More thief than watchdog
To state that accounting plays an essential regulatory function under capitalism is quite different from saying it is ‘objective’. Especially in the context of privatisation, it is often used as a legitimacy device or psychological prop for government decision-making. More than this, with record revenues of some £103 billion worldwide for 2011, the big accounting firms represent a large section of capital in their own right. In this way, accounting practice is increasingly about aggressively forwarding particular interests and jostling for their own competitive advantage.
To understand this development we need to place this in the context of how neoliberalism has affected the regulatory spheres as compared to that during the social democratic period. This does not mean arguing that accountants were ever neutral providers of information to decision-makers with some ‘golden age’ of accounting. At a minimum they have to provide information to help ensure the smooth running of the market and to maintain its legitimacy so those investing have some faith that they are a reasonable reflection of underlying economic activity. They are thus central in providing the conditions for profitable investment. This is and always will be a political act. There has, however, been an important shift from accountants as state professionals to commercial entrepreneurs in their own right.
The changes taking place under neoliberal reform are also reflected in the changing income streams received by the big accounting firms. As more and more firm income comes from consultancy, these fees are at risk if you threaten to refuse to sign off the accounts. In other words, if you cause problems, you will not be asked back to the party. This is noticeably at odds with a now rather ironic early history of Arthur Andersen which takes great pride in advertising its willingness to refuse to sign off the accounts of a railway company, believing this decision showed integrity and professionalism. As accounting firms move away from their more traditional role as auditors, this regulatory function is arguably weakening by the day. In other words, the interests of one section of capital (the accounting firms) do not necessarily equate with the interests of capital as a whole. One example of how this conflict emerges lies in the growing market for selling tax avoidance schemes.
Any pretence to professional ethics has been increasingly diminished by the production and distribution of tax products sold to the super rich, where the consequent burden of taxation falls on those least able to avoid it and least able to pay. The intensification of competition has increasingly led to the drive for accounting firms to search and create new markets. Tax avoidance is one important part of this and as accountants continue to profit from this business it is ordinary people who rely on state-funded public services who lose out. The HMRC itself points out that tax avoidance loses the UK economy some £42 billion but research from the Tax Justice Network puts the figure at some £69.9 billion.
This whole process is shrouded in secrecy. KMPG has previously encouraged clients to sign non-disclosure agreements about use of their tax products, seemingly aware of the potential legal implications of non-disclosure of their tax products. Effectively, they decided that any fines would be insignificant compared to the additional income raised. As part of a US Senate Committee report, an internal email from a senior KMPG official estimated that the cost of not disclosing would be only $14,000 out of every $100,000 raised. This is hardly much of a disincentive to change this practice.
In addition, the accounting rules permit considerable freedom for companies to avoid taxation. Companies do not have to disclose how much tax they pay in each country, being permitted to show only their total global tax bill. Herein lies another part of the problem. Much is made of the difference between tax evasion (illegal) and tax avoidance (legal) but such distinctions become increasingly blurred when companies are operating in a number of different countries containing different laws. Rather than falling pray to such diversions, however, as the recent debate on avoidance shows these disputes will be worked through in practice and reflect class divisions more generally.
Rather than seeing the Big Four as playing a valuable public service function, therefore, we should recognise that their role lies in freeing corporations from taxation rather than ensuring collection. In this vein, a Unison 2003 report has shown how accountants are involved in advising governments on tax policy whilst simultaneously helping their corporate clients get round such policies: “The firms are participating in a lucrative party game where they are involved in building the retaining walls and planning the escape system” (p. 8). Despite all the discourse about corporate social responsibility, it is unclear how ensuring companies pay no tax fits with even this very limited concept.
The question we could ask is whether there is any economic activity taking place in the various tax havens and personal tax schemes used or if it is merely a means to avoid taxation. Of course, this would require political will and would be a great deal easier if the government were not intent on decimating the very infrastructure for this same tax collection.
