Andrew Goodall

A culture of reckless gambling

Mervyn King may well have been trying to deflect criticism of the Bank of England yesterday but he is surely right to say, as The Times reports today, that the "astronomic" pay of some bankers "created a culture of reckless gambling in the City that spawned the financial crisis" .

"It was a form of compensation which rewarded gamblers if they won the gamble, but there was no less if they lost it. It's obvious if you do that you will give people incentives to gamble."

Robert Peston wrote last year, in "Who runs Britain?":

"When the going was good, investment bankers, hedge-fund managers and partners in private equity firms all did very nicely from the bonuses and capital gains and the fees generated by the frenetic manufacturing of deal after deal after deal. Many of them are now paying the price for failing to understand the risks they were taking on."

Ultimately, however, everyone pays. Peston continued (p 25):

"But it is often a small price, in the form of reduced future remuneration. Don't weep for them. They have already extracted fortunes. It is most of us who are paying for their foolhardiness, as the pricking of a financial bubble they created has a negative impact on all our prosperity."

Heads they win, tails we lose. But regulators and governments were also to blame, as Peston pointed out, because they did not dare stop the "over-exhuberant behaviour" of greedy traders, bankers and financiers, who were "thought to be good for London and good for Britain".

Tax and democracy – knowledge gap hinders debate

The vast majority of journalists do not have the resources to tackle the complexities of tax law. Does the resulting lack of scrutiny mean that large accountancy firms and big business have a "disproportionate share of influence" on government? Yes, according to the Guardian.

Modern tax "lies somewhere between sorcery and science," the paper claimed in an editorial, and "the vast majority of journalists suffer the same disadvantage of finding the subject impenetrably difficult, with the added deterrent that writing about the issue involves prohibitively expensive legal and accountancy advice".

"How much easier to write about benefit fraudsters, or others without access to good lawyers," it said.

"One result of the absence of debate or scrutiny is that the people with the specialist knowledge – including the large accountancy firms and powerful voices from business – have a disproportionate share of influence on government and legislation."

Meanwhile, as Gordon Brown joins calls for international action against tax havens, the Chartered Institute of Taxation, which has just created a new post of tax policy director, has signalled a reluctance to enter public debate about tax havens.

Tax credits and the recession

Personal tax advisers cannot ignore tax credits, and many clients could benefit from making protective claims before they suffer a drop in income, says Robin Williamson of the Low Incomes Tax Reform Group. He challenges two "common, but questionable" assumptions that accountants and tax advisers make. First, that tax credits are for people on low incomes and "my clients won't qualify". Secondly, that tax credits are really part of the social security system and not within the traditional expertise of tax advisers.

Other news

Tolley's Practical Tax newsletter has more on this and other developments, including:

Treasury proposals "would complicate small company tax"; HMRC training package outlines appeals reform.

Missing words

I'm keeping an eye on the Guardian's corrections page for a short while (don't ask ...) but it was the Press Gazette that spotted the Guardian's admission yesterday that a headline "EU plans do put Nato in jeopardy" should have read "EU plans do not put Nato in jeopardy".

Embarrassing, given that the headline introduced a letter from a government minister. I sympathise, however. In a newsletter last year I omitted the words "it could not be said that". What was I thinking of? Who knows.

Tax avoidance under scrutiny

A three-month investigation by the Guardian newspaper has rekindled the tax avoidance debate and prompted a leading tax expert to call for greater tax transparency and "an honest, robust and open discussion about how we are taxed". But the newspaper made clear that it regards the effect of "debatable" exemptions and allowances as an element in the UK's "tax gap" ...

Tax planning is, the Guardian said, the "acceptable" face of tax avoidance, when companies or individuals organise their affairs "to avoid unintended, accidental or unfair double taxation, or to get tax advantages which parliament actually intended them to have". In contrast, avoidance means "artificial schemes that try to take advantage of loopholes or lack of clarity in the law to reduce a company's tax bill, or deliberate structuring of ownership of assets (particularly in relation to location) so as to reduce tax".

The Chartered Institute of Taxation has said in the past that the term "avoidance" has come to have "overtones of immorality or going too far". The boundaries are difficult to define, the CIOT pointed out in "TaxTalking", an online teaching resource, and the courts have spent a lot of time "deciding what is acceptable and unacceptable tax avoidance" ...

Other news

Tolley's Practical Tax newsletter has more on this and other developments, including:

EC sets out to 'abolish' bank secrecy; A new record for online filing; Tax campaigners warn of "digital exclusion"; HMRC consults on draft charter.