It's quite hard to think of a calm and appropriate response to an editorial comment in Taxation magazine this week in which editor Mike Truman awarded Margaret Hodge MP the title of Tax Prat of the Year.
One, I think, quite fair response is to hope Mike (who is a Methodist lay preacher on the side, and who I should note I have known for many years) has some feelings of remorse for being quite so rude.
I would also rather hope that he now feels he's been faintly ridiculous: awarding anything for 2013 when January is just out does show a remarkable lack of judgement.
And that, I think, to continue the calm approach is what the whole tenor of Mike's piece. Two themes emerge from it. First there is total distaste for anything Private Eye and the Guardian may say: deep political bias is at the core of this piece. Second there is naive dismissal of the argument that there could be any problem with large firms seconding staff to HM Treasury and H M Revenue & Customs to work on tax policy, with those so seconded then returning to their firms to sell the resulting legislation as a tax planning opportunity (as Hodge evidenced happening). Truman said:
[T]he part of the session which really incensed me was when she attacked the work done on technical committees and working groups by tax professionals from private practice, and in particular the work done by staff who are seconded from their firms to HMRC and HM Treasury (HMT).
Well, with the greatest of respect to Mike Truman, he's wrong. Not just wrong, but very wrong.
The reality (and I know it from experience) is that working with the Treasury means no pay if serving on a committee and, as Truman acknowledges, low pay if seconded. It costs, a lot, to do this work. And the reality is that except for very large business and the biggest firms of accountants that cost is hard to bear. I am thankfully supported by grant funding from third parties when I do it, but that is exceptional. So the truth is that the arrangements in place mean there is an inherent and complete bias that has nothiong to do with the competence, experience or the relevance of those seconded and has everything to do with economic power. That is what Hodge is objecting to: she's saying inherent privileged access for an elite (for that is what big business and the Big 4 are) biases the advice given to HMT and the result is inappropriate tax policy that can harm the UK economy.
I remember that being very clearly evidenced when work needed to be done on small business accounting and tax returns and the Big 4 provided the expertise. That was absurd. They simply do not see this issue the way smaller practitioners do, who could have added considerably more value. But they weren't asked, and nor was their opinion requested on a paid for basis. As a result they could not have afforded to help. The result was some fairly absurd suggestions, far removed from economic reality, as I recall. I don't know that was the Big 4's fault, but it did not reflect the common sense the best small practitioners can provide, or the holistic view they have to offer.
Truman ignores this. I suspect he has alienated a great many of his readers in the process. Yes, Margaret Hodge is robust. And I suspect for many in the Big 4 and some elsewhere this is shocking: they're not used to people standing up to them. Elites aren't. But she was seeking to speak truth to power and has done a valuable service to this nation in doing so. Mike Truman on the other hand has done a considerable disservice to his profession, his publication and his own reputation by being closed minded as to the issue and resorting to name calling instead.
Although given that the process of change is always one where the demand is first ignored, then violently rejected and then accepted as self-evidently right at least Truman has done us the favour of telling us we're now in phase 2. That's the best I can say for his diatribe.
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“Robust” is very much a euphemism for Hodge’s behaviour in that committee hearing, and in others too.
She showed a complete lack of interest in what the “witnesses” had to say: the whole thing was much more a forum for her to say “I don’t like you” than any attempt to hear their side of the story. It seemed to be to be a complete waste of everyone’s time, except Hodge and Mitchell who were able to grandstand a bit.
Compare this to the House of Lords FBSC hearings, where questions were put politely and the answers listened to. One gets a sense from later hearings that the committee weren’t taking all the comments at face value, but at least they seem to be considering them rather than simply saying “I disagree”, which was Hodge’s refrain. And a totally inappropriate one, I’d add: she’s not there to discuss opinions, she’s supposed to be collecting facts, and dismissing evidence you don’t like is not good policy. Cf Ben Goldman’s Bad Science: policy should be based on evidence, not opinion.
Listen to File on 4 (29 Jan) and you’ll hear an expert from the IFS – not Private Eye or TJN – point out that the patent box legislation the KPMG is full off loopholes that will enable coys save tax without making any invention or contribution to the economy in the way the govt claims. For example the IFS lady said that the qualifying patent does not have to be new or a major component to qualify for tax relief. That’s what we got from KPMG’s secondees who then go back to market qualifying schemes. If this happened elsewhere (another country) we will shout “corruption”!
Quite so
That’s not a loophole, that’s always been the advertised intention of the legislation.
It’s far too broad, in my opinion, but it’s not been brought in underhandedly. Certainly I’ve been commenting on how generous the regime is for as long as I can remember being aware of it.
