Review: Called to account

Chris Harmer

Called to Account: How Corporate Bad Behaviour and Government Waste Combine to Cost Us Millions                                                                                                      Margaret Hodge (Little, Brown, September 2016)

 

If ‘sunlight be the best of disinfectants’, then Margaret Hodge sluices the stuff by the bucketful in Called to Account: How Corporate Bad Behaviour and Government Waste Combine to Cost Us Millions – an account of her years as chair of the public accounts committee (PAC) between 2010 and 2015.

The PAC is arguably the most important of the select committees – tasked with scrutinising the use of public money and holding the government to account for its use. The sum up for scrutiny in 2016-2017 is estimated at a vast £772bn.

Also the oldest of the select committees, the PAC’s work was originally conceived by its founder, William Gladstone, to be of a rather “dry and repulsive kind.” But issues of a rather more urgent and compelling kind emerge in Dame Margaret Hodge’s narration of how the committee successively took on the vested interests that cost the taxpayer so dear.

Among them: the billions of pounds that go uncollected in taxes; public and private sector initiatives that fail in the delivery of vital services and waste yet more billions; the misuse of public money in rewarding failed figures in pay-offs and bonuses; and colossal mismanagement of public resources.  The committee’s exposés of tax avoidance perhaps had the greatest impact – as one by one, Amazon, Google and Starbucks were summoned to appear before the PAC.

At first blush, the tax affairs of private companies might not be considered the domain of a committee principally tasked with holding civil servants to account for the delivery of public services. But the committee broke new ground in reasoning that the collection of taxes demonstrates the efficacy, or otherwise, of HM Revenue and Customs in collecting corporation taxes.

The question of how taxes are collected – not just spent – is eminently in the public interest since non-payment of tax by the rich places greater burdens on the many who do not opt out of their responsibilities.

In a prelude to the European Commission’s ruling last month on Apple, the committee lifted the lid on how US multinationals declare huge losses to the tax authorities, while shunting profits from economic activities in the UK to other low or non-tax paying jurisdictions to avoid paying billions in corporation tax.

The PAC also unpicked the convoluted semantics used by corporate giants to convince HMRC that they are not selling goods in the UK – where they would be liable for tax on profit – but rather into the UK, from low or non-tax paying jurisdictions.

The committee’s work on tax avoidance went far in informing debate that culminated in the landmark decision by the European Commission for Apple to pay back £10.9bn in taxes – a ruling condemned as “total political crap” by chief executive Tim Cook.

It is not difficult to imagine a range of reciprocal expletives Mrs Hodge might reach for in response to Mr Cook’s comment.  Readers of Called to Account will be left in no doubt that the MP for Barking does not share the view that taxes are an inconvenient commercial cost to business – rather that ‘aggressive’ tax avoidance offends fundamental principles of fairness and responsibility.

If infrastructure for the common good is not to fall into chaos and decay it requires collective responsibility to sustain it. Multinational corporations benefit from the public infrastructure of transport, roads, communications and a healthy and educated workforce – obliging them to pay into the common pot for the common good.

For Hodge, the responsibility to pay taxes is not just a legal issue but also a moral one that has an even greater impact in developing countries, where the need for public investment is higher and the cost paid for its absence dearer. She cites the Organisation for Economic Cooperation and Development’s statement that “poor countries could eliminate hunger in just one decade with less than a third of the money they lose to tax avoidance by big corporations.”

The fact that the cross-party PAC was able to expose myriad misuses of the public purse owes much to the ability of its members to achieve consensus – both in the committee’s purpose and in the unanimity of its reports. In turn, its findings carry more weight with parliament and the public alike. Despite deep political and ideological divisions, PAC members achieved consensus when they remained focused on their task: assessing value for money.  If members’ zeal got the better of them in their rhetoric then a reversion to purely evidence-based reporting achieved the desired unanimity.

An exception arose during the PAC’s investigation into the welfare to work programme – a five year project that in Hodge’s estimation wasted hundreds of millions and achieved little.  This was despite ministerial zeal that the private sector would prove more efficient and cheaper in getting people off benefits and into work.

Evidence from whistle blowers, that Hodge believes would have been damning, was never heard in public following an intervention from the Conservative MP, Matthew Hancock, who placed party interest first when a government flagship programme’s credibility was at stake.

But overall the work of the committee during Hodge’s tenure was rarely muzzled by party politics – the main obstacles to transparency were to come from other quarters.

Much of the committee’s work lay in securing evidence from senior civil servants on whether taxpayers’ money is spent efficiently and effectively. Here the committee encountered frequent stonewalling.

A matter that was brought to a head when the HMRC’s top lawyer, Anthony Inglese, declined to answer the committee’s questions on the grounds that to do so would breach the confidentiality of taxpayers’ interests. The issues at stake in this instance were whether HMRC deals with all taxpayers equally and whether cosy relationships existed between top officials in HMRC and rich and powerful taxpayers.

Frustrated by opacity the committee deployed one of its few powers and placed Mr Inglese under oath. (It could have been worse: the PAC apparently retains the historical sanction to incarcerate recalcitrant witnesses in the clock tower under Big Ben to reflect on their shortcomings).

The gesture infuriated senior civil servants and led to a clash with Hodge over the issue of accountability with the then cabinet secretary, Gus O’Donnell – who was strongly opposed to the service being held directly accountable to parliament.

Much more than a spat between two egos the issue of accountability within the civil service goes to the very heart of where responsibility lies. Called to Account is likely to re-inflame tension on this issue given the conflict between Hodge’s implacable view that “it is the duty of the committee to pursue fearlessly the public and taxpayers’ interest whenever and wherever we deem it necessary,” and O’Donnell’s view that civil servants should retain legal professional privilege and be accountable to ministers, not parliament.

Hodge is deeply critical of what she sees as a long-entrenched culture within the civil service – one in which top civil servants look out for each other and promptly dispense with any dissident outsiders seeking reform.

A career structure that defines success as moving on to other positions within the service creates a revolving door system through which accounting officers rapidly move on – while systemic faults remain.

Cited more from her sense of exasperation and humour than as an entirely accurate portrayal of today’s civil service, Hodge recalls the observation of Anthony Trollope – made more than 150 years ago:  “It was too notorious that the civil service was filled by the family fools of the aristocracy and middle classes, and that any family, who had no fool to send, sent in lieu thereof, some invalid past hope. Thus the service had become a hospital for incurables and idiots.”   

In contrast to the post-Brexit summer of turmoil and gloom, Called to Account casts a ray of light on the best of what a functioning representative parliamentary democracy can achieve through its committee work: transparency and accountability.  In an age of disenchantment with politicians and parties it provides rare insight into how cross-party collegiality can place partisanship aside to represent and serve the public interest.  It may also restore some faith in readers about our politicians.  And especially in those who share the author’s conviction that ‘[o]ur lives begin to end the day we become silent about things that matter’ – when engaged in that most vital element of democracy: holding government to account.

 

Image: https://www.flickr.com/photos/michaelandannabel/

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