According to newspaper reports, HMRC has threatened to ‘name and shame’ wealthy investors involved in tax avoidance schemes.
The expectation is that the risk of reputational damage will be sufficient to motivate people to pay their outstanding tax debts.
But is the threat of publicity and outing as a serial tax avoider an effective way to improve compliance? And what reputational risks does HMRC face if it implements this approach as one of the new counter-avoidance measures proposed by the Chancellor in the Summer Budget?
In the short term at least, the target audience for this initiative is wealthy investors with assets of more than £20m. While most won’t have the profile of footballers, comedians or pop stars – for whom a public shaming can have immediate and lasting commercial impact – the threat of publicity may still have a chastening effect.
If a quick Google search returns a flurry of negative news, customers, investors and partners may question the overall character and stop their relationship.
Looking to lessons from behavioural science, however, there’s a danger that publicity only serves to normalise precisely the behaviour that HMRC is trying to stop – perhaps even encouraging people to wear their non-compliance as a badge of honour.
When it comes to addressing ‘bad’ behaviours including tax avoidance, insurance fraud and unhealthy eating, the short-term desire for PR headlines and awareness often undermines the longer-term campaign goal.
Instead, it may be more effective to consider successful interventions elsewhere and ‘name and fame’ rather than ‘name and shame’, so that people can readily bring more positive examples to mind. There is an opportunity to do this by publicising signatories to a Voluntary Code of Practice.
The issue of tax avoidance is also complicated, often riddled with legally acceptable but morally questionable investment schemes.
Anyone with £20m of assets with a history of serial tax avoidance is likely to have an army of advisers ready to argue the toss in the law courts and the papers.
Lengthy court and publicity battles could ensue, with the possibility of defamation counter-cases from named parties.
Then there’s the thorny issue of reduced settlements, where the taxman is often criticised for coming to an agreement with the super wealthy.
In short, HMRC’s own reputation could be undermined if it gets things wrong or is seen to be too lenient. The high net worth unit at HMRC has successfully generated more than £1bn from improved compliance since it was set up in 2009 so it’s clearly doing something right.
The effectiveness of publicly naming and shaming non-celebrity serial tax avoiders remains to be seen. The threat of reputational damage has helped to generate media coverage, but it’s debatable whether future publicity will motivate serial offenders to comply.
Simon Maule is director of Linstock Communications