Over the last couple of years we’ve become increasingly used to people in positions of power in the UK government doing naughty things and not being held to account. There’s one incident that goes back over a decade that really gets me upset and if you are a UK taxpayer, then it should do the same to you. There’s a lot more detail than I am going into here, but this should give a fair idea of what has gone on;
Vodafone is one of the darlings of the FTSE and has often been in the news for its tax dealings. It is a client of an accountancy firm called Deloitte. There is one incident that I’m going to focus on and this happened in 2010 when a man called Dave Harnett was the Permanent Secretary for Tax at HM Revenue and Customs.
Vodafone owed over £7bn in tax at this point, which is of course a considerable amount of money. To put that into perspective, according to the ONS, the mean gross annual salary for full time employees in the UK for 2010 was £25,879. From that figure £6,097 tax and national insurance would due (this is deducted at source, the worker has no choice in the matter), and the employer has to pay £2,580 on top of this; a tax for employing the worker. So, for each person earning this wage, theirs, and their employers contribution totals £8,677. Vodafone’s tax bill is due on profits earned, and is equivalent to the contribution of 806,730 average UK wage earners tax contribution based upon my quick calculation. That is a considerable amount of people.
Now this is where things take a turn for the worse if you are one of those people that lose approximately 20% of their earnings to tax and national insurance at source without having any say in the matter. Vodafone play by a completely different set of rules, and it appears that they are assisted by the very people paid to stop them avoiding their tax bill.
During the 2000’s Vodafone was locked in a long running dispute with HMRC regarding the amount of tax that it owed, in April of 2007, the Director of HMRC’s Large Business and Customer unit was a man called John Connors, he defected to Vodafone in a move that stunned his colleagues leaving many feeling betrayed.
Dave Harnett and John Connors used to work closely together at HMRC, and as the dispute evolved, Harnett changed the HMRC team working on the Vodafone case, instead installing a team that he deemed to be more flexible. This team negotiated a settlement with Connors in 2010 whereby Vodafone would only pay £1.25bn instead of the £7bn.
In July 2012 Harnett retired from HMRC, and less than a year later started working for Deloitte (Vodafone accountants, see second paragraph above) in a very lucrative deal. At the time, the Prime Minister, David Cameron approved his appointment subject to six caveats, one of which was that Harnett did not draw on privileged information from his time at HMRC. I don’t really think that this is the problem, the damage had already been done.
Deloitte commented at the time that Harnett will work as a consultant to them advising foreign governments and tax administrations, primarily in the developing world as he has significant experience in advising such countries on the development of effective tax regimes.
That’s a bit of a giggle, really, isn’t it?