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.