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Heidi Alexander (Lewisham East) (Lab)
1. What recent discussions she has had with the Mayor of London on the accessibility and visibility of the Metropolitan police.
The Secretary of State for the Home Department (Mrs Theresa May)
I regularly meet variously with the Mayor of London, the deputy mayor responsible for policing and the Commissioner of the Metropolitan police. However, it is not for the Government to direct the Mayor of London or the Metropolitan police how to deploy their officers and staff.
Heidi Alexander
Since the general election, the number of police officers in London has fallen by 1,700, and it has been reported that nearly half the capital’s police stations could face closure. The Home Secretary is living in cloud cuckoo land if she thinks that this is improving the service for Londoners. Does she accept that having fewer police and fewer police stations is undermining public confidence in the Met and, more crucially, undermining its ability to do the job that needs to be done?
Mrs May
What I accept is that what we have seen in the Met and in most forces across England and Wales is that they have dealt with budget cuts. We have seen some reductions in the number of police officers, but crucially crime has been falling. Visibility, accessibility and confidence in policing are not about certain types of building. They are about police being available to people, and that is exactly what the Met intends to do. It intends to put more constables on the beat and increase their visibility by enabling people to access the police in places such as supermarkets.
Keith Vaz (Leicester East) (Lab)
There are currently 30 Metropolitan police officers assigned to Operation Alice, dealing with issues relating to the right hon. Member for Sutton Coldfield (Mr Mitchell). Another 30 officers are assigned to Yewtree and 170 are dealing with Tuleta, Weeting and Elveden. As well as that, an unnamed number of officers are searching for Ibrahim Magag who went missing just before Christmas. Is the Home Secretary confident that the Metropolitan police have sufficient resources to deal with the bread and butter issues of London, bearing in mind the burden of all these specialist operations?
Mrs May
Yes. As the right hon. Gentleman knows, the Metropolitan police receive extra funding for the fact that they are the capital city police force. I have every confidence in the Metropolitan police in all the operations that they are undertaking. The number of officers deployed to each of the operations that the right hon. Gentleman referred to is a matter for the commissioner and his officers.
Stella Creasy (Walthamstow) (Lab/Co-op)
In May 2010 the Met had more than 32,600 police officers. Last April, Mayor Boris Johnson promised us that he would maintain this figure, yet in November the latest figures show us that policing has fallen to just 30,939. Last year the deputy mayor told the Home Affairs Committee that it was a doomsday scenario for London to have only or around 31,000 officers. Does the Home Secretary agree with this assessment, and if so, what does she intend to do about it?
Mrs May
I suggest that the hon. Lady look at the plans that the Metropolitan police have and which they published just before Christmas, which are to maintain officer numbers at around 32,000, to introduce a flatter management structure and to put more constables on the beat. I should have thought the Opposition would welcome the fact that the commissioner, the deputy mayor and the Mayor of London want to ensure that there are more police officers on the beat in London and in the Metropolitan police. That is surely good news.
Harriett Baldwin (West Worcestershire) (Con)
2. Whether her Department has taken steps to ensure the continuity of supply of seasonal agricultural workers following the lifting of restrictions on immigration from Bulgaria and Romania.
The Minister for Immigration (Mr Mark Harper)
The transitional restrictions on Bulgarians and Romanians come to an end at the end of this year. With reference to the agricultural industry, we will look to see whether any further schemes are necessary once the Migration Advisory Committee has reported to us in March this year.
Harriett Baldwin
As the Minister knows, the finest fruit and vegetables are grown in West Worcestershire. Can he reassure my farmers that they will be able to face the 2014 growing and picking season with the confidence that, working together with the Department for Work and Pensions and the Department for Environment, Food and Rural Affairs, there will be an adequate supply of people to pick the crops?
Mr Harper
I can give my hon. Friend that assurance. In December I met one of the West Midlands Members of the European Parliament, Anthea McIntyre, together with farmers who farm both in Herefordshire and in my constituency in the soft fruit sector. That may be the one respect in which I slightly disagree with my hon. Friend. I have listened to their concerns and will listen to what the Migration Advisory Committee says in its report before we take a decision early this year.
Mr Nicholas Brown (Newcastle upon Tyne East) (Lab)
Precisely because of the sort of problems that the hon. Member for West Worcestershire (Harriett Baldwin) raises, previous Conservative and Labour Governments took a hard look at the Agricultural Wages Board and decided to retain it. The present Government intend to abolish it. Surely that will just exacerbate the situation and leave agricultural workers without even the limited protection that the wages board provides.
Mr Harper
I do not think that that is true at all. Those working in the agricultural sector are governed by the national minimum wage legislation, and as well as desk-based research the Migration Advisory Committee will be going out and listening to the sector concerned. I am confident that when it produces its evidence-based report in March, we will be fully informed and able to take a sensible decision for the sector.
Peter Luff (Mid Worcestershire) (Con)
As my hon. Friend has made clear, the scheme is incredibly important for farmers and growers throughout the country, certainly in Worcestershire. Can he confirm that throughout its long life the seasonal agricultural workers scheme has lived up to its name and the seasonal workers have returned to their country of origin at the completion of their work?
Mr Harper
That is indeed the case. The MAC report will look both at providing labour to the sector and at how the scheme functions in meeting the Government’s commitments on controlling immigration. Both aspects will be important when the Government take the decision later this year.
Chris Bryant (Rhondda) (Lab)
On 17 October 2011, the former Immigration Minister, now the Minister for Policing and Criminal Justice, the right hon. Member for Ashford (Damian Green), said:
“I believe in free movement. The Government believe in free movement.”—[Official Report, European Committee B, 17 October 2911; c. 18.]
On 21 November 2011 he said:
“Free movement has been, and is, one of the great achievements of the EU.”—[Official Report, European Committee B, 21 November 2011; c. 14.]
Does the Minister agree?
Mr Harper
I do not demur from anything that my right hon. Friend has said, but that does not mean that we will not look at how that operates in our balance of competence reviews. Abuses do take place under free movement throughout Europe. My right hon. Friend the Home Secretary has discussed the issues at Justice and Home Affairs Councils and has found a lot of support from colleagues there. A road map has been set out by Justice Ministers throughout Europe to deal with the abuses that took place and were not dealt with by the Labour party when it was in power.
Jesse Norman (Hereford and South Herefordshire) (Con)
The Minister paid an extremely successful visit to my county of Herefordshire before Christmas, for which I thank him. Will he reassure me that SAWS will be preserved through the MAC process and that it is not formally part of the immigration figures at all but operates in an entirely separate category?
Mr Harper
My hon. Friend correctly points out that it was his constituency that I visited in December. I am not going to prejudge the outcome of the work being done by MAC. The whole point is that it is doing some evidence-based work to inform the Government’s decision. It will be looking at whether a successor scheme needs to come into force to ensure that the sector has access to adequate labour when Romanians and Bulgarians have alternative choices after the end of this year.
Mr Speaker
For the benefit of any uninitiated members of the public, those referring to SAWS are talking about the seasonal agricultural workers scheme, and the MAC of course is the Migration Advisory Committee. I am sure that 57 million people know that perfectly well, but it is as well to remind them.
John Mann (Bassetlaw) (Lab)
3. What recent assessment she has made of trends in the level of use of the drug MCAT in the UK.
The Minister of State, Home Department (Mr Jeremy Browne)
The Government started collecting data in the crime survey for England and Wales in 2010-11. MCAT has been banned since April 2010 because it is harmful to human health. We should not underestimate the impact of the drug, although consumption appears to be falling. Between 2010-11 and 2011-12, mephedrone use “in the last year” fell from 1.4% to 1.1% among 16 to 59-year-olds and from 4.4% to 3.3% among 16 to 24-year-olds.
John Mann
Happy new year to you, Mr. Speaker.
I will be reconvening my heroin panel of 10 years ago in the next few weeks, and MCAT is one of the issues that we will be considering. I also wish the Minister a happy new year. Will he agree to meet my panel when it comes down to London and to receive our report on the growing plague of MCAT in my constituency and elsewhere in the country?
Mr Browne
I thank the hon. Gentleman through you, Mr Speaker, for that happy new year welcome, which I reciprocate. I will be happy to meet the group. As I said, we do not underestimate the harmful impact of the drug. Its consumption is considerable, and we would like to see it reduced further.
Oliver Colvile (Plymouth, Sutton and Devonport) (Con)
4. What assessment her Department has made of the most recent statistics on net migration.
Mr John Baron (Basildon and Billericay) (Con)
7. What assessment her Department has made of the most recent statistics on net migration.
Gavin Barwell (Croydon Central) (Con)
12. What assessment her Department has made of the most recent statistics on net migration.
The Secretary of State for the Home Department (Mrs Theresa May)
Net migration fell by a quarter in the year to March 2012. This shows that our tough policies are taking effect and marks a significant step towards bringing net migration down from the hundreds of thousands to the tens of thousands by the end of this Parliament.
Oliver Colvile
I join the hon. Member for Bassetlaw (John Mann) in wishing you a happy new year, Mr Speaker.
Given that Plymouth is one of the main dispersal centres for asylum seekers, which places strains on local public services, but without significant financial support, are the Government willing to review that policy and, if so, when?
Mrs May
We have no plans to review the policy. At local level, those providing accommodation are contractually required to discuss the local impact with local authorities, education providers and others so that it can be assessed regularly. My hon. Friend the Minister for Immigration will be visiting my hon. Friend’s constituency in the coming weeks and will be able to see for himself the impact that this is having there and discuss the issue.
Mr Baron
Our public services are already overstretched, and there is concern that we will see a fresh wave of immigration from Romania and Bulgaria as the transitional agreements lapse at the end of this year. What lessons have the Government learnt from our experiences in 2004?
Mrs May
The very clear lesson we learned was that we should ensure that transitional controls are placed on any future accession countries, and that is indeed what we will do in relation to Croatia’s accession. As my hon. Friend the Immigration Minister has indicated, we are also taking a number of steps to look at the abuse of free movement and how free movement operates across the European Union.
Gavin Barwell
I welcome the Government’s progress in reducing net migration to a level that is in our national interest. Many of my constituents, however, are as concerned about EU migration as they are about non-EU migration. Will my right hon. Friend update the House on the progress the Government are making as part of the review of competences, in sharp contrast to the previous Government’s failure to apply accession controls?
Mrs May
Absolutely—it is this Government who are willing to look at the issues, make the tough decisions and take action to put tough policies in place. In relation to the balance of competences, we will be looking in detail at free movement. That work has not yet started but will start in the not-too-distant future. There are other things we are doing outside that work. I am working across the European Union with other member states to look at how we can ensure that we reduce the abuse of free movement—through sham marriage, for example—and we are also looking at the pull factors that encourage people to come to the UK, rather than other member states, such as access to benefits.
Fiona Mactaggart (Slough) (Lab)
But how many people are in that group who made an application a long time ago and were told that their cases would be determined by July 2012 but have still not received a decision?
Mrs May
As the hon. Lady knows, the whole question of the legacy case load was looked at recently by the chief inspector. He found some problems with the way the UK Border Agency has dealt with that. I am happy to write to the hon. Lady with the precise number of people in the category she describes. There are problems with how that was dealt with and we are working through them.
Pete Wishart (Perth and North Perthshire) (SNP)
The Home Secretary will know that Scotland recently recorded its highest ever population figure, something we very much welcome, and much of it is down to immigration. However, we still have massive demographic issues, with an ageing population and a diminishing active work force, so will she detail how UK immigration policy is helping Scotland to address those?
Mrs May
Of course we look at immigration policy across the whole United Kingdom. I believe that we have the right policy and that what we need to do across the United Kingdom is control immigration. Of course, the hon. Gentleman, given his desire for a separatist Scotland, will need to answer in future what Scotland would do in relation to immigration in those circumstances.
Diana Johnson (Kingston upon Hull North) (Lab)
To return to net migration, can the Home Secretary confirm that what is actually happening is that more British nationals are leaving the UK and fewer are coming back and that half the fall in immigration last year was the result of fewer students coming here, which is costing UK universities millions of pounds?
Mrs May
Over the past two to three years, European Union and British migration, emigration and immigration have been, roughly speaking, in balance, and the increase in net migration has come from those from outside the EU. We have seen falls in all categories in terms of the number of people coming into this country. The hon. Lady refers to the numbers of students coming into the country. We have tackled the abuse in the student visa system that grew up when the previous Government abolished one of the tiers in the point-based system and we saw a significant increase in students who were in fact people coming here not to be educated but to work. We are tackling that abuse, and it is good that we have a Government who are willing to do so.
Dr Julian Huppert (Cambridge) (LD)
Capita has a contract with the UK Border Agency to clear the migration refusal pool and make sure that people leave the country when they are supposed to. However, as the Home Secretary will be aware, people who are allowed to stay have also been contacted and told to leave, including British citizens. Is this a problem with Capita or with the UK Border Agency’s continuing problems with its record keeping? What action will she take on the agency?
Gemma Doyle (West Dunbartonshire) (Lab/Co-op)
5. If she will take steps to ensure that mail to the UK Border Agency is not left unopened owing to a backlog of cases.
The Minister for Immigration (Mr Mark Harper)
Timely dealing with correspondence is obviously something that the UKBA takes very seriously. It has not always been perfect in the past and it is very well aware of the need to improve in future. It has therefore implemented a new national operating model, particularly to deal with MPs, to improve things.
Gemma Doyle
Will the Minister assure the House that full security checks have been or will be carried out in all these cases and confirm how many live cases have been discovered?
Mr Harper
I am not entirely certain which cases the hon. Lady is talking about. If she is talking about the issues that were raised in the chief inspector’s report when he found some unopened post, she will know that he has confirmed in his report that that has now all been cleared and those cases are being dealt with.
Kate Green (Stretford and Urmston) (Lab)
6. What assessment she has made of the effect on family migration of the new immigration rules which came into force in July 2012.
The Minister for Immigration (Mr Mark Harper)
The new family immigration rules are expected to reduce burdens on the taxpayer, promote integration and tackle abuse. That was clearly set out in the impact assessment that we published in June 2012. We will of course keep the impact of the rules under review in terms of how we are achieving those objectives.
Kate Green
Children’s well-being may be at risk if the family migration rules perpetuate family separation by preventing a parent from joining his or her family here in the UK. What is the Minister doing to monitor the impact of the family migration rules on children’s well-being?
Mr Harper
The purpose of those rules is very straightforward—it is to make sure that people who wish to bring somebody who is not a British citizen into the country are able to support them out of their own resources rather than expecting them and their family to be supported by the taxpayer. That seems perfectly reasonable to me, and it was very well supported in the consultation, but we will keep its impact under review, as I set out in my earlier answer.
Mr Julian Brazier (Canterbury) (Con)
I strongly welcome this change. Although this measure has been denounced by some as hard-hearted, may I suggest to my hon. Friend that, in practice, in many cases it will still let people come in who will require a very significant subsidy for their housing, so it is only a first step in the right direction?
Mr Harper
The income limit that we set for spouses wishing to bring their family members into this country is based on evidence that the Migration Advisory Committee put forward, having looked at the level at which people were largely not able to claim income-related benefits. As I said, the premise is very simple: if someone wants to bring their family to the UK, they can, but they are expected to support them rather than expecting the taxpayer to do so. That seems perfectly reasonable.
Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)
8. What steps the Government are taking to tackle antisocial behaviour.
Bridget Phillipson (Houghton and Sunderland South) (Lab)
9. What steps the Government are taking to tackle antisocial behaviour.
Meg Hillier (Hackney South and Shoreditch) (Lab/Co-op)
14. What steps the Government are taking to tackle antisocial behaviour.
The Minister of State, Home Department (Mr Jeremy Browne)
We have just published a draft Bill setting out measures to put victims at the heart of the response to antisocial behaviour. They include the community trigger, which will ensure agencies take persistent problems seriously; the community remedy, giving victims a say in the punishment of offenders out of court; and, overall, faster, more effective powers so that front-line professionals can better protect the public.
Tom Blenkinsop
Between June 2011 and June 2012, more than 2.5 million incidents of antisocial behaviour were recorded in England and Wales. Under Labour, half the people who breached antisocial behaviour orders went to jail. Why is the Minister replacing Labour’s tough sentencing with much weaker, last-resort injunctions, such as activity orders and supervision requirements, and demanding that local authorities pay for them?
Mr Browne
The short answer is that we are replacing them so that we can have more effective measures in place. I draw the hon. Gentleman’s attention to a recent quotation from the Labour Chairman of the Home Affairs Committee:
“I very much welcome the Government’s decision to overhaul the statutory framework for tackling anti-social behaviour. We must ensure that the new Act is more robust than the original ASBO legislation, which has been amended every year since it was passed in 1998.”
Bridget Phillipson
The complacency of Ministers in this area and the fact that it has taken two and a half years to get to this point offer no reassurance to those who face daily fear and intimidation because of antisocial behaviour. Those in my community whose lives are blighted by this want to know why Ministers appear not to be on their side and are instead seeking to weaken the powers available to the police to tackle antisocial behaviour.
Mr Browne
Let me make two brief points. First, we take antisocial behaviour extremely seriously. I think that MPs of all parties see the terrible effect that antisocial behaviour has on decent, law-abiding citizens and we want to help them. Secondly, the measures are designed to be quicker and more effective than those previously in place. If they were not going to achieve that objective, we would not be bringing them forward.
Meg Hillier
The Minister has given warm words about his desire to tackle antisocial behaviour, but why is it that my constituents and people up and down the country who suffer antisocial behaviour will now get no action unless they complain three times, not just once?
Mr Browne
The hon. Lady misunderstands the intention of the policy. Our hope is that the police and other authorities will respond instantly when concerns are raised about antisocial behaviour. The problem in the past has been when the same concern has been raised repeatedly and no response has been forthcoming. What we are putting in place is a defined measure to make sure that that no longer happens.
Andrew Bridgen (North West Leicestershire) (Con)
The latest figures show that in North West Leicestershire 92% of people who complained about antisocial behaviour were at least satisfied with the service they received from the police. Will my hon. Friend join me in congratulating Leicestershire police force on the work it is doing in combating antisocial behaviour?
Mr Browne
I do congratulate Leicestershire police force. It is coming up to eight years that I have been a Member of Parliament and I observe that my own police force in Avon and Somerset is making a more concerted effort—I am sure that this is true generally—to deal with antisocial behaviour and to respond quickly when concerns are raised. We want to make that service even better across all police forces in the future.
Mr David Burrowes (Enfield, Southgate) (Con)
16. We all know that, often, where Enfield leads other areas of the country follow. Certainly, lessons will be learned from Enfield, where there has been a 50% reduction in antisocial behaviour as well as in serious violence in key gang areas as a result of hard-hitting call-ins. That has been recognised recently, not least by the Minister when he awarded the Tilley national award to Enfield for its good progress.
Mr Browne
I have fond memories of Enfield, Southgate from when I stood, unsuccessfully, in the hon. Gentleman’s constituency. That gave me extra reason to be pleased to present the Tilley award to Enfield, which was fitting recognition for all the hard work that has taken place in his borough.
Dr Julian Lewis (New Forest East) (Con)
Was the Minister as pleased as I was to read in The Daily Telegraph on 3 December 2012 the following quote from a Government Minister:
“New measures are planned to cut the number of criminals who carry knives”?
Is this a welcome sign that we now have a Government who are willing to make the punishment fit the crime?
Gloria De Piero (Ashfield) (Lab)
The community trigger has been described as a new and improved way to deal with repeat complaints of antisocial behaviour. Brighton and Hove is one of the pilot areas, and in the first quarter of its pilot there were more than 7,000 recorded incidents of antisocial behaviour. During that same period, the community trigger was successfully triggered just four times. Is that rate a success?
Mr Browne
It is difficult to respond definitively because absolute success would mean never having to use the trigger at all. That would constitute a very responsive set of authorities. This is a serious measure and I am sure that Members from all parts of the House approve of it. We must all be familiar with people in our constituencies who have raised a concern repeatedly, but who do not feel that it has been taken sufficiently seriously and want greater action to be taken. We want to empower them to ensure that their lives are no longer blighted by antisocial behaviour.
Mr Dave Watts (St Helens North) (Lab)
10. Which police forces have experienced the greatest recent reduction in the number of front-line police officers.
Barbara Keeley (Worsley and Eccles South) (Lab)
18. Which police forces have experienced the greatest recent reduction in the number of front-line police officers.
The Minister for Policing and Criminal Justice (Damian Green)
Between March 2011 and March 2012, the West Midlands force had the greatest reduction, 435, in the number of front-line police officers. It also had, in the year to June 2012, a 13% reduction in overall recorded crime compared with the previous 12 months—one of the largest falls of any force in England and Wales.
Mr Watts
Will the Minister explain to my constituents why Merseyside is having to cut 552 police officers when Surrey, through the new grant system, can employ another 49 police officers? Is it because the Government are fiddling the figures and the grant system? Will he set up an independent body to look at the funding of the police?
Damian Green
The grant system is exactly the same as it was under the Government whom the hon. Gentleman supported. I am happy to tell his constituents that crime in the Merseyside area was down 6% from 2011 to 2012, and that victim satisfaction with Merseyside police is 88%, which is higher than the average for England and Wales. I hope that he and his constituents will join me in congratulating their local police on how well they are doing.
Barbara Keeley
In my constituency, people are worried and angry about the cuts, not just because Greater Manchester police have already lost 650 police posts, but because there are 850 more losses to come. The report of Her Majesty’s inspectorate of constabulary says that the police are already less visible and accessible. Is it not time that we had not just a relaunch but a rethink of these police cuts?
Damian Green
I can only give the hon. Lady the facts. In the Greater Manchester police area, crime went down by 10% over the past year. Her constituents’ streets are safer than they were a year ago, two years ago and three years ago, and 84% of the public say that they are satisfied with Greater Manchester police. On the specific point that she raises, the HMIC report states that the force will save money through collaboration, but that
“the public will not notice any difference in the service they receive in their community.”
Mr Philip Hollobone (Kettering) (Con)
Will the Minister join me in commending Adam Simmonds, the new police and crime commissioner for Northamptonshire, who, in his draft crime plan, commits himself to retaining at 1,220 the number of police officers that he inherited, while at the same time creating a new large-scale reservist police force of up to 200 officers, each of whom will be required to give 20 days a year?
Damian Green
I join my hon. Friend in congratulating the police and crime commissioner for Northamptonshire on some of the innovative ideas that he is bringing forward to make the streets of Northamptonshire safer. That is precisely why we should have police and crime commissioners. We now have people all over the country who are able to respond to local needs and demands in a way that is much less top-down and centralist than under the previous system.
Mr Virendra Sharma (Ealing, Southall) (Lab)
11. How many student visa applications were received from India in 2012.
The Minister for Immigration (Mr Mark Harper)
There were 21,295 sponsored tier 4 student visa applications from Indian nationals in the year ending September 2012. We have cut the abuse of student visas, but continue to attract the brightest and best students from around the world.
Mr Harper
No, that is not what we are doing. We want to attract the best and brightest students to the United Kingdom. However, we want to combine that with dealing with the education providers that in the past were not providing education but were in effect selling immigration permits. We have dealt with the abuse and will continue to do so, but we want students from around the world to come here to use our excellent universities. The latest figures show that those numbers are up.
Jeremy Corbyn (Islington North) (Lab)
The Minister will be well aware that London Metropolitan university has been affected by a decision that the UK Border Agency made last year. I understand that discussions are going on between the UKBA and the university with a view to seeing whether a system can be brought into place so that tier 4 status can be returned. May I urge the Minister to interest himself in that, to ensure that we get good overseas students into this country and benefiting from higher education here?
Mr Harper
The hon. Gentleman raises the case of London Metropolitan university, and he will know that it was not carrying out its responsibilities as a tier 4 highly trusted sponsor, which was why its licence was revoked. He will know that the Government put in place a taskforce to ensure that all the legitimate students were able either to transfer to another education provider and stay in the country or to finish their course at London Metropolitan university. They were all written to last Friday, so they should all shortly be aware of their status in the coming months.
Paul Flynn (Newport West) (Lab)
13. What the average salary is of deputy police and crime commissioners.
The Minister for Policing and Criminal Justice (Damian Green)
Not every police and crime commissioner has appointed a deputy. Whether PCCs decide to have a deputy, and what salary that person should be paid, is for the PCC to decide. They must publish that salary. PCCs are accountable to the public, and it will be for them to justify their deputy PCC’s salary.
Paul Flynn
The maladroit election timing, the sinfully wasteful funding, the creation of cronyism and the sapping of democracy make the setting up of police commissioners one of the most egregious examples of political incompetence, and it will be seen in the future as an example of the coalition’s signature policy in creating its ineptocracy.
Damian Green
The hon. Gentleman, apart from having a way with the English language, is slightly confused. The idea that having directly elected posts is in any way anti-democratic seems perverse. As my hon. Friend the Member for Kettering (Mr Hollobone) illustrated, we now have police and crime commissioners in operation all over the country. Indeed, several former colleagues of the hon. Member for Newport West (Paul Flynn) are now PCCs, and I wish them all well in their new jobs.
The hon. Gentleman asked about the cost of the deputies. The highest-paid deputy at the moment has been appointed at £68,000 a year—[Interruption.] I am interested that Labour Members are shocked by that figure, because that was an appointment of the Labour PCC for Northumbria, Mrs Vera Baird, QC.
Sir Bob Russell (Colchester) (LD)
Are deputy police and crime commissioners subject to the same rules and regulations under which those who stood for election to PCC posts had to qualify before they were accepted?
Damian Green
Deputy PCCs are accountable to their PCC as a member of staff. They may have delegated functions and powers that other staff may not, for instance that of appearing before the police and crime panel. They are the only members of staff who are not politically restricted, and they may support the PCC politically. All other employees are politically restricted.
Jane Ellison (Battersea) (Con)
15. What recent steps she has taken to reduce gang-related and youth violence.
The Minister of State, Home Department (Mr Jeremy Browne)
Large areas of Government policy are having a positive impact on the matter. Specifically, we are supporting 29 local areas that face problems of gang and youth violence. That includes tackling young people possessing knives, which we were talking about a moment ago. We have also recently announced that we will provide practical support to another four areas.
Jane Ellison
I thank the Minister. I have become aware of some particularly appalling examples in my constituency of young girls being drawn into gangs, and there are high levels of sexual violence associated with that. What work is being done to understand that, and in particular, what further work might be done to provide exit strategies for girls drawn into gang culture?
Mr Browne
My hon. Friend is right to draw the House’s attention to an under-reported aspect of the problem, which is the involvement of girls and young women in gangs and the exploitation of them. We are supporting financially young people’s advocates around the country to support girls at risk of suffering from gang-related violence. More generally, we are having a reasonable impact, including through reductions in the past year in homicides, the use of knives or sharp instruments and gun crime, and that impact benefits everybody.
Mr David Lammy (Tottenham) (Lab)
The Minister will be aware that just over 18 months ago there was widespread arson, looting and violence, which emanated from my constituency and spread across the country. Given that context, does he view with alarm the Mayor’s decision to shut half of London’s police stations? In particular, is he concerned about the closure of Tottenham police station and the withdrawal of the police officers stationed in it? Is this not just open season for London’s thugs, gang members and hoodlums?
Mr Browne
No; I do not accept that characterisation at all. Perhaps I could draw the right hon. Gentleman’s attention to a recent quote from Sir Bernard Hogan-Howe, who said:
“If we ended up with less people but better technology, and ended up being better at fighting crime, I’d say that wouldn’t be a bad thing”.
The right hon. Gentleman will note that in London, the Metropolitan police reports that serious youth violence has fallen by 34% since the launch of the new Trident gang crime command less than a year ago, in February 2012.
Rushanara Ali (Bethnal Green and Bow) (Lab)
17. What recent representations she has received on the number of front-line police officers.
The Secretary of State for the Home Department (Mrs Theresa May)
Home Office Ministers and officials receive regular representations on policing issues, including on the number of front-line police officers. The most recent representations received were questions 10 and 18 this afternoon.
Rushanara Ali
Can the Home Secretary explain why Tower Hamlets has lost 17% of its police and community support officers since 2010, when her Government came to power, while also seeing crime rise by over 9% in the same period?
Mrs May
How many PCSOs should be employed by a particular police force is a decision that will be taken by that police force. The Metropolitan police force has indicated that it wants to change the number of PCSOs in order to increase the number of police constables it has available.
Miss Anne McIntosh (Thirsk and Malton) (Con)
Will the Home Secretary join me in paying tribute to the young police officer who sadly died on his way to an emergency call on Saturday? In recognising this tragic loss, will she also take the opportunity to recognise the role that rural police officers play in sparsely populated areas such as North Yorkshire?
Mrs May
Yes, I indeed pay tribute to PC Andrew Bramma, who, as my hon. Friend said, died following a collision while answering an emergency call. Once again, this shows the dangers that our police officers face on a day-to-day basis. Our sympathies are with him, his family and his colleagues. I would also like to offer my sympathies to the family of PC Tony Sweeney, QPM, who died on 27 December after falling ill on his return from work. Our police officers bravely go about their duties day by day; we owe them a great debt.
Mr Laurence Robertson (Tewkesbury) (Con)
19. Under which category of immigration entry most people enter the UK from non-EU countries; and if she will make a statement.
The Minister for Immigration (Mr Mark Harper)
The latest statistics from the Office for National Statistics show that most non-EU immigrants come to study. In reforming every route of entry for non-EEA migrants, we have cut the abuse while continuing to attract the brightest and best. The latest figures show that our policies are working.
Mr Robertson
On a recent trade mission, which I happened to lead, to Nigeria, it became clear that people who are educated in this country help British businesses. When we try to go to those countries, the English language is already established and there are links with this country. Although we should try to cut down on immigration and although students who finish their studies should go back to their countries of origin, is it not important to recognise that educating foreign students in this country is greatly beneficial to British business?
Mr Harper
I agree with my hon. Friend. Of course it is important that students should actually be coming here to be educated. We need to deal with the abuse whereby they are really coming here to work instead of study, which happened all too frequently under the previous Government, but he is right: there is a real benefit to Britain in having those students come here. That is why I am pleased that the latest statistics saw an increase in the number of international students coming to our excellent UK universities.
Mr Gerry Sutcliffe (Bradford South) (Lab)
Of course we all want to see an end to bogus colleges and it is right that the Government have taken action on that, but the reality is that legitimate colleges and universities have seen their numbers reduced. If the Minister says I am wrong, will he publish the figures from each university for countries that have sent students in the past but are now not sending them?
Mr Harper
The hon. Gentleman simply is not right to say that our university sector has not seen an increase. The latest figures show an increase in international students coming into the sector, and I am pleased that that is the case. The Government will continue to work with our excellent universities to encourage international students to attend them at every opportunity.
Mr Mark Spencer (Sherwood) (Con)
20. What assessment her Department has made of the most recent statistics on net migration.
The Secretary of State for the Home Department (Mrs Theresa May)
I refer my hon. Friend to the answer that I gave some moments ago.
Mr Spencer
The Home Secretary will be aware that, between 2001 and 2010, more than 50% of the increase in the population in England and Wales was the result of immigration. Do the figures that she gave in her earlier answer demonstrate that she now has control of a problem over which there was previously no control at all?
Mrs May
My hon. Friend is absolutely right to draw attention to the fact that immigration was out of control under the last Labour Government, and that it is this Government who have taken the tough decisions to bring it under control. We are able to attract the brightest and best to the UK and, as the Minister for Immigration has just said, the number of overseas students applying to and being accepted by our universities has increased. At the same time, we are driving out abuse. The fall in the net migration figures shows that it is this Government who are dealing with the issue of immigration and bringing it under control.
Dr William McCrea (South Antrim) (DUP)
Do the figures on net migration cover the whole of the United Kingdom, including Northern Ireland, or do they relate only to England and Wales?
Sarah Teather (Brent Central) (LD)
22. When she expects to announce the asylum support rates for 2013-14.
The Minister for Immigration (Mr Mark Harper)
There are no current plans to change the asylum support rates, but we do of course keep the matter under constant review.
