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Interview: Exchequer secretary David Gauke

THE LANDSCAPE OF TAX has changed drastically during David Gauke’s time in government, and today’s climate is arguably the hottest it’s ever been, with the issues of avoidance, evasion and criticism of the taxman regularly raising the temeprature.

And yet the Exchequer secretary cuts a sanguine, relaxed figure when Accountancy Age meets him at his Treasury office, speaking in even-handed, confident terms of the tax system’s future and the government’s ability to address the aforementioned problems.

“The tax system requires a strong accountancy profession to help ensure taxpayers comply with the system and can work their way around it”, he says.

A lawyer by trade, Gauke qualified as a solicitor in 1997 and worked at City financial services firm Macfarlanes before joining government in 2005.

“I’m not a tax lawyer by background, but it was helpful – perhaps even more in opposition – when dealing with tax legislation. An understanding of how businesses work and how professions work is a useful experience,” he explains.

That understanding will have played a crucial role in the implementation of real-time PAYE, which came in at the start of April after a year’s piloting.

The biggest overhaul of the income tax system for 70 years sees PAYE reported on or before the date payment is made, while changes will be reported as and when they occur, rather than at the end of the financial year.

It has proved a controversial project, with industry figures claiming it “does not take account of the real world”, while ICAEW tax faculty head Frank Haskew and chairman Paul Aplin had warned the requirements are “at best, unrealistic and at worst, impossible” for small businesses in evidence provided to the cross-party Treasury Committee in November 2012. Eventually, HM Revenue & Customs relaxed the requirements for businesses employing 50 people or fewer.

But Gauke is unperturbed by those concerns.

“This is a fundamental change to the collection of income tax and national insurance contributions, and the biggest change since 1944,” he emphasises. “Of course there are going to be teething issues.”

Those issues, he says, are far outweighed be the benefits the scheme provides.

“We’ll have a much more accurate system and it does enable greater policy flexibility,” he explains. “For example, we can introduce Universal Credit, which I think will be a big plus to the country, and it means the employment allowance, which we’re introducing next year, can be brought in and administered in a manageable way.”

The increase in tax yield from compliance activities is also something he holds up as a government success, with HMRC’s haul “proving to be pretty dramatic”, with its take set to rise “something like 70%” over the course of the parliament – from £13bn to £22bn.

Less of a cause for celebration, though, is the taxman’s record on ‘customer’ service, which Gauke admits has “a long way to go”, despite “all the signs pointing in the right direction in terms of dealing with calls and dealing with post”.

Indeed, it is an area in HMRC’s performance which has attracted scathing criticism, not only in the press, but from MPs.

Labour MP and Public Accounts Committee chair Margaret Hodge described the service as “woefully inadequate” in the committee’s most recent report of session, after some 20 million calls went unanswered in 2011/12, costing the callers a total of £136m while they waited to speak to an adviser. Against its target of responding to 80% of letters within 15 days, HMRC achieved just 66%, something the committee described as “abysmal”.

HMRC and its chief executive Lin Homer have also fielded criticism over its preparation for the implementation of real-time PAYE, allegedly inadequate IR35 investigations, Homer’s previous record at the UK Border Agency and – infamously – ‘sweetheart’ deals between the taxman and big business.

Particularly strident recently were MPs in the Home Affairs Select Committee, who branded Homer’s time at the Border Agency between 2005 and 2010 a “catastrophic leadership failure” after a backlog of immigration cases built up. Homer, however, maintains the problems occurred after her departure and described the attempts to blame her as “wholly inaccurate and unfair”.

Gauke, though, is unequivocal in his support of Homer.

“I can only judge by what I see and my experience of Lin in her role as head of HMRC is that she’s a very effective chief executive”, he says. “She brings a lot of dynamism to the role, and building on the success of her predecessors, I think HMRC – although it faces very considerable challenges – is becoming a stronger organisation month by month.

“We’re seeing more revenue coming in, we’re seeing customer services improve, we’re seeing greater efficiencies to ensure yield is coming in, so overall I think HMRC is moving the right direction and doing well – and a lot of that is happening under Lin’s leadership.”

Gauke himself was the subject of a media storm over comments made about the morality – or lack thereof – of tradesmen providing customers with a discount when they are paid.

“The point I was making was not that it’s wrong to pay in cash, but it’s wrong to negotiate a discount in return for paying in cash”, he says, before adding wryly: “I think it’d be surprising if the minister responsible for the tax system didn’t think there was something wrong in those circumstances”.

Casting an eye ahead, Gauke hopes the steps Homer’s HMRC has taken in dealing with avoidance and evasion, coupled with a settled real-time information system will form a basis for a more transparent relationship with individual taxpayers.

More specifically, personal online tax accounts – similar to online bank accounts – could be introduced in the near future, he says.

The accounts would display individual taxpayers’ information and also show where their tax pounds have been spent.

It’s a move which was initially raised in November 2011, when it was included in the Modernising the Administration of the Personal Tax System discussion document, and later in the May 2012 Personal Tax Transparency survey.

“In terms of administration, I think there will be a focus on there being more information online”, he explains. “Looking at personal tax, we’ve focused on personal tax statements, but I can see us moving in the direction of personal tax accounts so you’ve got much more information available for a personal taxpayer.

“It will be very secure, and like online bank accounts, they can see where they stand.”

Indeed, making use of digital capabilities is evidently a key plank of the government’s plans, and Gauke highlights a keenness to focus on “ways in which the tax system can become easier for taxpayers”, such as an online business dashboard and registering for VAT online.

Indeed, measures like that – plus encouraging business through tax cuts and reliefs – that Gauke and his Treasury colleagues are fervent to emphasise, with the corporation tax rate set to drop to 20% in April 2014, having been at 28% when the coalition initially took office.

However, he disputes there is a dichotomy between Britain being “open for business” and the rhetoric around tax avoidance and evasion.

“I think they are perfectly compatible”, he says. “The prime minister’s phrase was ‘we are low-tax, not no-tax’. We have a tax system that has low rates, that provides certainty and stability, but we don’t expect taxpayers – businesses or individuals – to abuse that tax system by undertaking contrived or artificial behaviour”.

It’s an issue which will inevitably remain high on the agenda of government, the public and media, but Gauke feels the battle is being won, especially with the appointment of Patrick Mears as the head of a new GAAR advisory panel.

“I think Patrick can build on the excellent work of Graham Aaronson’s interim panel. The GAAR will be a useful tool, but it’s not a panacea. It does deal with some of the more egregious tax avoidance and I think it’s in tune with our expectations and public expectations on how taxpayers should behave.” 

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