Margaret Hodge: Unrepentant

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The chairman of the Public Accounts Committee stands her ground on tax justice

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It’s been an interesting year for tax, and in particular the debate about where the line is drawn between legitimate tax planning and aggressive avoidance. The focus on whether everyone is contributing their fair share is a consequence of austerity and is being played out all around the world, where every pound, dollar and euro of income is more valuable than ever.

In the UK, the Public Accounts Committee (PAC), the body responsible for shining a light into the murkier corners of government finance and making sure taxpayers get value for money, has been at the heart of this debate. The current chairman of the committee is Lady Margaret Hodge. Lady Hodge (the title comes from her second husband) is proud of the PAC’s work on tax, a project it kicked off after a whistleblower reported a so-called sweetheart deal between Goldman Sachs and HMRC. In getting the committee to focus on the issue, Hodge has turned tax into something of a personal crusade.

The reason tax has become a big issue is because we’re living in hard times and everyone is feeling the pinch

In the process she rounded on tax advisors, including accountants and lawyers, who devise tax-minimising schemes. The PAC hauled the top tax partners at the Big Four in for a challenging session. In the process she has earned the ire of parts of the profession. Taxation dubbed her its “Tax Prat of the Year”, in a cover story that challenged almost every aspect of the PAC’s report.

Sitting in her Westminster office, Hodge shrugs off the “tax prat” line and claims she doesn’t have a view about the accountancy profession as a whole. “There are people who do a good, honest job. But there is a divide. There are others, in accountancy and the legal profession, who take a different view to mine about the role of tax in society.”

Anyone who has followed the work of the PAC, or indeed who has followed Hodge’s career, won’t be surprised to hear her mount a passionate defence of the positive redistributive role of tax.

“There is a civic duty on all of us to contribute according to our means to the common good,” she says. “In very practical ways all your readers want a public transport system that works and want the realm defended and so on. Even if you can manage on your own and don’t need the support of the state, there are all sorts of things you want from the state and there is a moral imperative to pay a fair contribution to society.

"I know there are people who don’t think that way, I just disagree with them.”

Hodge admits the PAC stumbled onto tax avoidance as an area for investigation, but she is clear why it has become such a defining issue.

“The reason it’s become a big issue is because we’re living in hard times and everyone is feeling the pinch. People want to know everyone is paying a fair share. And it is about fairness. There are those who see tax as just a legal obligation, but I don’t agree. There are legal obligations, but they arise out of a civic duty.”

Hodge claims the legalities of tax are not as clear-cut as some suggest. “The law is not black and white,” she says, with the sigh of someone repeating a familiar theme. “I keep hearing it is ridiculous to talk about tax as a moral issue and that it is a simple legal issue. But if it was that simple, you wouldn’t have a bunch of lawyers and accountants making a ruddy fortune out of it, would you? It is down to how they interpret the law.

"It isn’t a simple, black and white issue. There is a spectrum from efficient tax management through to avoidance and evasion. But there are blurred lines between them. It is not a simple matter of ‘this is legal therefore one should do it’.”

Frank Haskew, head of ICAEW’s Tax Faculty, is less convinced of this approach. Like many in the profession he is uncomfortable talking about tax in terms of morality. “Tax is levied according to the law set down by Parliament, it comes from the law.” He adds that while the PAC debate has “generated a lot of heat and polarised people’s views”, it hasn’t been very helpful. He also questions whether the PAC’s report was a missed opportunity. “The point of the PAC is to look at how government money is spent and whether we are getting value for money. It has done some good work looking at HMRC service standards and promoters, but it struggled when it started to look into international tax policy,” he says.

For all the bravura of her PAC performances, itself a subject of criticism, Hodge takes a simple approach to what needs to be done. “There is a common-sense approach you can take. If you get involved in some of these bizarre, circular schemes, not clear tax planning but obviously aggressive avoidance, and if your tax bill is much less than it should be relative to your wealth or earnings, then that is not right.”