Sarah Teather
The Minister’s Department has not made a decision on the asylum support rates in this financial year. He has therefore frozen the rates by default, without coming to the House to announce that decision. I understand from an announcement made in another place that a review is ongoing, but does he accept that kicking the matter into the long grass for a further year simply will not do?
Mr Nicholas Brown (Newcastle upon Tyne East) (Lab)
T1. If she will make a statement on her departmental responsibilities.
The Secretary of State for the Home Department (Mrs Theresa May)
I referred earlier to the deaths of the two police officers that occurred over the Christmas period. I also wish to extend my sympathies to the family of the 13-year-old girl who died following a traffic accident involving a police patrol car on Sunday night. That matter is being investigated by the Independent Police Complaints Commission.
Following a year in which we saw crime fall to the lowest level since the British crime survey began, we saw net migration fall significantly. I should like to thank officials, the police, the Security Service and all those involved in delivering the successes of last year, including of course a safe and secure Olympic and Paralympic games. I look forward to 2013, in which the National Crime Agency will become operational and in which we will continue to tackle robustly immigration as well as working with the new College of Policing further to professionalise our police forces to meet the challenges ahead.
Mr Brown
I identify myself and my constituents with everything the Home Secretary has said about the fatalities that occurred over the Christmas season, and extend my condolences to the bereaved families.
I also want to ask the Home Secretary about the Communications Data Bill. I had the privilege of serving on its pre-legislative scrutiny Committee, which produced a unanimous report raising points for her to consider carefully, particularly in relation to the cost of the exercise. Will she tell us what discussions have taken place between the industry and her Department on the cost of the proposals, and what her latest estimate of the cost is? Will she also tell us where the money is to be found, given that the Treasury has made it clear that no new funding has been agreed for the proposals?
Mrs May
I thank the right hon. Gentleman and all the Members of this House and the other place who served on the Communications Data Bill’s pre-legislative scrutiny Committee. He is right to say that the report contained a number of recommendations, and we will accept the substance of all of them. We are currently working on the details. This includes talking to the industry, and discussions about the costs started before Christmas. We will obviously look carefully at those discussions, but it would not be right to opine on the question of the costs until we have spoken to all those in the industry that we wish to consult.
Duncan Hames (Chippenham) (LD)
T2. A business-friendly visa service can be key to unlocking exports and investment in our economy. In Melksham, a multi-million pound investment in Stellram followed the securing of a visa for someone from Mexico with specialist skills, yet in Chippenham, Merganser is threatened by a lack of UK Border Agency accreditation for teachers from Turkey applying for its highly regarded training courses. What is the Minister doing to convert the UKBA from an obstacle into a partner for businesses building a stronger economy?
The Minister for Immigration (Mr Mark Harper)
I am grateful for my hon. Friend’s question. The first part of it related to a very successful enterprise in his constituency, which had had good support from the UK Border Agency, while the second part showed less good support. On that second point, I would be happy if he would like to write to, or meet, me to discuss that particular issue. I have made it clear to the UK Border Agency generally that it needs to see itself as a partner for businesses that are trying to do the right thing and to attract good people to come to Britain and skilled workers to work here. If any Member knows of examples when that is not the case, I would be happy to hear from them.
Yvette Cooper (Normanton, Pontefract and Castleford) (Lab)
I join the Home Secretary in paying tribute to those police officers who have lost their lives. The hon. Member for Thirsk and Malton (Miss McIntosh) was right to pay tribute to the officer who lost his life in her constituency while rushing to help others in an emergency call. We also extend our sympathies to the family of the 13-year-old; it is right for that tragic case to be investigated.
Ibrahim Magag absconded from his TPIM—terrorism prevention and investigation measure—on Boxing day. This is someone who the Government believe has attended terror training camps in Somalia, has raised funds for al-Qaeda and is sufficiently dangerous to warrant a TPIM. He has disappeared for the last 12 days. In the final four years of control orders, when relocations were extensively used, the Home Secretary will know that no one absconded. The independent reviewer, David Anderson, has asked of Mr Magag:
“Could he have absconded so easily from the West Country where he was made to live when under a control order?”.
What is the Home Secretary’s answer?
Mrs May
I thank the right hon. Lady for the remarks she made about the fatalities of police officers and, indeed, that of the young girl at the weekend.
National security is our top priority and the police are, of course, doing everything in their power to apprehend this individual as quickly as possible. The right hon. Lady has, however, been very careful in her use of statistics. She has quoted a period in which there were no absconds from control orders, but as we know, under the whole six years of those control orders—and, particularly, their first two years—seven absconds took place. I am afraid that the right hon. Lady cannot therefore argue that control orders were stopping people absconding while TPIMs are not.
Yvette Cooper
But the Home Secretary is not dealing with the crucial issue of relocation. No one has absconded since 2008 under the extensive use of relocations. The Home Secretary took the personal decision to rule out relocation for Ibrahim Magag and for every other terror suspect, even though the judge who reviewed Mr Magag’s control order said specifically:
“It is too dangerous to permit him to be in London even for a short period”.
The Home Secretary told the House that she was “confident” that her policies—TPIMs and extra surveillance —would be sufficient. They have clearly not been, so will she admit that she got it wrong on relocations; will she instigate an urgent review by David Anderson into how Mr Magag has absconded; and, in the interests of public protection, will she now change course and put the legislation right?
Mrs May
Just to be absolutely clear, the right hon. Lady has put this case in certain terms, which I believe do not reflect the reason why the TPIM was originally put in place—to prevent fundraising and overseas travel. We do not believe that Magag’s disappearance is linked to any current terrorist planning in the UK, and it is important to put that point on the record. As the right hon. Lady will know, the TPIM regime introduced rigorous measures to manage the threat posed by terror suspects whom we cannot yet prosecute or deport by limiting their ability to communicate, associate and travel. The new regime was complemented by funding to the Security Service and the police, so we are maximising the opportunities to put these individuals on trial in an open court. The TPIM regime is, as the right hon. Lady knows, a package. To return to my earlier point, there were a number of absconds under control orders, so it is not right for her to contrast control orders and TPIMs in the way that she has.
Mr Aidan Burley (Cannock Chase) (Con)
T3. This morning, on their way back into work, all MPs will have walked past the continued encampment on Parliament square. The banners, the flags and the tents were supposed to be removed by the time of the jubilee, yet they are still there today—over halfway through the lifetime of this Parliament. When does the Home Secretary intend to use the powers given to her by the Police Reform and Social Responsibility Act 2011 to remove these final eyesores, so that the square can once again be fully used by the public?
The Parliamentary Under-Secretary of State for the Home Department (James Brokenshire)
The Police Reform and Social Responsibility Act introduced new powers prohibiting the use of tents and related items in Parliament square, while safeguarding the right to peaceful protest. The use of the powers is an operational matter for the police and Westminster city council, but they were used in January last year to clear the square of tents.
Ian Austin (Dudley North) (Lab)
T5. I think that ordinary decent people out there will be absolutely staggered by the Home Secretary’s complacency about Ibrahim Magag. The difference between the first two years and the last four years of control orders is that no one absconded during the last four years because the power to relocate was used, and that is the power that the Home Secretary got rid of. Ibrahim Magag was in London, where his friends were, and was able to abscond, because the Home Secretary had given him a travel pass. We all hope that he does not do any harm, but if he does, I think that people out there will hold her responsible.
Henry Smith (Crawley) (Con)
T4. Will the Minister join me in congratulating Sussex police on the work that they have been doing in tackling laser pen attacks on aircraft operating from Gatwick airport, which have the potential to endanger hundreds of lives in the air and on the ground? What additional work is the Home Office doing to address the problem nationwide, and, possibly, to reclassify laser pens?
James Brokenshire
I am, of course, happy to join my hon. Friend in congratulating his local force on its work in dealing with this very serious matter. Although we currently have no plans to classify lasers as offensive weapons, we are determined to ensure that best practice is shared between forces. I hope that my hon. Friend will be pleased to learn that one of the five objectives of the newly established College of Policing will be to identify what works in policing, share best practice, and ensure that that best practice is adopted.
Mr David Blunkett (Sheffield, Brightside and Hillsborough) (Lab)
Can the Home Secretary shed any light on the Prime Minister’s thinking, as expressed yesterday, about the removal of Abu Qatada?
Mrs May
The Prime Minister and I are of one mind on that, and I think that the majority of the public and Members of Parliament are as well. We want to deport Abu Qatada to Jordan. We are working on two tracks: we are continuing to work with the Jordanian Government to establish whether anything can be done to deal with the issue raised by the Special Immigration Appeals Commission in relation to our inability to deport him, and we have sought and been granted leave to appeal to the Court of Appeal. The case will be heard next month.
Nick de Bois (Enfield North) (Con)
T6. As a result of a written question that I tabled on 9 November, it emerged that, on average, three babies a year are born with an addiction to class A drugs. Given that the national health service is spending half a billion pounds on the treatment of people who are addicted to class A drugs, does the Home Secretary agree that the police should make it a priority to prosecute dealers, and that those dealers should face the severest of sentences?
The Minister of State, Home Department (Mr Jeremy Browne)
My hon. Friend has raised a particularly tragic aspect of drug abuse, namely its effect on newborn children. This is part of a wider effort to reduce the harm caused by drugs. I am pleased that over the past decade there have been substantial falls in the consumption of illegal drugs—including the more harmful ones such as heroin—but the problem is continuing to evolve, especially in relation to legal highs. We are constantly thinking about how we can do more to prosecute those who trade in drugs, and how we can reduce the harm caused by them.
Mr Gareth Thomas (Harrow West) (Lab/Co-op)
A freedom of information answer from the Metropolitan police revealed that some 4,000 front-line police officers covering the London boroughs had been lost during the Government’s first two years in office. How does the Minister think that that is helping to tackle gang violence and antisocial behaviour—which is causing growing concern—and does he think that it may have contributed to the riots in any way?
The Minister for Policing and Criminal Justice (Damian Green)
No, I do not think that, and nor does anyone who has investigated the riots.
I want to make an overall point about policing in London, which is extremely difficult but hugely important not just to Londoners, but to the whole country. In this time of financial stringency, the reason for which the hon. Gentleman will understand —it is because of what his Government did—recorded crime in the Metropolitan police area over the past 12 months was down by 3%. London is becoming safer. I wish that Opposition Members who have raised this matter a lot would look at the facts of what is happening on our streets—they are becoming safer.
Andrew Stunell (Hazel Grove) (LD)
T7. The accident and emergency unit at my local Stepping Hill hospital has had an 11% spike in admissions, much of it, sadly, driven by the misuse of alcohol. The Government’s alcohol strategy is very welcome, but will the Minister assure the House that the current consultation will not simply be used to kick things into the long grass? We need serious action quickly.
Damian Green
I am grateful to my right hon. Friend for raising this important issue. Alcohol-related harm costs the country about £21 billion a year. Absolutely the alcohol strategy is not designed to delay anything. As he knows, it sets out a range of measures to tackle binge drinking, to cut alcohol-fuelled violence and disorder and to reduce the number of people drinking at damaging levels. Just as the Government overhauled the Licensing Act 2003 to give local authorities the tools they needed to tackle alcohol-related crime and disorder, so we will take further measures as and when necessary.
Kerry McCarthy (Bristol East) (Lab)
Over the Christmas and new year period, there seemed to be an abundance of adverts and public information campaigns telling women how they could avoid being raped or sexually assaulted—for example, by not drinking too much or dressing in a certain way. Does the Home Secretary agree that this gives out entirely the wrong message—that victims are somehow responsible for the crimes being perpetrated against them—and that we ought to be sending out the message that it is never okay for men to assault women?
Mrs May
I absolutely agree with the hon. Lady that we need to send out a very clear message that sexual violence against men or women is wrong. These are abhorrent crimes—rape is an abhorrent crime—and we should be doing all we can to stop them. I also agree that, although it is necessary to ensure that women, particularly young women, are aware of the potential dangers and circumstances in which they could be at risk and that they take appropriate action, it is the perpetrator of such crimes whom we should be bringing to justice. It is the perpetrator who is at fault, and we should never forget that.
Andrew George (St Ives) (LD)
T8. Further to the last question and given the entirely justified outrage internationally at appalling cases of violence against women, what steps are the Government taking to ensure that both cultural and other remaining attitudes are challenged and that all allegations are properly and effectively investigated?
Mrs May
I thank my hon. Friend for that point. As I said, violence against women and girls is an abhorrent crime and we are committed to ending it. We have taken a number of steps: we have ring-fenced up to £40 million across the spending review period as stable funding for specialist local services, support services and national helplines; we have published a cross-Government strategy that includes an action plan; we have announced our plans to criminalise forced marriage in England and Wales; we have introduced two new stalking offences; we have piloted new ways of protecting the victims of domestic violence; and crucially—in relation to the cultural issues he raised—we have launched prevention campaigns to tackle rape and relationship abuse among teenagers, including through some very effective advertising. Internationally, the Under-Secretary of State for International Development, my hon. Friend the Member for Hornsey and Wood Green (Lynne Featherstone), is taking forward an international campaign against violence against women.
Hazel Blears (Salford and Eccles) (Lab)
The Home Secretary might recall that when he gave evidence to the TPIMs Committee of the House, Stuart Osborne, the deputy assistant commissioner of the Metropolitan police, said that the relocation power
“has been very useful for us…Without that relocation”
power
“and depending on where people choose to live,”
it
“could be significantly more difficult”––[Official Report, Terrorism Prevention and Investigation Powers Public Bill Committee, 21 June 2011; c. 5, Q10.]
for us to monitor and enforce the orders. Does she now regret the deal she did with the Liberal Democrats to abolish the power of relocation, which has led to a diminution of security for people in this country?
Mrs May
I say to the right hon. Lady that, during the transition from control orders to TPIMs, both the police and the Security Service made it clear that there should be no substantial increase in risk and that appropriate arrangements would be in place to manage an effective transition and to manage individuals under TPIMs. Of course we take extremely seriously the abscond that has taken place, and the police and others are working to apprehend the individual who has absconded, but TPIMs were put in place as a series of legislative measures, together with the package of extra funding that went to both the police and the Security Service. As I said, both the police and the Security Service were clear that there should be no substantial increase in risk.
Mr Speaker
Order. I am always keen to accommodate colleagues, but time is against us and we must move on.
Points of Order
(11 years, 11 months ago)
Commons ChamberRead Full debate Read Hansard Text
David Wright (Telford) (Lab)
On a point of order, Mr Speaker. You will be aware that the Cabinet Office has today tabled a written ministerial statement entitled “Coalition Government mid-term review”. I have with me the relevant document, “Together in the national interest”; there is nothing like starting the new term with a bit of comedy, and the TV over the Christmas period has been pretty poor in comedy terms. Could you give me some advice, Mr Speaker, because there has been a press conference in Downing street today, where the Prime Minister and the Deputy Prime Minister have been answering questions on this document and the Government’s future programme, but nobody in this House has had the opportunity to ask any question of the Executive about this document? This is supposedly a further relaunch of the Government, so why is no Minister here to answer questions on the failure of this coalition Government to implement their policies in their first two and a half years? Why is there not a Minister here answering on this document?
Mr Speaker
I am grateful to the hon. Gentleman for his attempted point of order, which may find some resonance with the Telford Bugle or some other similar purveyor of information to the public. [Interruption.] I am grateful to hon. Members for drawing my attention to the Shropshire Star, which is an extremely illustrious newspaper. He will have an opportunity to raise this during questions to the Deputy Prime Minister tomorrow and questions to the Prime Minister on Wednesday. It is a review document, but if there are substantive policy announcements to make flowing from it, individual responsible Ministers will doubtless make them to the House ere long.
Mr Peter Bone (Wellingborough) (Con)
Further to that point of order, Mr Speaker. Could you advise the House as to how the leaking of that document in television studios by Ministers, or even perhaps the Prime Minister, is in order with the announcing of new policy to this House first?
Mr Speaker
I think my response to the hon. Gentleman is substantively the same as my response to the hon. Member for Telford (David Wright). It is a review document—I do not wish to disappoint the hon. Member for Wellingborough (Mr Bone), but I have not yet read it and I have no immediate plans to do so—but if there are substantive new policy announcements flowing from it, of course Ministers must make them to the House. We will leave it there for the time being. The hon. Gentleman has that cheeky grin on his face which suggests to me that he knows that he was slightly pushing his luck.
Paul Flynn (Newport West) (Lab)
On a point of order, Mr Speaker. Only about once every two or three centuries does this House consider the supremely important matter of the succession of the Head of State. The Government propose to rush the Bill through both Houses in a single day, so it will not be possible to have a proper debate on the new clauses and amendments. The anxiety about this matter is not confined to commoners.
Mr Speaker
I note what the hon. Gentleman tells me, but I know that he will appreciate that the programme motion for such matters is not a matter for me. He may be very genuinely concerned about the length of time available for debate on these issues and his concerns will have been heard, but, to put it bluntly, there is nothing I can do about it now and I am not sure that there is anything I can do about it at any stage. However, he has vented his displeasure and I hope that that at least gives him some satisfaction.
Kevin Brennan (Cardiff West) (Lab)
And he is in agreement with the heir to the throne for the first time in 200 years.
Mr Speaker
Order. We are always grateful to the hon. Gentleman for his helpful observations from a sedentary position, but we will come now to the main business.
Trusts (Capital and Income) Bill [Lords]
(11 years, 11 months ago)
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The Parliamentary Under-Secretary of State for Justice (Mrs Helen Grant)
I beg to move, That the Bill be now read the Third time.
This is a short technical Bill that implements, with minor modifications, the recommendations of the Law Commission. The Government are grateful to the Law Commission, the Charity Commission and the leading experts and stakeholders who have worked with them and the Ministry of Justice to prepare the reforms. The provisions of the Bill are to be brought into force on a date or dates to be specified by order made by the Secretary of State and I will make a statement on the timing of commencement following Royal Assent.
The Bill will simplify and modernise the law and I commend it to the House.
Robert Flello (Stoke-on-Trent South) (Lab)
I do not wish to add a great deal to what the Minister has said. The Bill started its life under the previous Labour Government, which in itself means that it must be well founded. It is of course a Law Commission Bill and has therefore been subject to special procedures. Indeed, when it was considered in the other place and in Committee in this House, it was not amended. There are no amendments today and I have heard no adverse comments from any source outside these Houses.
I merely repeat what I said to the Minister in Committee: if the Bill is found in practice to have any unintended consequences, to cause any problems or to do anything other than follow the processes we wish it to use, I urge her and the Government not to tarry in any way in bringing it back to the House to give us the opportunity to correct it at the earliest opportunity. I wish to add nothing further.
Question put and agreed to.
Bill accordingly read the Third time and passed, without amendment.
Business without Debate
(11 years, 11 months ago)
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Mr Speaker
I am not sure why the hon. Gentleman was hovering, although I am sure his hover was well intentioned. We shall move to the vote.
Motion made, and Question put forthwith (Standing Order No. 58), That the Bill be now read a Second time.
Question agreed to.
Bill accordingly read a Second time.
Motion made, and Question put forthwith, That the Bill be not committed.—(Mr Syms.)
Question agreed to.
Mr Speaker
I thank the hon. Member for Poole (Mr Syms) for rising to move the motion; the choreography is everything in these matters.
Motion made, and Question put forthwith, That the Bill be now read the Third time.
Question agreed to.
Bill accordingly read the Third time and passed, without amendment.
Commission Work Programme 2013
(11 years, 11 months ago)
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Mr Speaker
We come now to the motion on the Commission work programme for 2013—
Mr Speaker
We are obliged to the Whip for his enthusiasm, but it would be useful to hear the reasons for considering the question. I call the Minister to move the motion.
The Minister for Europe (Mr David Lidington)
I beg to move,
That this House takes note of European Union Document No. 15691/12 and Addendum, a Commission Communication on the Commission Work Programme 2013, and welcomes the Work Programme as a useful summary that enables the Government and Parliament to plan their engagement.
I welcome the fact that the European Scrutiny Committee has referred this subject for debate. Today’s debate on the 2013 work programme of the European Commission provides us with a timely opportunity for both Government and Parliament to look ahead and plan our consideration of forthcoming European Union business.
As is always the case, the work programme sets out the European Commission’s priorities, in this instance for 2013 and early 2014; and it may be the last substantial work programme under the current Commission, whose term ends in October 2014. The substance of the Commission’s plans is contained in the annex, which previews 58 initiatives, making it shorter than previous work programmes. However, we know that the list of initiatives is unlikely to be exhaustive; previous experience suggests that reactive work will arise. As the House is aware, various European measures from previous Commission work programmes are already in the system, and work on those will be ongoing over the next 12 months or so.
Ms Gisela Stuart (Birmingham, Edgbaston) (Lab)
The Minister mentioned reactive legislation. Is any reflective work done? Eleven years ago, 2012 was supposed to be the year when Europe was the most competitive economy in the world. What went wrong?
Mr Lidington
We could spend a fair time debating exactly what went wrong and the extent to which fault should be laid at the door of European institutions or of various national Governments who failed to implement the right economic measures to inculcate greater dynamism. I make no bones about the fact that the European Union as a whole would benefit from focusing—perhaps not to the exclusion of everything else, but ahead of all other priorities—on the urgent need for Europe as a whole to rediscover economic dynamism and economic growth through trade and open markets, because in the face of a dramatically changing global economy, that is the only way Governments of European nations can ensure that future generations enjoy both the material standards of living and the degree of social protection that we have come to take for granted in our day.
Mr John Redwood (Wokingham) (Con)
I should be grateful if the Minister could tell us whether there is provision in the Commission work programme to deal with the new relationship for the United Kingdom that I believe the Prime Minister will be sketching in his forthcoming speech.
Mr Lidington
I appreciate that my right hon. Friend finds it hard to contain his excitement at the prospect of the Prime Minister’s speech. He will, however, understand if I decline to be drawn into speculating about the contents of that speech today. I am very confident indeed that when my right hon. Friend the Prime Minister makes his promised speech on European policy, it will address the important issues facing both the United Kingdom and Europe as a whole, and will chart a way forward that is in the interests of the people of this country in particular and the peoples of Europe more broadly.
Wayne David (Caerphilly) (Lab)
As the Minister is waxing eloquent about the Prime Minister’s forthcoming speech, could he tell me whether the Prime Minister intends to consult the Deputy Prime Minister and his own Back Benchers?
Mr Lidington
I do not know whether that was a bid from the hon. Gentleman to be involved in the No. 10 drafting team. The Prime Minister will prepare his speech in the way he normally prepares such speeches within Government. The hon. Gentleman will not have to wait long to see the speech and I am sure that he will be first in the queue to express enthusiasm and a warm welcome for what my right hon. Friend has to say.
Mr Ronnie Campbell (Blyth Valley) (Lab)
Will a referendum be called for in that speech?
Mr Lidington
Again, I have to say that the hon. Gentleman must wait to see what my right hon. Friend the Prime Minister has to say in his forthcoming speech, but I am sure that the answers to the questions that he and other Members have about the speech will be answered in full when my right hon. Friend makes it.
Andrea Leadsom (South Northamptonshire) (Con)
Will my right hon. Friend give way?
Mr Lidington
I will, but I hope that the House will understand that I then wish to make progress in this time-limited debate.
Andrea Leadsom
Further to the questions from Opposition Members, can my right hon. Friend assure me that the Prime Minister will look at the Fresh Start project manifesto that he and other colleagues on the Government Benches received in draft form over the Christmas recess? It proposes significant reforms to Britain’s relationship with the EU.
Mr Lidington
My right hon. Friends the Prime Minister and the Foreign Secretary and I follow closely the work that my hon. Friend the Member for South Northamptonshire (Andrea Leadsom) and the Fresh Start group are doing. We think that their ideas represent an extremely creative and valuable contribution to the debate about this country’s future in Europe.
Mr Lidington
I ask the right hon. Gentleman to allow me to continue. Perhaps he could try to intervene later; I will seek to give way to him then.
Overall, we agree with the Commission that the No. 1 task facing the European Union is to tackle the economic crisis, return Europe to growth and enable its member states to compete in the global economy. Globalisation means that the EU faces increased competition from rapidly developing countries outside Europe, but it also brings us opportunities to build new markets for our products and services. To meet those challenges, the European Union should prioritise the promotion of trade, within the EU and outside it. It should seek to free private enterprise and enable businesses to compete, and it should support those priorities by ensuring that the limits of EU power are respected. I would therefore like to highlight three cross-cutting themes that are of the highest importance to the Government: growth, better regulation, and safeguarding the interests of the United Kingdom. I shall deal first with growth.
Kelvin Hopkins (Luton North) (Lab)
The Minister is talking about the importance of European Union member states competing in the world, and indeed with each other. The only way that they can do that fairly is if they have an appropriate value for their currency. They cannot have that when they are fixed inside the euro.
Mr Lidington
I think that this country’s decision to stay outside the euro was right. I am certainly not in the least tempted to see the United Kingdom abolish sterling and participate in the euro, but I say to the hon. Gentleman that we, as a democratically elected House, have to respect the sovereign decisions of other European democracies that have chosen, for reasons of their own that they have explained publicly, to commit themselves to the single currency project.
Keith Vaz
Will the Minister explain to the House how the work programme will fit in with the principles of the presidencies that will take place this year? As he knows, Ireland has taken over the presidency, and has presidency priorities. In six months’ time, another country will take over. How will that fit in with what the Commission intends to do?
Mr Lidington
The way this works, as the right hon. Gentleman will know from when he held my position, is that the Commission, under the treaties, has the right to initiate legislation, but even in the post-Lisbon world, the rotating six-monthly presidency chairs the various sectoral Council meetings and working groups, and has considerable influence in determining the relative priorities given to particular measures. A presidency may choose to try to fast-track a particular measure, and use its diplomatic resources to seek early agreement on it; it may place another measure, about which it cares less, on the back-burner. There is negotiation between the presidency and the Commission in that respect.
The Government have long argued for the Commission to come forward with measures to help boost growth, through agreements with important trading partners, and by strengthening and deepening the single market. I am sure that the House will welcome the news that, last month, the European Union successfully concluded a free trade agreement with Singapore, which will create new opportunities for United Kingdom businesses, particularly in the export of services, green technologies, automotive, electronic and pharmaceutical items, and medical devices. There are also opportunities to bid for public procurement contracts in Singapore.
We will continue to work on many more such agreements. I hope that it will be possible to conclude the proposed EU free trade agreement with Canada in the coming weeks, to open negotiations between the EU and the United States by the summer, and to take forward free trade negotiations with Japan. We will also continue to support efforts to achieve EU free trade agreements with India, Malaysia and other countries.
Mike Gapes (Ilford South) (Lab/Co-op)
On free trade agreements with the United States, does the Minister agree with me and with many commentators that the chances of the European Union getting effective agreement with the United States will be significantly less if the UK is not part of the negotiation, and that it is in the UK’s interests that the European Union is able to negotiate effectively with the United States and other countries, which would not be possible if we were outside?
Mr Lidington
I have always taken the view that if the United Kingdom were to walk away from the table, the most ardent and most influential champion for free trade and open markets would be removing itself. I am quite clear in my mind, particularly with the pressures that we can observe globally for protection rather than free trade, that it is important that we continue to bring our influence to bear within the European Union and within other multilateral organisations to promote greater freedom of trade across the world.
Mr William Cash (Stone) (Con)
My right hon. Friend, in line with many other members of our party, is deeply committed to the idea of free trade, but given that the European Union has exclusive competence in relation to trade, and with the qualified majority vote and with our having only 8% now, and only 12% even when the Lisbon treaty proposals are introduced in a few months, how will we be able to exercise the degree of influence that he claims, and how will we maintain bilateral trading relations, which will be the answer to all these problems?
Mr Lidington
I have more confidence than does my hon. Friend in our ability to form alliances with other countries to achieve the objectives that he and I share. Our right hon. Friend the Prime Minister has already discussed at length with Chancellor Merkel their shared objective of an ambitious free trade agreement between the European Union and the United States. The leaders of our country and of Germany recognise that the prize at stake is not only the phasing out of tariff barriers but the elimination of non-tariff barriers, thereby establishing, in effect, global regulatory standards agreed on a Euro-Atlantic basis, which would have to become the model for the rest of the world and which other parts of the world would find it difficult to challenge.
Mr Lidington
I will give way to the hon. Gentleman, but then I will try to make progress.
Graham Stringer
It is often said that if this country were to leave the European Union, we would get all the disbenefits of all the European laws, without any of the benefits implied. Will he tell us, therefore, how many EU laws Singapore has adopted, or any EU laws that the United States will adopt if a free trade agreement is arrived at?
Mr Lidington
The arrangements for dismantling barriers, for the mutual recognition of each other’s standards or for a common standard are negotiated and set down in writing in the terms of a free trade agreement. I am happy to send the hon. Gentleman a copy of the EU-Singapore free trade agreement if he wishes, so that he can inspect this in detail.
Mr Lidington
It is to the advantage of business and, therefore, ultimately of workers and consumers in the United Kingdom that more such free trade agreements are achieved, particularly with the fast-growing economies of Asia and Latin America.
Robert Flello
I am grateful to the Minister, who is being extremely generous. I have great concerns about Colombia and the move towards EU free trade with the Colombian regime, as I refer to it. Under President Santos there are ongoing human rights abuses and there is a huge issue concerning the current peace discussions with the FARC. When considering the work programme, will the right hon. Gentleman bear in mind the huge problems with Colombia?
Mr Lidington
As I am sure the hon. Gentleman knows, there are standard human rights clauses in all EU free trade agreements. I am aware that these human rights issues, particularly the rights of trade unionists in Colombia, have long concerned politicians and Ministers not just in the UK but in a number of other European countries. This is a live issue and it is one that we raise bilaterally with our friends in Colombia.
The European Council has called on the Commission to publish the proposals already identified in its communication on the Single Market Act II by the spring of this year, and it is encouraging that the work programme includes measures to improve the single market in both services and digital, such as those on access to regulated professions, reducing the cost of broadband deployment and e-invoicing.
We also welcome measures that aim to put the EU economy on a more sustainable long-term footing, including through innovation and the green economy, such as a new climate and energy framework up to 2030. We also support measures to improve transparency and customer protection and to tackle systemic risks in financial services. Better financial regulation is necessary to financial stability, and common rules are essential to safeguard the single market and the competitiveness of the UK’s financial services sector.
However, the Commission also needs to ensure that its proposals on complex financial services dossiers are properly worked out through the legislative process and that new proposals do not simply add to the existing backlog. We believe that the Commission should prioritise only the most important issues to ensure that sufficient time and expertise can be devoted to them, and that proper consultation takes place with practitioners in that sector.
We are concerned about the potential impact of a relatively small number of measures that are labelled as growth promoting. Those include the review of the institutions for occupational retirement pensions directive, which could significantly increase the cost of occupational pensions and reduce investment.
Right across the range of single market and other measures, we are working closely with the Commission, other member states and the European Parliament to encourage them to follow smart regulation principles. This brings me to the second important theme for the Government in the work programme.
Tackling regulatory burdens on business is vital for boosting economic growth. While EU regulation is needed in some areas—for example, in eliminating barriers to the single market—we need to reduce unnecessary costs to business from EU regulation. Our chances of heading off or shaping new EU regulations are much higher if we influence the European Commission before it has published a formal legislative proposal, so the Government use the Commission work programme to identify forthcoming proposals, and challenge the Commission about these in the early stages. We share feedback from British businesses on the potential impacts of proposals and build alliances with other member states so that we speak with a louder voice in Brussels.
Sir Alan Beith (Berwick-upon-Tweed) (LD)
I am grateful to the Minister for recognising that it is extremely important that Select Committees of this House are made aware at an early stage of developing legislative proposals in Europe in time to influence them, and I hope that he will continue attempting to ensure that the invaluable help that comes from UK representatives to Select Committees is strengthened and that they are enabled to do this vital job.
