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Headmistress Hodge grills HMRC on tax avoidance

5 November 2012

Ever since Margaret Hodge took over the chairmanship of the Public Accounts Committee, its evidence sessions have become rather lively: more like a fearsome grilling from the headmistress than a slow-moving chinwag with a group of MPs hoping for the next division bell. Hodge was on terrifying form today as senior officials from HMRC sat down to take evidence. She directed her teacherly wrath in particular at Lin Homer, chief executive and permanent secretary of HMRC, who gave the bulk of the evidence on the department’s work in tackling tax avoidance.

Homer appeared rather shell-shocked by the onslaught, like a pupil trying to explain why she wasn’t wearing a tie and had rolled her skirt. Hodge was angry, not just on her own account, but on behalf of the whole school, which was being let down. ‘You are giving a mixed message if I may say so, because there is a mood of anger out there,’ she said, fixing Homer with a gimlet eye. ‘[Small businesses] feel that they are hassled by you, that if they don’t pay their tax… that you may get an agency to come and get the money from them, whereas if you are a big company, you might be invited in for a cup of coffee with HMRC.’

Hodge was, like all truly terrifying headmistresses, quite right: voters are annoyed by the relative ease with which firms like Starbucks can pay so little tax while small businesses are chased to the ends of the earth to pay theirs. And judging by this evidence session, a coffee with Lin Homer wouldn’t rank in a list of Top Ten Terrifying Experiences for a finance director of a multinational company. But Hodge carried on a bit too far. A little later in the hearing, she started grilling Homer about whether HMRC was using debt collection agencies to chase down big businesses as well as small firms. Homer replied:

‘The debt collection agencies so far have been used to pursue the small debts that we otherwise wouldn’t pursue ourselves… We have very skilful internal debt collections approaches… because we will always tend to put the investment where the returns are higher… the debt collection agencies are very much at the bottom end.’

What was more interesting than whether HMRC was – entirely sensibly by the sounds of things – using agencies to collect the small debts to free up its own resources for hunting the big beasts, was how well HMRC is doing at actually collecting the taxes due from those big beasts. Hodge told Homer she thought the department’s performance on this was ‘disappointing’. Homer, not surprisingly, disagreed.

‘I wouldn’t agree that it’s disappointing… I think we have maintained a level of tax gap in this country… we are maintaing a general level of compliance.’

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She added that she did believe that HMRC does ‘collect the tax that is owed to us’, arguing that it was ‘an improving situation’ and that ‘I think we are smart enough’. Homer also appeared genuinely grateful and flattered that there was now so much interest in tax – more flattered, it has to be said, than by the ferocious attentions of the committee members, who seemed so keen to get their own personal anger about tax avoidance on the record that they occasionally apologised for not allowing their witness to actually answer a question. Asked by Fiona Mactaggart about morale among HMRC employees, she said:

‘I think my staff and colleagues welcome the greater interest in tax: it’s good for, particularly for my front liners, particularly investigating, to know that it matters to the general public.

‘I think that the general idea that it is a topic more talked about… is welcomed by the staff, and I am encouraging them to continue that debate.’

But though the public has grown more interested in tax recently, MPs were not convinced that HMRC was doing a good job at explaining why companies like Starbucks had paid only £8.6 million in corporation tax since 1998. Richard Bacon embarked on a rant that was even grumpier and more exasperated than Hodge’s opening questions, telling Homer that ‘it smells, and it doesn’t smell of coffee. It smells bad’. He added:

‘The biggest gap is in your credibility: that’s why it’s a huge public issue and people don’t understand it. The reason people don’t understand it is because for years you haven’t done a good job.’

Homer disagreed. She then used a very confusing example about encouraging scientific investment in the UK through the tax system. Stewart Jackson didn’t like that. He wasn’t ‘the brightest sparkler in the fireworks box’, he quipped, but even he could see that this example wasn’t relevant to a multinational coffee company trying to avoid tax in the UK.

Part of the problem for Homer was that she was having to defend a situation that to a certain extent will always exist so long as there are multinational companies and different tax regimes across the globe. She doesn’t set the taxes, she just collects them, and if you do want a major employer like Starbucks to remain in the UK, you are unlikely to turn up with the bailiffs at their headquarters and bash the door down. She argued that the political will was certainly there for HMRC to chase what it was owed, saying ‘we don’t get told don’t pursue, we get told pursue rigorously’.

As if to underline that the buck definitely doesn’t stop with HMRC, George Osborne and German Finance Minister Wolfgang Schäuble this afternoon called for the G20 to work together to tackle the profit-shifting activities of multinational companies. A joint statement released by the two ministers this afternoon said:

‘Britain and Germany want competitive corporate tax systems that attract global companies to our countries, but also want global companies to pay those taxes. That is best achieved through international action in the G20 and other relevant international fora to ensure strong standards.’

If nothing else, though, at least today’s select committee gave its members the opportunity to put on the record how very angry they are about tax avoidance. And next week, Starbucks, Amazon and Google will be giving evidence: if you thought Hodge was terrifying today, wait until you see her next Monday.

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Show comments
  • Iain Hill

    Well done, George! We have all recognised for a long time now that to shuffle an issue off into a European parking space is equivalent to “no action” for years to come. Your business chums can sleep soundly again.

  • Bob Dixon

    The problem is government debt & current spending. I am sure HMR&C chase all taxpayers when they do not follow the rules.Increasing tax just hinders the economy from growing.

