The HSBC scandal: if HMRC is underfunded tax cheats will continue to win

Lots of information doing the rounds has been known about for years. The real problem is that HMRC have had their budget slashed, and they have adopted an extremely soft stance toward tax cheats.

Bob Mountain
18 February 2015

Flickr/gyverchangphotos. Some rights reserved.

Judging by the froth from last week’s hearings, debates and news reports about HSBC, Lord Green, and HM Revenue and Customs (HMRC), you might think that lots of new facts had emerged. But much of it was old news. Private Eye has been reporting HSBC's delinquency under Stephen Green for years. And the U.K.'s agreement with Switzerland, signed in 2011 by Treasury minister David Gauke, and by Dave Hartnett, then HMRC permanent secretary, was denounced as a sell-out at the time by the Tax Justice Network. It has troubled the Public Accounts Committee (PAC) under Margaret Hodge, from the outset, (along with Hartnett's involvement in the Tax affairs of Vodaphone and Goldman Sachs).

The fresh news was the confirmation of the Swiss bank’s active promotion of tax “mitigation” strategies for depositors; and confirmation of HMRC’s light-touch response to the whole business. So wider media attention has finally been drawn to the frailty of HMRC’s compliance capacity following the department's emasculation in recent decades; and also to the capture of tax policy-making by big money and its servants. Lin Homer, head of HMRC since 2012, told the PAC last week that her department is doing "a good and effective job" in policing tax avoidance and evasion. She defended its prosecution policy on the basis of “cost-effectiveness”, the higher burden of proof in criminal trials, and the resource-intensive nature of prosecutions. However, as pointed out by members of the PAC, and now by former Director of Public Prosecutions, Kier Starmer, a policy of hardly ever prosecuting people hiding money abroad is no deterrent at all.

In practice, HMRC isn't now able to operate a credible prosecution policy (or operate a half-decent telephone helpline service for ordinary taxpayers and claimants) because its resources have been virtually halved in a decade. And while big money, whether wealthy individuals or companies, consider themselves entitled to minimise their exposure to tax in any way that might conceivably be thought legal, they and their advisers bear no penal risks, unlike their counterparts elsewhere, as explained by Prem Sikka.

Ministers like to claim that they are leading the developed world in seeking international tax harmonisation. But as Richard Brooks described in his recent book, The Great Tax Robbery, the truth is very different.

The Inland Revenue and Customs and Excise departments, formerly two bodies with distinct identities, separate from the Treasury, are now merged and housed with the Chancellor and his ministers. On HMRC's reformed Board it would be good to see some freethinkers, like Sikka, or Richard Murphy of Tax Research UK, other members of the Green New Deal, or John Christensen of the Tax Justice Network.

Instead, we find former tax planners Ian Barlow (formerly KPMG), John Whiting (formerly PWC), and Edward Troup (formerly Simmons and Simmons). And moving lately in the opposite direction was Dave Hartnett, now working for Deloittes, and HSBC.

In practice the vast majority of undeclared Swiss account holders known to HMRC are apparently being offered a cut-price, “Liechtenstein” 10% penalty deal under which they do their own calculations and pay tax and interest with the penalty, and with minimal HMRC involvement.

As Lin Homer has flitted from department to department (the Border Agency, the Department of Transport and now HMRC) leaving a trail of Select Committee criticism behind her, she has defended her ministers loyally. She appears blind to the fact that the inadequacy of HMRC’s performance, and its perceived closeness to big money, is bringing the department into disrepute. She ought to be aware that the endemic fiscal problems seen in Greece have arisen from the wide, and evidently justified, perception that big money in Greece gets a free pass, while the little people carry the burden. She will also know that HMRC does not give kid-glove treatment to small businesses, or to questionable claims for personal tax allowances or for tax credits. And she will also know that penniless benefit claimants have only to miss an appointment to become liable to immediate, and penal, sanctions beyond anything to which tax dodgers can generally expect to be exposed.

Labour is now proposing a long-overdue root-and- branch review of HMRC’s approach to tax compliance. The Government, on the other hand, wants to explore new sanctions for overweight and substance-addicted benefit claimants who don’t “try hard enough”.

That says it all, really.


openDemocracy has launched an urgent appeal to help us keep publishing the stories others won't. Please give whatever you can here and share this widely.

Who is bankrolling Britain's democracy? Which groups shape the stories we see in the press; which voices are silenced, and why? Sign up here to find out.


We encourage anyone to comment, please consult the oD commenting guidelines if you have any questions.
Audio available Bookmark Check Language Close Comments Download Facebook Link Email Newsletter Newsletter Play Print Share Twitter Youtube Search Instagram WhatsApp yourData