Mr Lidington
I am grateful to my right hon. Friend for what he says. It is true that the departmental Select Committees of this House can play an important role complementing the work of the European Scrutiny Committee by trying to look ahead of formal legislative proposals being tabled for scrutiny. The sort of work that the Select Committees can do in taking evidence from those business sectors that may be affected by a particular Commission initiative, producing evidence-based reports, can help better to inform the Government’s negotiating position and, on occasion, can have a direct impact on thinking within the European institutions themselves. I welcome what my right hon. Friend says and I hope that other Select Committee Chairs will look to the example that he and, in fairness, a number of others have set.
Mr Cash
My right hon. Friend will know that the European Scrutiny Committee is currently holding an inquiry into European Scrutiny Committee matters. Does he accept that timing is very important? What my right hon. Friend the Member for Berwick-upon-Tweed (Sir Alan Beith) has just said is, of course, extremely welcome, but does the Minister not accept that unless the Government are prepared to release the information they have early enough, it could turn out to be far less valuable? Therefore, could not the Government ensure that we all get the information as early as they do?
Mr Lidington
I am always willing to explore how the Government can help to make information available to Parliament, particularly its Committees, in a way that enables a better informed debate and allows Parliament an input at the earliest stage in proceedings. As my hon. Friend will be the first to understand, there is always a balance to be struck between our wish on the one hand to do that and our concern on the other hand not to divulge ahead of negotiations all the details of our negotiating position, including on those areas that are the highest priority objectives and those on which we might be prepared to make concessions. However, I am always happy to look at concrete ideas for improving how we do business.
Andrea Leadsom
In the interests of better scrutiny, does not my right hon. Friend also agree that it would be a good idea for this House to consider whether we ought to have European business questions periodically, rather than just on these unusual occasions? Without wishing unilaterally to promote him, should not it also be considered whether Secretary for Europe should in fact be a Cabinet post?
Mr Lidington
It is always nice to be flattered, but to attempt an answer really would be well above my pay grade—
Mr Speaker
Order. I am sure that the Minister of State hopes that the point has been heard by the Whip on duty.
Mr Lidington
Mr Speaker, the Whips on duty hear everything.
Overall, the Government have achieved some success in trying to shift the Commission away from a culture of regulation. Our reform agenda has widespread support and 12 other member states joined us in November in backing a 10-point plan for EU smart regulation. On 12 December the Commission published a new better regulation strategy, which includes a proposal that the Commission should use EU common commencement dates, which ought to help businesses plan for changes in regulation. It has also promised to introduce summary sheets for impact assessments to make it easier for businesses to assess the cost of new legislation.
Mr Redwood
Has not the EU been legislating all my lifetime? It has far more regulation than anyone could conceivably want. Why does it not have a year off? How can the Minister possibly say that it is going our way when all we see is more and more needless, time-consuming and costly regulation?
Mr Lidington
To be fair, that is a charge my right hon. Friend has levied not only at the European Union but at successive Governments in this country. I certainly agree that too often the European Commission’s first instinct—to be fair, too often it is the first instinct of Departments of State in this country—is to measure its activity and political success by the number of new legislative measures it invents and takes through the legislative process. Often—I certainly believe this is true at European level—more could be achieved more effectively and significantly more cheaply through a sensible exchange of best practice, by looking at what works in one member state but perhaps does not work in another and seeing whether it is possible to encourage the dissemination of best practice rather than always looking at legislative measures as the first step.
I do not want to exaggerate the extent to which the Government have been able to shift a deeply ingrained culture that looks to legislation, but I think that it is important that the House appreciates that we have managed to secure some changes that none of our predecessors, of either party, managed to secure. Last year we got agreement to a measure under which businesses with fewer than 10 employees should be exempt altogether from any new EU legislative proposals unless there was a good reason for their inclusion. This is the first time in the EU’s history that the default position has been that there should be an exemption from regulations rather than the inclusion of all companies within them. Agreement was reached, too, that lighter regimes should be developed for those occasions when such businesses needed to be included. For example, in March last year agreement was reached that exempted up to 1.5 million UK small businesses from certain European Union accounting rules.
Ms Gisela Stuart
The Minister says that there will be an exemption unless proved otherwise. What is the mechanism whereby we keep track and action is reported back to us, because we hear this year after year but nothing happens?
Mr Lidington
The hon. Lady makes a perfectly fair comment. That is why at European Council after European Council my right hon. Friend the Prime Minister keeps coming back to the charge and saying, “We all agreed as Heads of State and Government two or three months ago that the Commission should come forward with a set of proposals on smarter regulation; now we want to see what it has actually been doing in the meantime.” One of the key objectives of the Prime Minister and of my right hon. Friend the Secretary of State for Business, Innovation and Skills is to ensure that we do not simply relax having achieved a paragraph in the conclusions of a European Council that commits everybody to a measure of deregulation but follow it through so that in all our conversations with the Commission, in our work with MEPs, and in the work that we do bilaterally with other member states we try to co-ordinate a more growth-friendly approach across the European Union. These high-level declarations need to be nailed down in terms of concrete action, and the Commission should be expected to report back. We are making progress on that. I am the first to say that there is still a great deal more to do, and we will encourage the Commission to consider further and more ambitious measures.
Mr Cash
I suggest that the Minister uses the word “ambitious” because annexe 2 of the programme refers to “simplification” and “administration burden reduction initiatives”. There are three of those, two of which are legislative and one non-legislative. If one turns to the rest of the work programme and goes through the entire list, one finds that 48 of the 58 are new legislation. I am afraid to have to say to my right hon. Friend that ambition is one thing and vanity is another.
Mr Lidington
My hon. Friend displays his usual prescience in these matters, because I was about to refer to the list that he recited. The Government welcome the inclusion in the work programme of a list of simplification measures, but we need to be vigilant to ensure that they deliver genuine savings for business. The list of 14 withdrawn proposals that the Commission has published is disappointing, because those measures are obsolete already or are due to be replaced by further proposals. The Commission needs to do much better than that to remove unnecessary or excessive legislation from the statute book, and not only the Government of the United Kingdom but the Governments of a significant number of other like-minded member states are committed to achieving that.
Mrs Anne Main (St Albans) (Con)
On the commitment to reducing the burden of these legislative measures, does the Minister have any idea of how many we would like to get rid of? Are we suggesting that anything is dropped instead of just waiting for the Commission to show us what it is proposing?
Mr Lidington
Yes. My right hon. Friend the Secretary of State for Business, Innovation and Skills keeps returning to this point. The working time directive is one example that the Prime Minister mentioned again in his television interview on Sunday. The best thing I can do for my hon. Friend is to undertake that I or one of my colleagues in the Department for Business, Innovation and Skills will write to her with more detail on this point.
A third important theme for the Government is safeguarding the United Kingdom’s interests as a sovereign state. As set out in the coalition agreement, we will not participate in the establishment of a European public prosecutor and the UK will not exercise its opt-in for this measure, which is proposed in the Commission’s work programme. Several other measures in the area of justice and home affairs will also trigger opt-in decisions. These will be considered on a case-by-case basis, with a view to maximising our country’s security, protecting civil liberties, preserving the integrity of our criminal justice and common law systems, and controlling immigration.
We also have concerns about subsidiarity in relation to a small number of items in the work programme, such as those with regard to standardising VAT forms throughout the EU. Parliament, of course, has an important role to play in this regard, not least in deploying the additional powers that it has under the Lisbon treaty to issue a reasoned opinion when it considers that a proposal is not consistent with the principle of subsidiarity.
I hope that today’s debate will set the tone for close consultation between Parliament and Government on European Union issues in 2013 and beyond. We consider Parliament’s role to be vital in strengthening democratic oversight of EU activity and, more broadly, in improving trust in the decision-making process between citizens, Parliament and Government, and fuelling a well-informed public debate on EU matters.
Of course, responsibility for most of the measures in the work programme lies with other Government Departments and not the Foreign and Commonwealth Office, but I will be happy to discuss further, both with the European Scrutiny Committee and departmental Select Committees, how best to engage in a deeper dialogue about EU issues during all stages of their development. The scrutiny of EU legislation by Parliament is vital to the robust functioning of democracy.
Sir Alan Beith
I say to the Minister that we and the Liaison Committee have had that dialogue and that it is now delivery time.
Mr Lidington
It is right to say that it is delivery time, but that means that it is delivery time for Parliament as well as for Government. It has to be for each of the relevant Select Committees to decide the way in which they should give, perhaps, a higher priority to their EU responsibilities, which are, after all, included in their terms of reference under Standing Orders. The Government are taking their responsibilities seriously and I look forward to working with not just my right hon. Friend but the other Committee Chairs in successfully providing the level of scrutiny and debate on European matters that I think we all wish to see. That is why I welcome the opportunity for debate today and I commend the motion to the House.
Emma Reynolds (Wolverhampton North East) (Lab)
I welcome the opportunity to discuss the European Commission’s work programme for 2013. In opening, I apologise to you, Mr Speaker, and the House for missing the first couple of minutes of the Europe Minister’s speech, but I promise him that I listened attentively to the rest of it.
As set out in the European Scrutiny Committee report, the work programme follows on from the Commission President’s annual speech last September and serves as a blueprint for the Commission’s activities over the next 12 months. I agree with the Committee’s assessment that the work programme is a useful tool for the departmental Select Committees. The Liaison Committee has underlined that examining Commission proposals is one of the core tasks of the departmental Select Committees, and as such the proposals in the work programme will, I hope, be a useful starting point for further scrutiny.
I echo the Europe Minister’s welcome for the 2013 work programme’s improved coherence and greater strategic focus compared with previous years. Last year there were 129 policy initiatives; this year there are 58. It is right that the Commission focuses on the areas in which it can be most effective. The initiatives are largely grouped into seven strategic areas and I will start by considering the first and most important of those areas, namely the establishment of a genuine economic and monetary union.
The eurozone crisis will rightly continue to dominate the EU’s thinking and activities in 2013. Last year ended with some positive steps towards banking union being taken at the December summit, and the measures set out in the work programme will build on those positive steps. Putting the single currency on a stable long-term footing is in the interests not only of eurozone countries, but of non-eurozone countries such as the UK. It is therefore right that that is a priority.
The eurozone crisis was triggered by a crisis in the global financial sector. Concerns remain about the solvency of some of the larger medium-sized European banks, so it is necessary to establish the means to separate the link between weak and undercapitalised banking systems and sovereign debt. Such an agreement will help to build confidence in the eurozone and bring about greater long-term stability. We therefore support the progress towards building a genuine economic and monetary union in the proposals contained in the work programme for 2013. Within that process, it is crucial that the interests and rights of non-eurozone member states such as the UK are respected, and that the integrity of the single market is protected. We welcome the Commission’s commitment in the same section to
“take action to fight tax fraud and evasion, including an initiative on tax havens”.
I turn to the Commission’s proposals on deepening the single market. The European Union’s single market is a great success story. In a world dominated by economic giants such as the US, China and India, countries around the world are co-operating more closely with their neighbours. Increased regionalisation has become a defining force. For example, south America has Mercosur and south-east Asia has the Association of Southeast Asian Nations. The European single market is often a model from which others take inspiration.
The European Commission is right that to remain competitive in the global economy, the single market must continue to adapt and develop. Without reform, the potential of the single market will not be realised. That is why we continue to support the completion of the single market, particularly with regard to the digital economy and the services sector. It is our view that the progress in those areas is often too slow.
Mr Cash
I imagine that the hon. Lady does not recall the White Paper published by the European Commission in June 1985—a huge great thing about an inch deep—on completing the internal market by 1992. Here we are in 2012, some 30 years later. Does she believe that there has been progress?
Emma Reynolds
I was alive during that year, but I know that the hon. Gentleman was already reading documents and making speeches on these issues then. We must consider the complexities of the markets in question and the number of member states—as a country, we pushed for a European Union of 27 member states. No other regional co-operation in the world has produced a more successful single market. As I have said, many bodies around the world that want to co-operate more closely and to form similar internal markets are looking to the EU as a source of inspiration. I hope we can now get back to 2013.
Mr Redwood
The Leader of the Opposition recently made a very interesting speech, in which he said that Labour had probably been a little too lax on migrants coming into this country during its period in office and that there was going to be a new policy. What would the hon. Lady like to see in the Commission’s work programme to ensure that we can have proper controls on our borders?
Emma Reynolds
That would be an innovative use of the Commission’s work programme, given that that is not an element of it. The Leader of the Opposition did say in a recent speech that we got it wrong in government and that we should not have had an open-door policy in 2004. I think that we should have been more in line with our European partners. We were one of the small handful of countries that had an open-door policy right from the start. Germany and other countries had transition periods, and we are certainly committed to them in the future.
Developing modern and efficient infrastructure, both digital and physical, is central to ensuring that the single market adapts to a rapidly changing world. It would be impossible for member states of the EU to meet the challenges of tomorrow using the tools of yesterday. We therefore welcome many of the proposals in the “Connect to Compete” section of the programme, particularly those to tackle obstacles to electronic payments across borders.
In the “Growth for jobs” section of the work programme, the Commission is right to express the concern that
“high unemployment, increased poverty and social exclusion risk becoming structural”
in Europe if no action is taken. It is an absolute tragedy that one in every two young people in Greece and Spain is out of work. Here in the UK, youth unemployment is too high and long-term unemployment is a real problem. Last year, including over Christmas, more people than ever before had to use food banks for their families’ basic needs. The Government seem to have few answers or solutions to those problems. The Opposition believe it is incredibly important that effective policies are formulated and implemented both here in the UK and across the EU to reduce unemployment drastically and to reduce poverty.
Kelvin Hopkins
My hon. Friend rightly refers to food banks and poverty, and we could talk about mass unemployment. Do not those problems derive directly from the heavy deflationist influence of the European Union?
Emma Reynolds
In some other member states, such as Germany, there is a low rate of unemployment, and Germany has done better than we have in exporting to some of the key emerging markets around the world. Tackling unemployment very much depends on the policies of individual countries and individual Governments. The EU could certainly do more, but it is down to domestic Governments in member states.
In the “Europe as a global actor” section of the work programme, reference is made to ongoing negotiations on free trade agreements with various countries. I echo the Minister’s comments on that matter. Agreements have been reached with South Korea and Singapore and are being negotiated with Japan, the US, India, Canada and Mercosur. Such trade deals would result in significant European job creation. According to the Commission’s own figures, the free trade agreements with the US and Japan would create almost 1 million new jobs.
Finally, I turn to the section of the programme entitled “Building a safe and secure Europe”. I hoped that the Minister would make a winding-up speech, because I wanted to take the opportunity to ask him at what point the Government would make a decision on the mass opt-in to or opt-out from the justice and home affairs measures contained in the Lisbon treaty. It is important that we have some clarity on that issue at some stage. I respect what the right hon. Gentleman said today about the individual proposals contained in the work programme: there is not enough meat on the bone or enough detail for the Government to have a developed position on them. We look forward to learning in due course their position on whether they will opt into or out of the proposals in that part of the programme.
As I said at the outset, we welcome the broad objectives of the Commission’s work programme and its more strategic focus. I hope that the proposals, once they are submitted, will be given additional scrutiny by departmental Select Committees. It is important to remember that Europe is not purely a foreign policy issue and that decisions taken by our Government, in Brussels, and voted on by our MEPs have a major impact on domestic policy. Departmental Select Committees should therefore be thoroughly involved.
Mr Speaker
Order. I remind the House that we have less than 45 minutes to go, and that at least seven colleagues are seeking to catch my eye, so there is a focus on brevity.
Mr William Cash (Stone) (Con)
Thank you very much, Mr Speaker, and a happy new year.
I can be brief, for the simple reason that we have before us a list of initiatives, and although there may be fewer than 129, there are still 58, while the number of proposals to reduce regulation of a legislative nature amount to no more than two. The second thing to say is that the Commission work programme is crucial, in that it gives us the route map for where the European Commission is going.
The European Union is dysfunctional: it is not working as it was claimed it would work. Indeed, as I pointed out, referring to the White Paper that the European Commission produced in 1985, here we are, 20 years on from 1992 and nearly 30 years on from 1986, with a provision that simply does not match up to either the aspirations or the promises made. If the single market had worked as I hoped it would when I voted for it in 1986, we would perhaps be better placed than we are now. Unfortunately, it simply has not worked in that way.
The suggestion is that the strategic focus of the work programme is to
“Help business thrive and become more competitive in the global market, by reducing the costs of EU law,”
but I am afraid that is simply not substantiated by the facts. Furthermore, there is also a proposal—the Government welcome all of them—to
“Prioritise action to boost growth through improving the single market in services and digital, and ambitious free trade agreements.”
It gives me great pleasure to recall that it was Monsieur Jacques Delors, no less, who only last week proposed in Handelsblatt that it was about time that the United Kingdom got its act together and decided what it was going to do. I hope the Prime Minister will do that when he makes his much anticipated big speech on Europe, by following Monsieur Delors’ advice and going for either the equivalent of an enhanced economic area or alternatively—as he himself put it in stark terms—a free trade area between the United Kingdom and the European Union.
I say that because we have another provision:
“Help develop the single market in financial services, as the basis for a strong and sustainable financial sector.”
Tell it to the marines: ask the City of London whether it believes that is the direction in which things are going. The House should look at the problems of qualified majority voting. Despite the attempts to change the voting arrangements, the problems remain. The manner in which jurisdiction over the City’s regulatory system was transferred to Europe by the previous Government—endorsed and acquiesced in by those in the present Government—has been a catastrophe and will remain so.
The document also mentions—the Government welcome this, too—measures to
“Support an environment that encourages innovation, including helping drive the transition to a green economy.”
There are many aspects of the green economy that may or may not turn out to be sustainable, but I shall mention just one, in deference to my hon. Friends the Members for Daventry (Chris Heaton-Harris) and for South Northamptonshire (Andrea Leadsom). [Interruption.] Whichever constituency she represents, I know she does a great job for it. The question of wind farms is part and parcel of this, and they are growing exponentially.
The Government also applaud the work programme for helping member states
“to work together more effectively to strengthen the external border and protect citizens from terrorism and serious or organised border crime.”
Again, these are important aspirations; the question is whether that is actually happening. Indeed, I would say the same about increasing
“the EU’s influence on external policy issues”.
Over and over again, we get the aspirations and we are given the promises, but the question asked repeatedly in this dysfunctional European Union is: where is it going and to what extent is it delivering the kind of things that the people in this country vote for in general elections? They put their votes into the ballot box, then find that things are implemented through the Commission’s work programme, which goes to the Council of Ministers, and in almost every area, and driven by qualified majority vote or consensus, we end up with legislation that was not sought, called for, or promised in manifestos in our general elections.
Mark Hendrick (Preston) (Lab/Co-op)
The hon. Gentleman criticises the Commission for trying to do something about cross-border crime. He was against the introduction of the European arrest warrant, but it is working well and providing tangible results. Why is he critical of it?
Mr Cash
For the simple reason that we would have achieved the same results had we put in place our own operation through our own legislative system. Furthermore, there are many examples of the European arrest warrant being used to convict innocent people in absentia, including someone in Staffordshire who was recently convicted of a murder that they could not have committed because they were serving in a restaurant in Leek at the time. There might be some advantages to aspects of the co-operative arrangements, of which I am in favour, but that does not mean that the panoply of powers associated with the European arrest warrant is justified.
The Government have expressed reservations about certain proposals, but the key question is: what are they actually able to do about this? We can express reservations and argue against the proposals, but the qualified majority voting system operates in such a way as to prevent us from exercising our much-vaunted influence. I have to say to the Minister and the Government—and through them, I hope, to the Prime Minister in relation to the speech that he is about to make—that if that influence cannot be effective, it is worthless.
I have considered the evidence that has accumulated over the past 40 years since we came into the European Union. I wished you a happy new year earlier, Mr Speaker, but we must also remember that it is the 40th anniversary of our accession to the European Union, through the European Communities Act 1972. This is a time for serious reflection. It is a time not only for mere reform but for a fundamental change in the relationship. There is a disconnect between the legislation that is going through the House, in relation to the implementation of sections 2 and 3 of the Act, and what is being offered to the British people in manifestos.
Mike Gapes
The hon. Gentleman talks about a new relationship and mentions a free trade arrangement. Does he accept that, if the United Kingdom were to leave the European Union and simply have a free trade relationship with what would be the remaining 27 states after Croatia had joined, we would be in a similar position to Norway, in that we would have integration without representation? We would have to pay in and comply with the EU rules without having any say on how they were being formulated.
Mr Cash
I have great respect for the hon. Gentleman, who has been vociferous on European matters for a long time, albeit on the other side of the agenda from me. He might be interested to know that the Norwegians are now getting restless and using their arrangements within the European economic area to challenge directives. I heard only a few hours ago that that was happening.
Mr Cash
Yes, but that one instance demonstrates a principle. For 15 years, I have been advocating that we use the “notwithstanding” formula, and when my party was in opposition, we agreed that we would do so. If we were to use it just once now we are in government, it would send out an appropriate signal. Unfortunately, however, that is not happening. We hear about aspirations and reservations, and that it would be a good idea to change the relationship and to repatriate powers, but I have very little confidence that we will achieve anything when it comes down to it. Even more dangerous is the raising of expectations only to have them dashed by reality. As Churchill said, offering something to the British people but not fulfilling that promise is the best way to ensure that they will no longer trust us.
There are many aspects to this work programme—including a proposal for a European public prosecutor’s office, which I was glad to hear the Minister say we will not accept—but I shall not go into other matters this afternoon because they are so numerous and because others wish to speak. Let me simply make the point that we are now at a threshold and that there is no turning back. Messrs Barroso and van Rompuy, unelected as they are, have thrown down the gauntlet to the British people. They have said, “We are going to have a federal system,” yet it is unthinkable that this country would get involved in federal arrangements, be they in the eurozone or indeed in the European Union as a whole. We must have a clear strategy; we must have a fundamental change in our relationship. What goes with that has to be a return to the British people of the right to determine the legislation that they voted for in general elections. That is the principle on which this House was founded, and that is the principle on which we have to stand.
Ms Gisela Stuart (Birmingham, Edgbaston) (Lab)
Just ahead of the debate, I checked one of the political blogs and saw the following phrase:
“Over a hundred million pounds over budget, four years late, and the subject of a National Audit Office investigation”
and I thought that must be about the European Union. No, it was about the BBC’s rebuild. That brought it home to me that this House collectively pays great attention to the BBC, gives it more scrutiny and is better informed about how it runs than it is of the entire Commission work programme. As this is probably the last European Commission work programme before the 2014 election, at which the Conservative party might find itself beaten into second place by the UK Independence party vote, and we are moving into a time when matters European are going to be important across all the parties, I want to discuss the way in which we talk about the Commission programme.
It has been interesting to note that over the past hour, we have talked just about process and there has been very little on the substance. The truth is that debating an entire Commission programme in an hour and a half is a bit like saying that the Chancellor’s Budget speech or the Queen’s Speech should be debated by the House of Commons in an hour and a half. That is the equivalent; let us face it. If, as the Minister says, he is throwing a gauntlet down to Parliament, I would like gently to chuck it back to him and say that a number of things need to change if Parliament is seriously to engage with this issue.
I genuinely mean no disrespect, but if the European Union has this huge influence on our domestic legislative programme, which this work programme shows it does, what on earth is this matter doing in the Foreign Office? This is not foreign; it is domestic. The number of legislative issues that need to be addressed must be addressed by departmental Cabinet Ministers on a regular basis. I know that suggestions have been made about upgrading the role of the Minister for Europe, but I say no: I want UKREP to have a political role. All the negotiations going on need to be answerable on an “in time” basis, not through bits of paper that are fed to us afterwards. That should be done by UKREP, but at the moment it has a diplomatic role. If a Cabinet Minister were answerable from this Dispatch Box for all the negotiations at UKREP level, that Minister would be the equivalent of the Deputy Prime Minister. It is a serious post.
Let me give one simple example. The work programme talks about a “safe and secure” EU. I always remember Matthew Parris once saying that a speech or statement should be assessed on the basis of whether anyone would dare to say it if the word “not” were put in front of it. As I read through the document I thought that that would not apply to a single statement in it. It was a case of cut and paste, add the year, and motherhood and apple pie.
The Commission refers to establishing a European public prosecutor’s office
“to fight against crimes affecting the EU budget and protect its financial interests”.
I remember that 10 years ago, during the negotiations that led to the Lisbon treaty, the UK had to fight tooth and nail to make sure that a public prosecutor would operate on a legislative basis that would require unanimity. Ten years ago, we expended considerable political capital on that, because whenever the veto is exercised or unanimity is insisted on something has to be given back at some stage or other. We are now 10 years on, the basis of unanimity remains but the Commission still wants the office, so this never goes away.
The UK Government have said that they are opposed to the proposal. This House has to have a way of understanding how we are going to be against it—what the political negotiating cost will be of our not being part of such a move. I am afraid that an hour and a half of debate on the Commission’s programme—or even chucking the issue to a Select Committee or the European Scrutiny Committee, however worthy they may be—will not give us an “in time” political debate in order that we may really understand the value of something or the price that we pay for it.
Sir Alan Beith
I do not understand why the hon. Lady thinks that Select Committees are incapable of focusing significantly on the issues, obtaining the evidence relating to problems such as those that worry her, and bringing them quickly to the attention of the House. We do it all the time.
Ms Stuart
That would be true were it not for the fact that we scrutinise on a departmental basis, whereas UKREP’s political “give and take” negotiations in Brussels are cross-departmental. I have been present during such negotiations. Representatives say, for instance, “We will give the Germans a bit on cigarette advertising, and in exchange the Danes will be given a bit of an opt-out on fish and the Greeks will get a bit more money to enable them to grow tobacco.” The House of Commons will never fully understand that kind of give and take, but, whatever our relationship with the European Union, it needs to start to understand it.
I say to the Minister: yes, continue with the Select Committees, but there should also be a much better “in time” flow of information. UKREP needs to play a political role in the Cabinet. It should have a ministerial function, and should be answerable to the House. Moreover, now that we have Westminster Hall, what is to stop us asking Commissioners to go there in 2014 and answer questions from Members about the Commission’s programme? Why is this a “third party” relationship? We all stop and stare in admiration or astonishment when we see one of our Members of the European Parliament in the House of Commons. Most of us probably would not recognise half of them. That shows that there is a very sad relationship between the two legislative bodies.
In 2014, there will be a new Commission. On the assumption that our wonderful coalition will still be in place then, and that the Prime Minister will not go to the country until 2015, I think that the Government should think seriously about asking the incoming Commissioners to come here and explain their work programme in a way that would allow the House to question them directly and on a cross-departmental basis.
Sir Alan Beith (Berwick-upon-Tweed) (LD)
Although I disagree with some of what was said by the hon. Member for Birmingham, Edgbaston (Ms Stuart), I think that her analysis of the political processes with which we are dealing was fairly shrewd and helpful. I also agree with her that there is something unsatisfactory about the way in which we are currently going about this—not least the provision of a mere hour and a half for the debate, although it must also be said that it is taking place at a much earlier stage than the last one, after two months rather than six, and is taking place on the Floor of the House rather than in Committee. However, I do not think that it would be improved by being extended to six or eight hours; I think that what this tells us is that we need more systematic, subject-by-subject scrutiny, as well as some awareness of the give and take that happens not just in European politics but in British politics: a Department will give way on one thing, and will be given something else by another.
It is to the Minister’s credit that he has engaged in dialogue and sought to encourage Select Committees to play the role that I have described. I can say, not just in my Justice Committee capacity but as Chairman of the Liaison Committee, that our discussions with him have been very useful. However, I think that he has found it a bit difficult—and we have found it very difficult—to build sufficiently on qualities that are already there and available.
When Committees go to Brussels and meet UKREP staff, many of whom will have been seconded to UKREP from individual Departments, they find them uniformly helpful, very well informed, and able to give a fair amount of guidance not only on the content of proposals but on the amount of traction that they are likely to achieve. They can say whether the proposals are worth spending time on, or are unlikely to get anywhere. We ought to deploy knowledge of that kind in a process that will engage Committees usefully and in a timely way, so that a British perspective on an issue—the perspective of British business, charities or trade unions, for example—can be brought to bear where it really matters.
We on the Liaison Committee are doing all that we can to encourage Committees to allocate time for such work properly in their programmes. Some of them do it all the time anyway. Most of the subjects for which the Environment, Food and Rural Affairs Committee, for example, is responsible are dealt with at a European level, so the Committee is greatly engaged with it, and other Committees regularly have issues as well.
Ms Gisela Stuart
I am genuinely seeking guidance. Which of the Committees of the House could have looked at ash dieback disease, for instance? People now say that, even if we had identified it, the EU could not have stopped the trade in infected trees early enough. Which Committee in our system could have tackled that, traced it back and said, “We need to do something”?
Sir Alan Beith
In our system, it follows the departmental responsibility, unless it is the kind of cross-cutting thing the Environmental Audit Committee deals with. In the case that the hon. Lady mentions, however, it would probably have been the Environment, Food and Rural Affairs Committee.
There is absolutely nothing preventing Select Committees from seeking to get Commissioners in front of them or from going to Brussels to talk to them. The Justice Committee has questioned Commissioners on our areas of responsibility—for example, we have questioned them a great deal on EU data protection and information proposals. Select Committees have the opportunity to do that kind of work and to report in a timely way to the House. On data protection, for example, the Justice Committee has told Ministers that, in our view, they need to get the Commission to go back to the drawing board in respect of the excessively prescriptive nature of some proposals.
For the process to be engaged in effectively, however, there needs to be a change of attitude in some Departments in recognising what Select Committees can and should do. I think that the Minister is trying to achieve that. The reason I made the rather harsh comment earlier about it being delivery time was that we do not need any more dialogue; we know what needs to be done and what tools are available to help us to do it properly, so let us get on with it.
There is some sensitivity in this matter, as the Minister referred to when he said that Governments do not want to give away their negotiating position. Obviously, they do not, but these are not cold war negotiations or negotiations with North Korea over weapons; these are democratic states with open Governments trying to discuss with each other well-known concerns in each country. What final decisions Departments come to, when faced with having to give up one thing in order to get another, will probably remain late-stage decisions—as is the case every December at the Agriculture and Fisheries Council, for example—but none of that precludes sensible and timely discussion. Governments have talked about publishing lists that make it clear to the House and the public what questions and issues they have to resolve on matters that the Commission are bringing forward. We ought to be doing that clearly and explicitly.
Those are issues on which the real knowledge is not necessarily inside the House, but out there among the wide variety of bodies from which we take evidence and which are affected. The Justice Committee has been taking evidence from chief police officers about data protection rules and from organisations involving individuals adversely affected by some of these proposals. We have the means at our disposal to do the work, but we need timely information, guidance on issues that the Government recognise are difficult to resolve and not too much sensitivity about, “Oh, we’d better not discuss it with the Committee yet, because Ministers have not decided what they think.” That kind of obstacle is out of date, given that we are trying to deal with an evolving European situation.
I think that there is common ground between those of us who believe that Britain’s place is inside the EU and those who want to achieve fundamental change in it: while we are in it—as I hope we will remain—we must ensure that the legislative process works for us, and in order to do that we should use the tools at our disposal in the House and the House should have the benefit of the knowledge that the Government have at their disposal.
Kelvin Hopkins (Luton North) (Lab)
As a member of the European Scrutiny Committee, I am partly responsible—I suppose—for bringing this document to the House, so it is important that I say a few words.
The word “work” will have great appeal to the millions of European citizens currently without work, but that is the problem, because none of the many initiatives in the document addresses the immediate economic crisis in the EU or the eurozone and will not solve the problem in the longer term either. We have mass unemployment and we have economic contraction in a number of countries, and more austerity is being inflicted on Greece. Apparently, Greece’s economy is expected to contract by another 10%—God knows what is going to happen in Greece after that. Spain is in serious difficulty and Portugal is going to inflict on its people a fire sale of public assets; it will simply be selling off the family silver at the pawnbroker’s and that will solve nothing in the long term once the money is spent, as it will be. Other countries are in difficulties and there is worse to come.
Chris Heaton-Harris (Daventry) (Con)
Action 58 in the Commission’s work programme deals proposes a
“Comprehensive Approach to Crisis Management outside the EU”.
