It was 245 years ago that Adam Smith told us of “peace, easy taxes and the tolerable administration of justice” as the path to the wealth of a nation. It is to Boris Johnson’s credit that the government now seeks to support the last of these principles in our foreign policy, as well as at home. It is perhaps the most important of the three for without certainty as to property and the law there will be no investment, the very thing which makes the future more prosperous than the present.
An early test of the Prime Minister’s commitment to this principle will come when he visits India next month. There are worrying signs that the authorities in Delhi are moving in the opposite direction, and that the rule of law is being systematically weakened.
Proof of the problem abounds. Vodafone found itself in a disagreement over taxes due on a corporate sale even the Supreme Court of the country, eventually, agreeing against the taxman. At which point a retroactive change to the law was made. Taking the fight to courts not controlled by the Indian government concerned led to an arbitration ruling in Vodafone’s favour, again. Something not dissimilar occurred to Cairn Energy – a dispute over taxation of a corporate disposal, eventually the fight led to an arbitration ruling that the government was wrong. Both of these British firms are still waiting for the Indian government to recognise the legal reality, and to pay the compensation that is theirs by right.