Tax avoidance rather than executive pay is at the top of the UK public's concerns about business behaviour for the first time.
Concerns about potential tax avoidance have topped those about executive pay for the first time in six years, according to the 10th annual survey of the British public's attitudes about business ethics.
The Institute of Business Ethics (IBE) found that 59 per cent of those surveyed thought that businesses behaved ethically in general, up from 48 per cent last year. However, it also noted an increase in the number of those saying that businesses behave less ethically now than they did 10 years ago, to 35 per cent.
"These results could indicate that business has clawed back some of the public trust lost in the wake of the financial crisis, but confidence remains fragile with a year on year increase in those saying that business is less ethical than it was ten years ago," said the IBE's director, Philippa Foster Back. "Tax is also now clearly a reputational issue and has risen very rapidly up the scale."
The IBE was set up in 1986 to encourage high standards of business behaviour. For the past ten years it has commissioned market research firm Ipsos MORI to carry out an annual survey of public attitudes to whether British businesses behave ethically and which issues most need addressing. These issues have evolved over the past 10 years, although executive pay and discrimination of employees have consistently ranked in the top five areas of public concern, according to the IBE.
This year, only 30 per cent of the public cited executive remuneration as the main issue businesses needed to address (8-page/1.9MB PDF). Tax avoidance, which 37 per cent of the respondents highlighted as their main area of concern, was only added as an option last year and immediately ranked as the second most important issue.
According to the IBE, this year's response could be a reaction to "frequent allegations in the media ... that many multinational companies are apparently operating very successfully in the UK yet paying little or no corporation tax".
The tax affairs of companies including Amazon, Starbucks and Google have come under considerable media scrutiny over the past year following accusations of "profit shifting", or deliberately transferring profits from high tax jurisdictions to those with lower rates of tax.
This has been followed by a number of international initiatives, including the work of the Organisation for Economic Cooperation and Development (OECD) on developing a global standard against base erosion and profit shifting (BEPS). In June, the House of Commons' Public Accounts Committee (PAC) published the results of its investigation into tax avoidance and Google.
Tax expert Heather Self of Pinsent Masons, the law firm behind Out-Law.com, has been highly critical of some of the media reporting on international tax avoidance and the work of the PAC. For example, in some cases businesses had been criticised in the press for claiming interest relief within limits set out by Parliament in the tax legislation, she said. In addition, there were questions over whether the PAC had gone "well beyond its remit" to examine the accounts of expenditure of government by investigating the tax planning behaviour of multinationals, she said.
"Obviously one of the significant elements of public expenditure is actual expenditure on HM Revenue and Customs, and so [PAC chair] Margaret Hodge is asking whether HMRC is being efficient with the money it is given," she said. "However, Hodge has also been an inquisitor of HMRC and has shown an increasing lack of trust since a whistleblower disclosed evidence about large corporate settlements in December 2011, which caused the PAC to investigate the technical side of what HMRC was doing; and we and others have commented that that is not a helpful direction for the PAC to be going."
"Now everything is being portrayed as tax dodging, even if it's merely claiming government incentives such as the patent box or capital allowances. The idea of predictability and certainty is really important for multinationals and the approach of the PAC is at risk of damaging that," she said.
However, Self said that large businesses have changed their attitudes to tax avoidance over the past five years.
"Most large businesses over the last five years or so have moved to a point where they have clear policies as to what is and isn't acceptable tax planning," she said. "They are beginning to be prepared to communicate; this is a big change that has come from the PAC and media attention. Companies used to prefer to keep quiet and 'hope it would go away', but they are now having to move onto the front foot. Companies need to communicate not just with the professional world, but with the public."
The findings of the ICE survey showed that people aged 55 and above were more likely to think that businesses did not behave ethically than younger people. Other issues identified by the survey as areas of public concern included the ability of employees to speak out about company wrongdoing, and business attitudes to the environment and human rights.
Copyright © 2013, Out-Law.com
Out-Law.com is part of international law firm Pinsent Masons.