The document says:
“The European Union more than any other international actor, has a unique array of tools at its disposal to promote the resolution of complex external crises.”
It is said that experience can be learned from, and I guess that the European Commission does have a lot of experience and a lot to teach here.
Kelvin Hopkins
I thank the hon. Gentleman for intervening. The document talks about solving external crises, but what about solving the internal crises? The European Commission has not shown much ability to do that. The problem is that it has inflicted supply-side measures—most of these are supply-side measures to try to deal with the economic problems—whereas the real difficulty is a serious lack of economic demand. That is the deficiency and macro-economic policy is the problem, as it is failing and is, in most cases, completely misguided. Item 1 in the document refers to an “Annual Growth Survey”—perhaps that ought to be re-titled the “Annual Contraction Survey”.
Item 6 makes the only reference in the whole list to the
“importance of a sound macroeconomic framework”.
I absolutely agree with the importance of that, but there is no sign of such a framework as yet. Indeed, we have the opposite: co-ordinated deflation driving the EU towards deeper recession. Thank goodness this country is somewhat to the side of that. We will of course lose if—[Interruption.] My hon. Friend the Member for Preston (Mark Hendrick) is intervening from a sedentary position, but I cannot quite hear what he is saying. The euro is the primary problem; Greece, Italy, Spain and a number of other countries ought to be able to recreate their own currencies, to depreciate and to reflate behind that.
Mr Edward Leigh (Gainsborough) (Con)
The hon. Gentleman is a notable voice of reason on the Labour Benches on these issues. Does he think he will be able to persuade his colleagues to join us in arguing for a referendum on our relationship with the European Union—on whether we should stay in or not?
Kelvin Hopkins
I certainly think we should have a referendum, and I am actively involved in an organisation promoting the idea of one. More than that, we want to get some sensible economic policies adopted, both in Britain and across Europe. We also want to return to some of the common sense that emerged from Bretton Woods in 1944 and led the post-war world to such success, with full employment, rising living standards, growing equality and so on.
Items 9 and 10 refer to state aid. Lecturing those countries in desperate crisis about not indulging in state aids would be completely unacceptable. If they have to use state aids to regenerate their economies, they should be able to do so. Indeed, state aids in the UK should be decided by this Parliament and not by the European Commission. Some may be against state aids in principle and others may think them a very good idea, but we should decide on that, not the European Commission.
Item 13 refers to:
“Reforming the internal market for industrial products”.
That does indeed need dealing with. One of the great problems—the great problem, in a sense—in the European Union is the massive trade imbalances within it. Germany has a gigantic trade surplus with the other members of the EU, including with this country. If we went back to the principles of Bretton Woods, we would expect, in normal circumstances, that Germany would let its currency appreciate—the Americans were rather against that idea of John Maynard Keynes, but it was a sensible one—and that those with trade deficits should be able to depreciate their currencies. That is one of the measures used to get an economy working again.
I come now to some detailed points. No reference to railways is made in the section dealing with transport, although they are a major force for the future in the transport sector. Surprisingly, after 200 years or so, they have turned out to be the mode of transport for the future rather than the past. I have a great interest in railways, but no reference is made to them in this document.
On cigarette smuggling, we lose billions in government revenues every year because nobody pays taxes on imported cigarettes. They are brought in by the billion, I guess, and if we had proper taxes and duties paid on every cigarette smoked, we would gain billions in revenues—enough to pay many times over for free long-term care for all. Cigarette smuggling is a major problem, which we ought to be addressing as a nation rather than simply through the European Union.
Most of the measures in the list could be undertaken by member state Governments on an individual basis, as they felt they were appropriate. If we wanted to indulge in international agreements, we could do that through bilateral and multinational negotiation. The democratic decisions should be taken in this House, by this Parliament, and by member state Governments in general. We have shown that we can co-operate bilaterally and multilaterally and we do not need a European Commission to determine all these things. I am strongly in favour of democracy, which means democracy at a member state level.
Jacob Rees-Mogg (North East Somerset) (Con)
It is a great pleasure to follow the hon. Member for Luton North (Kelvin Hopkins), who is the voice of reason on these matters, but it was the speech of the hon. Member for Birmingham, Edgbaston (Ms Stuart) that made me think about the forms and substance of power in this nation. When Her Majesty’s Government introduce the Queen’s Speech—their legislative programme—there is a great sense of funfair and fête. The House has trumpeters; the imperial state crown comes in its own carriage. Rather splendidly, Black Rod comes and the door is slammed in his face to show the independence of the House of Commons from the Executive.
When the European Union sets out its legislative programme, what do we get? When real power is being exercised, what do we see? A dusty, dry and bureaucratically written text is sent up to a Committee Room for a few people to consider and, if they feel like it, they grant an hour and a half—90 minutes—of debate on the Floor of this Chamber. There is no ability for witty speeches to be made by old and young Back Benchers alike or for jokes to be made by the Leader of the Opposition and the Prime Minister. We do not have three or four days of debate to clear maiden speeches out of the way or delve into the thin gruel that now comes from the Queen’s speech—we know where power really lies.
Jacob Rees-Mogg
I am very flattered by that promotion. Perhaps that is the one ornament I can provide to a debate on the European Union’s legislative programme, as it is more thoroughgoing and more powerful than the Queen’s Speech and becomes law more easily and with less scrutiny than anything contained in it.
Jacob Rees-Mogg
My hon. Friend is absolutely right. There is no manifesto; nobody stands for the European Commission saying what they want to do and the programme they wish to propose. No, no—it comes down from on high. Is it not interesting that that which has the appearance of power has none whereas that which has the reality of power uses it as far as possible by stealth?
Annex I contains 58 recommendations, 38 of which are legislative—including some elements that are non-legislative in bits of them. One rather splendidly requires “soft law”, a term that I have not heard before. I wonder whether when up before a judge one could say, “I am not sure whether I broke the law, because it was only soft law—does it have to be hard law?” Another is a negotiating directive that is not law by first degree but becomes law a little later.
Annex II is on simplifications and 17 out of the 18 proposals are legislative. Is it not interesting that when the European Union simplifies, it has to pass more law? It does not just repeal things—not a bit of it—but passes more laws. It reminds me of that quip: “Big fleas have smaller fleas upon their backs to bite ’em, and little fleas have lesser fleas and so ad infinitum.” We go on and on legislating, apparently making things simpler, but it seems to me that we are just being bitten by the fleas of the European Union.
I know that time is short, so I want to go to the absolute heart of the matter, which, as so often, is in the introduction, which refers to the state of the Union speech by Mr Barroso—that reference is wonderfully grandiloquent and makes it sound as if he is President of the United States and a democratically elected and important figure rather than a minor panjandrum—and states:
“The State of the Union speech launched ambitious ideas for the long term framing of the EU—a deep and genuine economic union, based on a political union. This vision must be translated into practice through concrete steps, if it is to address the lingering crisis that continues to engulf Europe, and the Euro Area in particular.”
These are concrete steps about creating an economic union based on a political union; they are not in the interests of the United Kingdom.
Wayne David (Caerphilly) (Lab)
I begin with a general point about the European Commission. I am not a great defender or fan of the Commission, but it is important for us to remember that it is not a legislative body. It does not decide laws; it makes proposals and, usually through a process of co-determination or co-decision, other institutions, such as the Council of Ministers and the European Parliament, are then involved in determining the law. That is when democracy comes into play. It is important to keep that perspective.
Mark Reckless (Rochester and Strood) (Con)
The hon. Gentleman says that the European Commission does not make law, but is it not the case that the European Commission has a monopoly on the proposal of law, and is therefore an essential and necessary part of law-making? To that extent, in European structures it does make law.
Wayne David
The hon. Gentleman is right. The European Commission has the sole right to initiate legislation. Nevertheless, it does not have the sole right to agree legislation; the initiatives the Commission formulates are the result of discussions in the European Parliament, and increasingly in the Council of Ministers. When we talk about democracy inside the European Union, it is important to recognise that this Parliament has a pivotal role. If anything has clearly come out of the debate, it is the fact that this Parliament does not take European legislation and formulation as seriously as it ought to do.
Mark Hendrick
Is it not the case that the European Commission is made up of Commissioners directly appointed by democratically elected Governments and they are interviewed by Members of the European Parliament before their appointment? Members of the European Parliament are directly elected as well.
Wayne David
My hon. Friend makes a very good point indeed, and reinforces what I was saying.
I welcome the debate because it occurs at a time when Europe as a whole is experiencing a deep economic malaise. Against the problematic economic climate that we all face, we must assess the relevance and appropriateness of the Commission’s work programme. The situation is most acute in the eurozone, as I am sure Members will agree, although of late, it has stabilised somewhat. The situation is still serious in Spain and Portugal, and in Greece it is extremely serious. However, there are signs of improvement; in Ireland, things are starting to get better. Nevertheless—
Wayne David
Before my hon. Friend intervenes, I take the point that one of the great weaknesses across the European Union as a whole is the macro-economic policy being pursued by member states. There is too great an emphasis on austerity and nothing else. We need to put a firm emphasis on growth and measures to stimulate our economy so that we can work our way to prosperity once again.
Kelvin Hopkins
I want to be persuaded that there are signs of improvement in the European Union. Writing in The Guardian at the weekend, a Greek journalist suggested that the Greek economy will contract by a further 10%.
Wayne David
As I indicated, the situation in Greece is still very serious indeed. As we know, deep-seated structural problems afflict the Greek economy but there are signs of improvement elsewhere. Certainly the contagion that many people feared a few months ago does not appear to be materialising. There are signs of stabilisation, at least, across the eurozone. It is therefore important that the European Commission does as much as it can to make sure that we take that a stage further and have a coherent growth strategy. In that respect, the document before us is somewhat lacking, but it does at least recognise the importance of job creation. I cite its opening statement:
“Today’s absolute imperative is to tackle the economic crisis and put the EU back on the road to sustainable growth.”
That is a good starting point. At least there is recognition of the need to put that four-square on the agenda. However, practical measures to realise that goal are somewhat lacking.
One of the positive things about the document is that it recognises the importance of taking forward the completion of the single market. It states:
“A fully integrated and interconnected European Single Market covering telecoms, energy and transport is a prerequisite for competitiveness, jobs and growth. Achieving this requires affordable, accessible, efficient and secure network infrastructure. Accelerating the roll out of the digital economy will bring benefits across all sectors, through enhanced productivity, efficiency and innovation.”
That is particularly true. It is something that the previous Labour Government and this Government have effectively been arguing for.
The importance of the single market, particularly to the United Kingdom, should not be underestimated. In support of that point, I refer Members to the important new-year message from John Cridland, the director general of the CBI, in which, on behalf of British business, he makes it absolutely clear how important the single market and the European Union are to British business. He points out that 50% of Britain’s exports go to other countries in the EU. He argues the case coherently for completing the single market, and says that the EU is vital when it comes to enhancing our international trading relationships. He goes a stage further: he argues that it is vital that we do not just pay lip service to the single market, and that Britain stands four-square behind the European Union and argues the British case consistently inside the decision-making chambers of the EU. He says:
“It’s essential that we stay at the table to bang the drum for businesses and defend our national interest, particularly protecting our world-class financial services industry to maintain our competiveness internationally.”
Gender Balance on Corporate Boards
(11 years, 11 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Parliamentary Under-Secretary of State for Skills (Matthew Hancock)
I beg to move,
That this House considers that the draft Directive of the European Parliament and of the Council on improving the gender balance among non-executive directors of companies listed on stock exchanges and related measures (European Union Document No. 16433/12 and Addenda 1 to 3) does not comply with the principle of subsidiarity for the reasons set out in Chapter 1 of the Twenty-third Report of the European Scrutiny Committee (HC 86-xxiii); and, in accordance with Article 6 of Protocol No. 2 of the Treaty on the Functioning of the European Union on the application of the principles of subsidiarity and proportionality, instructs the Clerk of the House to forward this reasoned opinion to the Presidents of the European Institutions.
The motion is in the name of my right hon. Friend the Secretary of State for Business, Innovation and Skills. This debate gives the House a welcome opportunity to discuss gender balance among non-executive directors of listed companies, and to decide whether to send a reasoned opinion on the European Commission’s recently published proposal, improving the directive, to the Presidents of the EU institutions. In short, we are here to debate women on boards.
The aim of the draft directive is to increase substantially the number of women on corporate boards throughout Europe. The directive sets an objective of ensuring that, at a minimum, 40% of non-executives on the boards of listed companies are female by 2020. It aims to do that by ensuring that companies have transparent, gender-neutral appointment processes in place for their boards. Member states would be required to have a range of sanctions in place for companies that failed to do that. For companies that are listed, over which public authorities have a dominant influence, the proposed objective is to reach a minimum 40% representation by 2018.
Mrs Anne Main (St Albans) (Con)
Does my hon. Friend share my concern that there is confusion here between equality of opportunity and equality of outcome? If we are not careful, we could have the same few women on different sorts of boards, rather than genuinely offering opportunities for many women to apply.
Matthew Hancock
My hon. Friend makes a good point. A number of objections have been raised, and that adds to them.
Keith Vaz (Leicester East) (Lab)
I am grateful to the Minister for giving way so early in his speech. Has he received any document from the European Union about the wider diversity of our industry and business—for example, ethnic diversity? I fully support the proposals for gender diversity, but it is important to understand that this country and Europe have changed. The ethnic minority communities are not represented on the boards of FTSE companies, but we would like them to be.
Matthew Hancock
So would I. The right hon. Gentleman makes an important point that is not in today’s document. The importance of diversity on boards is not just about sex, race or background. It is that good boards bring a range of experience, a range of different people, together. Good boards tend to have members with different points of view and with all sorts of different characteristics. All the hard research shows that that is what promotes a good board both for economic and business purposes and for social reasons, as the right hon. Gentleman highlights.
Mr Jonathan Djanogly (Huntingdon) (Con)
I recognise this as an important issue and I recognise also that the number of women on boards has increased, which is welcome. Is not the question: why is the European Union dealing with this? Is this not a matter for the Financial Reporting Council, the UK Listing Authority and the Department? Why are we discussing it in the context of the European Union?
Matthew Hancock
We are discussing it because the EU has put forward a proposal. Whether we think it is right that it should do so is exactly what we are debating. I have an awful lot of sympathy with what my hon. Friend says. In fact, I think I agree with all of it, although I am always cautious about saying that I agree with all of anything in case I missed something or misunderstood.
Matthew Hancock
May I make a little progress? I shall come to some of these points in detail.
The Government are committed to increasing the number of women on boards. In the coalition agreement we pledged to promote gender equality on the boards of listed companies, and we did so for a good reason. Historically, the proportion of women on boards has been too low. In 1999 women made up just 6.2% of the boards of FTSE 100 companies. By 2004, that was 9.4% and in 2010 it was 12.5%. In 2010 there were only five female chief executive officers of FTSE 100 companies.
As the House will know, we published the review by Lord Davies of Abersoch in 2011 and have been working to implement the recommendations. The Davies review identified several barriers preventing women from reaching senior roles in business. The research shows that people have an unconscious bias to reward and promote people who are like themselves. Davies found that informal networks are highly influential in determining board selections and that a lack of transparency over selection criteria continues to be an obstacle to progress. Davies also suggests that differences in the way men and women are mentored could be giving men the edge over their female peers, for the clear reason that there are fewer women in senior roles to act as mentors and role models for female colleagues.
Meg Munn (Sheffield, Heeley) (Lab/Co-op)
I very much welcome what the Minister is saying and the issues he is describing. Will he say something about the differences between non-executive, as opposed to executive, women board members? We know that significant progress has been made in respect of non-executive roles, but executive positions are enormously important because they are about the day-to-day running of businesses and what is happening within businesses.
Matthew Hancock
It is true that progress has been slower in executive appointments, but it is also true that where legislation has been passed to increase the number of women on boards—for example, in Norway—the increase has come almost entirely in non-executive roles, which shows that legislation is not a panacea. The Davies review recommended a business-led strategy to bring about the necessary change, and we have been working with business to implement the strategy.
I pay tribute to the 30% Club and Helena Morrissey. They are both pragmatic and passionate about reaching their target of 30% representation on boards. Their approach is one of persuasion and moral suasion to change the culture of business from business, and so far it has been highly effective. The figures clearly show that we are moving in the right direction.
Since Lord Davies’s work was started, we have had a near 50% increase in the number of female non-executives in the FTSE 350. Now, 17.3% of FTSE 100 board directors are female and, importantly, 38% of newly appointed FTSE 100 directors and 36% of newly appointed FTSE 250 directors since March last year have been women. Research by Cranfield School of Management shows that should the current pace of change be maintained, we are on a trajectory to reach 37% of women on FTSE 100 boards by 2020, just shy of the 40% proposed by the commission. We think that that business-led voluntary approach is the right one for the UK and that it is making progress. Central to it is a change in culture at the heart of business, and that is the only way in which progress will be sustainable and long term.
Julian Smith (Skipton and Ripon) (Con)
Has my hon. Friend come to any conclusion about why the Labour party failed so dismally to achieve better results on this issue in its 13 years in government?
Matthew Hancock
I have not specifically done any research into that, but it is certainly true that since 2010 there has been a big increase in the numbers. However, I do not think that this is a particularly partisan issue because there is cross-government and cross-party work on trying to make it happen. Crucially, we are following a voluntary business-led approach, because the research shows that diverse boards are better boards.
That brings me to the broader point that was made by the right hon. Member for Leicester East (Keith Vaz). The best boards have a diversity of human behaviour and experience and there is no bigger determinant of an individual’s behaviour than their sex. On average, companies with the most balanced boards out-perform companies with no female board members by an average of 56%, and companies with three or more women on their boards have achieved a return on equity about 45% higher than the average company. Research suggests that just one female director on a board cuts a company’s risk of insolvency by around 20%.
Keith Vaz
I hope the Minister will agree that the message needs to come from the Government themselves. I had many discussions with previous Prime Ministers about the diversity of their trade delegations to countries such as India. I understand why the Minister wants to go down the voluntary approach route, but will he give the House an undertaking that the Government will also send out a very clear message in the appointments they make to non-government departments and in the delegations that he and other Ministers lead by ensuring that they are representative of our country: more ethnic minority people, more women?
Matthew Hancock
Yes, I do agree, but these things have to be done on merit. As it happens, later this month I am leading a trade delegation to India, and the business side of that trade delegation will be led by a woman. I hope that I have satisfied the right hon. Gentleman.
Matthew Hancock
I will come to the point that, under the principles of subsidiarity in the Lisbon treaty, should there be enough motions in national Parliaments across the Union, that is enough to ensure that the Commission cannot introduce the current draft proposals.
We want a business environment in which woman can and do take their seats at the boardroom table on merit and in which businesses can respond to the varying needs of their sector, size and type of business. We need to tackle those problems without unduly burdening business. That is the substance of the challenge of getting more women on boards. It is clear that the Government have taken a lead on that and things are moving in the right direction, and the current strategy is leading us towards the target that the EU has proposed.
I will now move on to the argument about whether this should be an EU competence at all. The Government’s position is clear: we believe that member states must retain the flexibility to respond to their own individual circumstances. Today’s debate is about allowing Parliament, as distinct from the Government, to express its view on whether this should be an EU competence. The Government are strongly of the view that the principle of subsidiarity should be respected and adhered to. The principle of subsidiarity rests on two tests that a Commission proposal must pass: the necessity test, which is that the objectives of the proposed action cannot be sufficiently achieved by member states acting alone; and the EU added value test, which is that the objectives can be better achieved by action at EU level. Under protocol 2 of the Lisbon treaty, national Parliaments may raise an objection, referred to as a “reasoned opinion”, if they do not believe that a draft proposal is compliant with the principle of subsidiarity.
The Government’s explanatory memorandum, which was sent to the European Scrutiny Committee by the Under-Secretary of State for Women and Equalities, sets out the Government’s assessment of whether the Commission’s proposals meet the principle of subsidiarity. We find that they do not. There is no reason why member states cannot achieve the objectives by acting alone and there is no evidence that value would be added through EU involvement. Indeed, the Commission’s own impact assessment found that the evidence base for demonstrating the need for, and proportionality of, binding EU action was “very weak”, stating that members states had a
“proven ability to act in this area”
and that
“a number of Member States had taken measures which appeared to have achieved significant progress”.
I hope that list includes us.
Meg Munn
One way of making progress on this is through the voluntary approach, but Lord Davies has made it clear in speeches I have heard him make that he feels that there must be progress and that, if progress is not made, we should look at a non-voluntary approach. Is the Minister arguing that the Government would be willing to look at that as something the UK would do, rather than something the EU would do?
Matthew Hancock
For the purposes of today’s debate, the Government are arguing that this does not pass the EU’s subsidiarity test. For those purposes, the Government’s position is clear: we think that the voluntary approach is best. Before becoming a Minister, I wrote a book in which I stated that that needs to happen and that we should hold open the possibility of having legislation, but the Government’s position is clear: we should approach this on a voluntary basis.
Mr Djanogly
I thank the Minister for being so generous in giving way. I wholly support what he has said and the Government’s position. However, he might wish to look at the Financial Reporting Council’s most recent annual report, which basically says, “Over to you, Europe. We’ll see what you have to say and then we’ll deal with it.” I think that the FRC needs to be told that it must look at this, because it is an important issue and we want to deal with it.
Matthew Hancock
It might be that this debate and the decision of Parliament that will follow will be brought to the FRC’s attention. I wonder who might do that.
Of course, we share the Commission’s view that fair opportunities for women in executive and non-executive posts should be promoted and we are happy for the EU to disseminate good practice across member states, but it is up to member states to find their own national approaches. Many member states are considering, or have implemented, various and differing national measures on a voluntary basis to facilitate raising the proportion of women on boards. Some have decided on domestic legislation and some, like us, think that we can get there without it. That multitude of approaches is likely to help us find which one works best and has the most benefits and the fewest unintended consequences. The reasoned opinion is intended to set out the views of Parliament separately from the views of the Government, so I am very much looking forward to contributions on that front from Members in all parts of the House.
Let me turn to a couple of the specific questions from the European Scrutiny Committee. The Committee asked for the Government’s view of the Commission’s projection that only 17% of UK listed companies would have 40% women directors by 2020. It is safe to say that the Commission’s projections are rather out of date, because we already have 17% women directors in the FTSE 100. The Commission’s analysis is based on extrapolating the increase in the number of women on boards in the period 2003 to 2011 and using a linear progression, but, as we have already discussed, the rate of change increased markedly at the back end of the last decade, and we will be within a whisker of reaching the target that the Commission has set by 2020.
The Committee asked whether the Government consider that the measures proposed by the EU would be counter-productive. It is true that legislation can have unintended consequences, and if an objective can be reached without legislation it is usually better to do so.
Finally, the Committee asked about the outcome of the Government’s consultations on the proposed directive and the progress on negotiations. We are discussing the proposals broadly, but negotiations in Brussels have yet to start.
Fiona Mactaggart (Slough) (Lab)
The Minister said—I have some sympathy with this view—that if we can succeed without legislation, that is preferable because there are downsides to legislation. Will he undertake to ensure that we will have an annual report on progress and some suggestions about action that could be taken if the rate of success that he predicts is less than he hopes for?
Matthew Hancock
We have had a report on this. There are constant reports—for instance, I commend to the hon. Lady the 30% Club website, which has a quarterly update of the numbers—and there are many opportunities to debate this in the House. The most important thing is that we should try to get there without legislation, and certainly there does not need to be EU-level legislation, as it is something that this House can perfectly well do on its own. Having more women on boards is right, and it is good business, but it should be the responsibility of this House.
I am grateful for the European Scrutiny Committee’s work. We would argue that legislation is not necessary now. Yes, there is more work to do to promote women on boards, and we and British business are doing it. I commend the motion to the House.
Mr Chuka Umunna (Streatham) (Lab)
Before I discuss the substance of the motion, it is important to make three brief observations for the record.
First, today we debate the need for greater gender balance among those in positions of leadership in business, but in so doing this House and the Government should acknowledge their own failings in this area. Just 22% of the current Members of this House and just four—18%— of the Cabinet are women. That is a disgraceful state of affairs in 2013. Labour Members are proud that 33% of the parliamentary Labour party and almost 40% of the shadow Cabinet are women, but we all need to do better. By all means we should debate the matter, but we in this House are certainly in no position to lecture.
Secondly, the subject of the motion is gender balance, but, as my right hon. Friend the Member for Leicester East (Keith Vaz) said, it is important to note that there is woeful under-representation on company boards in other respects that must be addressed too. For example, according to the latest research from Cranfield university, just 5.7% of FTSE 100 directors are drawn from an ethnic minority while the new census figures indicate that 14% of the population is now from a non-white background. How can we inspire young black and Asian Britons to reach for the top when they see so few people who look like them in our boardrooms, never mind here in Parliament?
Thirdly, diversity in executive directorships also matters, as does the diversity of the boards of directors of non-listed private companies. I think that Sir Richard Branson has made that point, too.
We cannot stand idly by on other issues of representation in the leadership positions that people hold in modern Britain. Today, however, we are bound to focus on the issue of gender balance among non-executive directors of listed companies, because that is the subject of the draft directive and the motion.
Two central questions flow from the motion. The first is whether we should take action, and if so what sort, in relation to the gender balance on the boards of listed companies. The second is whether that action should be taken at the level of the European Union. As the noble Labour Lord and former Business Minister in the Labour Government, Lord Davies, made clear in his excellent February 2011 report “Women on boards”, despite some progress under the previous Government, the representation of women on boards in this country is woefully low, as the Minister has set out today.
In 2003 we set up the Higgs review of corporate governance, which called for greater diversity on our corporate boards. In percentage terms, female-held directorships in the FTSE 100 doubled under the previous Labour Government, but I am clear that we must concede, with regret, that despite that, progress was lacking, with—I think the Minister cited the figure—women holding just 12.5% of FTSE 100 directorships when we left office in 2010. As Lord Davies pointed out, if that rate of change continued, it would have taken about 70 years to achieve some level of parity.
As Lord Davies made clear, there is as much a moral imperative to change this state of affairs as there is a strong business case to do so. The Minister has echoed those sentiments. I do not believe that this is a matter of party political discord.
Keith Vaz
I welcome my hon. Friend’s mea culpa in respect of the previous Labour Government. Does he know why we failed to make more of an impact? Was it because of a lack of a message from the then Government to the constituent parts that could have acted upon it, or was it the case, as the Minister has said, that the culture in the business community took so long to change? Is my hon. Friend able to offer an explanation of why we did not do better?
Mr Umunna
I think that some of the things that my right hon. Friend has just mentioned may have contributed to the state of affairs when we left office. As the Davies report makes clear, this is an historically complex issue. The easy conclusion to draw would be that our business community has a high level of overt and outrageous discrimination. I know through my own practice as an employment lawyer that, unfortunately, that still exists in some small pockets of the business community. However, I think that there are cultural factors at play and that the issues that women in the workplace face with regard to child care and flexible working all contribute to the lack of progression in the pipeline of appointments in different companies. To tackle that, individuals need to take a lead and have the will to bring about cultural change in individual organisations.
To be frank, one thing for which I do not apologise is our reluctance to move straight towards prescriptive legislative solutions to these problems. I believe that we should regulate or legislate as the last resort, but what has become clear is that, as Lord Davies concluded, there needs to be far more will in the business community, never mind the political community. Another important point that Lord Davies made is that we should be clear about not ruling out taking further action in this House if we do not see enough progress culturally in the business community.
As the report made clear, many of the more than 2,500 responses to the Davies review said that women with the relevant experience were frequently overlooked for development opportunities and that there were differences in how men and women were mentored and sponsored, giving men an edge over their female peers in gaining appointment to boards. We cannot tolerate that in a society that seeks equal opportunities for all, regardless of background. To do an effective job, boards must be made up of competent, high-calibre individuals who offer a mix of skills, experience and backgrounds. I fail to see how our boards can optimise their performance unless they are representative of the population as a whole. After all, in many cases, their customers are the population as a whole. There is a wealth of evidence to back that up, and it is all in the Davies report.
If we accept that the status quo is wrong and believe that it compromises the performance of our companies and our economy, as Opposition Members do, action has to be taken. That is why we endorsed all the recommendations of the Davies report. Those who argue against action often accuse those who argue for it of engaging in tokenism and of promoting diversity over merit. Of course board appointments must always be based on merit, with the best qualified person getting the job, but to suggest that no action should be taken is to presume either that there are not enough women who merit appointment or that there are not enough women who want to be appointed. That flies in the face of the evidence in 2013. There are plenty of women who merit appointment. Diversity and appointment on merit are not mutually exclusive. The problem is that there are barriers and obstacles that must be broken down to ensure that the appointment of women is as usual as the appointment of men.
The Davies report advanced a set of 10 voluntary measures, as the Minister has said, with a view to there being a minimum of 25% female representation on boards by 2015. The Minister went through the most recent update so I will not go through all the details, but there has been not insubstantial progress towards achieving the 25% goal. However, more action is clearly needed if we are to achieve the goals set out in the Davies report. Even if the goal is met, I believe that 25% is a modest aspiration. We should all want companies to make more progress than that. The Government should keep the matter under review and should reserve the right to introduce more prescriptive measures to force faster and greater change if necessary.
Mr Djanogly
The hon. Gentleman mentions the 25% figure, but that is an absolute figure. He should also point out that 27% of all board appointments in FTSE 100 companies are now being taken up by women.
Mr Umunna
I do not disagree. As I said, I do not think that the progress in this country towards achieving the goals since the report came out in February 2011 has been insubstantial. Whether we are on course to reach the aspirations set out in the Davies report will be clearer next year, when the recommendations have had three years to bed in. At that point, we will form a view on whether further measures are needed. Let me be clear: if we are to continue with a business-led approach, we expect to see much greater progress towards parity.
That is the case for action, but what of the EU? The draft directive produced by the Commission seeks to introduce a new procedural requirement for the recruitment of non-executive directors that would apply to all boards of public listed companies in the EU. The objective is to raise the proportion of non-executive positions held by the under-represented sex to 40% by January 2020 by introducing a new preference rule in the selection of non- executive directors. Under that rule, priority would be given to a candidate of the under-represented sex who was equally qualified in terms of suitability, competence and professional performance as a candidate of the other sex—a man in this case—unless an objective assessment, taking account of all the criteria, would tilt the balance in favour of the candidate of the other sex. That system would not amount to the introduction of a quota per se, as has wrongly been reported in some places, but it would introduce a degree of positive discrimination in favour of female candidates, in the scenario that I have outlined, for non-executive director positions on boards. The Commission decided not to take action in respect of executive directors because it says that it would constitute
“excessive interference in the day-to-day management of a company.”
The Commission argues that action at EU level is justified on a number of grounds, including that if there is not action at supranational level, insufficient progress will be made at national level towards more gender-balanced representation on company boards by 2020. The European Scrutiny Committee rejects that and objects to the draft directive on the grounds that it does not comply with the principle of subsidiarity. The reasons the Committee cites for its view include that it does not feel it is fair to say that member states acting individually will not achieve sufficient progress, given that
“many national measures have been introduced within the last year or two”.
The Committee’s objections to the directive are set out in the draft reasoned opinion that it proposes be sent to the presidents of the European institutions. The Business Secretary, who is once again absent from the House for the debate on this important issue, asks us in the motion to endorse the draft reasoned opinion, with which the Government agree.
The principal problem we have with the motion is that although there may well be strong arguments against the action envisaged under the draft directive, for the reasons that the Committee cites in the draft reasoned opinion, we have heard very little from the Government about how they might work constructively in other ways to advance the cause of equality in company boardrooms along with our European partners.
The Under-Secretary of State for Women and Equalities, who is also a Business Minister—[Interruption.] Yes, why is she not here? In her response to the report of the House of Lords European Union Committee on the issue, she said that the Government
“agrees that the EU has an important role to play in improving the representation of women on boards.”
If that is the case, surely the Government are obliged to say how that should happen, and to give more of a lead on what that role should be, if we want to lead the way in Europe on the issue.
