The country staggers under the effects of austerity, Brexit and extreme mismanagement of just about everything, ensuring Covid and the ramifications of the war in Ukraine hit us harder than others. There Britain sits, close to the bottom of almost every league table of similar countries on growth, productivity and investment, lagging in every public service. Labour will inherit nothing but black holes. Read George Monbiot’s column from last week listing public services in urgent need of £100bn to recover.
However hard Labour tries not to over promise, expectations of a new government after 14 miserable years will be sky high. Facing electoral massacre, some sour grapes Tories pretend this will be a good election to lose, as they survey the scorched earth they leave behind.
How is Labour to pay for escalating hopes of repair and renewal? For over a year now they have beaten the Tories in polls asking which party would be best at managing the economy, for the first time since 2007. Winning an election requires that crucial lead on fiscal rigour.
But the price has been Rachel Reeves’ rigid pledges that alarm Labour people: no rise in income tax, VAT or national insurance, no wealth tax or reducing debt, not even levelling up capital gains with income tax.
Yet note how Reeves has carefully not ruled out other ways to raise lost treasure for the Treasury. Unreported in the debates in the Commons this week that followed the autumn statement, Margaret Hodge, scourge of tax avoiders and evaders, delivered a pithy list that looks like Labour’s salvation. The formidable former chair of the public accounts committee was famous for terrorising company tax cheats, roasting those hiding their profits offshore and HMRC’s failure to chase miscreants. She became the money-saving expert for government funds corruptly spent or maladministered in waste or bogus tax reliefs. Her recipe for raising funds is no magic money tree, but a thoroughly researched plan for fairer taxes falling where they should, not just on PAYE captives.
Her speech began with the “tax gap”, between what HMRC is owed and what it levies. It rose £2bn to £36bn just this year (though some put it much higher than this official figure). “Last year only 11 wealthy individuals were prosecuted for tax cheating,” she said, contrasted with 420,000 on low incomes, often not earning enough to pay tax, who “were taken to court for filing their tax returns too late”.
She used TaxWatch research to show that just eight tech companies, including Google, Apple and Facebook, made collective UK profits of £9.6bn, but paid “a miserly £297m”. She throws in the “eye-watering” estimate that £350bn a year is lost through fraud and money laundering, “yet prosecutions and convictions by HMRC have both fallen by 75% in the last five years”. She calls it “a scandalous stain on this government that destroys faith in our system.”
She lists the colossal wastage of money on Covid fraud and error, £1bn lost on Astute nuclear-powered submarines, £2.2bn lost from HS2 phase 2, and much more. One number stands out: highlighting the “staggering” costs of homelessness, Hodge flags the £18bn spent on 300,000 homeless families, instead of building homes.
But where her scalpel slices away the richest meat is in tax reliefs – 1,180 of them, many intended to achieve some policy outcome. “We have no idea how much those tax reliefs cost or whether they are effective,” she said, though “100 reliefs have been costed at an estimated £195bn … With little data and scant scrutiny … we are sitting on a time bomb.”
She produces astonishing figures for the research and development tax credit, risen from costing £2.3bn to £5.2bn in five years, “without an equivalent increase in R&D by companies”. The notorious patent box relief supposed to encourage companies to commercialise their inventions “has been exploited as a tax loophole”. (She told the Commons that the KPMG partner seconded to the Treasury to devise this relief, on leaving the Treasury, “produced a brochure entitled ‘Patent Box: what’s in it for you’”. That relief costs £1bn a year, while entrepreneurs and investment reliefs cost another £1.1bn – or £4bn, according to the Resolution Foundation, with agricultural and residence tax reliefs for a few.
Hodge has a very fat file of much more where all this came from, there for the plucking. Reeves has often mentioned tax reliefs, and is already committed to stopping non-dom benefits and private equity’s carried interest bonanza. In her 2021 conference speech she announced a review of “£174bn-a-year reliefs”, with abolition of those that fail to deliver any useful outcome, plus collecting £2.1bn from the likes of Amazon, Google and Facebook.
That was the speech in which she promised to be the first green chancellor, announcing £28bn for green job investment. Every day now Tory press releases are on the attack over that: “Plans to increase borrowing by £28bn every year would make inflation worse and drive up interest rates.” But that’s a minuscule sum compared to the need for investment, while all this low-hanging fruit waits to be picked. It was good to see Reeves recently toting a copy of Follow the Money by Paul Johnson, the director of the Institute for Fiscal Studies, that denounces many of the same reliefs Hodge excoriates.
The reason Hodge’s analysis packs such a punch is that she is no lefty: she calls herself a dyed-in-the-wool Blairite, and is loathed by the left for her anti-Corbyn combat over his unelectable extravagance as well as antisemitism. Reeves should install her as her tax-collecting guardian.
Polly Toynbee is a Guardian columnist