Sadly for [my detractors] I am a pretty tough old cookie and I am not going to be put off by slurs

One thing most experts agree on is that the UK tax system is too complex. Haskew admits it doesn’t help that the UK has the longest tax code in the world. While Hodge “despairs” that Labour didn’t do anything about it when they were in power. “Our government didn’t tackle it and the current government is just adding to the complexity. Nobody is taking simplification seriously. You can see that by the fact there are six people at the OTS. It’s ridiculous. I take the point its politicians’ fault for making the system complex, but I wish someone had the guts to deal with it.”

Hodge’s PAC pronouncements are often couched in emotive language. She called accountants “poachers turned gamekeepers”, referred to lawyers and accountants as “prostitutes” and told the Big Four partners the money they saved clients could have paid for schools and hospitals. She says it’s the language ordinary people use. And it is to these people she turns when it comes to the question of greater fairness in the tax system.

“It is very difficult for the ordinary punter who pays his PAYE, who can’t even think about ways of avoiding tax, to understand how the wealthy or large corporations manage their affairs not to pay their fair share. Just to put our toe in the water, I’d like to see us tackle the FTSE 100. I have always said let’s see why we can’t have more transparency in the way in which they negotiate their tax agreements with HMRC in the same way that we have transparency in their accounts as a public company.”

The other thing Hodge says she’d like to see is a policy of naming and shaming avoiders as well as evaders. And that includes some of their advisers, including accountants. But she reserves considerable ire for the legal advisors. “I have concerns about the lawyers. When we had the hearing with the boutique companies, it was clear someone was designing these complex tax avoidance schemes and they were getting QCs to sign them off, which bought them time to market, sell and make money out of them. Tackling that is very difficult. If lawyers are willing to prostitute themselves to create a vehicle that doesn’t meet the purpose of the law as Parliament intended, it’s tough.”

Her argument is that more transparency would lead to more consistency, which in turn would lead to greater fairness.  

A matter of fairness

This mantra of fairness runs deep through her personal history. Born Margaret Eve Oppenheimer into a family of Austro-German merchants based in Egypt, she arrived in England in 1948 when her parents moved here. Her father started a new business, Stemcor, itself the recent focus for critics of her family’s tax affairs.

I found the poacher turned gamekeeper turned poacher really worrying.

Hodge’s career has rarely been without controversy and there’s more than a ring of truth when she claims to be a “tough old cookie” not easily dissuaded from a course of action. She suggests the claims about her family business avoiding corporation tax are “just plain wrong” and suggests the story was put around by people who got cross with her work on avoidance and wanted to stop it. “Sadly for them I am a pretty tough old cookie and I am not going to be put off by slurs.” She points to the fact that the Daily Telegraph had to run an apology as proof that there is little to the story.

“I am not involved in the business and my shareholding is diluted. I can say it pays a fair share of tax in the jurisdictions in which it operates, it is an international trading company but it doesn’t operate transfer pricing to minimise tax and I’d be shocked if they did. The one year it found it hadn’t paid tax was because it didn’t make money.”

Although she’d like a simpler tax system, Hodge says politics militates against it. “Governments use tax to steer economic strategy. But the schemes governments of all persuasions introduce to impact one area, whether films, charities or the patent box, become opportunities for people to exploit them for a purpose Parliament did not intend.”

At which point Hodge dives into one of her trademark rants on the use by HMRC and the Treasury of secondees from the Big Four. One of the most dramatic parts of the PAC sessions was when she brandished a KPMG brochure claiming that it promoted the knowledge of one of its partners on the patent box legislation, who had been at HMRC helping to formulate the legislation. It still gets Hodge apoplectic.

“I found the poacher turned gamekeeper turned poacher really worrying. Of course you want government to take advice from experts. But you don’t want what you had in this case (if I got it wrong I will apologise), which was that KPMG went in and helped write the legislation that became the patent box relief. Then used that expertise to develop a product for tax avoidance purposes. That can’t be right? Can it? Can it?” she fumes.

In-house expertise

Her solution is out of step with the orthodoxy of a smaller state. She says HMRC needs to build its own expertise, thus reducing dependence on secondments. “The answer is to build greater in-house expertise. It’s difficult at a time when we’re cutting expenditure. But the turnover of staff at the Treasury is shocking. People get well trained and are then poached by the private sector.”

