Those reforms were primarily directed at the domestic economy, but equally important in the post-Brexit world is our position in the global economy, showing that Britain is truly open for business and an attractive place to invest.
The rule of law
We need a tax system that supports international openness, so the first priority needs to be to change the culture and mood of the UK tax environment.
Britain used to have an enviable global reputation for fairness and respect for the rule of law; the idea that everyone, from a small business owner to the Prime Minister, was subject to the same laws and could expect them to be applied fairly. But in tax matters that has long been abandoned, by politicians who prefer to whip up hate speech against taxpayers who have followed the law but have paid less tax than campaigners think they ought to have paid.
When the Prime Minister can publicly single out and criticise an individual for perfectly legal tax arrangements, as Cameron did, there is no longer any respect for the law. What you can do now seems to depend on who you are rather than what you do, with campaigners excusing charities whilst condemning companies who use the same sort of tax planning.
We used to laugh at countries who put on political “show trials”, where those who had fallen out of favour were castigated for their lack of ideological purity, but now the Public Accounts Committee does much the same thing to those it deems guilty of entirely legal tax avoidance.
These attacks on taxpayers are short sighted. It may bring in a little extra money initially, but it portrays the UK as an unsafe, uncertain place to do business.
The UK government promotes tax policies to make the country attractive to global investment, but who will risk taking advantage of tax breaks if they will lead to accusations of “immoral” conduct a few years later?
Another long-established principle that Osborne’s Treasury abandoned is taxpayer confidentiality. Instead it has moved towards a system of enforced public disclosure of personal financial information.
For individuals this public disclosure includes interests in trusts and beneficial ownership of shares. On the corporate front there are well-advanced proposals, through the EU, for companies to be forced to declare “country by country reporting”, disclosing previously confidential details of where they make their profits.
Worse, the UK has been abusing its influence over its dependent territories and other Commonwealth members to try to impose these public disclosures on their jurisdictions as well, ignoring the principle of local autonomy.
Despite the rhetoric, this is not about countering tax evasion; the tax authorities already have wide powers to get the information that they need. Information exchange between tax authorities is now so well established and well functioning that generally taxpayers do not attempt to hide their income offshore, and transfer pricing audits, where the tax authorities check that companies are not shifting profits to low-taxed jurisdictions, are now a normal part of the corporate tax scene.
Publicly available registers and additional reporting do not help tax authorities tackle tax. All they do is allow the nosy to spy on their neighbours, and tax campaigners to launch ignorant attacks on those who, although paying the tax required by law, do not pay what the campaigners would like them to.
There are entirely legitimate reasons why a company’s accounting profit does not match its taxable profit, and therefore does not relate directly to its tax bill. Examples include tax allowances for investment in machinery, or the different rules for recognising the cost of employee share schemes. But country-by-country reporting will allow politicians to ignore all of this and criticise companies whose tax bill in a particular country does not equal its accounting profits multiplied by the headline tax rate.
Look at how the Panama Papers were used. They did not enable tax authorities to root out widespread tax evasion; a common feature of these leaks is that the actual investigations find that, in the vast majority of cases, the taxpayers had obeyed the law and paid all of their taxes. Instead the information was used by journalists to throw muck at anyone mentioned, and smear by association anyone connected with them.
These disclosures add to the administrative cost of doing business and make the UK look hostile to global investment. They are going to be required by EU law, but once we withdraw we are no longer obliged to follow them, and should not.
The OECD has done a great deal of good work on encouraging international trade and investment, and reducing the tax barriers thereto. But its latest tax project, on “base erosion and profit shifting” (BEPS), threatens a return to economic nationalism, driven by its member governments demand for ever-increasing tax revenues.
Businesses are taxed on their profits, their income minus their business expenses, but the BEPS project includes various measures to ignore entirely legitimate expenses and disallow them for tax purposes. These include artificial restrictions on interest payments on debt (which will make it much more difficult to finance essential infrastructure projects), and royalty payments (which will make it more difficult for the UK to participate in the modern information economy).
The EU is enthusiastically imposing its own version of the BEPS agenda, but it does not have worldwide acceptance and it is expected that the USA Congress will refuse to implement it. Once the UK is out of the EU we should also opt out of this convoluted scheme.
One of the economic tragedies of recent years has been the way that the UK has shot itself in the foot by damaging its relationships with various international finance centres around the world.
Many of these, from the Channel Islands to the Caribbean and even Hong Hong, have historical or current constitutional ties to the UK, have many common aspects to their legal systems, and continue (despite, in some cases, the best efforts of the European Union) to enjoy many trading and investment links.
Moreover they often act as valuable conduits for investment, channelling funds into London and the British economy to help finance investment.
The international finance centres already have the global investment links that the UK needs to foster. As we struggle out of the straitjacket of the European Union and look for more global connections, they could be valuable allies.