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Coffee House

Headmistress Hodge grills HMRC on tax avoidance

5 November 2012

6:17 PM

5 November 2012

6:17 PM

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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