Oliver Letwin is sweet-talking the business world with promises to cut red tape, reduce regulation and simplify the tax system. But will this be enough to win round the electorate? David Rae hears the Tory shadow chancellor set out his stall.
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Oliver Letwin’s CV
Many people’s tip as the next Conservative prime minister, shadow chancellor Oliver Letwin looks relaxed and confident in his House of Commons private office. As the election battle begins to hot up, Letwin knows what the business world wants to hear. And he wastes no time in saying it.
‘Our view is that rather than trying to intrude, run, approve and direct, the job of the tax system is to be as neutral as possible. Similarly when it comes to regulation, our view is that people are better left to their own devices,’ he says.
You can almost see the country’s business community rubbing its hands in glee. Red tape, bureaucracy and the complexity of the tax system have always been favourite subjects for business lobbyists, regardless of the political party in power.
Letwin illustrates the problem with a degree of skill. ‘There are now 15 new regulations created per day. The amount of regulation coming in over the last five years has, roughly speaking, equalled that of the previous 25.’
But it is easy to make such obvious and self-serving statements while in opposition, and the rather self-indulgent belief that his party left the economy ‘in remarkably good working order’ is unlikely to sit well with many.
Despite this, the Eton-educated Letwin is bound to win friends in all areas of the business world with his hands-off views on how to govern business. ‘When it comes to business we tend to deregulate instead of regulate,’ he says.
The audit community, however, may be less impressed with his thoughts on the prospect of a liability cap.
‘I am extremely reluctant to intervene in the whole relationship that exists,’ he says. ‘I would take an awful lot of persuading.’
Giants of the investment world, including the likes of Morley Fund Management and the National Association of Pension Funds, have voiced grave concerns over the prospect of a liability cap, claiming it could reduce the quality of the audit process. They, like Letwin, see market forces and the prospect of monumental legal claims as adequate deterrents against poor audit work.
It is this hands-off approach combined with less extravagant public spending plans that Letwin claims will allow him to simplify the tax system and make the UK a better and more competitive place to do business. But even he admits that it will be no easy task.
‘I have an occasional nightmare that I actually wake up as chancellor and inherit an economy … which now has a fiscal deficit of £37bn and the prospect of tax rises’, he says. ‘Can I cure those problems fast enough to avoid being the person who is the fall guy for the effects of that at some future date? It worries me.’
While seemingly oblivious to the irony of a shadow chancellor having nightmares about becoming the real thing, he has a point. The fiscal deficit could become a problem. The Ernst & Young ITEM club and the Institute of Fiscal Studies have been saying similar things for months. And most would agree that some form of tax rise could be on the way should Labour remain in power beyond 2005.
But Letwin is short of answers when it comes to exactly how he would go about reducing the levels of complexity in the tax system, which almost everyone accepts has become the bane of both the business world and the Treasury.
‘The finance bill does not emerge, and nor does the rest of Brown’s regulation and taxation, by act of God,’ he says. ‘It is something brought forward by trying to squeeze more and more money out of the economy – as invisibly as possible.’
He says that by reducing the proportion of GDP being spent on public services he would be able to simplify the tax system gradually because he would not be trying to collect as much money from it, which in turn would address the hugely topical subject of tax avoidance.
‘There is far less scope for complex, death defyingly ingenious tax avoidance schemes in a more simple and neutral system,’ he says. ‘And, of course, far less incentive.’
Last week’s revelations that the Treasury is continuing to name and shame what it feels are abusers of aggressive and artificial tax avoidance schemes was a body blow not only to Ernst & Young, but also to all tax advisers.
The dreaming up and marketing of what Letwin terms as ‘death defyingly ingenious’ tax avoidance schemes have created a multi-billion pound a year industry for the major accounting firms and their clients.
But last week John Healy, economic secretary to the Treasury, summed up the present government’s views on the subject, when he put tax avoidance in the same bracket as terrorism. ‘Tax avoidance and the industry that drives it are increasingly an international phenomenon, and it is vital that we have effective international cooperation to tackle it, as we do for tackling terrorism, organised crime, money laundering and fraud,’ he said.
You could be forgiven for forgetting that tax avoidance is actually a legal practice, albeit not a particularly socially responsible one.
Letwin is not alone in his views that the tax avoidance industry is born from an overly complex tax system and that company directors have an obligation to shareholders, and this includes minimising their tax bill as well as maximising their profits.
And while Letwin is not altogether against the tax avoidance disclosure requirements brought in on Budget day, he says the ‘devil is in the detail’ and that the last thing we need is ‘huge new bureaucratic departments both in the accountancy profession and in Whitehall where everything that has been done has to be reported’.
He refers to public spending under Labour as ‘ruthlessly political’, and has set out a pattern of Tory public spending so that his party cannot simply increase public spending, if in power, to win votes.
‘We have set out a pattern over a six-year period which has a clear systematic approach,’ he says. ‘We will take the trouble to lay that out so that people can see it and we would be embarrassed were we not to follow it.’
Part of his cultural change at Whitehall includes a commitment to reduce the size of the civil service from 500,000 to 400,000 through a total recruitment freeze. He has also pledged to ensure that measures are introduced to make the introduction of regulation more difficult. He offers an anecdote to illustrate the point. Picking up two ordinary looking parcel labels, which he apparently keeps on his desk for just such occasions, he breaks out in a knowing smile.
Although they look exactly the same, one used to cost the same manufacturer five times more to produce than the other. ‘That is a very good example of what we are trying to achieve in Whitehall. You get the same product but you get it cheaper because you do it better.’
So what of the accountancy profession? Letwin grows guarded upon hearing the question. ‘I have to say I’m in no position to throw stones about this, because I’m in a glass house,’ he says. ‘Politicians are much worse than accountants. Accountants have hit their problems and we’ve hit ours too. So this isn’t meant to be a view from Olympia.’
Letwin is a professional politician, and the last thing he wants to do is upset great swathes of the population, especially when they are as influential as accountants. But he acknowledges the profession has had a difficult time of late, and splits it into two separate issues. The presentational problem he puts down to a ‘small number of high profile’ cases and he feels that over time that will ‘go away’.
The much more serious problem, he says, is the ‘dearth of major accounting firms’.
‘It really has become a very concentrated profession when we are talking about the international accounting firms. I get the strong impression that people inside those firms also see that there’s a problem.’
But he is reluctant to intervene, admitting that he doesn’t ‘know how that will get sorted out’.’Certainly I don’t think it’s any of the government’s business. After all that could result in making accountancy much worse,’ he jokes. ‘The last thing I want to do as chancellor is to start intervening in the structure of the accounting profession.’
And what of his party’s chances of succeeding Labour at the next general election? Just six months ago nobody would have given them the slightest chance. But a series of political cock-ups by Labour, and the timely resurgence of the Tories under Michael Howard have changed the political horizon.
‘There is now a very decent chance that the next prime minister will be one Michael Howard,’ he says, ‘which would be a considerable turn up for the books.’
Career
Education: Eton School; Trinity College, Cambridge; Darwin College, Cambridge Interests: Skiing, tennis, walking.