Given that other European countries are also keen to see more women on boards, and given the extent to which many of our major companies operate across Europe, why have the Government not put forward proposals on what constructive moves European countries could make to work more positively together to promote having more women on boards? That would be good for tackling discrimination and promoting equality, and it would be good for business.
The situation is most unsatisfactory, because the Government have had a golden opportunity to make it clear that the UK wishes to be at the forefront of the debate on achieving greater equality across society both here and in the EU. Instead, without the Government having set out proposals on how member states could work together to improve matters, I fear that the motion will leave people with the impression that yet again, the Government are dragging their feet on issues of equality, diversity and representation. That is the problem. Although we do not propose to divide the House on this technical motion on a directive that is still at an early stage of development and negotiation, we urge the Government to reconsider their overall approach.
Mr Deputy Speaker (Mr Nigel Evans)
Order. This is a time-limited debate, and the Question will be put no later than 6.43 pm, so if Members could bear that in mind when considering the duration of their speeches, I am sure others would be grateful.
Alok Sharma (Reading West) (Con)
As you say, Mr Deputy Speaker, this is a time-limited debate, so I will keep my remarks fairly brief.
I welcome the Government’s work to increase gender balance on boards. As we have heard, the Davies review was a seminal piece of work that helped to identify how not just the Government but particularly the corporate sector can respond to the challenge of having more women on boards and of increasing the diversity of boards. As the Minister said—the shadow Minister made this point too—diverse boards make for better companies, better decisions and ultimately better outcomes for shareholders. That is something for which every company should be striving.
The Government have absolutely the right approach in getting companies to co-operate rather than coercing them into coming up with artificial quotas or targets—and certainly by not forcing legislation on them. The approach is clearly working. A number of colleagues have pointed out that the number of women on boards, both executive and non-executive, has been increasing over the past few years. I suspect that this work will continue. I also commend the Government on the work to increase mentoring, which is an incredibly important part of the jigsaw puzzle in informing not just women but people from ethnic minorities how they can aspire to get on boards and into senior management positions in our companies.
Keith Vaz
I congratulate the hon. Gentleman on his appointment as vice-chairman of the Conservative party with responsibility for ethnic minorities, but I am not clear what he is saying, because so far we have failed on ethnic minority representation. Is he in favour of continuing with voluntary arrangements and hoping that things will get better, or does he think that Government and business should send a much stronger message about boards needing to be made more diverse?
Alok Sharma
I thank the right hon. Gentleman for his comments; let me come to that point shortly.
I am also pleased that last year the Government introduced a set of draft regulations that will require listed companies to set out the gender breakdown of their work force at board level, in senior management and in the work force as a whole. Normally, those of us on the Conservative Benches are not particularly keen on huge amounts of business regulation, but this is a good regulation, which would not be burdensome but helpful in shining a light on companies and getting them to focus on increasing diversity and, in particular, improving the gender balance on corporate boards. Indeed, the regulations, which are due to be introduced, have already been implemented in a number of other jurisdictions across Europe, so this is nothing new. At the end of last year, the Secretary of State—who is now in his place—urged head-hunting firms to break down the number of individuals they place in senior positions by gender. Again, that is extremely good news.
The right hon. Member for Leicester East (Keith Vaz) made the point about work force diversity. Gender balance is one measure of work force diversity, but ethnicity is another. Championing diversity should undoubtedly be about improving both. The hon. Member for Streatham (Mr Umunna) pointed out that just as there is under-representation of women at senior levels on boards, there is also under-representation of those from non-European ethnic backgrounds. He gave the figure of 5.7%. To break that down even further, research by Cranfield university showed that only 4.4% of board members in FTSE 100 companies are ethnic minority male, while only 1.3% are female. Indeed, of the 48 male directors from minority backgrounds, only eight are British. As has been pointed out, the census showed that the proportion of people from non-white or ethnic minority backgrounds is currently around 14%.
The all-party group on race and community has just published a report—it came out at the end of last year—on ethnic minority female unemployment. Let me set out what it uncovered by quoting briefly from the executive summary:
“Discrimination was found to be present at every stage of the recruitment process—when assessing applications, during interviews, at recruitment agencies and also in the workplace itself. Strikingly, it was estimated…that 25% of the ethnic minority unemployment rate for both men and women could be explained by prejudice and racial discrimination. Discrimination based on name and accent was also uncovered both in data received and from personal testimony.
In addition, it was found that discrimination based on both gender and ethnicity is taking place in job interviews.”
I think all hon. Members today would agree that that is incredibly worrying.
I appreciate the fact that today’s motion is about women on boards, but may I ask the Minister to consider extending the draft regulations for listed companies to disclose their gender balance—which are due to be introduced this year—to include the ethnic balance at senior level, on boards and in the work force as a whole? As for further disclosure that could be considered—this could be part of a voluntary code—perhaps we could ask listed companies also to break down the total number of job applicants, interviewees and new employees they take on every year by gender and ethnicity. That would help to highlight which companies and sectors ethnic minority candidates and women are just not applying to in numbers, as well as which are not giving them any interviews.
I share the view that people should be appointed to jobs on merit and experience. That is absolutely right. The whole idea of artificial quotas is not particularly helpful. However, what I am suggesting for the proposed new regulations is about taking companies one step forwards, towards focusing on what they need to do to increase diversity as a whole in the workplace, whether in the gender or ethnic make-up of boards or in the workplace as a whole.
I will end, as many others want to speak. As we have heard, at the end of the day, diverse boards are much more effective, and they absolutely outperform their rivals—there are reports out there by McKinsey and many others. If a company’s work force and senior management are representative of its customers, it is much more likely to make decisions that respond to their needs and, ultimately, benefit the business. That is a virtuous circle that every company should be looking to square.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
I welcome this debate and thank you, Mr Deputy Speaker, for the opportunity to speak. We know that this is a vital debate, on which we need to make faster progress, not just for women but for our economy.
This debate is about non-executive directors on listed companies, which in one way is convenient, as progress has been made in that area. We know that the gender balance in executive roles has remained at approximately 5%, which is woefully low. This is also an important debate for our economy. A McKinsey study in 2010 on listed firms in six European countries and the BRIC countries found a correlation between the proportion of women on a company’s board and its performance. Indeed, across all sectors, companies with the most women on their boards of directors significantly outperform those with no female representation—by 41% in return on equity and by 56% in operating results. Diversity does indeed unlock growth. More recently, that important study has helped to fuel a growing body of work and a consensus that the current pace of change is not nearly fast enough. However, there is a risk that even recent progress might not necessarily be a predictor of the future. A reduction in more recent months of the number of women FTSE 100 chief executive officers, down to two, is one indicator of that, and it should be a cause for concern about the pipeline of talent among women going into senior positions.
For years, including before becoming a Member of this House, I have worked in a number of ways to support the progress of women and other under-represented groups—ethnic minorities and people with disabilities—in reaching senior levels in our public life, whether on public boards or the boards of business. This is a passion and an interest that I have taken forward not only in my professional work on leadership and increasing diversity on public bodies, but in a voluntary capacity, through the leadership and mentoring programme run by the Fabian women’s network. As several Members have discussed and mentioned, better diversity in decision making aids better outcomes. To quote Peninah Thomson, the author of “A Woman’s Place is in the Boardroom”, the customer is queen. Women influence the majority of purchases for themselves and their families. A much better understanding of consumer and customer needs through a better reflection of women’s lives at the top of business can only be good for our British companies.
Over the past 20 years, Labour has taken decisive action to ensure that women are better represented in Parliament and in politics, and we know that outcomes can take a generation to deliver. As a result of that drive, we have more women MPs than all the other parties combined, but we still have a long way to go before women are equally represented in politics and before a culture of gender balance pervades political debate and discussion in seminars and in the media. I hope that we will also see an end to all-male panels, to ensure a gender balance at all levels of debate.
It is unfortunate that such progress has not been made at the same pace in all the parties. The World Economic Forum’s annual global gender gap report published in October 2012 showed that the UK had slipped down the international gender gap index from 16th to 18th place. The report states that that was mainly the result of a decrease in the percentage of women in ministerial positions from 23% to 17%.
This debate must not be positioned simplistically in terms of representation versus merit. It is about the outcomes that we want to see, and we must take a stand on the progress that we want to make while taking responsibility for the outcomes. I am not the only one who wants Britain to lead the way in this area, rather than just catching up. It is important that we reserve the right to take more prescriptive measures, beyond the voluntary ones, to enforce faster and greater change at a later stage if necessary. If we are to continue with a business-led, voluntary approach, we expect to see greater progress towards parity, and we must not favour ideology over evidence when it comes to policy. We must consider encouraging greater positive action.
With regard to the reasoned opinion that is the subject of the motion, there might be arguments against the action envisaged in the draft directive, for the reasonable reasons that the Committee cites, but I remain concerned that the reasoned opinion says nothing about how the Government will take a lead in the debate, if not through the directive as currently constructed but in other ways, to advance these matters with our European partners. Business does not stop at geographical boundaries, and with Europe as one of our main trading blocs, we should have a voice in ensuring greater representation of women at the top of businesses across Europe.
It is also a matter of concern that the report of the European Scrutiny Committee and the draft reasoned opinion were published only on Christmas eve. Members have had no opportunity to table amendments to ensure that the UK is at the forefront of moves to achieve greater equality in society here and across the EU. Instead, there is a danger that the motion will leave the impression that the Government are dragging their feet on issues of equality, diversity and representation. The message must be that Britain wants to be at the forefront of positive change for all groups that are under-represented on grounds of gender, ethnicity or disability.
Mr Dominic Raab (Esher and Walton) (Con)
The draft directive is unprincipled and counter-productive. It needs to be understood in the context of the progress that has been made towards a more equal society in this country. We are sometimes churlish in acknowledging the strides that we have made, notwithstanding our desire to go further and faster. For example, the UK median full-time gender pay gap has almost halved since 1998. Women in their 20s now earn 3% more than men; women in their 30s earn almost the same. One of the key residual issues—in regard to the pay gap and, arguably, more broadly—appears to arise at the age of 40, when women with young families strive to strike the critical balance between child care and breadwinning.
Even at the top level, however, progress is being made. Figures from Cranfield university, some of which have already been cited, show that the number of female FTSE 100 directors more than doubled between 2000 and 2012. That demonstrates a high rate of change, albeit starting from a low base. Since March 2012, 44% of new FTSE 250 non-executive directors have been women. That is evidence in favour of the argument that the problem is to a large extent an historical hangover that will be corrected over time, although we can argue about how quickly that is likely to happen.
If we look across the piste at this issue, rather than just at what is happening in the boardrooms, we see that, for most modern couples, the juggling act between work and family is not just about women. It is about teamwork and about freeing couples to make their own choices. Let us also recognise that fathers are increasingly doing their bit, with a tenfold rise in stay-at-home dads in 10 years, supporting more and more women to pursue their professional ambitions. A 2011 study by Aviva found that 39% of cohabitating couples now share child care responsibilities equally, or have the father as the main child-carer. It is these grass-roots, bottom-up changes in social attitudes, and not regulatory diktat, that will deliver real change in this country.
In the light of that progress, it is anti-meritocratic in the extreme to suggest that women need quotas to succeed in modern Britain. I have lost count of the number of women who have told me how deeply insulting they find the idea. No one has mentioned this in the debate today. Boardroom appointments, like any other competitive recruitment, should be based on individual talent and hard work, not on positive discrimination. The entrepreneur and “dragon” from “Dragons’ Den”, Julie Meyer, powerfully argues that if someone is on a board because of a quota,
“your voice will be neutered and your advice won’t be heard”.
That is what this directive would achieve; that is what it is about. It would force top FTSE companies faced with equally qualified applicants to positively discriminate in favour of women, with fines and court-ordered annulment of appointments as the sanctions for non-compliance. Let us not kid ourselves, as those on the Opposition Front Bench are trying to do. This is a quota, not a target.
Mr Umunna
I have read the hon. Gentleman’s contributions on this topic, and I see that the headline to his recent piece in The Sunday Times was “Sorry, girls, a seat on the board must be earned”. I am sure that many women would find that quite insulting, although I am sure that he did not write it himself. I hear what he is saying about child care—I have said it myself—but does he not accept that there are certain cultural issues at play here? Lord Davies’s report indentified the fact that people seek to select people who are like them to positions on their boards, and that that operates as a barrier to women getting on to those boards.
Mr Raab
I note that the hon. Gentleman did not take issue with the substance of my article—[Interruption.] No, listen to my point. He talked about the headline, but, as a media-savvy politician, he well knows that I had no hand in writing it. He also mentioned group-think, and I think that there is a substantive point there, although it might not be the one that he wanted to make. If he will bear with me, I will come to that shortly.
I was about to make the point that the Commission’s notion of equally qualified candidates is an utter fallacy. As anyone in the real business world knows, a rigorous recruitment process will always identify the best, the brightest, the top person for the job, on merit. My wife works for Google, and she was interviewed 10 times, even after they had got rid of all the other candidates. That is a good example of a cutting-edge, high-tech firm testing and testing until it finds the very best candidate.
The directive is not just anti-meritocratic; it would also damage business competitiveness. No one has yet mentioned that. The Government estimate that it would cost listed companies £9 million between now and 2020, with additional ongoing monitoring costs. There is a far greater cost involved, too, but people are just too politically correct to mention it.
Seema Malhotra
Will the hon. Gentleman clarify what he meant when he said that the measure to increase diversity on boards would damage business competitiveness?
Mr Raab
If the hon. Lady will just have an iota of patience, I will come to the empirical evidence for that in a moment.
I want to cite some empirical research from Kenneth Ahern and Amy Dittmar of the business school of the university of Michigan, which examined the introduction of mandatory quotas in Norway from 2003. Looking assiduously at the impact on the boards, they found that the quotas damaged equity, asset and shareholder values in the companies affected. The report also found
“significant decreases in operating performance and higher costs as a result of the imposition of the quota.”
I would be happy to debate this afterwards with the hon. Member for Feltham and Heston (Seema Malhotra) if she wants to quibble with the empirical evidence of this study, but let me cite its findings correctly:
“These results are consistent with boards of directors that lack sufficient experience to act as capable advisors.”
The point is that if we have tokenism of this kind, we get inexperienced people on the boards and it damages shareholder value. Equality and diversity policy must be about widening the talent pool. On that we all agree, and it is through that that we strengthen business competitiveness. Tokenism is utterly counter-productive.
Equally, high-flying women would see minimal benefits from this directive because it focuses only on non-executive directorships. In that sense, I agree with some of the comments of Opposition Members. That, of course, encourages tokenism. If we look again at the Norwegian example—it is the one place in Europe where mandatory quotas were introduced—research in 2011 by Dr Hakim of the London School of Economics showed that Norway, the pioneer of gender quotas, had no female executive directors at all. That is why this measure feels—to me and, I think, to many outside the cloistered politically correct Westminster village—like a political elite debating an issue that is relevant pretty much solely to a business elite. It is largely irrelevant to the challenges of the millions of working women who live in the real world.
Of course, to come back to the point made by the hon. Member for Streatham (Mr Umunna), there are still outdated attitudes in the City. There is a problem of group-think among those from similar backgrounds. I worked in the City before I went into the Foreign Office, and I saw that all the time. It is true in many professions, including—and it would be useful to see more acknowledgement of the fact—some of the politically correct institutions such as the Government Equalities Office and the Equality and Human Rights Commission, which have an appalling imbalance in the gender composition of their staff. If anyone bothered to look at it, they would find it deeply hypocritical that these bodies are constantly lecturing others on the subject.
In terms of the City, which is what the directive is about, raw competitive forces are ensuring that companies look far more carefully at their boardroom composition to maximise their breadth of experience. It is taken far more seriously as a strategic business issue. McKinsey and various other firms have been cited with that in mind. I am confident, given the rates that we are seeing, that a rising flow of talented women into more senior positions will continue to break through the glass ceiling, which I do not deny we residually have.
We need to be careful, however, not to give succour to the very stereotypes of which we want to rid ourselves. The deputy leader of the Labour party notoriously suggested that we might not have suffered the financial crisis if we had had “Lehman Sisters” rather than Lehman Brothers. That sort of progressive prejudice, for want of a better term, is scarcely more subtle or savoury than the conventional kind. It is also—this is the interesting point for those who care to look at the evidence—positively refuted by the available empirical material. Research for the Bundesbank—hardly an institution regarded as lacking in rigour—that reviewed German boards between 1994 and 2010 found female board members tended to increase, not decrease, risk taking. The report attributes that to a public policy drive for more female directors, which resulted in the recruitment of less experienced women, as we discussed before. The issue was really about experience, not about gender. A similar review of Swedish boards found exactly the same. This kind of evidence punctures the prejudice promoted by people such as the right hon. and learned Member for Camberwell and Peckham (Ms Harman) that men are somehow innately more reckless than women. Of course it depends on the individual and their personal character, not on crude gender stereotypes, which too often inform this debate and have too often informed this sort of proposal.
I welcome the Government’s reasoned opinion arguing that the directive does not comply with the principle of subsidiarity, but let us be careful not to give the impression that we are making process points here. This directive is corrosive of a meritocratic vision of our society where we are gender blind and what matters is who people are and what they are capable of. If we really care about maximising opportunities for working women, we should be talking about such things as transferable parental leave and other family-friendly policies, which this coalition is adopting. We should be addressing the exorbitant costs of child care—
Mr Raab
I will not give way, as I am conscious that others wish to speak and I have already given way to the hon. Lady.
The last Labour Government did nothing to address the soaring costs of child care, which is arguably the single biggest practical problem for working women today, so I am delighted that the Government are shortly to announce proposals to address it. These are the policies that will make a real difference in the real world.
Finally, let me touch on a point raised by the right hon. Member for Leicester East (Keith Vaz), the Chairman of the Home Affairs Select Committee. It is about the tendency of those on the left to label and treat any form of ostensibly low representation in one area or one sector or another as inequality, then bluntly equating it with discrimination. This fails to recognise, in the words of the great British liberal thinker Isaiah Berlin, that from
“the crooked timber of humanity no straight thing was ever made.”
That tendency is destined to stoke up social tensions, not to ease them. If we bow to this and go down the path that quotas and positive discrimination tempt us to go down, we will open the floodgates to special interest politics, with every conceivable social group turning every gripe and grievance into an equality issue. We invite lobbying under the Equality Act 2010 based on gender, sexuality, ethnicity, faith, age, parenthood and even non-religious beliefs, but for those who bother to look at the Equality Act and at the list and number of protected characteristics, it becomes mind boggling. Instead of reducing these dividing lines as factors that determine people’s fate in life, we make them decisive. That is a major social mistake and I would argue against it at all costs.
I would like to see us build a meritocratic society where people are not judged according to tick-box criteria—one that recognises that, in a free country, perfect parity of representation is not only utopian but positively dangerous, and one that in the words of the great Martin Luther King judges people
“based on the content of their character”,
not on race, gender or any other arbitrary social dividing line. This directive is a social engineer’s dream and every meritocrat’s nightmare. I hope we send it back to Brussels and never see it again.
Meg Munn (Sheffield, Heeley) (Lab/Co-op)
Before I move on to my substantive point, which will be brief, I have to correct the statement of the hon. Member for Esher and Walton (Mr Raab) that the last Government did nothing on child care. I have to tell the hon. Gentleman that when we took office there was no child care in many parts of the country and there were no options for parents who wanted to work. I know that from my work in the social services sector. I welcome, however, the Minister’s words about the importance of this issue and the fact that companies are hampering themselves by not having diversity, as this means not doing all they can in the achievement of economic output.
My main point is that the issue is not about imposing quotas. I do not want to see the European Union imposing quotas, but neither do I want to see this country or this Government being complacent about how to move towards gender equality—not just in the one area of women on boards, but across our whole culture as well as across our businesses as a whole. We know that substantive and sustained progress has been made more recently in the appointment of non-executive directors, and we should all welcome it. We saw it previously, but there has been an increase in the number. We also know—here we can learn from the experience of Norway—that it is easier to achieve appointments of non-executive directors. Focusing just on that, however, will not help the vast majority of companies, and it will not help us see greater gender equality.
This weekend, The Observer told us about its research on the 100 top private companies, of which only 64 currently publish their board composition. Of those, 73% have all-male executive directors, and we know, too, that 51% have all-male non-executive directors. If we look at the FTSE 250, we find that 71% of companies have all-male executive directors. This relates not just to who is sitting around the board table, but to what is happening within companies. We need a culture that, right from the time a woman first enters a company, promotes those who have talents and supports them whatever their circumstances.
The hon. Member for Esher and Walton made some important points about both parents being able to work, but we know that all too often it is women who take on the majority of the responsibility for child care. We know from all the statistics on the gender pay gap about the disadvantage that comes from spending time away from work, whether it be working part-time or taking a career break, which impacts for ever on the woman’s earning capacity. We must look much more broadly at the general culture of work. The hon. Gentleman was right to say that the Government had given the issue a profile, but the discussion in Europe has done so as well, and has enabled people to understand the need for progress. The Government have a much bigger job to do in the world of work overall.
As I said in an intervention, the Government should think seriously about what they, and Parliament as a whole, would want to happen if the progress that is currently being made in relation to non-executive directors did not continue. It is all very well to say that we believe in voluntary arrangements, but if more progress is not made in the future, will the Government opt for more prescriptive measures? If so, what will those measures be?
Madam Deputy Speaker (Dawn Primarolo)
Order. I regret to say that we are a little short of time, so, in order to ensure that every Member who wishes to speak can do so, I am imposing a limit of five minutes for the remaining speakers. The debate will end at 6.43 pm or a little earlier, so I should be grateful if Members would bear that limit in mind.
Mary Macleod (Brentford and Isleworth) (Con)
As others have said, this is an important debate. I spent 20 years working in business in the City, and I often found that for days on end I was the only woman sitting at the table during meetings. I spoke out about that to the many organisations with which I was connected.
As the Minister said, the coalition set out to change the position—that is in the coalition agreement—and it has done so. Many Members have pointed out today how important that change is to the economy. It is good for business, and, of course, it is good for women. We should focus on the incredible amount of talent that exists among women in the workplace throughout Britain, and on using their skills and experience for the benefit of the economy as well as enabling them to fulfil their own potential. Other Members, including my hon. Friend the Member for Reading West (Alok Sharma) and the hon. Member for Feltham and Heston (Seema Malhotra), have already referred to the advantages for business, and I shall not repeat their arguments. Suffice it to say that we need to use those talents, which can benefit individuals, companies and the country as a whole.
I do not believe in quotas; I believe we need business-led change based on absolute merit. My hon. Friend the Member for Esher and Walton (Mr Raab) explained very articulately why that is so important. However, I also believe that businesses should work hand in hand with the Government, who can highlight the issue—as we have today—in order to promote further progress. A great deal of good work has been done, and I congratulate the Minister and the Government on what has been achieved by Lord Davies’s report and the measures that have been introduced to help business.
We have already heard about the improvements in the FTSE 100 and 250. In the last year alone, 49% of FTSE 100 and 44% of FTSE 250 non-executive directors have been women. That is real progress. According to the FTSE board report published by Cranfield school of management in 2012, if we maintain the current momentum, female representation on boards could be a record 26.7% by 2015 and 36.9% by 2020. The report identified some great performers. Four women are members of Diageo’s board—44% of the overall membership—while three out of eight members of the Burberry board are women, including the chief executive and chief financial officer, and 33% of Pearson’s board members are women. Some organisations are leading the field, and are already doing a great job.
The role of women in Parliament, and in politics generally, was mentioned earlier. I chair the all-party parliamentary group for women in Parliament, which is determined to change the current position. In 2010, the number of female Conservative MPs increased from 17 to 49. Of course there is more work to be done, but we have made significant inroads. In the recent reshuffle, 50% of the 2010 intake who were appointed to Government roles were women.
The solution to the remaining problems lies partly in what the Government can do to encourage female representation and partly in what can be done by those in business, such as head-hunters, nomination committees and investors. Businesses can nurture talent by encouraging and mentoring women, and by changing the organisational culture of which Members have spoken today. Chief executives should lead from the top. If they really believe in a change in the culture, and if they can drive that change through their organisations, they will make a difference. I recently organised a women on boards leadership forum in the House, and was heartened to hear Antony Jenkins, the group chief executive of Barclays, speak so passionately about what the bank has done and will do in order to make a difference. We need more people like him.
I agree with Members who have said that non-executive director roles are still an issue. As was pointed out by the hon. Member for Sheffield, Heeley (Meg Munn), we must continue to increase the number of women in both executive and non-executive positions.
As for the directive, it is important for subsidiarity to be respected, and for women to be appointed on merit. This is not something on which we should receive directions from Europe; it is something that we can do ourselves, and we have made progress already.
Ann McKechin (Glasgow North) (Lab)
I welcome the opportunity to speak in the debate. As the Minister will know, I am a member of the Business, Innovation and Skills Committee. The Committee is currently undertaking an inquiry into women in the workplace, which will include a review of the recommendations of the Davies report. I do not want to pre-empt our final report and recommendations to the Government, but I will say that we wanted to institute a cross-party inquiry for the very reasons that the Minister gave earlier.
Diversity on boards is good for companies, and therefore good for the British economy. Given the present state of the economy, we should explore every avenue that may lead to increased innovation, diversity and productivity. In response to what was said by the hon. Member for Esher and Walton (Mr Raab), let me point out that diversity means introducing different experiences to a board, rather than a single set of pre-judged experiences. The hon. Gentleman advanced the classic Catch-22 argument that those who do not have enough experience cannot join a board, but those who are not members of the board do not have enough experience in the first place. However, we all have to start somewhere.
Evidence given to our Committee has made it clear that there are strong views on both sides about the imposition of quotas, but it has also shown that some companies have taken strategic steps to increase diversity through, for instance, regular reporting on how they are achieving a gender balance. I was interested in what was said by the hon. Member for Reading West (Alok Sharma) about the use of reporting to drive progress. Pay transparency is another key component, as are solid targets and consistent ways of ensuring that progress is made. As with politics, progress can go back as well as forward. Unfortunately, when it comes to membership of the Cabinet, it is going back. It is important to have a clear and consistent policy in this regard.
We should take account of companies that are keeping their heads well down and not joining in the argument because they think that if they do not participate in it they can ignore it. I do not rule out the use of quotas if we find that a persistent sector of the economy does not consider diversity to be integral to the progress of the economy overall, and I think that the Government have a role to play in that respect. I agree that quotas are not the only way of achieving diversity, but I think it important for the Government to think about procurement and about how they spend money on training and higher education.
One other aspect we should be considering is regulation of the London stock exchange. Requiring companies that are members of the stock exchange to look at how they achieve diversity on their boards and throughout senior management is a way of avoiding primary legislation while driving progress. In response to the hon. Member for Esher and Walton, I should add that one of the companies that gave evidence to us, Clydesdale bank, has set a target of increasing the number of women in the three top senior management roles over the next few years. That is one way women can gain experience in executive director roles, as well as non-executive director roles, which have been referred to.
This is a work in progress, but the Government need to be at the heart of it.
David Mowat (Warrington South) (Con)
The hon. Lady said that companies that are more diverse grow more quickly and that there is evidence of that. Is this not, then, a self-correcting problem, because all companies need to grow, and those that are struggling to grow and are not diverse enough should surely be doing what is required to correct that? Surely this is self-correcting, so the measures she is describing are unnecessary.
Ann McKechin
A persistent group of people will always resist change if they can. Despite the good track record, there are contrary voices, as we heard during the Business, Innovation and Skills Committee inquiry, stating that men are inherently better at doing these things anyway and that things will be fine. That view should not be accepted in the 21st century. The public, this Parliament and the Government should take an active role in engaging with this. Issues of pay transparency, part-time work, child care and business culture should interest us all, whether we are in business or not.
I concur with my hon. Friend the shadow Business Secretary about it being important that we respond positively to the EU over how this country and this Government can make a difference to the economy, which will, I hope, improve if we ensure that diversity is key to our corporate structures.
Mr William Cash (Stone) (Con)
The first question for consideration in this reasoned opinion debate is, in a nutshell, whether the Commission will have to reconsider its proposal, and that issue turns on whether there will be sufficient opinions representing one third of all the votes in national Parliaments—on the basis that each Parliament has two votes. The real question is whether we will really get that. Of course, if we do not, the question that follows is: what will happen? Some believe that the principle of subsidiarity ought to be applied, but there is also the question of whether we should refuse to accept it—but that is for another day.
Secondly, there is a question about whether the directive will achieve its target of 40% representation of female non-executive directors and—this has not been mentioned yet—30% of all directors on the boards of publicly listed companies by 2020, or 2018 in the case of listed public undertakings. Furthermore, there is the question of the exemption for small and medium-sized enterprises—I have not heard that mentioned either—and for companies whose work forces have fewer than 10% female employees.
Thirdly, where national measures have already been introduced in some countries with a view to increasing the representation of women on corporate boards, companies need not apply the new recruitment and selection requirements, but will be required to do so from 2018-20 if they have not reached the 40% target. I put that on the record because, as far as I am aware, none of those three points has been made in the debate so far.
In the interest of brevity, I will simply say that the questions concerning breaches of the principle of subsidiarity are set out in the draft reasoned opinion and I do not need to repeat them. I would like to put several questions to the Minister, but, in order to ensure that we get through what we have to get through in the time allotted, I shall write to him with the questions that the European Scrutiny Committee would like answered, and he can reply to us. I do not therefore have to go through them all now—I would not have time anyway.
I shall make only one more point. Will the Minister tell us whether—and, if so, to what extent—the Government plan to make use of the reasoned opinion in the Council negotiations on the proposal? With that I shall conclude, but I shall be writing to the Minister and look forward to his considered response.
Julian Smith (Skipton and Ripon) (Con)
I refer Members to my declaration in the register of Members’ interests.
This really is a dodgy dossier of an EU proposal. The reason given for the proposal on page 3 is that it will ease the functioning of the single market, but on page 9 it states that it will address the fundamental objective of gender equality. The polling support by the reliable Eurobarometer is also shaky. In fact, it shows more support for self-regulation than for legislation. The impact assessment states that there is only a weak case for the EU intervening in this area, and there is no rigorous detail of the important work already being done by member states. Only France is held up as a holy grail, with its 40% statutory level—France, with its Strauss-Kahn-style commitment to sexual equality.
More worryingly, the directive proposes stringent mandatory quotas on EU-listed companies, but glosses over the many and complex reasons for the poor numbers of female executives and non-executives. Where is the self-analysis of the EU’s long list of employment rules and regulations, which might have made matters worse for female business leaders over the past few years? Where is the hard-headed debate and evidence of whether current maternity and paternity rules risk keeping women out of the workplace for too long? Where are the apologies for forcing employers into the most soul-destroying transactional relationship with female employees going on maternity leave, rather than encouraging ongoing contact and involvement? EU policies have driven a wedge between employers and female employees.
We should be proud of the work that the Government have done in this area, which I am delighted the shadow Secretary of State recognised. Lord Davies adopted a sensible and pragmatic target of 25% and the focus on transparency has been working. Furthermore, the Financial Reporting Council has now introduced its requirements and there will be a focus on the top 350 companies setting out their aims for the number of women on boards by 2013-15. Furthermore, the Cranfield school of management has recognised that the Government are on track for 37% take-up by 2020.
Mary Macleod
Does my hon. Friend agree that the Women’s Business Council, set up by the Government, and the extra funding for female mentors for female business women will also help?
Julian Smith
I think it will help, and I pay tribute to my hon. Friend’s work on this issue since entering the House.
Transparency is putting pressure on companies to change. The Association of British Insurers and the National Association of Pension Funds are now reporting the number of women on boards and incorporating the figures into the voting information service for investors. Some asset management companies, including that run by the co-operative movement, which Labour Members are close to, have started to request data about board compositions from companies in which they invest. The Government have nudged the private sector to do more, and it is doing more, going with the grain of business and encouraging investor-led decisions to get more women on boards.