  • Russell

    What a pity Hodge was a total disaster when she had her own party in government, This really is getting boring having this ‘journalist’ bigging up Labour MP after labour MP or writing critical pieces about the Conservatives or the coalition..

  • Torontory

    Oh and by the way, how much tax did Starbucks contribute to the UK authorities through employers’ national insurance, VAT, business rates, etc? How much indirect employment was generated and similar tax revenues paid by their suppliers. So in summary was was the overall benefit to the UK by Starbucks operating here?

    • Dimoto

      Well, apparently a lot less than competing chains who provide (marginally) better coffee at lower prices and manage to pay their taxes, but don’t have the “brand values” of the well-known ripoff merchants from Seattle.

  • Mirtha Tidville

    Hodge is clearly relishing her 15 minutes of fame (Warhol)…everything else she has touched has been a disaster so I`ve little doubt thats the way this will go

  • toco10

    There have been rumours that Red Ed Miliband derived Inheritance Tax benefits courtesy of tax advisers-all perfectly legal of course but if there is no substance in these rumours he should perhaps assure us in the strongest possible terms that he has not gained any financial advantage from such perfectly legal tax minimisation practices.Perhaps Margaret Hodge could add this to her list of questions.

  • Daniel Tekel Thomas

    The only reason this circus is taking place is the complexity of the current tax system. The economy and the people are crying out for a simplified tax system.
    The current system requires an army of bureaucrats at the HMRC to confiscate our hard earned money and another army at the DWP to give it back again by complex system of benefits and credits. It’s madness.
    A simplified system would not require armies of government bureaucrats to pry into the details of our private lives and businesses, which is why our control freak politicians refuse to do what is urgently required.

    • Daniel Maris

      I agree. A simplified system would focus on property and a progressive sales tax.

      • Fergus Pickering

        I’m sorry, Daniel. What is a progressive sales tax? Or does everybody know except me?

        • Daniel Tekel Thomas

          I have no idea what a progressive sales tax is either Fergus. I was thinking more along the lines of a flat percentage rate with no loopholes for fiddling.
          The more you earn the more you pay. Simple.

  • CJ

    I’m a little bit confused by the approach taken by the political titan’s on this committee and, for that matter in MPs in general, on the subject of legal tax avoidance.

    After all, tax law in the UK, unless I’m mistaken is made and enacted, exclusively by said political titan’s. In other words they are completely responsible for tax law. It would appear that the political titan’s / hypocritical idiots on this committee were in fact complaining about their own complete inability to legislate effectively. Some of these creatures have been creeping around for decades. What have they done to remedy the problem of large scale corporate tax avoidance ? That’s if, in private, they even think it’s a problem!

    What’s the point in grandstanding by haranguing some poor, over paid sap from HMRC, if all she’s doing is executing policy, based on the law?

  • In2minds

    When Lin Homer left Birmingham there was rejoicing, she’s a mess.

  • John_Page

    HMRC don’t set the rules, they can only work within them. Did the committee acknowledge that or were they just grandstanding?

    Tackling tax avoidance is a long drawn out process. Did the committee understand that?

    Or are they just more grandstanding MPs?

    • telemachus

      TOAP 2033
      Bored not blocked
      (like Nico who made me)

    • Dimoto

      I loved Hodge’s comment that the UK tax system is so complicated that it’s easy for “highly paid accountants and lawyers” to drive a coach and horses through it.
      She obviously doesn’t do irony.
      Take a bow the two arch tax complicators of our age, yes, Brown ‘n Balls …. again !

  • MikeBrighton

    It is quite legal for companies such as Starbucks to arrange their tax affairs in as efficient manner as possible. It is frankly up to the Gorvernment to arrange the tax code and deal with our international partners to ensure an equitable international tax arrangement.

    Grand-standing on the PAC changes nothing as tax avoidance is quite legal. Frankly I cannot take the ludicrous Margaret Hodge seriously. If only she had pursued paedophiles in Islington with the vigor she showed on the PAC this morning.

  • Silverghost

    The G20 can agree whatever they want, they are not likely to include the countries with the lowest tax. My last book from Amazon came from Luxembourg, apparently.
    Wouldn’t it be good if wasting public money was illegal as well?

    • Dimoto

      All of these companies are US citizens who pay their US taxes.
      Zero chance that the US will back the “Osborne-Schaeuble initiative”.

  • LordBlagger

    Hodge should concentrate a bit more on the government’s own accounts.

    eg. The off balance sheet fraud when it comes to government pensions.

    Some details here

  • alexsandr

    Tax avoidance is legal. Tax evasion is illegal. How HMRC can chase avoiders who are using quite legal means to reduce their tax bill is beyond me. Or perhaps you didnt know the difference.

    • michael

      Tax evasion is illegal..i.e. criminal, so the burden of proof lies with the CPS.
      Tax avoidance is legal… so those inspectors seeking bonuses can say just about anything, and if YOU cant indisputably PROVE to the contrary, you pay. Sooner or later most small businesses get skunked, finding themselves being advised by their bean counters to do a deal paying HMRC a goodly dollop of ‘go away’ blood money.

  • HooksLaw

    Indeed – this last bit shows why ypou need international co-operation.

    But being on the public accounts committee has to be the easiest job in parliament.

    Companies like Starbucks who are avoiding tax are in danger of putting themselves in a Ratner situation – selling their own company down the tubes. I mean, given a choice who would chose a coffee in Starbucks at the moment?
    Ultimately these clever schemes will come undone.

    • LordBlagger

      More likely they will go bust because all the cash is going to keeping the state afloat and no one has any money left for Starbucks after Hodge has got her cut.

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