Hartnett to hold on - for now

by Jaimie Kaffash

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13 Oct 2011

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DAVE HARTNETT's appearance at the Public Accounts Committee did not follow the agenda he might have expected at the start of the week. The allegations about his role in a settlement with Goldman Sachs over the investment bank's dispute involving employee benefits trust took centre stage.

Leaked documents appeared to show that the two parties struck a deal despite HMRC counsel informing Hartnett that HMRC has a strong case to obtain the full amount of tax due. If the deal was struck, this would be contrary to HMRC's litigation and settlement strategy and court rulings, which state that HMRC cannot go for less than 100% of the liabilities in strong or "all or nothing" cases. The deal cost £10m according to the documents.

Hartnett admitted there had been an error in calculating the liabilities. Amyas Morse, the auditor general, said that the NAO calculated this error to be worth between £5m and £8m.

So what was this error? Well, we don't know. Hartnett used the taxpayer confidentiality defence as well as England cricketer Alastair Cook, to paraphrase a similar grilling by MPs two decades back. Indeed, if it wasn't for Morse's presence, we would not know the value of the error.

Jesse Norman, a Conservative MP on the Treasury select committee, has called on Hartnett to resign. But the permanent secretary for tax's defence, although not pretty, might have done the trick in saving his job. An error is far more forgivable than willfully giving a big business special treatment. As hard as they tried, the MPs were unable to budge him from his confidentiality defence and were unable to prove a deal had been struck.

The other accusation around the Goldman Sachs deal was that HMRC departed from its usual governance procedures. This is undoubtedly true. Commissioners who are involved in negotiations with a big business are not allowed to sign the deal off.

Hartnett claimed that he was not involved in the tax affairs of Goldman Sachs. But this is him playing with semantics. He did attend a meeting with representatives of the bank to help facilitate a poor relationship, he said and then signed the deal off.

Why was he personally so involved in each aspect of the deal? Because, remarkably, he is the only one of the four HMRC commissioners with tax experience. Errors should only be likely in complicated cases and, as he is the only one qualified to deal with complicated cases, he is essential for HMRC right now.

The health situation with Dame Leslie Strathie is not great and her sick leave is likely to be prolonged, sadly. That leaves not only three commissioners, but a power vacuum at the top. As well as this, many of the top jobs at the Revenue are being filled on a temporary basis. If Hartnett was to be forced out, it would make a bad situation even more unstable.

By sticking to the error story, Hartnett is not only attempting to quash allegations of a deal, he is almost implicitly drawing attention to the lack of expertise at the top. As the only font of tax knowledge during a precarious power vacuum, ministers would be loathe to get rid of him right now. Of course, this will all change if it can be proved a deal took place.

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