The UK is right with its approach of focusing on pipeline. Because companies are being forced to report on the number of women on their boards and the number of female employers, industry groups, mentoring groups and board clubs, which have been mentioned, are springing up, and head-hunters have now signed up to a code of conduct.
The UK is also right to look at overall numbers. My hon. Friend the Member for Esher and Walton (Mr Raab) mentioned the drop-off rate when women have children. This is where the EU proposals are so hypocritical. Its equality policies have focused too much on length of leave and rights, and not enough on how to keep women and employers engaged. Here again, the Government have taken the right decision by pushing ahead with right to request, maternity legislation and in relation to child care. As has been mentioned, the main reason the change is happening is the rapid change in social attitudes; we have much more enlightened employers. I know that the City got a hard time earlier in the debate, but in fact the American banks I was working with as a head-hunter were the most forward-thinking on this issue. We also have more enlightened men now. My wife is expecting a baby in a couple of weeks—[Interruption.] Thank you. Only three months ago, I was making the case that she should stay off work for a year to look after our child, but I have since seen the error of my ways and realised that her career is more important. I will be looking to the Minister for nappy changing advice—I hear that he is an expert—in order that I can fill the gap.
Attitudes at home and attitudes in the workplace driven by national Governments nudging business to look at the business logic of maximising women in the workplace are what is going to get us there much better and much smarter than this EU diktat.
Matthew Hancock
With the leave of the House, Madam Deputy Speaker, I will respond briefly to all the points raised. First, I shall deal with the last one by congratulating my hon. Friend the Member for Skipton and Ripon (Julian Smith). I do so not least because this morning my wife and I attended the three-month scan of our new baby—we did so together, of course. I can understand why the Whips are looking worried about need for paternity leave coming down the track.
I will make three quick points. I think that the whole House has recognised the first of these, but I wish to put it in stark terms. The UK has had the fastest rise in the number of women on boards in the EU, bar three countries. Our rise has been faster than that of Germany, the Netherlands and Spain; we have been faster than all but three of the 27 member states.
On the point about whether it is good business to have women on boards, the evidence is very clear. The Bundesbank evidence was cited and I have read it in detail. It was analysis of the impact on risk, but it omitted the banks that had been rescued because they had been too risky—that is a bit like looking into the risk of the British banking system but omitting RBS. So it is a partial report, but the evidence is incontrovertible.
Finally, I come to the point raised by the Chairman of the European Scrutiny Committee. The rules are clear: if a third of member Parliaments cite a reasoned amendment and reject the proposal, the Commission must consider again. As far as we know, eight member Governments and Parliaments are against, which is just under a third, as there are 27 members, and about a third of member states are yet to be clear in their position. If this motion goes through tonight, that eight will rise to nine. So I have some confidence that he will be happy with the outcome of the process and that we can ask the Commission to look again at this proposal. I commend the motion to the House.
Question put and agreed to.
Resolved,
That this House considers that the draft Directive of the European Parliament and of the Council on improving the gender balance among non-executive directors of companies listed on stock exchanges and related measures (European Union Document No. 16433/12 and Addenda 1 to 3) does not comply with the principle of subsidiarity for the reasons set out in Chapter 1 of the Twenty-third Report of the European Scrutiny Committee (HC 86-xxiii); and, in accordance with Article 6 of Protocol No. 2 of the Treaty on the Functioning of the European Union on the application of the principles of subsidiarity and proportionality, instructs the Clerk of the House to forward this reasoned opinion to the Presidents of the European Institutions.
Backbench Business
(11 years, 11 months ago)
Commons ChamberRead Full debate Read Hansard Text
Corporate Tax Avoidance
(11 years, 11 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Madam Deputy Speaker (Dawn Primarolo)
Before I call Mr Ian Swales to move the motion, may I inform Members that 17 Back Benchers are hoping to participate in the debate, so if each one aims to speak for less than 10 minutes, there will not be a need for a time limit? If that does not happen, a time limit will be imposed and it will probably be less than 10 minutes.
Ian Swales (Redcar) (LD)
I beg to move,
That this House has considered the matter of corporate tax avoidance.
First, I thank the hon. Members from all parts of the House who supported my bid for a debate, and the Backbench Business Committee for scheduling it so quickly.
In October, the Government borrowed more than predicted, and the main reason given was lower than expected corporation tax receipts. In November, former City Minister Lord Myners said:
“Corporation tax for an MNC”—
a multinational company—
“operating in the UK is close to being a voluntary payment.”
In December, Eric Schmidt, chief executive officer of Google, said that he was proud that his company had avoided $2 billion of corporate income taxes worldwide in the last year. We have a crisis—a growing crisis of our national tax system operating in an international business environment. Lurid stories of tax avoidance appear almost every week, and Private Eye magazine deserves special mention for its exposure work. Vodafone, the Ritz hotel, bookmakers, water companies, care homes, professional services companies such as Accenture and CSC, and of course American behemoths including Apple, Google, Amazon, Microsoft, Facebook and Starbucks, are just a few of the examples. ActionAid says that 98 of the FTSE 100 companies have a subsidiary in a tax haven. The Government have fuelled the frenzy by doing private finance initiative and outsourcing deals with tax avoiders. We must also consider whether we can trust our media to report all this fairly, given that most of our national newspapers and their owners are themselves engaged in some form of tax avoidance.
Of course tax avoidance is not illegal, but that is why the Government must act. We are a long way from having fiscal union in Europe. Our tax systems are a cornerstone of sovereignty; they are resolutely national and I think they will remain so for as long as any of us are MPs. So when Amazon sat in front of the Public Accounts Committee recently and fielded many questions with the response that it ran a pan-European business from Luxembourg, it was not excusing itself, but vividly illustrating the problem. The French Government are already looking to levy huge extra tax payments from the company. It is totally unacceptable for EU legislation to be used to support national tax avoidance. Arguably some of that already contravenes the abuse concept in EU law, which deals with situations where a consequence was not intended when a law was made.
I was finance director of a billion-dollar global business in the mid-’90s. What has changed since then is the scale, complexity and aggression of the avoidance schemes. For example, we would never have set up legal entities in countries where we did not trade, solely to avoid tax.
Nick Smith (Blaenau Gwent) (Lab)
Sir Martin Sorrell has claimed that the tax that some companies pay is a matter “of judgment”. Avoidance such as that by Amazon, which the hon. Gentleman and I heard about at the Public Accounts Committee, has disadvantaged domestic businesses, which cannot relocate to lower tax regimes and shift their profits abroad. Does he agree that British businesses deserve a level playing field?
Ian Swales
I thank the hon. Gentleman for that intervention. I totally agree with him. The idea that large companies see their tax payments as voluntary, or as some kind of contribution they feel like making, is completely out of order. I will discuss the competition aspects later.
Caroline Lucas (Brighton, Pavilion) (Green)
The hon. Gentleman is making a compelling argument about how tax avoidance has grown in recent years. By 2015, the number of staff employed by Her Majesty’s Revenue and Customs will have fallen by 40,000 since 2005. Does he agree that this apparent bid to save money is entirely counter-productive, given that if we had those members of staff at HMRC we would be much more likely to be able to crack down on avoidance?
Ian Swales
The hon. Lady makes a powerful point. I will say more about that later, but I agree with her that we need more resource in the whole area of enforcement.
I was talking about my experience and how we would never have set up legal entities in countries just to avoid tax. Now, News International has more than 150 companies in tax havens. Transfer pricing, management fees, royalties, patent, copyright and interest payments are all ways to move money. The moving of whole businesses and headquarters to new jurisdictions is also becoming much more common.
Let us remember that companies that are prepared to go to elaborate lengths to avoid corporation tax may seek to avoid other taxes, too. If the BBC was making wide use of tax-avoiding personal service contracts for staff, we can be sure that some private sector companies are doing so, too. At a recent Public Accounts Committee hearing, Amazon told me that it raises UK VAT and pays it to the taxman, but it is a Luxembourg company; it also claimed that it did not even know the value of its sales to the UK. Someone wrote to me after the hearing confirming that they could not get a VAT invoice for their new iPad, bought for business purposes. Amazon said that
“we are unable to provide a VAT number as we are registered overseas”.
Bob Stewart (Beckenham) (Con)
I thank the hon. Gentleman for giving way and appreciate the opportunity to speak on something about which I know little. If a company does not know the value of its sales in the country, I think that HMRC should estimate them, charge corporation tax on that amount, and let the company argue against it to prove that HMRC was wrong. We would then get better corporate tax returns, would we not?
Ian Swales
That is an interesting idea and I thank the hon. Gentleman for the suggestion. HMRC needs to look much more closely at companies that have that type of business model. I agree that we need to start making some presumptions.
Charlie Elphicke (Dover) (Con)
Is it not the case that for physical goods, Amazon would have to account for VAT in the UK? The issue is that for electronic goods, it accounts for VAT in Luxembourg, so Luxembourg is eating our VAT lunch.
Ian Swales
That could well be the case, and I shall speak about that later, too.
The person who wrote to me saying that they could not get a VAT number for the iPad they bought for business purposes was told that Amazon was unable to provide one. Had that been made clear to the buyer, they would have gone elsewhere to get a lower net price. Who knows, they might even have gone to Comet.
Amazon’s turnover in Europe is €7 billion. The gross VAT on that, even at Luxembourg’s lower rate of 15%, would be more than €1 billion. Where is it paid? That would be €2,000 a head for every man, woman and child in Luxembourg, but I would guess that is not paid at such a rate. I would also guess that Amazon’s UK order fulfilment subsidiary pays little or no VAT. I ask the Minister urgently to investigate how the business model operates.
Stephen Williams (Bristol West) (LD)
I happen to be reading Deloitte’s tax guide to Luxembourg in 2012, which states that the standard rate of VAT in Luxembourg is 15%, but that for printed materials and e-books it is 3%.
Ian Swales
My hon. Friend makes a good point. Amazon has already been found out for charging 20% when it should have been charging 3% on e-books.
Should we care about all that? Yes, we should. There is the obvious point about the loss of billions in Government revenue, leading to higher taxes on other parts of the economy or cuts in services, including the very infrastructure and services on which a tax-avoiding company and its employees might depend. Then there is the question of competition. My previous experience was in the global chemicals industry, but in the internet and franchising age, the unfair effects can hit anyone. Our high streets are now subject to global competition in burger restaurants, bookshops and coffee bars. Local bookmakers have largely disappeared rather than trying to compete with rivals operating from Gibraltar—on paper. Most retailers are competing not only with the unstoppable rise of the internet but with offshore-based giants such as Amazon and eBay. The list of national and local UK businesses that cannot compete will get longer and longer: Comet was the latest to go broke, just before Christmas, probably costing the UK taxpayer £50 million.
Companies that pile up untaxed revenue in tax havens also have enormous financial muscle to reinvest cheaply or take out any other business they want to. It was recently estimated that the world’s tax havens hold $13 trillion of cash, which is the total GDP of the USA plus Japan, or enough to buy the entire London stock market four times over. That highlights the compound effect of tax avoidance, as those companies benefit from not paying the tax to begin with and can then use that money to compete ever more aggressively.
The big accountancy firms have led the charge in devising schemes from which companies benefit. What world do they envisage? If more and more companies routinely avoid taxes, the Government will get revenue only from people stuck as employees on pay-as-you-earn, and from property taxes, business rates and ever-increasing VAT and duty from the companies that cannot find ways to avoid them. There will be a net move from tax on companies to tax on individuals, and if that trend continues, only companies with offshore tax havens will be able to compete. A nation of shopkeepers will be run out of business. There is also a threat to our political system, because we cannot expect all those who pay their taxes fully and fairly to keep on tolerating such abuses indefinitely. UK Uncut might be just the start of the protests.
I have been talking about the problem; now I want to explore ideas for action. First, having a national tax system operating in an international business world means that we need to police our financial borders just as rigorously as we police our physical borders for illegal movements of people, counterfeit goods, drugs or any other activity that we want to control. We must say that if a sale or business activity takes place in the UK it should be accounted for in the UK. The idea that an item can be manufactured in the UK, stored in the UK and shipped to a UK customer, but invoiced from Luxembourg, must be challenged.
We should then force transparency into the system. UK companies doing the right thing report their profits and taxes paid to Companies House in some detail, so the blanket taxpayer confidentiality regime in HMRC, which prevents the disclosure of tax affairs not only to Parliament and the Public Accounts Committee but to HMRC’s own non-executive directors, mainly helps the international tax avoiders. It is time for the publication of simple statistics that are mostly available anyway in Companies House, as that would force companies to justify their behaviour. Transparency and honesty with consumers are important. If companies have nothing to hide, they will have nothing to fear.
Nigel Mills (Amber Valley) (Con)
Does the hon. Gentleman agree that one thing we could do is require large companies to file their corporation tax returns with their accounts at Companies House? Then, from their accounts, we could all see their taxable profits and how they got them.
Ian Swales
I appreciate that intervention, because I know that the hon. Gentleman has great experience in this area. He goes further than I was proposing, but it is certainly a good idea.
Transparency and honesty are important. As we have seen recently with Starbucks, transparency can lead to consumer power influencing company behaviour. I hope that we will see more of that. Retail, business or government consumers who do not like the ethics or practices of a company do not have to deal with them, except perhaps in cases involving utilities.
HMRC must also be more transparent. Although it steadfastly claims that it does not do deals, Vodafone’s finance director told the City that its deal was worth £500 million a year. One lesson from that and other cases is that no high-level discussions with companies should take place without being minuted, and those minutes must be freely available to tax commissioners and the National Audit Office. The transparency must work both ways; we cannot go on operating through tinted windows.
Mr Richard Bacon (South Norfolk) (Con)
Does my hon. Friend not regard it as extraordinary that in the negotiations between HMRC and Goldman Sachs about some back payments that were due, no legal advisers were present and no minutes were taken?
Ian Swales
I thank the hon. Gentleman for that invention. As fellow members of the Public Accounts Committee, he and I have looked in detail at that case. He is right that such arrangements should not be made.
The UK should take a look at its own role and its relationship with tax havens such as the Isle of Man, the Channel Islands, the Cayman Islands, Gibraltar and so on, which the Secretary of State for Business, Innovation and Skills has described as sunny places for shady people. UK citizens deserve a full explanation from the Government of why they support those places as tax havens and what net benefit they bring to the UK.
It is also urgent that work takes place at EU level to ensure that companies cannot exploit sweetheart tax deals in countries such as the Netherlands and Luxembourg, aided by the free movement of goods, people and capital. It is time properly to enforce the 1997 EU code of conduct on business taxation. I am especially pleased to see you in the Chair, Madam Deputy Speaker, as that code was ratified under your chairmanship. It specifically highlights issues such as doing deals to give lower rates and tax incentives for activities that are isolated from the domestic economy of a given country. The OECD set up a forum on harmful tax practices at about the same time. Both initiatives highlighted the need for transparency. A race to the bottom helps nobody.
Next, the Government should consider disallowing some foreign interest payments for tax purposes. It is depressingly easy to move a chunk of capital to a low tax regime, then export all one’s profits via interest payments. Foreign interest should have to be specifically justified. When the loans were taken out, what was the purpose? Were they proportional to business need and are they now? Who is the lender? A related company deal needs particular scrutiny, especially as the capital may originally have been exported from the UK with no equivalent taxable interest coming back.
The Government should look at setting maximum royalty and management fees, and disallowing them as a deduction if they are disproportionate to profits. There should be an ability-to-pay test; such payments should not be allowed to wipe out UK profits, as we saw with Starbucks. The Government should work with international partners to disallow management fees and royalty, patent and copyright fees unless they go direct to the country where the relevant value was generated. Payments to tax havens could be automatically disallowed. When a company claims that rights have been sold to other countries, it needs to show that a full and fair price was paid. Of course, that would crystallise a big tax liability in the selling country. The United States would be especially enthusiastic about such a move, as it is one of the big losers from payments going to tax havens.
Because our tax systems are national, all movements of value across borders, including business transfers, need a price attached to them for tax purposes. The Government must also find a way to ensure that VAT is charged on all qualifying sales in the UK, whatever the country of origin. To go back to the point made by the hon. Member for Brighton, Pavilion (Caroline Lucas), we need much more specialist resource in HMRC. A department that brings in 100 times what it costs should not be treated like a normal cost centre; there must be many more invest-to-collect business cases to be made. Maximising our tax revenue is as much about enforcing the rules as about the rules themselves. In particular, a special unit is needed to look at everyone running an internet-based business selling to UK customers, starting with the biggest. It should look at where they are based, their business model and whether they abide by UK VAT and corporation tax rules. We need our rules and enforcement to be up to date with technological changes.
The tax system is way too complex; a whole industry has grown up to find creative ways to avoid tax. When will we see significant output and action from the Office of Tax Simplification? Surely we need radical ideas for cutting through the jungle of our tax system, not just the deletion of obscure, rarely used reliefs. Simplification is badly needed, yet we see even more complexity.
I talked earlier about consumer power. The UK Government are by far the biggest purchaser and grant-awarding body in this country. Is it right that Amazon can get more than £10 million of Government money for a new warehouse in Dunfermline when it is a Luxembourg-based retailer paying little corporation tax in this country, and apparently does not pay VAT on all its sales either? Is it right that Accenture, Capgemini and others win Government contracts when they are named as aggressive tax avoiders? Should HMRC itself have sold its buildings for leaseback to Mapeley, a Bermuda-based company? Is it not time that we recognised in financial assessments that most of the profits from private finance initiative and outsourcing contracts are now disappearing offshore?
John Pugh (Southport) (LD)
My hon. Friend is giving a list of remedies for tax avoidance schemes. Would not most of them have been caught by a general anti-avoidance rule?
Ian Swales
I thank my hon. Friend for the intervention. I am not familiar enough with how such a rule would be structured, but the idea would certainly be helpful.
Caroline Lucas
May I suggest that all Members look at the private Member’s Bill introduced by the right hon. Member for Oldham West and Royton (Mr Meacher)? The Bill refers to the importance of a general avoidance principle rather than rules. The problem with rules is that people can bend them and get round them. A general avoidance principle is much harder to get round and has much wider scope. That is the route the Government should be taking.
Ian Swales
I certainly have something to learn. I hope that the right hon. Member for Oldham West and Royton (Mr Meacher) will speak about his Bill later.
We should play the tax avoiders at their own game. If their UK accounts show virtually no profit, are they robust enough to deal with for the long term, and do they have the right ethics to work in our public sector? There is a big drive in manufacturing at the moment—the desire for “Made in Britain.” Perhaps it is time for Government procurement to work on a “Paid in Britain” basis. Small and medium-sized UK companies who are doing the right thing have a clear disadvantage when bidding against the tax-avoiding giants. I am convinced that doing public sector business with tax avoiders does net damage to our economy. Government action could mean that companies quickly change their behaviour. When I suggested such a step to Google at the PAC hearing, the signal was quickly picked up, with an article in the trade press.
The Government have enormous power to require those seeking grants or contracts to reveal the tax structure of their UK entities. When making their choice, decision makers could then include the bidder’s tax arrangements. The National Outsourcing Association supports such a move, which is surely part of getting the best value for UK taxpayers when spending their money. To those who cry “EU bidding rules,” I say that it is right to look at both costs and potential tax income. Who can stop countries demonstrably making the best value choice in the national interest from an open process?
The issue is not party political. MPs on both sides of the House want action. The problem is urgent, huge and growing. The more companies and their advisers see what others are doing, the more the leakage becomes a flood. Only a select few will be able to keep their heads above water, and it will be the smaller, independent companies who are overwhelmed. We cannot rely on pleas for morality or altruism. Companies play by the rules set in this House and the enforcement we put in place to back them up. Just last week the Prime Minister said that the issue is a top priority. Tinkering will not do. Now is the time for radical action.
Mr Frank Field (Birkenhead) (Lab)
I have three points to make, but I begin by expressing my anger at companies who take us and the Government for fools. We have a fairly united view about welfare abuse. I should like the Government to enact measures that reflect the sense of urgency the country feels about people who similarly abuse their tax position.
The Government’s fiscal crisis is of long standing. In the vast majority of the 60 years since 1948, Government accounts have been in deficit. We have developed a habit whereby Governments are elected to implement programmes for which they have no intention of raising the necessary tax revenue. In only a handful of the years since ’48 have Government budgets been in surplus; for the rest of the time they have been in deficit, and under Tory periods the deficit was twice as large as during Labour years.
We habitually have real difficulties in raising revenue to support the level of expenditure taxpayers would like to see. We know that the position will get worse in the future, and I shall give two examples of where it will harden. Let us look at long-term trends in revenue in relation to the tax on fuel. We know that thanks to more efficient fuel use, the revenue gained by the Exchequer from tax on fuel will fall dramatically. At the same time, there will be pressure on Government budgets from demands for the health service and pensions, and it is not impossible to envisage that by 2060 they could be taking half of the total.
We hold this debate at a time of crisis, but not the immediate crisis about the deficit with which the Government are trying to grapple. There is a longer term crisis, because as a nation we have grown accustomed to demand far more than we are prepared to pay in tax. I have three suggestions for the Government about what they could do to convince taxpayers, as well as the House, that they are as serious about clamping down on tax abuse as they are about clamping down on other forms of abuse in our public finances.
The first suggestion is that we issue kitemarks to companies that Her Majesty’s Revenue and Customs believes have paid their fair share of taxes. We would then develop a “white list” of companies with which we know it is safe to trade, and would have warnings about those with which it is not safe to trade, or would know that if we did trade with them, we were aiding and abetting the crimes that they were committing against the commonwealth of taxpayers in this country.
Secondly, I make this plea: why cannot the Revenue be more bold in exposing companies that it believes are abusing their position and fiddling their tax rates? Might not that threat, certainly if carried out, concentrate the mind of many companies and get them to start behaving better, to the good of taxpayers?
My third suggestion relates to a point on which I do not agree with the hon. Member for Redcar (Ian Swales), whom I congratulate on his contribution; I do not think that we have the time to wait for groups of countries to behave, let alone to get the European Union to agree on a common stance. Let us look at those who are outside the European Union. Norway, for example, has to pay to trade within the European Union. Why cannot we say to companies such as those that the hon. Gentleman listed, “If you wish to trade in this country, you have to pay a fee, which will be more than we would gain from you in taxes if you paid corporation tax honestly”?
We might start with companies—coffee houses and so on—that could well find that other companies could substitute for them. There would be no diminution of the public good if we could not go to Starbucks. The country would not come to a standstill. We would not have breakdowns if we could not buy Starbucks coffee—there are plenty of alternatives—and we might begin to turn the tide in favour of honest taxpayers and against those who are taking us to the cleaners. I would be greatly interested to hear how, if the Government wish to be taken seriously on the subject, they will respond to those proposals, and other proposals that I know right hon. and hon. Members wish to put to the Government in this debate.
Mr Richard Bacon (South Norfolk) (Con)
It is a great pleasure to take part in this debate, and I commend my fellow member of the Public Accounts Committee the hon. Member for Redcar (Ian Swales), on bringing forward this debate. I was interested in his exchange with the hon. Member for Brighton, Pavilion (Caroline Lucas) on having a set of general anti-avoidance rules. Her view was that it is best to have a set of principles, because principles are less easy to bend than rules. I am not quite sure that I agree; whenever I hear anyone talking about principles, I hear the voice of Oscar Wilde saying, “If you don’t like my principles, I have others.” I fear that if there were a general anti-avoidance principle, as long as it were justiciable, which it would be, it would just create more work for lawyers. I do not think that there is a simple way round this, other than simplicity. I shall come on to that in a minute.
I do not normally take too much notice of the handouts for these debates, but I thought I would take a look at today’s, just in case. I was struck by the words at the beginning, under “points to make”:
“Tax evasion is morally wrong as it means that law-abiding people face higher taxes to make up for the lost revenue.”
Right there, in the first sentence, is the confusion that is so widespread that the difference between tax evasion and tax avoidance has almost disappeared—so much so that I wonder whether I was dreaming when I used to think that there was a clear division between the two. Of course, tax evasion is not just morally wrong; it is illegal. That is the central point. Tax avoidance is not illegal.
I shall quote from the National Audit Office report, “Tax avoidance: tackling marketed avoidance schemes”, which provides a handy definition. You drove through a lot of the legislation on this in the previous Administration, Madam Deputy Speaker, though you have probably forgotten much about this. The report says:
“HMRC’s working definition of tax avoidance is ‘using the tax law to get a tax advantage that Parliament never intended’. Unlike tax evasion which involves fraud or deliberate concealment, tax avoidance is not illegal. However, it often involves contrived, artificial transactions that serve little or no purpose other than to produce a tax advantage.”
That gives rise to the question: how can it be that tax avoidance has grown so much, and how can it be that we have the distinct impression—the Treasury might try to deny it, but I believe that there is evidence for it—that there has been simultaneously a cosying-up to a large number of bigger corporate taxpayers, and tightening of terms applying to, and greater aggression from HMRC towards, small businesses in our constituencies?
The best example of cosying-up that I can think of is the deal with Goldman Sachs. Some years ago, a number of investment banks—around 22 of them—came up with a scheme for avoiding national insurance contributions by ensuring that many of their highly paid employees were technically employed by a company registered in the British Virgin Islands. It was a very contrived scheme, and HMRC challenged it. Indeed, 21 of the 22 investment banks involved caved in eventually and paid the money due. One did not, and that was Goldman Sachs, which continued to pursue its position for many years until, in October 2005, HMRC wrote it a letter, warning it that unless it played ball, it would eventually be liable for all the interest due on the back payments as well.
The case continued for many years, and in 2009 there was an important Court of Appeal judgment that was favourable to HMRC, which made it all the more surprising when HMRC did not pursue the matter more vigorously. It came out in the PAC’s hearing on the subject that the permanent secretary for tax—the head of HMRC—was unaware of the warning that HMRC had issued in a letter to Goldman Sachs in October 2005 until I told him about it. That rather makes one worry about whether HMRC has the right skills in the right places. Indeed, that was the central burden of the National Audit Office report, “Core skills at HM Revenue & Customs”, published on 2 December as HC 1595.
The report makes pretty grim reading. It makes it clear that
“HMRC does not yet have a strategic and systematic approach to its investment in skills”,
and because HMRC is so decentralised, it cannot ensure that there is alignment, at a high level, of investment in skills with its business priorities. To quote the report:
“As well as having limited information on its investment in skills, HMRC does not, at the level of the organisation as a whole, know its current skills gaps or gain an early warning of future skills gaps.”
The report continues:
“there is no clear line of sight from HMRC’s Executive Committee to business areas that would enable the Executive Committee to evaluate whether business areas are delivering expected business benefits from their investment in skills”,
and
“Problems are slow to be resolved. Many of the points in this report were raised by HMRC’s own reviews in 2008 and 2009, but HMRC has not made the changes needed.”
The report goes on; I could quote much more, but I am trying to be brief. The issues that we face to do with corporate tax avoidance are fundamentally to do with complexity. The reason we have had an increase in tax avoidance is that we have had an increase in complexity. The only cure for that is much greater simplicity.
I mentioned earlier that I have seen evidence of a tightening of the attitude of HMRC towards small business customers. Recently, a bookkeeper came to see me in my surgery; he does the accounts and tax returns for a variety of small businesses, from corner shops to companies with a £10 million or £15 million turnover—everything from small manufacturers to fish and chip shops. He came to see me because he was concerned about the change in HMRC’s behaviour; it was becoming more and more aggressive. He had clients who had had to lay people off in order to pay tax bills, and with whom HMRC was not making the time-to-pay arrangements that are certainly made available to some larger companies. Vodafone’s is a classic case: although it had £10 billion on its balance sheet, it was given five years to pay the tax liability resulting from the dispute to which the hon. Member for Redcar referred.
I do not think that the solution that we saw in the case of Starbucks, which gave evidence to the PAC, is the right one. Starbucks made the bizarre announcement that it would pay £10 million in corporation tax in each of the next two years, whether or not it made a profit. That is not the way forward. As for the idea that companies should pay corporation tax because the mob has turned on them, the spotlight is on them, there is public relations attention on them, and they think they have to make an announcement and do something, that is a bizarre way of arranging our tax affairs. The way to do it is for companies to obey the law.
Mr Frank Field
If Governments are inactive on this front, what action does the hon. Gentleman propose taxpayers should take, other than that mob action?
Mr Bacon
Governments should take notice when they see outside 100 Parliament street, the headquarters of HMRC, large crowds of riot police—there are photographs to that effect, which can easily be found on the web. When Governments see such a thing happening, they should sit up and take notice that the system is not working and that it is not fit for purpose. I understand the burden of the right hon. Gentleman’s question. I understand why people are so angry and feel that they need to do something. There are many people, including those who have given their lives and those who have fought overseas on behalf of this country, who probably would have had better equipment if more tax revenue had been collected—if more of the tax revenue that should have been paid was paid.
It is not always a case of the tax not being due. If HMRC does not have the resources in the right places to check whether the tax is due or not, it may indeed be that corporations are acting illegally, that what they are doing is evasion and that they are getting away with it. That is why it is so important that HMRC is able to have the right management information at the top level so that it can align its investments in skills and in people with its business priorities in a way that currently, as is clear from the NAO study, it is unable to do.
I believe that the solution to all this must be much greater simplicity, and I mean radically greater simplicity. The time for tinkering is over. It was Einstein, I think, who famously once said that the definition of insanity is to do the same thing over and over again and to expect different results. It is time that we got different results and we will get them only by taking different action.
Madam Deputy Speaker (Dawn Primarolo)
Order. It is necessary to have a time limit in the debate as more Members are standing to indicate that they wish to participate. The time limit will therefore be eight minutes per Back-Bench contribution, starting from the next speaker.
Mr Michael Meacher (Oldham West and Royton) (Lab)
I sincerely congratulate the hon. Member for Redcar (Ian Swales) on securing this debate, which has been much needed for a very long time. He raised a series of important issues and I strongly endorse the gist of his recommendations. I shall explore a little further the reasons why the tax system has been corrupted in the way that he suggested, and therefore what needs to be done.
A conventional view and a charitable view is that the Government do the best they can, but are outgunned and outmanoeuvred by all those smart tycoons and multinationals who employ an army of accountants and lawyers to run rings round the flat-footed regulators and tax inspectors who are always behind the curve. That is, in my view, a pastiche of the truth. The reality is that Government, as I will show, far from cracking down on tax dodgers, not only turn a blind eye to all but the most egregious examples of tax misfeasance, but actually promote some of the most brazen examples of tax avoidance. I will come on to that.
This is scarcely surprising when the whole apparatus of tax policy has been captured by the corporate interest. The so-called clamp-down which the Government are promising will be run by the former City corporate tax lawyer and former Tory special adviser, Edward Troup, who is now in charge of tax at HMRC. It will be overseen by the HMRC chairman, Ian Barlow, who ran the most aggressive tax avoidance schemes for KPMG. Even the HMRC’s ethics committee is chaired by Phil Hodkinson, who is a director of the Resolution insurance company based in a tax haven. All that tells a pretty clear story.
As we all know, corporation tax avoidance has become a hot political issue only as a result of the relentless highlighting of it by analysts such as Richard Murphy of Tax Justice Network and journalists such as Tom Bergin of Thomson Reuters and Richard Brooks of Private Eye, as well as campaigners such as UK Uncut. Why is it left to voluntary campaigners to nail the tax dodgers who are cheating honest taxpayers and the Revenue out of, according to the Government, £35 billion to £40 billion a year? That is equal to about a third of the total deficit and the sum is probably a considerable underestimate.
One answer might be that the banks, which are by far the biggest tax dodgers, pay half the Tory party funds every year. [Interruption.] The Minister should not just shake his head. These are facts which are highly relevant. The multinational companies, which are the second biggest tax dodgers, pay most of the rest. If, instead of all the rhetoric that we get from the Prime Minister and Chancellor about moral repugnance and abhorrence, the Government were seriously concerned about stopping industrial-scale tax avoidance, let them answer three questions. If the Minister wants to answer them in my time, he is very welcome to do so.
