This week's Channel 4 documentary 'Secrets of the Taxman' - which investigated the outside interests of HMRC non-executive directors - dug up some brilliantly Catch-22 justifications from directors challenged about their conflicts of interest.
Phil Hodkinson, chair of HMRC's ethics committee, also just happens to be a director of a major UK-listed company incorporated in Guernsey. He began his statement by saying that, as a member of the board of HMRC, it was particularly important to him that his company wasn't involved in tax avoidance. Well, that's alright then. Even more excellently, he went on to argue that, since he was satisfied the company wasn't actually in Guernsey for tax reasons, his role in the company didn't constitute a conflict of interest. Ta-da! And, as if by magic, the conflict vanishes! No wonder they pay him the big bucks.
The thing is, though, you don't have to demonstrate that Hodkinson's company is actually engaged in tax avoidance to prove that he has a conflict of interest. The conflict doesn't depend on the motives behind the company's tax strategy, any more than it depends on what's going on inside Hodkinson's head. It's a simple matter of fact. If you are simultaneously responsible for helping to run the body that collects tax and for helping to run a company that, like all companies, has an interest in paying as little tax as possible, that is a conflict. You can argue that the conflict doesn't matter, or that it's being effectively managed (although, to be honest, I'd like to see you try). But you can't argue that it's not there.
This is a different kettle of fish from employing former corporate figures, which can conceivably be justified on a 'poacher turned gamekeeper' basis. It's hard to see any justification for inviting people with continued corporate interests to help tell HMRC what to do. The fact that HMRC apparently thinks this is perfectly fine is a worrying
indication of just how far regulatory capture has gone in this country.
But lying underneath this fact is a really interesting story, about the embedding of commercial conflicts right across government. Somewhere along the line, someone decided that it would be a good idea if Whitehall departments were run more like companies. Government departments are now all supposed to have departmental boards, like HMRC's, which "will operate according to recognised precepts of good corporate governance in business". One of these precepts is the presence of non-executive directors, which the Cabinet Office says should be "largely drawn from the commercial private sector".
In a corporate context, the theory is that non-executive directors provide an independent challenge to the decisions of the executive directors. In practice, this often doesn't work very well even on its own terms - as the financial crisis exposed, non-executives are usually part of the same old boys network; they certainly didn't seem to do much to challenge groupthink in the banks.
But applying the same concept to the running of government, with seemingly little or no thought for the implications for democracy, is downright dangerous. Let's hear that guidance again: non-executive directors will be "largely drawn from the commercial private sector". Incidentally, it's not clear why experts from non-profits, the third sector or academia are thought to be inherently less suitable for these roles - save that the Cabinet Office wants departments to "tap into the expertise of senior leaders with experience of managing complex organisations in the commercial private sector". On that basis, I can think of at least one recently-departed senior leader with extensive experience of fucking up - sorry, managing - a highly complex UK banking institution who would make an exemplary candidate.
Non-executive directors exist to make boards more accountable, but whether accountability is a good thing really depends on who you're accountable to. In this context, it seem to me that what we're basically doing is making government accountable to the private sector. So conflicts like Phil Hodkinson's are not a shocking aberration - they're an intrinsic part of the system. No wonder HMRC was so relaxed about them. In this topsy-turvy world, 'good governance' means the institutionalisation of conflicts of interest and the insinuation of corporate interests at the highest levels of the bodies that are meant to keep them in check. Why does anyone think that's even remotely appropriate?
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