Rule of Law? Or Moral Blackmail?

Rule-of-Law

When I lived and worked in Korea, the country’s auto industry was exporting around half a million cars a year, and importing around 500.  The reason was not difficult to find.  The Korean tax code was notoriously vaguely worded, and well-heeled Koreans knew only too well that if they bought an imported car, they would be subject to a “rigorous tax investigation”.  And given the ambiguity of the tax code, that meant an infringement and a serious fine.  In other words, failure to make the tax law clear and specific had handed the government a weapon of  threat and intimidation which it could use to enforce policies that were law in all but name.  It was, quite simply, moral black-mail.  Or perhaps immoral black-mail.

Conservative (small “c”) thinkers, whether Jefferson, or Burke, or Friedman, have known for centuries that the Rule of Law, and property rights and enforceability of contracts, are fundamental to a free and prosperous society.  So it seems rather curious that Conservative ministers in our Coalition Government seem to have forgotten the point entirely.

Cameron is frequently described as “a pragmatist”.  But in his case, I’m afraid, a pragmatist is one who lacks any fundamental principle, and so feels entitled to make up the rules as he goes along.

We see it all too clearly in relation to the tax affairs of multinationals.  Cameron lambasts Starbucks, and Google and Amazon, over their corporate tax record in the UK, where they have paid little or no corporate tax.  This has been played up into what amounts to a hate campaign in the media.  But the companies argue, quite correctly, that they have precisely obeyed the rules as they stand: they have acted within the law and with complete propriety. And Cameron seems to forget that Starbucks actually pays rather a lot, when you add in VAT, emplyees’ National Insurance, and local taxes.

Cameron responds by claiming that they have “a moral obligation to pay their fair share”.  But this has been quickly refuted by accountants Ernst & Young.  They point out that far from having a moral duty to pay more tax, companies in fact have a fiduciary duty to their shareholders to pay the minimum tax consistent with the law — which is exactly what they have done.

If Cameron and Osborne think that these companies should pay more tax, then they should change the tax code.  It’s for legislators to make the rules, and for companies to obey them.  The Prime Minister cannot then come along trying to lay a guilt trip on companies that in his personal view ought to have paid more than the law required.  The fault lies with our excessively complicated tax code, which inevitably creates loopholes, rather than with companies and managers who are merely trying to do their job and maximise shareholder value.  Cameron should blame himself (and the Treasury) if the outcome is different from his expectation — not the companies, who are perfectly entitled to threaten to withdraw investment from the UK if they continue to be subject to unjustified vilification from the government and the media.

And it’s not just the corporate tax issue.  “Communities Secretary” Eric Pickles is up-in-arms about Council Tax increases.  He told councils that they’d have to have a referendum on any increase in council tax of 2% or above.  Then he’s surprised and upset when councils increase the tax by 1.99%.  What on earth did you expect them to do, Eric?  You make the rules, then you attack the councils for obeying the very rules that you made.

The attempts by Cameron and Pickles to use moral blackmail rather than the law is not only counter-productive,  It’s a genuine threat to freedom and the rule of law.  While Korea is cleaning up its act and moving away from vague laws and moral blackmail, this Coalition is taking us in the opposite direction.  Shame on them.

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8 Responses to Rule of Law? Or Moral Blackmail?

  1. mikestallard says:

    I honestly do not understand this government at all.
    The national debt is now almost three times what it was in 2005 and half as big again as it was at the election.
    Simplified taxes are just so obvious.

    Why is nothing being done?

  2. Malcolm Edward says:

    The conservative leadership is displaying and encouraging very poor attitudes to business – as you say they make the rules, so why complain when companies follow them, why not just change them. Everybody and every company is surely entitled to know the rules and to follow them and not to be vilified for doing so.
    If they were to scrap HS2, leave the EU, stop windfarm subsidies, cut foreign aid, drastically cut the number of quangos, reduce immigration to a few thousands, they would need less taxes and could start to pay off Labour’s debt.
    It is because of these poor attitudes and wrong policies of the conservative leadership that I’m no longer a member of the conservative party.

  3. Adrian Hey says:

    I think Cameron does display an unfortunate tendency to engage mouth before brain and then be forced to back peddle when it becomes obvious to the world he’s said something dumb. Obvious examples I can think off the top of my head being the criticism of “tax dodging” charity donors and the proposal to force energy suppliers to put customers on the “cheapest” tariff. I’m sure there have been others that I can’t recall now.

    As for corporation tax I’ve often thought that both it (and national insurance) should be abolished altogether, because it seems to be relatively easy for large multinationals to effectively export much of their UK generated profit to more favourable tax regimes, but not so for smaller domestic businesses (so they are at a competitive disadvantage). Also allowing successful business to keep their profits is important for funding future investment, especially so for privately held companies. Instead the tax should be applied to distributions (dividends mainly) at the same (ideally flat) rate that would apply for other income sources. At the moment in the UK we have the absurd situation of one tax regime for supposedly “legitimate” trading companies and another for (allegedly) “disguised employment” personal service companies. If we made it so that salary and distributions are taxed at the same rate in either case this distinction would be pointless. We could get rid of all this vague and arbitrary IR35 nonsense.

    It seems a huge mistake for out tax system to try to make a moral distinction between all the different ways of enriching oneself that are then subject to significantly different tax rates. It only results in massive complexity in the tax system which is then unaviodably full of loopholes that clever accountants can exploit.

  4. Richard Henderson says:

    An enlightening read. I have come to regret voting for Mr Cameron.

  5. Heather Alibakir says:

    A fairly typical situation where like a type of doll we used to have, one can face both directions at once . We used to turn the doll round to smile or sulk, depending on the mood. Roger has expressed only what many of us have been thinking and trying not because we would like to remain loyal.

  6. Chris. says:

    I agree with you Roger. But is it morally correct for Starbucks, which does make a profit in the UK, to pretend it doesn’t by buying inflated coffee from its subsidary in Holland? It had paid no corporation gtax in the last 3 years.

    http://uk.reuters.com/article/2012/10/15/us-britain-starbucks-tax-idUKBRE89E0EX20121015

  7. Pingback: Rule of Law? Or Moral Blackmail? | The Libertarian Alliance: BLOG

  8. Nick diPerna says:

    But isn’t ‘moral blackmail’ a form of voluntarism, and is that not better than coercion?

    I would sooner have leaders with moral powers than legal powers. Just a thought.

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