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Margaret Hodge: Hammond’s threat to turn Britain into a tax haven after Brexit is “fake”

The government shows “naivety” to think that threatening to become “the tax haven of Europe” will result in a better exit deal with the EU, says the former chair of the public accounts committee.

The idea that a post-Brexit Britain could become a tax haven for the rest of Europe is “the latest fake bit of truth from the government”, according to the former chair of Parliament’s public accounts committee, Margaret Hodge.

The Labour MP for Barking and Dagenham, who scrutinised the tax affairs of corporations like Google, Starbucks and Goldman Sachs on behalf of the taxpayer between 2010 and 2015, says that the threat of cutting corporation tax as a “bargaining tool” will achieve nothing.

Speaking to the German newspaper Welt am Sonntag in January, Philip Hammond issued a warning to the other 27 countries in the EU, saying that the UK was prepared to do “whatever we have to” in order to avoid the “economic damage” of losing access to the European market. “I personally hope we will be able to remain in the mainstream of European economic and social thinking,” he said. “But if we are forced to be something different, then we will have to become something different.

“If we have no access to the European market. . . we could be forced to change our economic model and we will have to change our model to regain competitiveness.”

But Hodge says that Hammond and the Conservative government have shown a “combination of arrogance and naivety”.

“If I was negotiating for the EU, I wouldn’t want to give Britain an easy exit, as a deterrent to other countries – we’ll see what happens in the Netherlands.”

There are a number of arguments that disprove Hammond’s tax haven proposal, Hodge explains. The EU's instincts are far more radical on matters of tax transparency and responsibility than the British government's, for instance, and in some cases progress on these matters has been held back by the UK's membership of the bloc.

She points to the reintroduction of the proposal for the Common Consolidated Corporate Tax Base by the European Commission in 2016, which would require companies like Apple that operate in multiple territories to submit consolidated accounts (therefore revealing any strategic use of countries with more favourable tax arrangements). The idea was first floated in 2015, but stalled because of opposition from the UK and Ireland.

Then there is the potential domestic effect of Hammond’s proposed tax haven measures. “We’re not a small real economy like Ireland or Luxembourg – what they can raise by attracting financial services makes a big difference,” she says. “For us, we lose £2bn for every percentage point cut in corporation tax.”

On top of that, Hodge argues that the UK is “already quite tax haveny”, and that what attracts financial services companies to our economy at the moment is our access to the European market. “Companies want financial passporting,” she says.

Along with a cross-party group of 80 MPs, Hodge is currently promoting an amendment that would open up existing tax havens in the UK’s overseas territories to greater transparency.

“If I get that amendment through, I think that will be the most dramatic change in tackling secrecy and therefore impaction on tax avoidance and tax evasion that we will have achieved for decades,” she says. It has backing from high-profile Conservative MPs like Andrew Mitchell as well as a coalition from the Greens, SNP, Liberal Democrats and others, and will be submitted via the House of Lords.

Although it has been 18 months since she stood down as the chair of the public accounts committee, Hodge says that her work there challenging big corporations and “following the taxpayers’ pound” continues to resonate with voters. In her recent book, Called to Account, she writes that “The issues we investigated and the style of our committee hearings may have infuriated those who appeared before us, but they resonated with voters and taxpayers, who felt we were asking the questions they wanted us to ask.”

People are still stopping her on the street and asking her “are you Margaret Hodge?”, she says. “Of everything I’ve done in politics, [the committee] seems to have connected with people the most.”

Caroline Crampton is assistant editor of the New Statesman. She writes a weekly podcast column.

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Hopes of an anti-Brexit party are illusory, but Remainers have a new plan to stay in the EU

Stopping Brexit may prove an impossible task. Remainers are looking to the "Article 49 strategy": reapplying for EU membership. 

The Remain campaign lost in the country, but it won by a landslide in parliament. On 23 June 2016, more than two-thirds of MPs voted for EU membership. Ever since the referendum, the possibility that parliament could thwart withdrawal, or at least soften it, has loomed.

Theresa May called an early general election in the hope of securing a majority large enough to neutralise revanchist Remainers. When she was denied a mandate, many proclaimed that “hard Brexit” had been defeated. Yet two months after the Conservatives’ electoral humbling, it appears, as May once remarked, that “nothing has changed”. The government remains committed not merely to leaving the EU but to leaving the single market and the customs union. Even a promise to mimic the arrangements of the customs union during a transition period is consistent with May’s pre-election Lancaster House speech.