First, since we all know that the really big numbers are not the tiddly Jimmy Carrs of this world but the transfer pricing by multinationals, why do the Government not bring in country-by-country reporting, which at a stroke would put a stop to the artificial switching of tax liability to low tax jurisdictions for no other reason than simply to avoid tax? I do not know whether the Minister wants to answer. Perhaps he will.
Secondly, since many, if not a majority, of the world’s most used tax havens are UK-controlled overseas territories and Crown dependencies, why do the Government not close them down? Why are not all such countries and territories—the Cayman Islands, the British Virgin Islands, Bermuda, Jersey and so on—required automatically to hand over details of income, assets and finance structures such as trusts to the UK authorities? This is the point that the hon. Member for Redcar made. If territories fail to comply, why do the Government not refuse to recognise the validity of any financial transactions emanating from them, as well as through domestic tax law, making it far harder, which the Government could well do, to get money into the recalcitrant tax havens in the first place?
The simple answer is that the Government could do that perfectly well and very effectively, but they will not do so because they do not want to, because their corporate and financial backers would scream blue murder if they ever tried to do so, and this is a very feeble Government, who are quite willing to bash the weak through benefit cuts but are not prepared to stand up to the strong.
Simon Hughes (Bermondsey and Old Southwark) (LD)
I have great respect for the right hon. Gentleman, who has been consistent in pursuing the issue, but his last criticism is completely ill-founded. I do not speak as somebody who backed the previous Tory Governments or the previous Labour Governments when they failed to deal with the issue for years and years. Looking objectively, I have seen far more action from the Treasury under this Government than I saw under 13 years of the Labour Government whom he supported.
Mr Meacher
The right hon. Gentleman, whom I respect, wishes to raise a partisan issue when we are discussing something of much greater importance. Perhaps I can satisfy him by saying that I entirely agree with him. New Labour was just as bad as the Tories and I fully recognise that, but let us turn to where we are and what we ought to do about it.
The third question is this: if the Government are serious about tackling tax avoidance, why are they cutting the number of tax inspectors, many of whom recover more than 100 times the cost of their salary? In 2010 there were 68,000 of them. There are now far fewer. The problem is that when the Chancellor gives his dog-whistle that Britain is open for business, part of that coded message is that Britain is open for tax avoidance, and there will be far fewer tax inspectors nosing about and prying into shady practices.
While the Government have ostentatiously avoided all the actions that will end the transfer of tax avoidance, the truth is even worse. They are now drawing up measures which, frankly, will rip the guts out of the laws that safeguard the nation’s corporate tax base. They have exempted from tax multinationals’ foreign profits, but allow tax relief for the costs of funding them. In effect, that turns the UK itself into a corporate tax haven, which incentivises multinationals to shelter income offshore and to place real business overseas, using the UK as a worldwide platform for tax avoidance.
The Government are now going even further with the CFC—controlled foreign companies—rules. From January 2014, multinationals that open a finance subsidiary in a tax haven will have their corporation tax, as staggering as it may seem, reduced from the current 23% to 5.5%. In future, therefore, multinational companies really need not bother with tax avoidance any more, because the Government are serving it up to them on a plate.
The latest wheeze that the Government have come up with is the patent box. If a company has a product with a small patented component, it will qualify for a 50% cut in its corporation tax—that is 10% from April 2017—not only on that product but on the whole of its profits.
A third example is the general anti-avoidance rule, which the Government portray as their flagship measure against tax avoidance. Actually, it is the reverse. By being narrowly drawn it will block the worst kinds of tax avoidance, but by the same token—
Karl MᶜCartney (Lincoln) (Con)
I congratulate the hon. Member for Redcar (Ian Swales) on securing this Back-Bench debate on corporate tax avoidance. It is an important subject that has been dangerously blurred by some of our colleagues. I want to say at the outset that I find myself far more concerned about the way in which Government spend our money than about how they collect it. If spending were controlled, or had been—I give the example of the last Labour Government—the collection problem would be vastly reduced. I believe that my Government have taken such sentiments to heart and we are actively reducing spending to aid our country in difficult economic times.
I certainly think the approach of the Chairman of the Public Accounts Committee, the right hon. Member for Barking (Margaret Hodge), and others who have swallowed her line, misses two simple and quite fundamental points. First, the tax on shareholders is inseparable from company tax and is quite high. While companies are literally separate legal entities from their shareholders, they are in effect tax collection agencies for Governments to tax the profit stream which in effect belongs to their shareholders. That profit stream is not just taxed by the corporation tax payment on which all of this debate is focusing. In reality, the profit stream belongs to the shareholders and it is taxed not once by corporation tax, not twice by corporation tax and income tax, but three times, once as corporation tax, once as income tax on distribution, and finally with capital gains tax, or inheritance tax, on retentions as a proxy for the capital gain.
I have a sound mathematical example in my notes that might well lose some Opposition Members, so let me just outline that on £100 of pre-tax profit, with corporation tax and other taxes taken into account, the Government take £52.91 in tax paid. Some of this amount comes from income that can be deferred, but it is a tax that is ultimately not avoidable, other than perhaps by devices such as the trust of the right hon. Member for Barking for her shares in her family company, which one presumes is morally fine with the Opposition Members who have followed the debate so far and so must be okay. But that near £53 from £100 does not sound very low to me, especially given that the Government scrapped indexation relief on capital gains at a time when they are clearly targeting higher inflation. Perhaps more importantly though, what incentive is such a tax on profits to entrepreneurs? What encouragement do such figures give to those involved in setting up and driving forward young businesses, or those entrepreneurs thinking of taking that big first step into the world of small business and working for themselves?
Secondly, is it wrong for companies to avoid tax? Janan Ganesh in the Financial Times has written well on this particular issue, but I would draw hon. Members’ attention to one of his main and salient points for this debate with which I agree. The Starbucks precedent—and by association, one might say, any future pressure on Google, Amazon, and historically some of the mobile phone companies and indeed perhaps most notoriously the Guardian newspaper group—is a dangerous one. Tax should be a matter of law not moral persuasion. If any Government want Starbucks or any other corporation to pay more tax, let them pass an appropriate piece of legislation. Otherwise tax payment will become a matter of public image and impact, and I imagine that very little tax will be paid by the maker of the polystyrene cups, which we may never have heard of. Do we really want to travel down “The X Factor” road of choosing something, indeed policy setting in this country, making important decisions based on fickle public opinion on the hoof?
Mr Bacon
While my hon. Friend is right that it should be a matter for law, not for moral persuasion, PricewaterhouseCoopers’ request of the Government, in the consultation that took place last year, that they should do more to clarify what constitutes unacceptable tax avoidance versus what constitutes acceptable tax planning, places a burden on the Government to be clearer about their own intentions.
Karl MᶜCartney
My hon. Friend will be pleased to know that I agree with him. I will mention PricewaterhouseCoopers shortly.
The objective of business, any business, is not ostensibly to do good or to pursue corporate social responsibility; it is to do business and make money for the owners and/or shareholders. Directors of all small, medium, large and multinational companies have a fiduciary responsibility to maximise gains for that company’s owners, including minimising the tax paid. Any diversion of company management from that objective is wrong as a matter of law and dangerous as we move forward in the 21st century.
John Christensen of the campaign group Tax Justice Network made a true claim when he said that the figures highlight that tax avoidance by large businesses has become a “much bigger issue” over the past 10 years because of the “enhanced relationship” policy put in place. That policy was put in place by the then Labour Prime Minister, Tony Blair, and his then Chancellor and ultimately successor as Labour Prime Minister, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown).
The problem is perhaps exacerbated in that we have a very complicated tax system. The previous Labour Government did nothing to uncomplicate matters. In fact, they set up a whole new industry making it more complex. What we need as a country, and for us to remain an economic powerhouse on the world stage, is much greater tax simplicity and lower tax rates.
I am pleased that the Government are consulting on a general anti-abuse rule, the GAAR, targeted at artificial and abusive tax avoidance schemes, with a view to bringing forward legislation later this year. Echoing my earlier statement, Mary Monfries, head of tax policy and regulation at PricewaterhouseCoopers, has also been quoted in the media saying with regard to our tax system that “simplicity is key”. She described complexity as a
“key problem with the current tax model”,
adding that the GAAR should
“help to act as a disincentive”
against
“abusive, extreme tax avoidance arrangements”.
But I also believe that some of my colleagues are being disingenuous with the great British public in that the vast majority of multinationals mentioned are not breaking any laws and, as the Government make the law, it is their own and our fault if companies use the rules in place to minimise their tax. Our tax legislation is huge and very complex, so any shortcomings are down to Government failure to create and implement the right tax framework.
The multinational aspects of tax collection and avoidance can be solved only by international bodies working together. That will not be easy for any of my ministerial colleagues to achieve I am sure, but as for any avoidance by UK companies, we do not perhaps need this debate now, as the GAAR legislation will, we trust, come into force during the next tax year. Surely that is the mechanism to stop so-called unacceptable tax avoidance that the hon. Member for Redcar seeks to debate this evening. Many private sector individuals in business may view this debate and other pronouncements by some hon. Members as politicians just diverting public opinion away from their own shortcomings by encouraging media interest in the tax avoidance issue. As politicians we organise the rules and therefore as long as what the companies do is legal, morality surely does not come into it much. Google, The Guardian, Amazon and others are perhaps insulated in that they have little direct competition in the services they provide, so no incentive to make voluntary tax payments as they have avoided such sizeable payments for a number of years. But Starbucks is now paying reportedly quite sizeable sums of voluntary tax, not for moral reasons but to protect its brand and customer loyalty—that is, to protect its profits.
Bob Stewart
Surely if a company is making a voluntary contribution of £10 million a year, it must be making very much more than that, and be doing that only because it hopes to get off the hook, and that is something that we must legislate on.
Karl MᶜCartney
My hon. Friend makes a good point. I agree that such a company is probably making a lot more in profit than £10 million for the next two years.
A potential solution is perhaps not to hound companies that legitimately use the tax laws as they are, but to make the tax system such that there is no benefit in tax avoidance—that is, reduce corporation tax rates and the complexity of the system, whilst at the same time cracking down hard on those who are abusing the tax system. This, for those in the Chamber who are technically minded, is known as the old carrot and stick approach.
We want multinationals to headquarter in the UK. Frankly, I cannot complain if they organise themselves to pay the lowest legitimate tax that they can. What I am more interested in is that they bring their jobs and spending power to our shores. It fills our restaurants, houses and shops. It provides secondary support service employment across a plethora of sectors in Great Britain.
Let us not be negative this evening, because that will put businesses off coming here, which is the exact opposite of what we want. We want the whole world to know that Great Britain is a superb place to start up, locate or relocate a business, and with the Conservatives in government we continue to be Great Britain. We can all help to send out the message that we welcome international businesses—even Starbucks, Amazon, PayPal and Google—to our shores and would like them to bring more of their business to the UK. We are a country that is determined to drive down tax rates, as demonstrated by our recent corporation tax reductions, undoubtedly a feather in the jaunty cap of the Chancellor and the Treasury team. We are a great place to do business.
It is telling that employment tax brings in 5.4 times more revenue than corporate tax—£259 billion versus £48 billion—so let us focus on those things that create more sustainable jobs, the positives. One of the Government’s main roles is to make the UK the best country in the world to do business in. Everything else will be easier if we can achieve a massive influx of foreign companies moving their bases and thus employing more people here.
I believe that populist politics masquerading as morality is a Lib Dem trade mark that would inevitably lead us into a vicious spiral, one that is downward and certainly not a virtuous circle. We know that the Lib Dems are desperate to be popular. They often say anything on the doorstep, often expressing views that are diametrically opposed to those of their neighbours in order to garner votes, as anyone who has canvassed after them will know. That cheapness was amply demonstrated by their head of communications—presumably the paper clips organiser—who last month supposedly leaked instructions to Lib Dem Members of this House to monster the Conservatives, people like me and my fellow cuddly Conservative Back Benchers, in their vicious pre-Christmas briefing.
The Liberal Democrats might hanker after a yellow paradise of sand and yellow sun, but it is a very small yellow island they currently inhabit, surrounded by very deep and clear blue water. I think they know that it is likely to become a smaller island. They need to mature as members of the coalition Government. They need a dose of reality over the next two and half years. We are not some paradise or utopia—this is the real world.
I am conscious that my time is almost up and so will conclude. Of course all the Conservatives on the Government Benches want our country to have the most competitive corporate tax system of any major world economy. By doing so we will ensure that our country’s economic recovery will be private sector-led, but we expect those corporate taxes to be paid, regardless of where any larger international firms that do business here might be based or have business operations. A need for fairness and reasonableness from both sides seems to be most apt. In that respect, I am particularly pleased that the Chancellor recently announced extra investment in the part of the Inland Revenue that tackles tax avoidance by multinational companies.
Jim Sheridan (Paisley and Renfrewshire North) (Lab)
I rise as a sponsor of early-day motion 867, which deals with the behaviour of Google and its tax avoidance statements. As the sad person I am, over the festive period I took the opportunity to catch up with the work of some of our Select Committees, particularly the excellent work of the Public Accounts Committee, chaired by my right hon. Friend the Member for Barking (Margaret Hodge). Having watching Committee members try to get reasonable answers out of some of the big corporations, I can understand their frustration. In my view, they treated the Committee with contempt, simply smirking when asked any serious question. Likewise, when Google representatives appeared before the Culture, Media and Sport Committee, of which I am a member, the public affairs spokesperson, whom I am reliably informed is a former No. 10 adviser, when asked any serious question, replied, “That’s above my pay grade.”
It seems to me that those large corporations are treating Parliament, and indeed politicians, with utter contempt. We are well aware of the statement by Google, but there is also the statement from the chief executive of WPP, who said that corporation tax paid was largely “a question of judgment” and that it paid it more out of a sense of corporate social responsibility. Experience tells me that we should not hold our breath if we are waiting for corporate social responsibility.
There is a serious problem, and in order to solve a problem we must first look at its size. General corporation tax receipts from big businesses have dropped from £26 billion in 2000-01 to £21 billion in 2011-12, a 20% decline but a 65% increase in profits. In October 2012 companies paid £7.8 billion, down from £8.7 billion in October 2011. The Office for Budget Responsibility predicted that corporate tax receipts would grow by 4% this financial year, but they are actually down by 10%. HMRC estimates that the tax gap—the difference between what should be received and what is received—is £4.1 billion. That would pay the salaries of 153,000 nurses or 164,000 police officers, or for 430,000 nursery places. Indeed, if the Treasury closed the tax gap, it would cover almost a third of the expected deficit for 2012-13. As has already been alluded to, 98% of FTSE 100 firms have at least one subsidiary in a tax haven. The cost of tax havens is estimated at £160 billion annually. That is in excess of all the aid flowing now.
There is hope, hopefully. The Chancellor has pledged more resources for the Organisation for Economic Co-operation and Development to create a levy catching earnings of multinational firms. Indeed, he has announced an extra £77 million a year for two years to fund more HMRC staff to pursue companies that are not paying their taxes. However, his close friend the Chief Secretary to the Treasury, the right hon. Member for Inverness, Nairn, Badenoch and Strathspey (Danny Alexander), said that we should not name and shame firms that avoid tax as that would breach taxpayers’ confidentiality. To return to a point made earlier, I think that we should be looking at fair tax in the same way we looked at fair trade.
The well-respected organisation Christian Aid has put out a briefing highlighting the headlines of tax avoidance and some statistics to go with it. A recent study has shown that in excess of £13 trillion might be hidden in tax havens beyond the reach of tax authorities. The cost to developing countries is estimated to be £160 billion annually, which is far in excess of the global aid flowing at the moment. A recent UK survey showed that 56% of adults polled believed that tax avoidance was morally wrong and 74% felt that the Prime Minister should be demanding international action to tackle tax evasion and avoidance. We look forward to the G8 summit in Ireland, where the Prime Minister and the Chancellor have promised to take the whole question of tax extremely seriously.
Caroline Lucas
I am grateful to the hon. Gentleman for giving way and for his words on fair taxation. Does he agree that transparency is an absolutely fundamental principle at the heart of fair taxation and, in that respect, does he agree that the Government should be supporting country-by-country reporting, as set out in my private Member’s Bill, the Tax and Financial Transparency Bill, in the previous Session? Is that the kind of measure he would support?
Jim Sheridan
We need transparency in the system, because if we do not have transparency we will not be able to find out where the problem is, so I would fully support such a private Member’s Bill.
I will move on to what is commonly known as the people’s game: football. The Independent on Sunday has conducted an investigation into “Football’s tax shame”. It states:
“Britain’s Premier League football clubs are awash with money. They pay star players £250,000 a week, and turn over £2.2bn a year. Yet records show they paid only £3m in corporation tax last year… according to analysis of their most recent accounts.”
That money comes from the spectators, the hard-working men and women who buy the products and go to the games. The article continues:
“This is an effective tax rate of 2 per cent. Equally startling is that a profit of £150m made by eight clubs is all that the Premier League has to show for a turnover of about £2.2bn a year. Five clubs, including Manchester United, Newcastle United and Tottenham Hotspur, paid no tax at all, despite a combined surplus of more than £70m. Blackpool, relegated from the Premier League last year, paid just over £100,000 on profits of £21m—a rate of 0.5 per cent. The club was able to pay minimal tax on its substantial profits because of the effects of a £6.7m loss the year before. The club also donated just over £5,000 to charities. Of the other profitable elite clubs, Arsenal had the biggest potential tax bill—£7m on group profits of £36.6m—but paid less than half a million pounds while deferring more than £6m. West Bromwich Albion topped the company tax table, paying £1.8m on £18.9m profits. The club accounts of those that made a profit cover the financial year 2010-11, with the exception of Manchester United and Arsenal, which have both recently published their 2011-12 accounts. None of the clubs has acted illegally and all of them pay big sums in PAYE and other taxes.”
We should not buy the argument about the complexities of the tax system being the reason people do not pay their taxes. There is nothing complicated about saying to big corporations, “If you make and sell your products in this country, you pay the appropriate tax.” That is not too complex, and that is the road we should be going down.
Mark Field (Cities of London and Westminster) (Con)
I congratulate the hon. Member for Redcar (Ian Swales) on initiating this very important debate, although I must confess that I did not agree with everything he said. I am rather concerned by the strongly anti-business approach to this issue shown by certain Members.
I have a great deal of sympathy for the leaders of all the political parties in formulating what would be regarded as an adequate response to the hot potato of corporate tax avoidance. In today’s 24/7 media world, there is a constant demand on political figures to provide a running commentary on populist media campaigns following the high-profile cases to which the hon. Gentleman referred, including global businesses such as Google, Amazon and Starbucks.
I can fully understand the temptation to brand this as a moral issue, appealing to corporates’ consciences when the legislative framework has failed, but it is a temptation that we in politics should try to avoid. In sparking a debate on morality in relation to the payment of tax, I fear that elite politicians open up a dangerous flank, because it suggests that the Government are either impotent or are being disingenuous in their outrage. That applies to Governments of all colours. After all, Parliament must ultimately set the rules within which companies operate. As my hon. Friend the Member for South Norfolk (Mr Bacon) said, the precedent that has now been set, with Starbucks paying an amount of tax that it alone has determined sufficient publicly to salve its conscience, is a very odd one.
I am very concerned about the whole idea of mob rule. I am sorry that the right hon. Member for Birkenhead (Mr Field) is not in his place. He speaks eloquently about issues such as immigration, and he would be unwise to think that mob rule is a way of dealing with immigration problems, for example. We must recognise that we are a democracy and that this is the forum within which the rules should be made. We should not try to inspire mob rule, whether on the payment of tax or for any other purposes within our society.
I have lost count of the number of times that media commentators have remarked that they would be delighted to apply the same approach to their own tax affairs by paying what they feel like rather than what the Government demand of them. However, I have a much wider concern—that investors will begin to sense that UK policy on tax and regulation is becoming ever more arbitrary, governed more by sentiment and the news cycle than by the strict rules that should be enforced by HMRC and ultimately by the courts. The UK should be proud of its traditional place as a bastion of commercial certainty attracting investment from every corner of the globe, and, as my hon. Friend the Member for Lincoln (Karl MᶜCartney) pointed out, that will be undermined by high-profile rows such as this.
That is not to say that all is well. As we saw in my own constituency with the protest outside St Paul’s cathedral only a year or so ago, there is deep-seated concern that the rules of capitalism are being skewed. None of us should take this issue lightly, not least—dare I say it?—Conservative Members, as middle-class Tory voters often feel most strongly about it. To focus on arbitrary media campaigns or to invoke mob rule, as several Members have, is entirely the wrong way forward.
Too often, as my hon. Friend the Member for South Norfolk said, coalition Ministers have conflated the concepts of avoidance and evasion in debating taxation policy. The ideal solution is for aggressive tax avoidance schemes to be stopped in their tracks before they are marketed. That requires constant dialogue and the re-establishment of trust between HMRC and tax intermediaries. As a matter of urgency, therefore, the Treasury needs to promote a much better and more extensive pre-clearance regime to allow companies, individuals and tax advisers to road-test their proposed schemes. HMRC must start investing more time in developing and managing relationships with accountants and tax lawyers.
Meanwhile, the Treasury is committed at the time of the next Finance Bill to introducing general tax anti-avoidance provisions. It is clear that any such general power of anti-avoidance will feature some retrospective taxation. That is wrong in a free society, and it will risk further damaging our nation’s reputation as a free, open and transparent place to set up, develop and run businesses.
Ian Swales
I hope that the hon. Gentleman did not interpret my remarks as being anti-business. Does he not worry about the competitive situation if certain companies get away with these practices and are then competing with other companies that do not have the ability to do so?
Mark Field
I do. Andy Street, the managing director of John Lewis, has made that point, but it obviously applies to many of the smaller independent companies. I represent a central London seat where a lot of big businesses are based and operate. Nothing is more important than encouraging independents, whether they are restaurants, wine bars or book shops, rather than just relying on big multinationals. No one wants to see all our high streets entirely dominated by large international corporations, many of which may involve themselves in what is currently regarded as aggressive tax avoidance.
Mark Field
Not entirely, because it does not work as well as it should. There is no doubt that this is going to be a much more high-profile issue, and I will be interested to hear what the Minister has to say about my suggestion.
The underlying lesson is that the UK tax code and regime remains far too complicated. The godfather of tax avoidance is complexity and uncertainty in the system. When even tax experts find it impossible to understand the workings of the tax code, people begin to question whether everyone is really paying their fair share. This, in turn, creates a sense of greater acceptability in the avoiding and evading of tax. Furthermore, a complicated and opaque tax system will always be vulnerable to misrepresentation, particularly by the media, and that again weakens confidence and encourages further avoidance. People think, “If Amazon can get away with not paying its fair share, why should I bother to stump up?” I can understand why that is a general sentiment, but it frustrates many of the corporates that, as the hon. Member for Redcar said, have paid in an open and transparent manner and will ultimately undermine their whole business framework.
Government can make piecemeal efforts to address particular instances of avoidance—they can play catch-up to a certain extent—but responses tend to involve making the entire system far more complex, thereby reinforcing the very factors that have driven avoidance in the first place, displacing the activity and giving rise to a whole set of new avoidance techniques. Instead, the Government need to take an entirely different and fresh approach. They should look at how they can overhaul the entire system so that avoidance and evasion offer a similar, smaller reward and will therefore be seen as far less acceptable. Fundamentally, that can mean only lower taxes and a radically simplified tax code. For example, a single income tax applicable to income, however it is received, at the same single rate is the best way of stripping out of the system any incentive to avoid income tax. A simpler tax code would also free up HMRC resources to concentrate on tackling the real problem of tax evasion while making transgressions easier to identify.
It has been a pleasure to make a brief contribution to this debate on an important issue to which we must all return. However, I am concerned that too much of the rhetoric coming from this place almost suggests a sense of powerlessness that gives rise to the view that there is an aggressive anti-business approach in this country. We do need to have a thriving business sector. Global businesses can, of course, choose where they locate their business. We should be proud in this country of having a track record of being open to business, but I also accept that we want to ensure that businesses pay their fair share, because we have a huge deficit and a huge debt that has to be paid off if we are not to burden future generations.
I hope that we will look at the whole issue with that in mind, but above all I hope that the Minister will take on board the idea that HMRC needs to have an approach that is much more open to the pre-clearance I referred to. We must also, as a matter of urgency, look at the complications in our tax code that are allowing some of the high-profile avoidance to take place.
Sheila Gilmore (Edinburgh East) (Lab)
From the beginning of this debate until the point when the hon. Member for Lincoln (Karl MᶜCartney), who is not in his place, spoke, I wondered, given that we were all so agreed, whether there was any point in our having a debate. That prompts the question why we, collectively, have not dealt with the issues sooner if we are in so much agreement. However, we have different views about tax and they underlie many of the issues.
One such view is whether there should be tax at all. There is a tendency in Britain and, I suspect, a lot of other countries, but not all, to see tax as inherently a bad thing. If that is the case, it then becomes legitimate, according to many people, to find ways to minimise either one’s individual personal tax burden or a business tax burden. I believe, however, that tax is inherently a good thing and that it is right that we as a society pay in what we can afford in order to provide the kind of social and other services that we want in a civilized society. It would help if we took the view that tax is not inherently bad, because once that stance is taken all kinds of things flow from it.
Another issue that we have come up against is tax simplification, as if that is the answer to a lot of the problems we face. I briefly studied tax law—it was not my favourite law subject, although I did win a class medal in it, somewhat to my surprise. As I understood it then—this did not happen yesterday; it is not something new—much of the reason for having a lot of complexity in tax law was precisely because people were constantly finding loopholes.
If the answer is simplification, can we be satisfied that complicated ways around it will not be quickly found? The law, perhaps, follows clever tax lawyers and accountants—not the idea that we have made our tax book and tax code so complicated—and that is why people get to the point of saying, “Well, we’ve got to have complicated tax avoidance.” It is a question of where we think the starting point should be. There appears to be a view that the starting point should be that the law is too complex and that if we somehow made it simple, people would no longer seek to avoid tax.
There is a clear legal distinction between tax avoidance and tax evasion, but perhaps the time has come to think about where we place the line. I agree with those Members who have said that it is important that we and the law are clear and that people know where they stand. We cannot have a system that allows people to say, “I don’t particularly like this or that kind of scheme.” The other side of that coin seems to be to allow companies to decide how much they want to pay, rather than how much they should pay. We might need to think, at another time, about drawing a line with regard to what constitutes tax evasion and tax avoidance. Aggressive tax avoidance, which has been described, might actually be tax evasion and not just a very clever way of avoiding tax.
It is interesting that many of the companies that we talk about a great deal have bad practices in other respects. Only a few months ago, we heard not only that Starbucks was not paying a great deal of corporate tax, but that it was seeking to reduce the working conditions of its own employees here in the UK. Usually, we are told that that is necessary because companies are not making a profit. In this case, Starbucks appears to be making a profit, although it is not always accountable here, yet it wanted to reduce the conditions of its own employees. Bad practices, therefore, go beyond tax.
In a global economy we need to look at things internationally. The Government have said that they will use the next few months as an opportunity—in the G8, for example—to try to make some progress. I hope that that will be the case. If we need international clarity and transparency and proper accounting, we should do it. It cannot be right that it is possible for companies that are clearly profitable here—they are not unprofitable—to be able to siphon profits away through schemes such as brand purchasing and loans, which mean that they are paying interest rather than making a profit. If those are avoidance schemes and if we cannot deal with them in our country, we must do so internationally.
If we are all able to sign up to a certain level of consensus—it may not be universal in this place—we need to introduce the necessary legislation for the UK in this year’s Finance Bill. We should all sign up to that. It is not good enough to come back from international conversations and say, “We had some discussions and made some progress.” We need to set some clear targets to end some of the practices. If the UK does that today, other countries might take note and do so tomorrow.
That leads to another international dimension—the problems that many developing countries face with regard to tax. They, too, suffer deeply from the way in which income profits are manipulated and moved out of their country so that, despite the fact that production is taking place in the developing country, the profit appears to be made elsewhere, usually a tax haven with a much lower rate of taxation. Developing countries probably suffer from that more than we do. They are trying, as they have been asked and told to do, to raise themselves up, not rely on aid and get going with their own businesses and industries, but if so much tax is not being paid in those countries, they will probably end up not making the progress that they need to make and we might end up having to give them further aid. Those developing countries also need us to act.
Mr Nick Gibb (Bognor Regis and Littlehampton) (Con)
I pay tribute to the work of the Public Accounts Committee, particularly its questioning of executives from Starbucks, Google and Amazon on 12 November. I will focus on just one of those companies: Amazon.
I preface my remarks by paying tribute to the brilliant service that Amazon provides. It has made buying books far simpler and cheaper for millions of consumers, myself included. The speed of delivery and its innovative logistics make it a company about which there is a huge amount to admire. The question, though, is: which company? The way in which Amazon is structured means that, when I buy a book from Amazon, I am in fact buying it from Amazon EU SARL, a Luxemburg company. The profit on the sale of a book belongs to this Luxemburg company, notwithstanding the fact that Amazon owns no warehouses in Luxemburg and that the book, if it is in English, will have been sent from one of Amazon’s eight warehouses in the UK. Amazon.co.uk Ltd, a UK company, is just the service company for the Luxembourg company, fulfilling a customer’s order on behalf of Amazon EU SARL. Therefore, although Amazon’s sales in the UK are in the billions of pounds, the sales income of the UK company is just £207 million.
The technical thing that the tax planners at Amazon are keen to avoid is creating what the tax authorities call a permanent establishment of the Luxembourg company in the UK. If the UK tax authorities perceive there to be such a permanent establishment, all the income of the Luxembourg company that relates to that permanent establishment would be taxable in the UK. When I drive up the M1 and see the huge Amazon buildings that package and dispatch millions of books a year, I cannot help thinking that they look pretty permanent, but technically they are not. There will have been great effort and attention to the detail of the documentation to ensure that the warehouses are the operation of the UK service company and that all Amazon’s property and activity in the UK relate to that service and not to the activities of the Luxembourg company.
Mr Gibb
My hon. Friend makes a good point. Everyone knows that this structure is a legal fiction. All the real economic activity for the transaction of my book purchase takes place in the UK. Andrew Cecil, the director of public policy at Amazon, in his evidence to the Public Accounts Committee, said that Amazon.co.uk is the trading name of the Luxembourg company. Therefore, although it sounds as though I am buying my book from the UK company, in fact I am not. However, according to the e-mail that I received in December confirming a book order that I made, if I want further details on my statutory rights, I should contact Amazon.co.uk customer services at 2 to 4 Waverly Gate, Edinburgh. The trading name for the Luxembourg company therefore has premises in Edinburgh. Does that not sound like a permanent establishment of the Luxembourg company?
Paul Farrelly (Newcastle-under-Lyme) (Lab)
I am glad that the hon. Gentleman has chosen to talk about Amazon, because it gives me the opportunity to pay tribute to my great friend and former journalistic colleague, Ian Griffiths, who wrote the seminal investigation on behalf of The Bookseller in The Guardian in April, which showed that Amazon had made £7.6 billion of sales in the UK but had paid zero corporation tax because of the Luxembourg structure, even though the warehouses are here. I am sure that the hon. Gentleman will come on to this, but does he think that it is right that the tax playing field should be levelled, because booksellers and record retailers are going out of business day after day in this country?
Mr Gibb
That is why this issue is so important. It is not just about the corporate tax base, which is hugely important, but about the competitiveness of British-based businesses.
Another thing that I found odd about the Amazon structure was that the accounts filed at Companies House report that the company has 2,265 employees, which is vastly different from the 15,000 employees that Andrew Cecil told the Public Accounts Committee Amazon employs in the UK. The other strange thing about Amazon’s group structure is that even the Luxembourg operation, with its €9 billion turnover, appears to have made a post-tax profit of just €20 million.
As we have seen with Starbucks and Google, profits can be siphoned off from individual jurisdictions by payments for intellectual property rights through royalties or technical fees. Starbucks pays a royalty of 6% of its turnover to its company in the Netherlands. Google also pays for the use of its technology. Although that technology was developed in California, the rights to use it outside the USA are held in Bermuda.