Interesting that such a biased, narrowminded and ill thought through piece should come from someone who you say has a Methodist background, Richard. If I recall my history correctly (and I lived for some time in South Wales where Methodism was an important force in the community), didn’t Methodism in large part evolve out of disatisfaction with the ‘high’ (establishment) church? And weren’t Methodists persecuted as a result of their attempts to stand up against the establishment and argue that christianty was more than the worship of symbols and icons and being at the beck and call of the rich and powerful? That’s a very potted history, of course. But my point is that it appears Truman has forgotten the roots of what ought to inform his beliefs and is, further, unable or unwilling to draw the obvious parallels between the then and now.
Of course, he’s not the only religious person able to divorce his Christian principles from his daily actions. He is, after all, only following in the footstep of Lord Stephen Green, who in his previous guise as the head of a major bank must be seen as directly implicated in the impoverishment of many millions of people in the UK and elsewhere through the corrupt practices of his organisation. That has not, however, stood in the way of his advancement to high office, so there’s a clear pathway for Truman to follow there.
One final point. I assume Mike Truman would claim to support democracy. He might like to remember, then, that parliamentary committees, of the likes of the PAC, etc, are one of the very few aspects of the democratic system in this country which remain largely uncorrupted by corporate power, funding and lobbying. Unfortunately our system of government means that anything they recommend can be ignored by the PM and Cabinet, except of course, where they have a chairperson and/or members (as with Tom Watson on the Culture Committee)who are proactive in their work and get issues into the public domain that would seldom otherwise see the light of day. In that case publicity can force government to pay attention.
We are in this country a long way day the road to a democracy that is nothing more than cover for government by big business – a latter day form of feudalism, if you will. Consequently anyone who claims to support truly representative democracy needs to recognise the value of the likes of Hodge and other Parliamentary committees, and others who try to uphold those democratic values. But in this case, that proabaly too much to ask from a Methodist who forgotten the roots of his own church.
First, thank you Richard for saying I am a Methodist lay preacher, because after the vote in Synod that sounds preferable to the truth, which is that I am a Licensed Lay Minister (Reader) in the Church of England…
I think you make a very valid point about it only being the bigger firms who can afford to second people to HMT/HMRC, though I would want to counter with the work that the institutes do, which does involve people from smaller firms. But if Margaret Hodge had made the point you do I would not have criticised her as forcefully as I did, and probably not at all.
However, that was not her point. What she accused the secondees (two of which she singled out by name) of doing was going into the Treasury only in order to learn the loopholes in the legislation so that they could come back to their firms and advise their clients how to get round it.
As I hope you could agree, that is a travesty of the true position; and an insult such as that to the professionals who help with the legislation in this way deserved, to my mind, an equally strong riposte. Not everyone agrees with the tone I took, although at the moment I’d say favourable comments that I’ve had are far and away in the majority.
My comment about the church of which I thought you were a member was made in good faith. The CoE is much easier to understand though.
As for your defence – I do not agree with it. I have seen Big 4 second eyes in action. I think they are an exercise in deliberate regulatory capture and Margaret Hodge was entirely right to say it.
Feel free to think you are right though: your comments pandered to your audience, and your biggest subs will come from those with vested interest in agreeing with you, as you have with them. That does not prove your case, merely the extent of institutionalised bias.
Thank heavens for Margaret Hodge, I say, without much Quaker irony
First, apologies for the remarks about methodism in my previous comment which clearly don’t apply to you.
Second however, I’d like to add something on the issue of the individuals that Hodge indentified, and you feel unjustly. If I remember the report of the committee session correctly, wasn’t one of the main reasons for singling out one individual that subsequent to their advisory work (secondment) their employer then advertised that work on their web site in a clear attempt to ‘market’ their involvement.
Given the nature of the services that organisation sells to commercial clients might it not be reasonable to assume that what a client might therefore assume they’d get if they then pay for the services of that organisation/individual is insight into how the policy has been formulated, how it’s intended to be implmented and what its strength and weaknesses might be.
And might it not also be the case that when that organisation and person entered into the arrangement to provide advise on said policy they knew that they would subsequently use that involvement as an opportunity to market their services to other organisations?
And might it not also, therefore, be the case that the expertise/advise offered by that individual and what they sought to contribute and gain from that exchange was also conditioned and shaped accordingly?
These are just hypothetical questions, of course. Ultimately I have no objection to anyone being seconded to advise government on policy as long as that’s done in a transparent and open manner, with a suitable declaration of potential conflict of interest, and in a way that benefits policy making in a manner that’s equitable and fair to all stakeholders. And in that I take stakeholders to include the citizens of this country (as exercised through their representatives in Parliament, of which Hodge is one).
