Tuesday, 7 November 2017

Ethics and the law

The revelation that the rich and powerful use tax havens to shelter their wealth from the taxes faced by the rest of the population is about as surprising as a revelation about the Pope’s religious affiliation.  Of course those who own the wealth take steps to protect that ownership; they always have.  But that doesn’t mean that there are no surprising aspects of the affair.
I wouldn’t expect people such as the monarch to be personally managing their own finances; the real decisions are taken by the lawyers and advisors who oversee the day to day issues.  But I would expect those advisors to have been given some sort of steer on the way in which they should behave, and three general directives strike me as being key to such a steer:
·         Get the best returns possible,
·         Make sure that everything is legal, and
·         Don’t do anything that would cause embarrassment if it became public.
It is in relation to the third of those points that there has been a failure, and three possible reasons occur to me for that failure:
·         The steer given to the advisors didn’t cover that point,
·         It did cover that point, but the advisors ignored it, or
·         It simply didn’t occur to anyone that a perfectly legal investment would cause any embarrassment.
Whilst I can’t entirely discount either of the first two, it is the third which seems to me to be likeliest; and it is in line with the defence generally being presented (and emphasised again and again in the media), namely that ‘there is no suggestion of any illegal activity’.  It raises the question, though, about whether we expect the richer members of society to exercise any moral or ethical responsibility, or whether compliance with the law is considered adequate.  It’s quite clear to me that those involved in this whole affair consider that their responsibility starts and ends with that which is legal; they have effectively outsourced their ethical responsibility to the legislature.  If the legislature does not explicitly prohibit something, then it’s acceptable.
At one level, that abdication of responsibility is deeply depressing, but at another it actually provides an opportunity.  It’s almost an invitation to the legislators to take on the responsibility and outlaw anything which looks like an attempt to avoid taxation or otherwise outrages the wider public.  All we need to do is to find enough legislators with an operational financial moral compass.  That's the part which might prove difficult.


Anonymous said...

So much outrage for a practice entirely complaint with law but seemingly deemed by so many to be ethically questionable. But why was no similar outrage when seemingly so many Catalans broke the law to vote in an illegal or certainly ethically questionable referendum?

Is it just a question of numbers?

If so, I suspect the persistent depreciation of the British pound over the coming years will encourage many in the UK to convert their wealth into Euro's and stash it away in a multitude of foreign banks.


John Dixon said...

"So much outrage for a practice entirely complaint with law but seemingly deemed by so many to be ethically questionable. But why was no similar outrage when seemingly so many Catalans broke the law to vote in an illegal or certainly ethically questionable referendum?" But aren't these just different sides of the same coin? Law without legitimacy/ legitimacy without law - it's a point discussed on this blog before. To gain the consent of the people, any law must be seen to have legitimacy.

Spirit of BME said...

Only one of the three of your three directives to Dear Bettys’ advisers really flies.
Being legal in these schemes is one that has caused problems, in that when launched they were not illegal, but when HM Treasury takes a dislike to them then they are, and it is retroactive. Avoiding embarrassment is not possible, for what is embarrassing now, may not have been three years ago. Public mood changes with what light and spin are reported on issues, but this topic sells newspapers and media ratings, so the BBC when reporting sells the negative first and then qualifies it by saying that it is legal, but the damage is done and the message is “these people are legal crooks”.
The old chestnut is that we all do tax avoidance schemes, like ISA, Premium Bonds and Duty Free, but we all do it when we buy items on sale, as the VAT is reduced.
Compulsion is the basis of individual taxation, since Mr Pitt introduced the scheme and it has grown like a monster, so individual moral and ethical questions are not considered and most payers are trapped in this machine and do not have options.
Let me put forward a radical remedy, by introduction market forces and an ethical and moral dimension to this question. HMG should introduce a flat tax of 12% for everybody to cover government administration costs and then send everybody a menu of government expenditure by service area. You would then tick which ones you believe you are happy to support and this money would be ring-fenced, then your tax burden would be added to the flat tax.
I have a nasty feeling deep in my water, that the vast majority would go for tax avoidance.

John Dixon said...

Conflating the use of overseas tax havens with investment in an ISA or Premium Bonds, let alone with buying goods in a sale, may support the actions of the rich and powerful, but it's more than a little disingenuous. Whether ISAs or Premium Bonds - or even sales - are a good thing or not is an interesting question, but it's irrelevant here;the point is that they're all taken account of in the overall taxation regime. Citizens who use them are acting in accordance with that overall tax regime - those who take their money outside that regime are not.

I take your point about what is unacceptable today being acceptable yesterday - mores and morality change over time. But that's something that those providing advice should be aware of, and should lead to that advice changing.