AS THE CITY of London police moved in to clear the tents from St Paul’s Cathedral in the early hours of Tuesday, news was breaking of an equally dramatic swoop, this time by the UK tax authorities.
The Treasury acted to close what it described as two “highly abusive” tax loopholes and, in an unprecedented move, made its action retrospective. This will allow it to claw back more than £500 million in lost tax revenues, a welcome boost to the British government’s coffers.
Although the Treasury initially declined to name those involved, it later emerged that Barclays was at the centre of the avoidance schemes.
The bank attempted to win brownie points by pointing out that it had disclosed the schemes to the authorities itself “in a spirit of full transparency”. But the row is an embarrassment for the bank, which is soon to reveal how much it paid its chief executive Bob Diamond last year. In 2010, he earned £6.5 million.
The irony that news of the latest attempt by one of Britain’s major banks to escape paying its dues emerged just as St Paul’s was being forcibly cleared of protesters was not lost on the Occupy movement. It has long held that there is one set of rules for the rich and powerful and another for the rest of us.
It’s hard to disagree. There is growing unease at the number of so-called “sweetheart deals” signed off by the tax authorities, with some estimates suggesting as much as £25 billion in tax has gone uncollected from large companies.
The first tax avoidance scheme involved Barclays escaping corporation tax on profits made by buying back its own debt. The second allowed the receipt of tax credits on income that had not been taxed in the first place.
Barclays is thought to have conducted the first scheme on its own account, while the second was conjured up for a client. Tax due on the first scheme, introduced by the bank last December, is understood to be in the region of £150 million, which Barclays will now have to repay.
Barclays has form on what might politely be termed effective management of its tax liabilities. A year ago, the bank was forced to admit that it paid just £113 million in UK corporation tax in 2009 – a year in which it piled up record profits of almost £12 billion and paid out bonuses of £1.5 billion.
It was also last year, at a Treasury select committee hearing, that Barclays boss Bob Diamond affected to be unaware of how many offshore subsidiaries the bank had in tax havens around the world. The answer was provided by the group’s own accounts – 30 in the Isle of Man, 38 in Jersey and 181 in the Cayman Islands.
In response to questioning by MPs at Westminster, Diamond insisted that Barclays was “compliant with both the spirit and the letter of the law”.
The bank was singing the same tune yesterday as it attempted to defuse the row over its avoidance schemes. “In the UK we comply with the letter and spirit of all our obligations under the HMRC [Revenue] Code of Practice and have open and transparent dealings with HMRC,” it said in a statement. “Barclays takes its responsibilities as a corporate citizen very seriously.”
Corporate citizenship is a favourite topic of Diamond’s – four months ago he chose it as his theme when he delivered the inaugural BBC Today Programme Business Lecture. “Would I have chosen citizenship as a key priority five years ago?” he asked his audience. “Probably not.”
The bank’s declared commitment to good corporate citizenship sits uncomfortably with its continued use of offshore subsidiaries and inventive tax schemes, not to mention the fact that it has signed up to the government’s code of practice against tax avoidance.
Avoidance is not illegal, however, and the code is not enforceable by law. Barclays will thus suffer no penalties other than having to pay the tax due.
The government yesterday suggested that the “reputational damage” suffered by the bank would be punishment enough.
When was shame deemed a suitably tough sanction for any ordinary taxpayer caught trying to escape their dues?
Fiona Walsh writes for the Guardiannewspaper in London
