Strong rule of law needed for steady business, finds report by law firm Linklaters

Broad and retroactive legislation are two reasons the rule of law is under attack

The rule of law – essentially, the idea that nobody is above the law – has come under threat in recent years, and could lower the UK’s desirability to do business with, according to a report released today by Linklaters.

The magic circle firm’s study, entitled In defence of the Rule of Law, argues that businesses need an environment of legal certainty and fairness, and continued challenges to the rule of law undermine these principles.

For example, the report points to recent legislation which has been phrased too broadly, such as the Proceeds of Crime Act 2002. Originally introduced to tackle money laundering, it could also be read to include teenagers who are in possession of music files they know are pirated.

The study also highlights the use of retroactive legislation, such as section 58 of the Finance Act 2008, which was designed to stop UK residents channelling money through offshore trusts to avoid income tax. When the amendments were made, it included the wording that they were ‘treated as always having had effect’, resulting in more than 2,000 people having to pay back taxes worth roughly £100m, despite their tax arrangements being legal at the time they set them up.

Richard Godden, partner at Linklaters, said: “The fairness and certainty that the rule of law provides is one of the main reasons the UK is a destination of choice for global investors. We tend to take concepts like laws being public, certain and prospective for granted, as well as the notion that the government is under the law, rather than above it, yet we are increasingly seeing instances where this is not the case.”

And Baroness Jo Valentine, chief executive of London First, added: “The health of the rule of law is vital to London’s position as an international business centre of choice. Anything contributing to its erosion is a threat not only to UK-based businesses, but also to international businesses seeking to invest in and trade with this country.”