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.

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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 head of podcasts at the New Statesman. She writes a newsletter about podcasts.