Margaret Hodge shrugs off “tax prat" line

Interview with the PAC chairman.

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.

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.”

The rest of this interview can be read on economia.

Margaret Hodge MP. Photograph: Getty Images

This is a news story from economia.

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George Osborne's mistakes are coming back to haunt him

George Osborne's next budget may be a zombie one, warns Chris Leslie.

Spending Reviews are supposed to set a strategic, stable course for at least a three year period. But just three months since the Chancellor claimed he no longer needed to cut as far or as fast this Parliament, his over-optimistic reliance on bullish forecasts looks misplaced.

There is a real risk that the Budget on March 16 will be a ‘zombie’ Budget, with the spectre of cuts everyone thought had been avoided rearing their ugly head again, unwelcome for both the public and for the Chancellor’s own ambitions.

In November George Osborne relied heavily on a surprise £27billion windfall from statistical reclassifications and forecasting optimism to bury expected police cuts and politically disastrous cuts to tax credits. We were assured these issues had been laid to rest.

But the Chancellor’s swagger may have been premature. Those higher income tax receipts he was banking on? It turns out wage growth may not be so buoyant, according to last week’s Bank of England Inflation Report. The Institute for Fiscal Studies suggest the outlook for earnings growth will be revised down taking £5billion from revenues.

Improved capital gains tax receipts? Falling equity markets and sluggish housing sales may depress CGT and stamp duties. And the oil price shock could hit revenues from North Sea production.

Back in November, the OBR revised up revenues by an astonishing £50billion+ over this Parliament. This now looks a little over-optimistic.

But never let it be said that George Osborne misses an opportunity to scramble out of political danger. He immediately cashed in those higher projected receipts, but in doing so he’s landed himself with very little wriggle room for the forthcoming Budget.

Borrowing is just not falling as fast as forecast. The £78billion deficit should have been cut by £20billion by now but it’s down by just £11billion. So what? Well this is a Chancellor who has given a cast iron guarantee to deliver a surplus by 2019-20. So he cannot afford to turn a blind eye.

All this points towards a Chancellor forced to revisit cuts he thought he wouldn’t need to make. A zombie Budget where unpopular reductions to public services are still very much alive, even though they were supposed to be history. More aggressive cuts, stealthy tax rises, pension changes designed to benefit the Treasury more than the public – all of these are on the cards. 

Is this the Chancellor’s misfortune or was he chancing his luck? As the IFS pointed out at the time, there was only really a 50/50 chance these revenue windfalls were built on solid ground. With growth and productivity still lagging, gloomier market expectations, exports sluggish and both construction and manufacturing barely contributing to additional expansion, it looks as though the Chancellor was just too optimistic, or perhaps too desperate for a short-term political solution. It wouldn’t be the first time that George Osborne has prioritised his own political interests.

There’s no short cut here. Productivity-enhancing public services and infrastructure could and should have been front and centre in that Spending Review. Rebalancing the economy should also have been a feature of new policy in that Autumn Statement, but instead the Chancellor banked on forecast revisions and growth too reliant on the service sector alone. Infrastructure decisions are delayed for short-term politicking. Uncertainty about our EU membership holds back business investment. And while we ought to have a consensus about eradicating the deficit, the excessive rigidity of the Chancellor’s fiscal charter bears down on much-needed capital investment.

So for those who thought that extreme cuts to services, a harsh approach to in-work benefits or punitive tax rises might be a thing of the past, beware the Chancellor whose hubris may force him to revive them after all. 

Chris Leslie is chair of Labour's backbench Treasury committee.