HMRC needs radical reform to break the hold of big business – Labour

A panel of experts has proposed deep reform of the department


Her Majesty’s Revenue and Customs (HMRC) is not fit for the 21st century and must be radically reformed, according to a new report launched by the Labour Party today.

The independent review was commissioned by shadow chancellor John McDonnell in response to growing political and public concerns about the tax affairs of large companies, and produced by a panel of 14 experts, led by Professor Prem Sikka (a regular contributor to Left Foot Forward).

The report is set against the background of cuts to HMRC, which have prevented the department from challenging tax avoidance effectively and transparently, to the satisfaction of the taxpayer.

Although parliamentary committees, particularly the Public Affairs Committee, have attempted to draw attention to large-scale tax avoidance by multinationals (such as Starbucks, Google and HSBC) there have been few test cases on profit-shifting, intragroup transactions and other tax avoidance measures.

During parliamentary investigations, HMRC has been able to use its supposed confidentiality obligations to avoid greater political and public oversight, and the report’s authors warn that it is ‘is too close to the interests of big business and too distant from the concerns of ordinary taxpayers.’

As Sikka summarises in the Guardian:

“A lack of resources and its closeness to big business mean it [HMRC] is unable to maximise tax revenues, provide a good service to taxpayers or adequately enforce tax laws – its fundamental requirements.”

The report’s main, new recommendation is that a Supervisory Board should be formed for HMRC, made up of a range of stakeholds, in order to monitor the department, give it direction and enhance accountability to the public and to parliament.

The committee would also act as ‘a bulwark against corporate capture’ and protect whistleblowers who report on their companies’ tax practices.

The authors call for better resourcing of HMRC, including the establishment of an internal investigation and prosecutions unit with competitive financial rewards for staff to combat private sector poaching.

While this incurs initial costs, for every pound spent on investigations of tax evasion, HMRC raises £75 in additional revenues, more than justifying the investment.

In response to concerns about transparency, the report proposes that the tax returns, related computations and documents of all large companies should be made publicly available, and parliamentary committees should be empowered to examine any tax information no matter how sensitive, using private or closed meetings as appropriate.

Additionally, the judicial process is slow and cumbersome when it comes to tax cases, and the report calls for expanded judicial capacity for tax cases, and opposes the introduction of fees to challenge tax assessments.

The report will inform Labour’s official proposals on HMRC reform, which will likely be published in the spring.

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