Despite news to the contrary, it seems extremely unlikely that David Cameron is ‘shocked’ by any of this and even less willing to do anything about it.
However, the role of accountants is not limited to the now well publicised tax avoidance industry. They have also been central to forwarding PFI schemes across the UK. It will come as no surprise to note that PFI is seriously big business. By 1999, PwC was responsible for contracts worldwide worth £22 billion and by 2000, it has advised the government on 90 UK PFI’s worth a total of £8.3 billion (Unison, 2002). By 2009, contracts for £60 billion of capital assets had been siphoned off.
At a time when the government was attempting to drive through privatisation policy, rather than have the potential for elements of the state bureaucracy opposing them, the big accounting firms could be relied upon to provide the ‘right answer’ and to effectively facilitate the transition. The partisan nature of the Big Four is most obviously evidenced in their sponsoring of projects supporting PFI and PPP.
The logic behind this is that the big accounting firms have an economic interest in the success of the privatisation project. Since accounting firms represent sections of capital in their own right, they have an interest in the liberalisation of the economy. Moreover, there are a number of ways that privatisation provides a market for accounting services. Accountants help to prepare the business case, arrange finance and advise governments. Specifically, they provide briefings to governments training them in PFI project management, project finance and negotiating skills (although the contracts drawn up under PFI may question to what extent ‘roll over and die’ is a meaningful negotiating strategy).
The myth of impartiality is even more discredited when we consider that accountants simultaneously advise clients on bids whilst recommending tenders to governments. On occasion, it can even recommend its own business partners. Put simply, the increased profitability of its clients benefits the accountants who work for them and so the ‘money-go-round’ can continue apace.
In addition, accountants are responsible for developing government policy with respect to PFI as well as drawing up the rules on which PFI deals are based. One example of this is the development of the value for money tests which were required to allow the PFI projects to go ahead. This also had an important ideological impact as this type of commercial appraisal changes the ethos of public service provision, reducing it to certain measurable outputs. New academic research has now shown how these tests systematically understated the cost of PFI to the public sector and the potential for private profiteering (Cuthbert and Cuthbert, 2012).
Far from providing a neutral technical role then, accountants have helped to design and implement the PFI schemes, but they have also used their role as ‘technical experts’ to offer pro-privatisation propaganda. Governments sought vindication for a controversial policy and the accountants were happy to oblige. A report by Arthur Andersen in the year 2000, argued PFI had provided 17 per cent savings on average. This same report was then used to export accounting and consulting services outside the UK. Similarly, PwC wrote a report in 2001 fawning over the benefits of PFI. This was exclusively based on a series of stories from the very same senior managers who introduced the PFI schemes! Many words may spring to mind but neutral is not one of them.
Although the Scottish Government has stopped further PFIs from taking place, it is still responsible for meeting the terms of the existing contracts. However, this does not mean there is nothing which can be done.
In conclusion, not only do accountants allow for the deterioration of state finances through tax avoidance but they are implicated in the transfer of wealth from state to capital by facilitating privatisation. Unaccountable and unelected, their role must be challenged. Of course, the networks of unaccountable power of which accountants are a part will always exist whilst economic and political power is concentrated in the hands of a tiny minority. However, this does not mean that there are not immediate actions that could be taken to shift the balance to the immediate benefit of ordinary people. The cost, the poor service quality and the lack of accountability are well documented within PFI. It seems worthwhile to look into ways to rip up these contracts. As part of a full inquiry into the terms of PFI, the Scottish Government should ensure the big accounting firms are investigated for providing misleading information leading to substantial government and local authority losses. The argument here is that they were implicit in providing misleading financial information and were influenced by the interests of their corporate clients.
On tax avoidance, the Scottish Government have been notably quiet. A commitment after independence to a crackdown on tax avoidance and greater funding for staff to carry out this role would be welcome. Combining this with greater financial penalties and legal punishments for accountants who deliberately undermine state finances would also be a welcome start to a process that seems long overdue.
