While judge agreed the deal was ‘not a glorious episode in the history of the Revenue’, he ruled it was not unlawful

Campaign group UK Uncut Legal Action has lost its high court challenge over the legality of the “sweetheart” tax deal between HM Revenue and Customs and Goldman Sachs.

The judge agreed the deal was “not a glorious episode in the history of the Revenue” but ruled that it was not unlawful.

The court was told the 2010 deal, worth up to £20m, was allowed to proceed to avoid “major embarrassment” to the chancellor, George Osborne, and the tax authorities after the bank became “aggressive” and allegedly made threats.

UK Uncut asked Mr Justice Nicol, sitting in London, to declare that HMRC’s decision to let the deal go through was legally flawed and involved a breach of statutory duty.

Tax authority lawyers defended the settlement, saying it was among five big business deals declared “reasonable” by a 2012 report of the National Audit Office.

UK Uncut says it is wrong to allow rich companies to avoid paying millions in tax while the government imposes tough austerity measures on the poor, and ordinary taxpayers are pursued for every penny.

Martin Worthy, a director of UK Uncut Legal Action, said after the hearing that he was disappointed with the ruling. But he added: “This case has shown that the government’s tough talk on tax is just that – talk not substance.”

Dave Hartnett, then permanent secretary for tax, initially shook hands on the Goldman Sachs deal on 19 November 2010 following a long-running dispute over National Insurance contribution payments dating back to the 1990s.

Lawyers for UK Uncut put before the high court in London an email and a witness statement showing that Hartnett overruled legal advice, the HMRC’s own guidelines and its internal review board to ensure the deal went ahead.

Just over a week after the handshake, the Revenue’s high-risk corporate management board attempted to block the deal, just as the chancellor announced that the top 15 banks in the country had signed up to a new code of conduct related to tax.

An email from Hartnett on 7 December 2010 described how Goldman Sachs allegedly “went off the deep end” after the board decision and threatened to withdraw from the government’s code of practice, first published in December 2009.

The email warned: “The risks here are major embarrassment to the ChX [Chancellor of the Exchequer], HMRC, the LBS [the large business service of the HMRC], you and me, not least if GS withdraw from the code.”

The witness statement from Hartnett, who retired as head of tax last summer following strong criticism of the Goldman Sachs deal from the public accounts committee, said the bank withdrawing from the code “would have embarrassed the chancellor”.

Ingrid Simler QC, appearing for UK Uncut, argued that the deal breached HMRC’s statutory duties, and said an “aggressive” bank had been rewarded for several years of failing to pay tax it owed, causing “real disquiet among the taxpaying public”.

She said the exact amount lost to the Revenue was not known but was at least £5m to £10m, and the Commons public accounts committee had received evidence that it could be up to £20m.

James Eadie QC, appearing for HMRC, accused UK Uncut of taking legal action “to pursue politics by other means”.

HMRC said in a press statement: “Large business tax settlements are a vital part of how HMRC secures tax revenues for the country and without them Britain’s public finances would be seriously damaged.”

Anna Walker, campaigns director of UK Uncut Legal Action, said: “Obviously, while we are deeply disappointed that this deal has not been declared unlawful, the judge’s ruling that top HMRC officials played politics with major tax deals to protect Osborne’s reputation is a major victory in exposing the truth behind these secret deals.

“Despite not having won the case today, we still feel that this judgment has demonstrated that the government is making a political choice to cut legal aid, public services and the welfare system, rather than take action to make corporate giants … pay their fair share of tax.

“This case has exposed the lengths the government will go to to look tough on tax avoidance and has been vital in holding the government to account for its shameful actions.”