I’m sure there are many people who are seconded to government to advise on policy who do an excellent job and whose commitment and integrity cannot be questioned. The problem is that when one studies many policies that come out of government nowadays they are clearly skewed to the interests of certain parties, and if one traces the formulation of policies back to their roots it’s often not very difficult to see why that might be. That suggests that the policy process has become more and more narrow and corrupted over time (evidence based policy making now being a thing of dreams) and thus, to me anyway, provides ample justification for the robust activities of Parliamentary committees such as Hodge chairs. For one thing is sure, no government – and not this one in particular – has shown much interest in addressing the power imbalances in the democratic system of the UK.
Surely advertising the fact that the partner was involved in the design of the regime is being “open and transparent”?
I’m not sure what you would expect KPMG to do. Should they second someone over and then bar them from working in that area in future? Quite apart from this being a bit of an odd thing to do – assuming they send someone who has experience, all they’d be doing is destroying an asset – I’d expect there to be accusations that they are in fact working in that area but KPMG are concealing the fact. If people are going to accuse KPMG of something, then they might as well actually do it, and say they’re doing it.
My feeling is that if you want to use a consultant but you think they might have ulterior motives, you should double-check their work with some independent scrutiny. Maybe release the draft legislation for a few months of open consultation, as well as running it past HMRC, Treasury and Parliament? Oh, wait… 😉
It wasn’t just Margaret Hodge that pointed out the fact that the KPMG secondees were marketing themselves in the patent box tax avoidance schemes as “former policy advisers” on the legislation. In fact it was BBC Radio 4’s File on 4 that uncovered it and broadcast same on 29 Jan 2013. Mike Truman should be ashamed of himself. He and most of his readers live in a parallel universe. He should send that piece to a newspaper that accepts readers’ comments to see what the rest of the county make of him and his views.
I’d go further – Hodge was accusing the secondees of deliberately putting loopholes in the legislations for future exploitation. Not just of finding out what the loopholes are, but of creating them.
The evidence that the Big 4 have biased tax legislation in their favour and that of their clients is overwhelming
Just look at what has happened
Look at what? No-one’s claimed anything under the Patent Box yet 🙂
Is legislation not all published, so anyone can use it? I shall be having words with my Tolleys rep, if not. I know I used to get Yellow Tax Handbooks with a KPMG logo on, but I thought that it was only a bit of branding on the cover: I didn’t realise the insides were changed too.
If you’re suggesting that legislation favours big business, and therefore the Big 4 benefit indirectly, then surely that’s a fault in the overall legislative process – why are politicians allowing that agenda to be unduly pushed? But it’s a much wider political issue and not one I feel I can comment on – I deal with the SME end, mostly.
Call it capture
Call it the power of money
Note it in the case of people like Tony Blair
And many others
“The evidence that the Big 4 have biased tax legislation in their favour and that of their clients is overwhelming”
Can you please point me to any of this evidence. I’m genuinely curious – if you tell me where it is, then I’ll go and read it.
Many thanks
No tax on foreign dividends
Territorial tax
the patent box
The offshore treasury function
Do you think these came from nowhere?
Richard – i agree with the majority of your wisdom but i am with Mike on this one, although maybe not his tone. I actually think Margaret Hodge is undermining your whole campaign, which is a crying shame! There was some big question to ask the Big 4 and sha asked none. It didnt even make the news because there was nothing of note to report and that is her fault! Her approach is child like and it seems she is only interest in hearing her own voice…she would be more at home on Loose Women! She had decided what she was going to say before she even started the meeting and nothing not even the truth…was going stop her. She should learn some of your analytical skills and proven ability to surpress facts! As a layperson i cannot see any difference between Stemcor and Starbucks and as such she is a hypocrite and therfore is unworthy to serve on the PAC…maybe you should replace her?
What an odd comment
First, how could I be on the PAC when I am not an MP?
Second, how can Hodge e responsible for the affairs of a company of which she is not a director and which has, I understand, received an apology from the Telegraph on this issue?
Sticking to what is relevant helps I think
Would it be fair to say, while not a director she certainly benefits from the dubious tax policies of the firm?
Who knows?
Some suggest I benefit from the fact one of my funders apparently invests in Barclays?
Maybe something else I am linked to does as well without me knowing
What are you demanding? That people with ethics withdraw from the real world
We won’t. We don’t. We change it
Come on Richard. Our side should be much more appropriate than to raise the “Who knows?” defense. Would we sit idly by if Amazon, Google, et al just shrugged their shoulders and claimed the same?
We are not discussing some eighth cousin twice removed situation. This is one individual, claiming to be fighting against tax avoidance, yet has a direct and personal relationship with a firm which in effect pays no tax.
Is it ok for Stemcor to have the same practices as Amazon, Google, et al?
Who knows??
