John McDonnell says HMRC ‘not independent enough’ amid Lycamobile row

Written by Matt Foster and Richard Johnstone on 23 April 2018 in News
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Shadow chancellor proposes independent board to oversee tax authority which he said could improve decision-making

Photo: ITV

John McDonnell has said Labour would shake up HM Revenue & Customs in the wake of a row over the tax authority’s handling of an investigation into a major Conservative party donor.

BuzzFeed reported last week that HMRC had rebuffed a request from French authorities to aid an investigation into telecoms giant Lycamobile over its financial activities.

According to the site, HMRC’s refusal letter cited the firm’s status as “biggest corporate donor to the Conservative party led by prime minister Theresa May”, and pointed out that Lycamobile was a huge company with “large assets at their disposal” which might mount a legal challenge to a raid.


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Speaking on ITV's Peston on Sunday, Labour’s shadow chancellor said the row raised questions over the independence of HMRC – and pledged an overhaul of the tax agency's governance if the opposition wins power.

“It isn’t independent as much as it should be,” he said. “We want an independent supervisory board put together so that it is absolutely independent in its decision-making and has a clear mandate."

Asked by Robert Peston if this would be akin to the structure of the monetary policy committee of the Bank of England, McDonnell said yes and denied that such a plan would amount to a power grab by Labour, arguing: “Quite the reverse – you don’t argue that in terms of the other boards that are appointed that way by government. At the moment we don’t believe it is sufficiently independent and here’s an example of it.”

Currently, HMRC has a board that is intended to advise and challenge on the management of HMRC, particularly focusing its attention on the performance of the department and its future strategic direction.

Members of the board include three members of HMRC’s executive – Jon Thompson, first permanent secretary and chief executive, Jim Harra, second Permanent secretary and tax assurance commissioner and Justin Holliday, HMRC’s chief finance officer – and five non-executive members – lead non-executive Mervyn Walker as well as Joanna Baldwin, John Whiting, Simon Ricketts and Alice Maynard.

The formation of a supervisory board of stakeholders to watch over HMRC’s board to “give it direction and enhance its public accountability” was recommended by a Labour party review of HMRC commissioned by McDonnell and published in 2016.

“The board shall act as a bulwark against corporate capture and inertia and be accountable to parliamentary committees,” concluded the report, which was undertaken by Prem Sikka, emeritus professor of accounting at the University of Essex.

However, the reforms were not mentioned in Labour’s 2017 general election manifesto, where the only mention of HMRC was that “Labour will give HM Revenue & Customs the resources and skills necessary to clamp down hard on those unscrupulous few individuals and companies who seek to avoid the responsibilities that the rest of us meet”.

Following the Lycamobile revelations, an HMRC spokesman insisted the information about donations had been included as "background" details about the firm.

“The application contained insufficient detail to satisfy the legal requirements to secure a warrant," he said.

“After the French request was rejected, HMRC continued to liaise with the French authorities to explain the statutory requirements for a UK search warrant, and offered to meet the French judge face to face to explain those requirements.

“HMRC always investigates suspected rule breaking professionally and objectively and is never influenced by political considerations. The facts speak for themselves: last year alone we secured an additional £8bn in tax from the largest businesses by tackling avoidance, evasion and non-compliance."

A Downing Street spokesperson insisted that HMRC “never takes political donations into account when it makes decisions on whether to investigate a business”.

They added: “My understanding from HMRC is the information was only provided as background to offer a detailed profile of the company to their French counterparts but it was not taken into account by HMRC in deciding whether to support the French application."

About the author

Matt Foster is news editor of PoliticsHome, where a version of this story first appeared. Richard Johnstone is CSW's deputy and online editor and tweets as @CSW_DepEd

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