparency for UK politicians as a result of the fall out from the Panama papers. A number of senior politicians have published their tax returns. Much of the comment about the Prime Minister’s tax returns and the Inheritance tax liabilities of bequests from his parents have ranged from ill in formed to completely wrong.

However, the genii is definitely out of the bottle on transparency and politicians, and it won’t go back. The experience of tax transparency and corporates illustrates this. Having been involved in transparency for extractives, I argued with colleagues, outside the extractive sector, that transparency of the same nature and detail will be required for all corporates – it was merely a question of timing. It was never a question of if, merely when. The work of the European Commission illustrates this and the oxygen of leaks and revelations will always fuel the fire of transparency.

I don’t think the position for UK politicians is any different. Once it is appropriate for the UK Prime Minister to publish his tax returns then the question becomes where do you stop? While the process is voluntary, the pressure will circulate against any politician who refuses.

So which politicians should also publish their details? Arguments will be raised that some people will not be prepared to stand for election if this is the case –  I’m not sure that this is a wise line of defence – the challenge to that argument will be if they have something to hide, why should they represent us? We live in a world of increasing transparency and with that comes a need to explain not obfuscate.

The strongest argument in support of disclosure of tax returns is that our politicians decide the level of tax we pay and how the money raised is spent. As such being transparent that they pay the “right” tax is reasonable to most people.

The problem is what is the right amount? Unfortunately the press has not covered itself in glory by its misunderstanding of UK Inheritance tax rules. Some mechanism has to be in place to ensure that the press does not misrepresent what current tax policy is. But what lies at the root of these misunderstandings is that UK tax law is both too complex but also that the policy principles which underpin it are not clearly articulated when tax law is introduced.

What we need is a real effort at both simplification and stating tax policy in simple terms. This needs a much more effective and well-funded Office of Tax Simplification and a genuine drive from the Treasury to simplify the UK tax code with some hard targets. In addition both new legislation and existing legislation needs to be defined in a way which explains its purpose and intent.

To return to Mr Cameron, the seven year rule in inheritance tax has been around for years. Either its acceptable policy or its not, if its not change the press should call for a change of law. The press has found him guilty of an offence which does not exist.

Finally, who should transparency apply to? My forecast is that it will apply to those who have control over taxing levels and public expenditure. Over what timescale? I would not be surprised if within the next ten years, this will apply to MPs and Assembly members in the various devolved authorities and to those elected at local level whose remuneration is equal to or greater than MPs. This would include many local council cabinet members. Such a measure could be introduced to coincide with elections so that those standing would be aware that disclosure was a requirement of the elected position they seek.

It will be interesting to see whether there is any call for transparency to extend in the future to those paid from the public purse above a certain level and not just elected representatives?

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