From the Tax Journal in December:
An item posted on the Telegraph website last night said: ‘Margaret Hodge MP — Contrary to our report “Hodge faces challenge over family firm’s taxes” (Nov 20), Stemcor, in which Ms Hodge has a small shareholding, has not abused transfer pricing to avoid tax. We accept that there is no inconsistency or hypocrisy in Ms Hodge criticising other companies for tax avoidance and apologise to her for any contrary impression.’
Next?
Ah well, the Telegraph said it so it must be true.
The next time Amazan, Google, et al release a press statement claiming no wrong, I expect this site to accept it at face-value and not criticise.
I thought this site was about social justice not pal covering.
I don’t blame people who have no power to change things
That’s not pal covering
I think I call it common sense, or justice
I personally see no reason to believe that Stemcor has done anything obectionable.
What I find slightly hypocritical is that Hodge has a perfect example of how a company could legitimately have high turnover and low tax, and yet lambasts other companies on the basis that it is impossible to be in that situation legitimately.
To the extent that she uses other bases to challenge them, then fine. Except where it comes down to “following the rules on permanent establishment”, or “paying at arm’s-length”, of course 🙂
My impression has been that Hodge follows the media, who start off with “high turnover, low tax is wrong”, scrabble around to find reasons why the tax is low, and then label them as “sophisticated accounting structures”: which are often neither sphisticated nor accounting concepts, like capital allowances.
That’s just nonsense – stop wasting time posting it, as it is untrue of the companies scrutinised
I’m totally with Pellinor, and fail to see Richard why you believe that’s nonsense? It’s laughable the ignorance that Hodge and her ilk, and the media, have displayed during this whole process, and whilst deep down I’m with them on the philosophy that everyone (companies and individuals) should pay their fair share wherever they operate, I despair at the way she’s going about it. Please, no more comparisons between turnover and tax paid!
Oh turnover and tax paid is a silly comparison I agree in isolation – and I try to stop it whenever I see it
Turnover tax and profit being aligned – that’s entirely reasonable
But only pedants will see that issue and not the real one
Note what the OECD is saying today – blogs soon
Two can play at the awards game!
I was thinking of suggesting creating the Reg Jeune* award (for egregious statement of the year made by a Methodist). But as Mike is a member of the CofE – let’s put in a CofE equivalent and call it the Rev Lord Stephen Green award!
I’m sure I can find a local artist who would design a trophy modelled on the backside of a (Jersey) cow…
*after the Methodist lay preacher who did most to push Jersey down the tax haven road.
Amused
Totally agree Richard. However, I suspect the capture is worse than you or Ivan suspect. Most Big 4 tax partners are either religious or not. Some members of the freemasons or the Bilderberg Group are also either religous or not. It follows that all Big 4 tax partners are freemasons or members of the Bilderberg Group. So are most of the neoliberal political elite. That means total capture of the system by neoliberals. That’s a fact. Some may even be methodists.
I’m not sure you are adding to debate
Gary’s comments are pure sophistry!
@Arthur: I find that risible. My conclusions are correct (as Mary agrees) and, like Richard, I will not be defeated by logic alone when there is clearly a neoliberal agenda at work here.
Gary: can you produce a Venn diagram to support your argument. I don’t quite follow your analysis although I am sure your conclusions are robust.
I have attempted the diagram Mary and i think i have got it spot on…it leaves no room for either logic or facts and therefore i believe provides a excellent platform to quash Richard’s neoliberal critics! Wish i could attach!
You can send to me
Richard, what did you think about the revelation in the PAC that there were 9,000 Big 4 accountants spending all their time on tax avoidance (no compliance is apparently done as no ine would pay the fees) and only a 100 tax inspectors to defend the line. Austin Mitchell’s question winkled this out and personally I’m surprised not more has been made of it.
Have you checked the text?
Are you sure that was what was said?
Yes, that’s what was said. The panel looked bemused but weren’t allowed to answer.
That was the implication of what Hodge and Mitchell were saying, but it was completely unsupported.
I’m not sure what Hodge thinks I was doing when I worked at KPMG, but it was badged as Tax Compliance and involved a lot of submission of tax returns.
Hodge suggesting that tax compliance requires no brain or effort and can always be done by any old accountant did make me choke a bit!
If there was not a Margaret Hodge, one would have to invent her in the current system. From my contact with the making of tax policy, whilst Big 4 influence does pervade, as it does in other areas, what has always struck me is the amateurish
way it is conducted. The Treasury lords it over tax ignorant MPs,and over a completely under resourced and ineffectual HMRC. That coupled with the longest and most over complicated Tax Code in the world combines in a system that can’t help but pander to vested interest. For example I recently asked a simple question re international VAT of HMRC and was directed to reams of publications which I will have to read at my client’s expense. Anyone dreaming up the system we have now, would be committed to the mad house!