Margaret Hodge MP, former Chairman of the Public Accounts Committee and vocal critic of government waste, has published a new book: ‘Called to Account’. We hosted Dame Margaret at a talk this week and had a wide-ranging conversation. Her book’s focus on government waste and poor accountability of those in power expounds
The book highlights some of the structural reasons why tax reform is so difficult and how weaknesses in the system have become endemic. Firstly, there is the ‘ridiculous complexity’ of the tax system, something we have discussed many times (Michael Izza, CEO of the Institute of Chartered Accountants recommended ‘setting the tax code on fire’ to Hodge at one PAC meeting).
Specifically, Hodge rails against tax reliefs. These little tweaks to spending are included in budgets and autumn statements to win headlines and score political points. However, they often have the more deleterious effect of undermining the tax code.
Tax reliefs have become a way to raise spending in particular areas, warping government spending commitments and responsibilities. This prevents departments setting effective budgets, as they cannot be sure how much these reliefs will cost. Without clauses to end these reliefs after a certain time period, these open-ended reliefs become impossible to eradicate: it’s always harder to take money than to give it.
According to Hodge, there are too many of these reliefs to count: HMRC said there were 398 tax reliefs, but the Office of Tax Simplification has found 1140 of them. HMRC even fail to collect data on most of these reliefs, so we don't even know whether they achieve what they were designed to do.
In scenes reminiscent of Humphrey Appleby, Hodge recalls criticism of her by civil servants, who are supposed to be strictly neutral. Hodge was even told that the civil service was not accountable to Parliament, and was consistently thwarted in attempts to call civil servants before the PAC. All this has led Hodge to conclude that officials in the civil service, who hold a great amount of power over public spending, are incapable of regulating themselves.
Like us, Hodge is also critical of the BBC over the golden goodbyes of George Entwistle and others, and attributes this partly to the blurring of executive responsibility that allowed the buck to be passed. This echoes her final advice for government, which is to end departmental siloing and allow for the Number 10 Policy Unit, the Treasury and the Cabinet Office to prevent the shirking of responsibility for decisions.
Not everything Hodge says is correct; there is a very strong moral argument for low taxes (as laid out in our Single Income Tax publication), which she dismisses. Further, our recent research on the tax gap confirms that Richard Murphy (who advised Hodge in this area) is as wrong as he was four years ago, and has led Hodge astray on this point.
However, this should not detract from the most powerful message of Called to Account, which is that there ought to be blanket, non-partisan support for cutting wasteful spending. Hodge acknowledges the depth of feeling that her constituents have about the billions of pounds of government waste, from her examples of defence spending, government IT projects and welfare contracts.
In conclusion, Margaret Hodge has done much in this book to raise government waste to a non-partisan issue of great importance. She also understands that today’s borrowing is tomorrow’s taxation and that the actions of past and current generations will leave a terrible burden on the future. If only more politicians were mindful of their responsibility to future generations. As Herbert Hoover said, ‘Blessed are the young for they shall inherit the national debt.’