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The rule of law takes another beating

By Tom Papworth
October 21st, 2009 at 8:15 am | 1 Comment | Posted in UK Politics

adam-hart-davisPolitical commentators too freely use expressions such as “totalitarian”, “undemocratic” and “tyranny”. But I struggle to avoid applying them to the Government’s latest assault on liberal principles.

HM Revenue and Customs has reissued its code of practice to give sweeping powers to HMRC officials to investigate those legally avoiding tax, including giving officials discretionary powers to interpret what parliament might have intended had they legislated on the matter.

According to the Code of Practice:

Avoidance is not defined in the Taxation Acts…One definition is ‘a situation where less tax is paid than Parliament intended, or more tax would have been paid, if Parliament turned its mind to the specific issue in question’. At a practical level the problem is then essentially one of deciding what Parliament would have intended and identifying who should be asked to decide this.

Inspectors need to have in simple terms a working concept of ‘avoidance’ in order to properly identify cases which can be worked…The starting point should be that one would normally expect taxpayers to pay tax on their income or profits…It is reasonable to assume that where a commercial transaction is carried out in a particularly convoluted way, then avoidance is afoot.

The extent to which this undermines the principles of Democracy and the Rule of Law cannot be underestimated.

Democracy first. Laws are made by parliament. It is true that parliament (all too) often delegates responsibility to ministers to create Secondary Legislation, but this still requires a legal process. The government cannot change the law through a administrative fiat (though Labour has often neglected this fact, as they did when they tried to abolish the office of Lord Chancellor as part of a cabinet reshuffle). Granting officials the power not just to interpret the law (the role of the judiciary) but also to create law based on an assessment of “what Parliament would have intended” is completely and utterly undemocratic.

Now the Rule of Law (a principle of liberty probably more fundamental even than Democracy itself). Laws do not exist to justify punishing bad people. They exist to prevent errant behaviour. They do this by signalling to us in advance what behaviour is acceptable and what is not. Pursuing people for crimes that are not yet on the statute book completely undermines the fundamental principles of the law. If one does not know what financial arrangements are legitimate, one cannot hope to do what is acceptable to the authorities.

The analogy I often use is with traffic laws. If the law says that the national speed limit is 70mph, it is perfectly legitimate to drive at 69.5mph on the motorway. If the traffic police were instructed to arrest and prosecute people for driving “at a speed faster than Parliament would have mandated, if Parliament turned its mind to the specific issue in question”, we’d all end up being banned from driving!

Labour members, of course, will barely notice and care less about any of this. The Labour party has never had much use for the Rule of Law. If the Tories kick up a fuss, they will be accused of protecting the rich, even if they argue from the point of principle.

Sadly, however, the animosity that many (including too many Lib Dems) feel for those who make legitimate but convoluted arrangements to avoid paying tax means that this is unlikely to cause uproar among Liberal Democrats, either. Vince Cable is a constant enemy of avoidance. However, I would hope that even those Liberal Democrats who want to crack down on tax avoidance would agree that this must be carried out in accordance with the Rule of Law, enacted by democratic legislation.

Putting aside for a moment the (emotively overlooked) distinction between avoidance and evasion, liberals of all parties should stand up to oppose what is surely slide towards totalitarian tyranny.

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