EU supporters once drew consolation from the disunity of their opponents. While Leavers have united around several defining aims, however, the Remainers are split. Those who campaigned reluctantly for EU membership, such as May and Jeremy Corbyn, have become de facto Brexiteers. Others are demanding a “soft Brexit” – defined as continued single market membership – or at least a soft transition.

Still more propose a second referendum, perhaps championed by a new centrist party (“the Democrats” is the name suggested by James Chapman, an energetic former aide to George Osborne and the Brexit Secretary, David Davis). Others predict that an economic cataclysm will force the government to rethink.

Faced with this increasingly bewildering menu of options, the average voter still chooses Brexit as their main course. Though Leave’s referendum victory was narrow (52-48), its support base has since widened. Polling has consistently shown that around two-thirds of voters believe that the UK has a duty to leave the EU, regardless of their original preference.

A majority of Remain supporters, as a recent London School of Economics study confirmed, favour greater controls over EU immigration. The opposition of a significant number of Labour and Tory MPs to “soft Brexit” largely rests on this.

Remainers usually retort – as the Chancellor, Philip Hammond, put it – “No one voted to become poorer.” Polls show that, as well as immigration control, voters want to retain the economic benefits of EU membership. The problem is not merely that some politicians wish to have their cake and eat it, but that most of the public does, too.

For Remainers, the imperative now is to avoid an economic catastrophe. This begins by preventing a “cliff-edge” Brexit, under which the UK crashes out on 29 March 2019 without a deal. Though the Leave vote did not trigger a swift recession, a reversion to World Trade Organisation trading terms almost certainly would. Although David Davis publicly maintains that a new EU trade deal could swiftly be agreed, he is said to have privately forecast a time span of five years (the 2016 EU-Canada agreement took seven). A transition period of three years – concluded in time for the 2022 general election – would leave the UK with two further years in the wilderness without a deal.

A coalition of Labour MPs who dislike free movement and those who dislike free markets has prevented the party endorsing “soft Brexit”. Yet the Remainers in the party, backed by 80 per cent of grass-roots members, are encouraged by a recent shift in the leadership’s position. Although Corbyn, a Bennite Eurosceptic, vowed that the UK would leave the single market, the shadow Brexit secretary, Keir Starmer, and the shadow chancellor, John McDonnell, have refused to rule out continued membership.

A group of Remainers from all parties met in the Labour MP Chuka Umunna’s office before recess, and they are hopeful that parliament will force the government to commit to a meaningful transition period, including single market membership. But they have no intention of dissolving tribal loyalties and uniting under one banner. A year after George Osborne first pitched the idea of a new party to Labour MPs, it has gained little traction. “All it would do is weaken Labour,” the former cabinet minister Andrew Adonis, a past Social Democratic Party member, told me. “The only way we can defeat hard Brexit is to have a strong Labour Party.”

In this febrile era, few Remainers dismiss the possibility of a second referendum. Yet most are wary of running ahead of public opinion. “It would simply be too risky,” a senior Labour MP told me, citing one definition of insanity: doing the same thing and expecting a different result.

Thoughtful Remainers, however, are discussing an alternative strategy. Rather than staging a premature referendum in 2018-19, they advocate waiting until the UK has concluded a trade deal with the EU. At this point, voters would be offered a choice between the new agreement and re-entry under Article 49 of the Lisbon Treaty. By the mid-2020s, Remainers calculate, the risks of Brexit will be clearer and the original referendum will be history. The proviso is that the EU would have to allow the UK re-entry on its existing membership terms, rather than the standard ones (ending its opt-outs from the euro and the border-free Schengen Area). Some MPs suggest agreeing a ten-year “grace period” in which Britain can achieve this deal – a formidable challenge, but not an impossible one.

First, though, the Remainers must secure a soft transition. If the UK rips itself from the EU’s institutions in 2019, there will be no life raft back to safe territory. The initial aim is one of damage limitation. But like the Leavers before them, the wise Remainers are playing a long game.

George Eaton is political editor of the New Statesman.

This article first appeared in the 17 August 2017 issue of the New Statesman, Trump goes nuclear