If there is any comfort to be had, it’s that this is not unique to HMRC and the Big Four. There are equally cosy relationships, says Hodge, across most departments. “You have to decide which side of the fence you are on. You can’t be on both sides. If we had strong in-house expertise we would still talk and listen to the Big Four. You have to listen to stakeholders and they are part of that community.”

It’s clear from conversation that Hodge sees the issue of a fairer tax system as part of a wider community spirit. A sense of fairness and a clear moral tone is not something the public associates with MPs any more, following the expenses scandal. Hodge herself wasn’t caught up in that, but she admits the avoidance debate taps into a wider unease across society.

“Transparency is demanding new standards of behaviour among parts of society that previously wouldn’t have been questioned. You see that with MPs, teachers, doctors and journalists. Companies talk about corporate social responsibility (CSR), often in terms of their supply chain or contributions to the communities in which they operate. Why don’t they talk about CSR in relation to tax? Paying a fair amount of tax should be another CSR issue, a matter of good reputation and social standing.”

With her own standing across the tax profession at a low point, it’s unlikely Hodge will take her own advice and step back from continuing to challenge them.

 

CAREER HIGHLIGHTS

1973 Elected to Islington Council

1982 Leader, Islington Council

1992 Consultant, Price Waterhouse

1994 Elected MP for Barking

1998 Various ministerial posts

2010 Chairman, Public Accounts Committee

Richard Cree

 

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  • Comment by Graeme C

    I am puzzled that the leadership of my Institute does not state publically just how wrong Hodge is on just about every occasion she opines about tax. Her confusion of revenue and taxable profit is, I suggest, an example of intellectual dishonesty rather than stupidity. That she continues to express libellous opinions about companies' tax affairs is inexcusable.

  • Comment by Peter Cook

    Am I the only one who finds Margaret Hodge's 'stance' absolutely unbelieveable. To me it's like the chairman of Waddingtons (makers of the Monopoly board game) complaining that the rules of Monopoly are unfair. She is a part of the Parliament which makes the tax laws. If the laws don't work why do they not change them so they do, or is she actually telling us that the government she is a part of is not competent to do that?

  • Comment by Ken Jones

    Patent Box is excellent news for the UK. Perhaps this new tax will encourage execs to look harder at patenting, after all if they license a third party at 10% it looks like the third party will only pay 10% on any profits relating to the patented product, so in essence the licence will cost the licensee nothing.This tax will also apply to foreign patents where the capital flows to the UK. Patenting is international and today both the searching and filing can all be done online.The high fees attorneys charge may be worth paying if you are a corporate and have to employ somebody to do the patenting anyway, but if you are an individual, substantial attorney fees running into thousands, create a very significant barrier. A complete UK patent actually only costs £230 in total, the UK IPO is amazing and fantastically helpful and it is now entirely possible to patent internationally yourself from your laptop, if you know how to go about it. The difficult bit is having something to patent and

  • Comment by D James

    It's good to see a public figure cutting through the legal and technical obfuscation of some big companies' tax matters and asking whether what they are doing appears at all reasonable. Of course not everyone will agree with Margaret Hodge but it's a necessary debate and she has made a rather dry subject interesting to the public with her common sense approach.

  • Comment by Guest at ICAEW

    What people forget is that she led Islington Council at a time when child abuse in the council's children's homes was rampant (for which New Labour made up the first ever Minister for Children - its most shameful appointment) and she was one of the least effective Miniisters of State for Employment. I think she is the first former minister to become Chairman of the Public Accounts Committee and the experiment has been a failure as she is, at heart, a purely party politician and not someone who wants to achieve value for money in the public sector. As a retired civil servant and qualified accountant I think her approach at the PAC has largely been to antagonise rather than to seek common ground with tax practitioners and others seeking to obtain value for money. 1/10 - must try much harder. PS The opaque nature of Stemcor's accounts has righly provoked criticism, to which she has responded with law suits. Shades of Robert Maxwell perhaps ???