British tax authorities have been accused of attempting to ride roughshod over Magna Carta in pursuit of new powers that will allow them to raid the bank accounts of those who fail to pay their dues.
MPs on the Treasury Select Committee said they were “horrified” by the proposals which HM Revenue & Customs (HMRC) says it needs to recover tax from 17,000 “recalcitrant debtors”.
Lin Homer, chief executive of HMRC, insisted that the powers would only be used in extreme circumstances and would never leave taxpayers short of “enough money to live.” However, she caused alarm by explaining that HMRC would be able to judge whether a debtor could afford to pay up because they would have access to 12 months of the target’s personal spending habits. The proposals are currently out for consultation until the end of July.
In a marathon session lasting more than three hours, John Thurso, Liberal Democrat member of the Committee, said HMRC was asking for power to over-ride Magna Carta which sought to protect citizens’ rights from plundering kings 800 years ago. “We are talking about the ability of one organ of the state to have the unique right to go against the Magna Carta charter and go in and seize - without judicial process or review – a bank account,” he said.
Steve Baker, Tory MP for Wycombe, told Ms Homer that HMRC was pleading “necessity” for new powers when in fact it was just “frustrated with a small number” of taxpayers. He said it reminded him of William Pitt’s famous view. The former prime minster said that “necessity is the plea for every infringement of human freedom.”
She told the MPs that the debtors owed an average of £5,800 each with many owing less than £1,000. She said HMRC knew that around half have £20,000 in savings while some have £100,000. She said the “gamers” had worked out that HMRC would send nine warning letters before taking action and would walk away once the bill was paid because going to court was inexpedient in most cases. One company she met openly admitted it paid its VAT bill several quarters late, choosing to use HMRC “like an overdraft”.
Andrew Tyrie, Tory chairman of the Committee, argued if the powers were granted, that “prior independent oversight” was needed before HMRC raided a bank account. But Ms Homer argued that this would “diminish the effect” of the powers. “It would put us back into the situation where the recalcitrant debtors know we can’t progress without a court order.”
“This is not disputed tax, this is tax that is due, that people who are not subject to PAYE are choosing simply not to pay and they are creating an environment within which the normally very low collection cost of tax is made substantially higher by their action, in a way which in the vast majority of cases is wilful.”
She added: “I believe that for the taxpayer as a whole, it is right that we have sufficient powers to stop these limited numbers of people avoiding paying tax.”
The MPs argued that the powers could be dangerous given the number of mistakes HMRC makes. In the same hearing Ms Homer was forced to apologise for calculation errors that meant HMRC over-stated the amount it had collected in tax. Last week, a report from the National Audit Office revealed HMRC had overestimated the amount of tax it had collected by £1.9bn a year. Ms Homer said she was “very sorry the error occurred”, adding that “one might have hoped that one of us might have spotted it.”
George Mudie, Labour member of the Committee, said there was a strong chance the debtors could try and ring HMRC but not have their calls answered. Earlier in the session, he had berated Ms Homer for HMRC’s “atrocious” record of only answering one in five calls. “If you can’t run a call centre, how can you run the inland revenue?”, he asked. He added that if the record did not improve by next year, HMRC should “put some resignations on the table.”
The MPs also asked about HMRC’s progress on cracking down on tax avoidance by international corporates. Ms Homer said the efforts were being led at an international level and that much of the public criticism was the result of “uninformed debate.” She said that in Britain “a lot of people will probably know and understand more about their mobile phone contracts than their relationship with the country on tax”, despite furious outcry over the tax arrangements of Starbucks, Google and Amazon. She said HMRC is “looking very seriously at taking tax into schools and colleges” to educate the population.