Much of this area of law is governed by a network of double tax treaties, of which the UK has signed more than 100. They are based on a model double tax convention that was agreed at the OECD and have been highly effective in boosting worldwide trade and overseas investment over the decades. Britain benefits hugely from that network of treaties. We have £10.9 trillion of investments abroad, which generated £188 billion of income in 2011. The Government are therefore right to want to tackle the problem of corporate tax avoidance through international negotiation. As the Prime Minister wrote in his letter to G8 leaders on 2 January:
“in a globalised world, no one country can, on its own, effectively tackle tax evasion and aggressive avoidance. But as a group of eight major economies together we have an opportunity to galvanise collective international action.”
One such action is the OECD’s study into the transfer pricing aspects of intangibles. In its discussion draft, snappily entitled “Revision of the Special Considerations for Intangibles in Chapter VI of the OECD Transfer Pricing Guidelines and Related Provisions”, published in June last year, the OECD concluded:
“It should be emphasized that not all intangibles deserve separate compensation in all circumstances, and not all intangibles give rise to premium returns in all circumstances.”
In other words, the OECD is coming to the view that the huge royalty payments that some international groups make their overseas subsidiaries pay to their home country or to tax havens may no longer be allowable against tax in the overseas jurisdictions. However, the OECD, by necessity, moves slowly. Speedier action could be taken by the UK tax authorities by speeding up transfer pricing inquiries. It is therefore welcome that the Chancellor has allocated additional funding to HMRC to do that. HMRC could also take powers to require companies to disclose in advance all international connected party payments and to supply the associated documentation. There could be tougher penalties when a company’s tax return is wrong because of over-aggressive transfer pricing.
I conclude by touching on a wider issue relating to corporate tax avoidance: the ethics of companies and their boardrooms. In our everyday lives, we are all governed by a sense of morality, not just by law and regulation. Corporations are artificially created legal personalities. The morality of a corporation is determined by its board—by both executive and non-executive directors. It is no good for individual companies or for free market capitalism, which I support passionately, if directors interpret their role too narrowly. Too often, people who sit on company boards fail to ask the simple and straightforward question that governs moral behaviour: is this the right thing for us to do? Too often, directors seem to take the view that their fiduciary duty as directors stops at the maximisation of shareholder value, but section 172 of the Companies Act 2006 makes it clear that the duty of a director to promote the success of the company must be subject to a number of wider considerations including
“the desirability of the company maintaining a reputation for high standards of business conduct”.
I question whether the directors, including the non-executive directors, of the three companies so ably questioned by the PAC were fulfilling that duty.
Action needs to be taken to ensure that the corporate tax contribution of a multinational to a nation’s Exchequer is broadly consistent with the level of economic activity in that jurisdiction. We need to ensure that that action does not hamper world trade: it must be multilateral, but it needs to be swift. There are measures that HMRC can take in the meantime to ensure that it has the intellectual resources to match those of the international accounting firms. There are also questions that the boards of corporations need to take seriously as business leaders and members of society.
John McDonnell (Hayes and Harlington) (Lab)
The hon. Member for Redcar (Ian Swales) set the scene exceptionally well and went through all the points that have been reiterated by others.
I want to take up one point. I chair the cross- party parliamentary group of the Public and Commercial Services Union, which represents 50,000 of the 54,000 members of staff in HMRC—in other words, tax inspectors. I echo the simple point made by my right hon. Friend the Member for Oldham West and Royton (Mr Meacher) and the hon. Member for South Norfolk (Mr Bacon): if we want to collect the taxes, we need the staff to do it. If HMRC is to do that efficiently, it also needs those staff to have the appropriate skills and resources. I have raised that matter consistently on behalf of the PCS parliamentary group over the past decade, and particularly over the past seven years, as have other Members.
When HMRC was created by the merger of Customs and Excise and the Revenue, we had a debate in the House for which I think there were little more than half a dozen Members in the Chamber. However, there were staff cuts of 3,000 overnight, and a further 12,000 within six months. A process called the lean system was introduced, producing the first industrial action in the Inland Revenue’s existence, so there was an element of demoralisation.
In 2005 there were 97,000 staff in HMRC, and by 2015 there will be 55,000. The Government have recognised that further investment is needed, for which I am grateful. They have provided £900 million for reinvesting in tax collection and recently pledged another £77 million over the next two years on top of that, but that does not make up for the £3 billion of cuts in the October 2010 statement. That means that there will be another 10,000 jobs cut from HMRC by 2015, which is ludicrous and completely counter-productive.
My right hon. Friend the Member for Oldham West and Royton made the point about how much each tax inspector brings in in proportion to their salary. The cuts and tax office closures seem to be undermining the very system that we want to make effective in delivering the tax that we need and tackling the scandals that have occurred. There is also real anxiety about the use of private companies in the tax collection system, which the Government have developed. I urge the Government to rethink the whole process of investment in HMRC for the long-term future. It has lost staff and is losing skills, which is undermining its ability to undertake the work that we ask it to do.
The hon. Member for Redcar mentioned the awarding of contracts to companies that we then discover avoid their taxes. I raised that matter under the previous Government. I found it bizarre when the private finance initiative scheme was introduced and the Inland Revenue offices were sold off to Mapeley, and then leased back from that company, only for us to discover that it was using a tax haven and not paying tax itself.
The hon. Gentleman also mentioned Capgemini. Let us get on the record what has happened in that case. Capgemini and Accenture are the two IT companies with which HMRC has contracts, and both were recently identified as avoiding tax themselves. Capgemini, the lead contractor on the £8 billion Aspire contract, paid only £308,000 of corporation tax last year on £38 million of profits—less than 1%. That company is employed by HMRC but avoids the tax that HMRC seeks to use it to collect. It is extraordinary. Accenture, which has a £9.6 million contract with HMRC to supply technical support, managed to reduce its tax bill to 3.5%, paying only £2.8 million in tax on nearly £82 million of profits in Britain last year. It was employed by HMRC and awarded a massive contract, and then used those resources to avoid paying tax. You couldn’t make it up, but it is happening regularly. As the hon. Gentleman said, the Government should introduce some principle to ensure that when we award contracts to such companies, we are at least confident that they are not in the tax avoidance business.
We need to ensure that the staff of HMRC have the tools to collect tax effectively. As the hon. Member for Lincoln (Karl MᶜCartney) said, we cannot criticise others if the House itself does not fulfil its own responsibility of ensuring that we have effective legislation that the staff can use to collect tax. That is why we should listen to the experts—the HMRC tax inspectors—when they advise that the Government’s proposed general anti-abuse rule will not be effective and instead advise support for the Bill tabled by my right hon. Friend the Member for Oldham West and Royton to introduce a general anti-avoidance principle. Their view is that we need to return at least partly to the Ramsay principle, which was a decision of the Lords in 1982, overturned in 2001, that at least led to some commitment to the anti-avoidance principle in law. It laid a duty upon directors to abide by that principle.
The hon. Member for Cities of London and Westminster (Mark Field) said that we should not drag this into being a moral issue, but it is a moral issue. When my constituents pay their taxes in the pay-as-you-earn system, they expect others to make their fair contribution as well, yet the Public Accounts Committee has effectively exposed scandal after scandal. I understand why UK Uncut is occupying premises and taking direct action. That is the only way to publicise what companies are doing.
We have been at this for a number of years in the House. I hosted what I think was the first meeting in the House with Richard Murphy and John Christensen of the Tax Justice Network, when the issue was not particularly popular. It became popular and had resonance when UK Uncut took direct action. We have a responsibility to our constituents to ensure that the balance is redressed, by providing resources for HMRC and putting in place appropriate legislation so that it becomes effective as a tax collector once again.
Nigel Mills (Amber Valley) (Con)
It is a pleasure to speak in yet another tax debate—we seem to be having more and more of them as the months of this Parliament go by. This is an important issue, and the debate is about corporate tax avoidance, not just corporation tax avoidance. We can sometimes drift into focusing on tax on profits and miss out on the avoidance of VAT or payroll tax, which we could more readily do something about.
The publicity on the issue has had some positive impact, because it has probably discouraged a lot of businesses from entering into aggressive or artificial avoidance schemes. That has to be welcomed on one level, but we do not want to go so far that we start to do damage. The last thing that we want to do is deter international investment in this country. After all, the Government have set out to make ours the most attractive corporate tax regime in the G20. There has been great progress on that through rate reductions, and I believe that after the latest reduction we are about fifth in the G20. However, when we consider the effective rates that people actually pay, we are down to about 15th because of the complexities of our system. There is still a lot of work to do to make our system an attractive one that encourages investment both internationally and domestically.
We have to be careful that we do not drift towards having a tax regime that ceases to be based on a clearly advanced and published rule of law and is instead based on arbitrary decisions, with the Revenue having the power to ignore the law completely or rewrite it retrospectively, or if that fails, to bully people into paying a bit more tax until we think it is about right. After all, corporation tax is on profits for tax purposes, not on profits for accounts purposes, and certainly not on sales for accounts purposes. It is worrying that people seem deliberately to confuse the matter, talking about a company with a turnover of £1 billion paying only £500,000 of corporation tax and saying that that is a low percentage. That percentage could be completely irrelevant, because if it has made no profit, it will pay no corporation tax. We need to be accurate and focus on a different issue.
There are some aggressive avoidance schemes that are intended to exploit UK domestic law that we can tackle. The Government are tackling them, and I believe they have announced some more rules today to do so. We need to be as proactive as we can on those schemes, and that is where the general anti-abuse rule has a role to play. I am a sceptic about that. I am not sure I like the idea of giving any government bodies the power to implement something that is not law, but which they think ought to be. We are here to make laws; they are there to implement the laws we make. If we get the laws wrong, we should sort that out and improve our processes, not expect those bodies to find a way of fixing the problem retrospectively.
However, a lot of the avoidance we have been talking about involves transfer pricing. We are an international economy and we want to remain one. One of the things we are focused on is trying to encourage exports—we want people to invent and design things here, and then export and license them and get royalties and sales back. However, we will not win if we start an international war to see who can clobber royalties the most or put up the biggest barriers to trade. That would be a suicidally stupid thing to do.
Paul Farrelly
One example of where the Government have quite sensibly changed the taxation regime is their approach towards remote gambling, where they are moving towards a “point of consumption” basis. We might argue about what profits should be taxed, but the principle is that the bet is taxed where it is “consumed”—that is, where the good or service is consumed—not where the business is accounted for. Does the hon. Gentleman agree that that is a model we might follow in order to repatriate other tax revenues?
Nigel Mills
Yes, I do. Indeed, I think we will end up travelling in that direction, because corporation tax rates will be in some kind of global race to the bottom—as we reduce ours, people will follow suit, which will lead to revenues falling. However, it is right to say that if something is sold to a UK customer, the VAT on it should be accounted for in the UK—in fact, what we are talking about is like a trading activity. To be fair, if I rang a random business in Botswana tomorrow and said, “Can you send me a widget you’ve made?”, and that business did not regularly sell anything to the UK, I suspect we would not be too worried, but sales of things regularly marketed into the UK should be accounted for here and VAT should be paid. I think we are moving towards that system, which is absolutely right.
To return to my thread, it is not in our interests to encourage some kind of global race towards tax barriers, withholding taxes or whatever else. The right hon. Member for Birkenhead (Mr Field) was talking about some strange tariff for international companies to come and trade here, which would be crazy—certainly illegal and probably economically suicidal. We do not want to end up in that sort of mess.
We should not vilify the payment of royalties, management fees, design fees or even interest. What we need to do is ensure that those payments are not excessive, either individually or collectively. One of the things I fear, having worked in the industry, is this. At times, it is easy to say, “That fee’s okay, that fee’s okay and that fee’s okay,” but then we forget to look at the overall situation in the UK and reflect on the fact that no one would operate a business if the most they could ever make was a 1% margin on turnover in a very good year, while regularly making a loss in an average or bad year. That is not how to trade: these things have to be looked at as a whole, to try to ensure that the profit expected in an average year is reasonable enough for a business to want to operate in that territory.
That point can easily be lost, so what the Government can do to try to improve the situation is this. First, we need global rule changes to try to make internet-based business fit our tax systems. What we are trying to do, not just in the UK but globally, is make a tax system from the 1940s and 1950s—or even earlier—work for a different model of business. I remember that even when I started work a lot of my clients were inbound investors who actually made stuff in the UK and sold it just in the UK. That is not how things work now: people make stuff in low-cost territories, market it globally and administer that regionally. I do not think our system can be made to work in the current situation, where we have Amazon. There is a global need for reform.
However, we can do more on transparency. As I said earlier, we ought to require large corporates to file their tax returns with their annual accounts. People might say, “We have taxpayer confidentiality,” and yes, for individuals we do have that. However, we make companies file accounts and show what their profits are. What is the harm in making them show how they got to their taxable profit and the tax they paid? That would add transparency and show that the vast majority of corporates are not avoiding tax at all, but trying to do the right thing and making use of the different calculations that exist for tax. I have moved amendments in this place proposing to move our corporate system much closer to one based on accounting profit. We do not need all the different tax schedules—we probably do not even need a capital versus revenue divide. We can get our tax system much closer to one based on accounting profit, which would stop all these fears that some people are avoiding tax when they are perhaps not doing so. It would be much harder to implement complex transactions if that were in the accounts published. Indeed, we are talking about the profit that a business is judged on by lenders and the markets.
We could go so far as to say that all multinationals had to disclose all their cross-border transactions with related parties. A lot of companies used to do that in their accounts. They would list the royalties that they had paid to the US, for example, and the management fees that they had paid to Japan. We could get back to that. It would not be too difficult for a company to say that it had paid a royalty of 6% on sales to the United States. That would aid disclosure. There are practical measures that we could take to improve the situation without ending up with some kind of awful taxation baseball-bat regime that would put people off investing here at all.
Dan Rogerson (North Cornwall) (LD)
I pay tribute to my hon. Friend the Member for Redcar (Ian Swales) for securing the debate, and for the work that he and his colleagues on the Public Accounts Committee do on our behalf to delve a bit deeper into these issues. It is also a pleasure to follow the hon. Member for Amber Valley (Nigel Mills), who made a lot of sensible points.
The hon. Member for Lincoln (Karl MᶜCartney) was a little strident earlier, when he sought to have some political fun within the coalition. I am sure that hon. Members from Northamptonshire would have been proud of him. I thought he was being rather ideological. The Conservatives used to be the party of pragmatism, but his message was that there should be cuts at all costs, and that implementing cuts was the virtuous thing to do. I disagree with that. I believe that if there is something good to be done and the Government have the money to do it, they should spend that money on behalf of the people to try to achieve that goal. I do not think that there is anything inherently good in cuts, but the Government are trying to cut the deficit that we inherited, because it has burdened the country and future generations with huge interest payments and threatened to destabilise the economy. It is therefore the right thing to do.
Pretty nearly all the parties in the House agree that the deficit needs to be reduced over a certain period, but if we are asking people to contribute to that through cuts or through paying tax elsewhere, they need to know that everyone is making a fair contribution. That is understandable. Even though UK Uncut sometimes takes an extreme position and oversells the contribution that could be made to the economy by dealing with this problem more equitably, there is a core of truth in what it says, which is that some organisations are using expensive advice to ensure that they get away with not paying the same contributions as everyone else. As the hon. Member for Hayes and Harlington (John McDonnell) said, those who pay their taxes on a more straightforward basis want to know that everyone else is making a fair contribution.
We represent a diverse economy here in the UK. I represent a small business economy in which it is incredibly difficult for retailers to survive. The hon. Member for Cities of London and Westminster (Mark Field) talked about not wanting our high streets to be homogenous, but we need to be sure that there will be some sort of high street left. I am sure that most of us will have done some online shopping, because it is convenient and helpful, but it cannot be right for small, local businesses to compete under a completely different set of rules from those used by multinationals such as Amazon. We have heard that this is not just about corporation tax, and that the problem exists in relation to other taxes as well. We need to look at the matter across the piece. My hon. Friend the Member for Redcar made that point very well when he framed the debate.
We know why companies avoid paying tax. It is rational behaviour, and we cannot knock them for doing it. An industry has grown up around it because it is legal, rational behaviour. Governments of all political colours have sought to exploit this and to push behaviour in a certain direction. An example is waste policy and the effect of the landfill tax regime, which was used to push behaviour in a particular way. We all bear some responsibility for how we set the terms of the tax regime, but we can also set the culture. The hon. Member for Bognor Regis and Littlehampton (Mr Gibb) mentioned boardroom culture earlier, but this is about the culture of society as a whole. The fact that we are having this debate today is a positive thing. This is not about populism; it is a genuine response to concerns expressed by people who want us to articulate their views.
The coalition has acted to make corporation tax more reasonable, but that will work only if people actually pay it. The trade-off involves ensuring that we have a tighter regime. I agree that we should not move towards a bargaining system in which the final arbiter is public opinion. That is certainly not the way to run a tax system. I praise my right hon. Friend the Chief Secretary to the Treasury and his colleagues for investing in the areas of Her Majesty’s Revenue and Customs that carry out such work, because that is where the battle must be fought and won. Yes, the solution involves the legal framework, but it is also about HMRC having the resources to implement the measures.
It is no accident that we are in this situation. Previous Governments have preferred not to discuss the matter, because big business has a seat at the top table and has been able to lobby effectively. It has made the case that everything it does is good and everything it touches turns to gold, and that it should therefore be left alone to get on with it. I think the culture has changed at this time of austerity in favour of delving a little deeper and saying, “No, that is not the case. Where you do good, we will be partners in rewarding it and ensuring that our economy works, but where you are trying to pull one over on us, we will invest in the resources through HMRC to get the job done.”
The hon. Member for Hayes and Harlington was absolutely right to highlight the closure of tax offices under the last Government. I lost the battle to save my local office in North Cornwall, even though our compliance officers had a great deal of skill at doing such work. If it had been argued that their work could be done more efficiently so that the bigger corporations could be looked at, we could have retrained those people and they could still have been based out in the regions—as Amazon showed, it does not really matter where people are based; the trade will keep coming if things are managed effectively. It is a great shame that we lost that expertise, but that is now ancient history, as we are where we are.
It is clear that the sums involved are highly significant and that previous Governments have been too timid in tackling the problem. We are now having an open and public debate—both here tonight and out in the country—which I welcome. I look to the Minister to set out his determination to tackle the problem, invest the resources in HMRC and ensure that we tighten up the regulations where possible.
Dan Rogerson
I am afraid that I cannot give way.
Significantly and finally, we must work with our international partners to set up an international framework for a culture in which companies pay for the profit they make and work effectively and in harmony with Government to achieve prosperity in the way that most people would expect.
Stephen McPartland (Stevenage) (Con)
I congratulate the hon. Member for Redcar (Ian Swales) on securing such an important debate. I listened with great interest to the comments of my hon. Friends the Members for South Norfolk (Mr Bacon) and for Bognor Regis and Littlehampton (Mr Gibb), who eloquently described the differences between tax avoidance and tax evasion, and how the lines between them have been blurred. Tax evasion is clearly wrong, illegal and unfair to the rest of society, as everyone else has to pay more in taxes to make up for those who do not pay their fair share. We cannot have mob rule and, as explained by my hon. Friend the Member for Cities of London and Westminster (Mark Field), we cannot have anti-business sentiments.
Just before Christmas, there was an explosion of public interest after the Public Accounts Committee named and shamed some well-known companies that used transfer pricing to offset their tax liability here in the UK, basically to avoid paying tax. I am aware there is a strong argument that the tax authorities in the UK could do more to enforce tax payments. The Government have done a lot of work on tackling tax avoidance—so much so that I fear the general anti-avoidance rule that will be introduced might be too severe and end up penalising the sole trader and small and medium-sized enterprises more than the larger corporates.
My interest in tackling tax avoidance stems from a meeting I had with Christian Aid supporters in my constituency last September when the tax justice bus tour visited Stevenage. The tax justice campaigners believe that tax dodging by international companies costs the UK around £35 billion and developing countries an estimated $160 billion a year. Just imagine the dramatic difference such a huge sum of money would make if it were available to invest in public services, infrastructure and other vital services essential for economic growth—both at home and abroad.
There is growing anger and concern at the fact that some large companies are hiding behind complex accounting rules that may be strictly legal, but are considered to be unethical by the public. The problem of the missing billions in tax is not just a problem in the UK; it is worldwide, and it does the greatest damage to poor and developing countries that cannot stand up to massive corporations.
I know that Governments from all around the world will agree with the sentiment of greater tax transparency, but they will struggle to introduce it as every nation competes in the global race. I welcome the Prime Minister’s initiative to make tackling tax avoidance a priority as the UK takes over the presidency of the G8, and I would urge him to convene a cross-Whitehall meeting with tax justice experts and campaigners to identify what this policy would look like in practice.
There is real concern and feeling in this evening’s debate about the fact that transfer pricing seems to be at the heart of the problem, so the draft Finance Bill could include some measures to try to create enforcement in respect of transfer pricing and to stop the problem. However, despite the best of intentions, I believe that in the end it will be up to the companies themselves to lead the way and they will only do that if their customers—the British public—drag them kicking and screaming towards tax transparency and a fairer tax system for us all.
With that in mind, in October or November I wrote to the chief executives of all the FTSE 100 companies asking them individually whether they were willing to pledge their support for corporate tax transparency, and whether they would support a new international accounting standard for country-by-country reporting. The current international accounting standards only require multinational companies to report accounts on a global consolidated basis, which makes it incredibly difficult to know where taxable economic activities are occurring and where profits are declared. Companies, particularly multinational corporations, move billions of pounds of profit between jurisdictions in order to reduce their tax bills, and large companies are allegedly manipulating their centres of interest through the use of holding companies, offshore accounts and intellectual property rights.
Whether this is tax avoidance or tax evasion, whether it is illegal or immoral, the British public and most Members of Parliament believe that it is wrong and should be stopped. A recent inquiry by the International Development Committee recommended legislation
“requiring each UK-based multinational corporation to report its financial information on a country-by-country basis. Such information should include the names of all companies belonging to it and trading in each country, its financial performance in each country, its tax liability in each country, the cost and net book value of its fixed assets in each country, and details of its gross and net assets in each country.”
I believe that the only way of resolving the problem is to introduce greater transparency, and Members will be pleased to learn that, in the interests of transparency, I am publishing all the responses that I have received on a website that I launched today: www.taxchallenge.co.uk. The first 15 responses from the FTSE 100 are now live, and many more will be published during the coming days and weeks. The responses have been wide-ranging. HSBC has offered to help design a tax transparency standard, BT and others have welcomed the transparency initiative—although not the means—and Hargreaves Lansdown has questioned the value that it receives for the taxes that it pays. My hon. Friend the Member for Lincoln (Karl MᶜCartney) spoke about that eloquently earlier today.
Paul Farrelly
One of the reasons for the Government’s intention to change remote gambling taxation is the fact that all the companies bar one have gone offshore. That one is Bet365, which owns my local team, Stoke City. It is staying here because the Coates family believe in paying their taxes—they paid £130 million last year through Bet365—and in creating local employment. Does the hon. Gentleman agree that all the companies in his survey should wholeheartedly follow their example, and that the National Association of Pension Funds and the Association of British Insurers should try to ensure, on our behalf, that shareholders encourage them to do so?
Stephen McPartland
I do agree, and I firmly believe that most employees in most of the FTSE 100, the FTSE 250 and other companies in the United Kingdom would expect their employers to pay their fair share of tax in the UK. They all have very devolved and developed corporate social responsibility projects and organisations, and they want to understand what British customers, employees and consumers want them to do. They are very conscious of their brand.
The new website—www.taxchallenge.co.uk—gives Members’ constituents an opportunity to sign a petition calling for greater tax transparency, so that everyone will know which FTSE 100 companies are willing to sign up to tax transparency and which are not. Every one of us can then decide individually whether the biggest companies in Britain really care about the poorest in our society, at home and abroad.
Jackie Doyle-Price (Thurrock) (Con)
I am very pleased to follow my hon. Friend the Member for Stevenage (Stephen McPartland). I think that his excellent initiative will do much to provide transparency, and to enable consumers to make informed decisions. If there is one thing that the debate has shown us, it is that consumer power is perhaps the most effective weapon that we have when it comes to ensuring that companies pay their fair share of tax.
I pay tribute to my hon. Friend the Member for Redcar (Ian Swales) for securing this important debate. Let me say for the benefit of some of my colleagues that I am happy to refer to him as my hon. Friend, and that I am gratified to see that so many of his own colleagues are present. That contrasts markedly with the attendance on the Opposition Benches.
As my hon. Friend the Member for Redcar will know, the debate was prompted partly by the work of the Public Accounts Committee—of which I am proud to be a member—and its work on tax avoidance by global companies. Our report at the back-end of last year found that HMRC’s performance in that regard was perhaps not as good as we would have liked.
I shall concentrate on some of the wider lessons learnt from the inquiry about how to make the UK tax system efficient and effective, while remaining competitive. I would like to associate myself with the comments made by my hon. Friend the Member for Cities of London and Westminster (Mark Field) and others about the debate becoming unduly political and playing to the gallery. It is good politics to attack global names as tax dodgers in the media, but we have to be careful about the messages we send out to potential investors in our country. I am pleased that, in the main, this debate has been a lot more mature than the debate that has played out in the media.
Members will know that the Committee heard evidence from Google, Starbucks and Amazon. We looked at the extent to which they exported their profits to more favourable jurisdictions and whether those arrangements could be described as fair. In that respect, the evidence supplied by Amazon was the least convincing—that has very much been the flavour of this debate. Those of us who have used Amazon—I am sure that many of us have—think we were dealing with a company in Slough, and those of us who visited our local post offices over Christmas would have seen just how much business Amazon was doing, yet, despite booking billions of pounds of sales through the UK, it pays less than £2 million in corporation tax, as has been said, with the profits being exported to the parent company in Luxembourg on more favourable terms.
Before we get too excited, we need to recognise that this is one of the things the European single market contributes to achieving—a company, wherever it is based in Europe, can sell across member states. The question is why, when Amazon has so much business here, it has chosen not to locate here. Ultimately, there is nothing wrong with trying to limit tax liability. After all, that money is earned and owned by the individuals and business; it does not belong to the Government. We need to look at what more we can do to encourage those firms to be more honest in their reporting of how much money is made here. In that sense, I associate myself with the comments of my hon. Friend the Member for South Norfolk (Mr Bacon): this is about simplicity of the tax system.
Paul Farrelly
Does the hon. Lady agree that it is not just a case of headline corporation tax rates—for instance, ours compared with Luxembourg’s—but about the special deals that those companies can do with the authorities in Luxembourg, the Republic of Ireland or the Netherlands, through which they pay very little tax and export their profits to tax havens? Does she agree that we need to do more at European level to ensure that those sorts of special deals do not happen in one jurisdiction in a way that disfavours another jurisdiction?
Jackie Doyle-Price
I suspect this will be a rare occasion, but I totally agree with the hon. Gentleman. The important point to which he alludes is that we cannot afford to take unilateral action in this area. We live in a global marketplace, and in reality some countries—even members of the EU—are perhaps less honourable in their dealings under tax treaties than we are. We all need to be a lot more savvy and a bit more mature about what will make our tax system more efficient and competitive, and that comes down to simplifying rates.
The hon. Member for Newcastle-under-Lyme (Paul Farrelly) mentioned the sweetheart deals made by other countries. In that respect, I would like to highlight the issue of Google. Google is an internet firm, but the language of the internet is English, so why would a company such as Google choose Ireland over Britain? It can only have been because of the offers made to it. Again, we need to use the institutions of the EU to ensure a level playing field and a genuine single market. We need to recognise that companies will locate where they like and make sure that everybody is doing their bit to ensure a genuinely competitive market between states.
In response to the comments of my hon. Friend the Member for Stevenage, I mentioned the issue of consumer power. Perhaps the most telling thing about what has happened since the PAC’s inquiry is how Starbucks has reacted. Amazon and Google are in near-monopoly positions, so competition cannot make them change their behaviour. There is no doubt that the negative publicity Starbucks faced following our inquiry forced it to make its gesture of offering to pay more corporation tax. We are in the bizarre position where that company seems to behave as if the amount of tax it pays is very much a voluntary contribution. It is incumbent on the Treasury and HMRC to make it clear that such a practice will not be tolerated.
I wish to highlight another issue that the Committee found when it examined Starbucks and the more sinister impact it had on the marketplace here in the UK. This comes back to the degree to which the ability to export taxes on profits enables these companies to engage in anti-competitive behaviour. Despite the phenomenal growth in the presence of Starbucks throughout the UK, we were told throughout our inquiries that Starbucks had made no profits here. We were also told that Starbucks was committed to expanding its operation, as its presence in the UK was important to it. Those two statements simply do not add up. If we look a little more deeply, we find that it seems the most significant losses were run up during a bidding war with Coffee Republic for certain sites on our high streets, with the result being that Starbucks entered into more expensive contracts for property and Coffee Republic was reduced to having a mere fraction of the stores it had had hitherto. So we are talking about a global provider engaging in very aggressive anti-competitive behaviour against a home-grown provider, and the tax system, in effect, subsidising it to do so. I would like the Minister and the Treasury to reflect on the extent to which that sort of behaviour gives unfair competitive advantages to foreign providers.
I am running out of time, so I shall just come back to one point: we cannot afford to act unilaterally. I call on the Government to make full use of relationships in the G20, the OECD and the EU to lead a global effort to tackle these unfair and uncompetitive practices.
Charlie Elphicke (Dover) (Con)
It is a pleasure to speak in this debate, and I congratulate my hon. Friend the Member for Redcar (Ian Swales) on securing it. I wish to discuss an area that has not been so deeply explored this evening, although it is the area where we are not as powerless as we are in so many areas of this debate because of international obligations. I wish to focus on companies in receipt of money from taxpayers under Government contracts.
I have undertaken a study of technology companies that benefit from taxpayers’ money under Government contracts and have found that Oracle, Xerox, Dell, CSC and Symantec paid no corporation tax whatsoever last year, despite earning more than £474 million from Government contracts and having a UK turnover of £7 billion. Overall, my study of 10 technology companies in receipt of more than £1.8 billion of taxpayers’ money found that they paid just £78 million in taxes on UK earnings of just over £17.5 billion of turnover. On the basis of group profitability—we are looking at the consolidated international group here—the 10 technology companies would have made more than £3.3 billion in profits in the UK, resulting in a tax liability of £879 million. The UK tax actually paid was just £78 million, so, according to my research, the tax gap was £801 million.
We are seeing big business tax avoidance on an industrial scale. To me, it is unacceptable, unethical and irresponsible. Hard-pressed families are struggling to get by and to pay their taxes—and they do pay their taxes—so it is quite wrong that highly profitable businesses abuse our tax system. We urgently need reform. No Government contracts should be awarded to businesses that are fleecing our tax system, and the Government should examine how much UK tax companies pay when deciding who gets plum Government contracts. If taxpayers’ money and a Government contract are being awarded, we should look at the taxpayers’ money we are paying out and the tax money that we get back when we assess the value for the nation of awarding a particular contract. If, for example, a Government contract for £500 million is awarded to a computer company, it should be asked what tax it pays. If it pays zero tax in the UK, and another company is paying £40 million in tax in the UK and says that it will do the work for £520 million, the balance of best value shifts. We should consider the question holistically, rather than simply thinking about how much the contract should be let for.
Ian Swales
The hon. Gentleman refers to a point that I made. Does he agree that if we are asked to give a Government contract to a company that makes no profit, we should take a view about that company’s long-term future? We should play it at its own game and ask whether, if it does not make any money, it will be around for the long term.
Charlie Elphicke
My hon. Friend makes a powerful point, but we all know the reality. We all know that companies are using Luxembourg sandwiches and parking profits in Bermuda while claiming that they are sending them back to the States, as the IP suddenly is not in any intellectual property territories outside the United States. I find that unacceptable.
Let us take Oracle as an example. The company had a turnover of about £1.4 billion and a global operating margin of 32%, so its UK projected profits should have been about £446 million. Its declared profits in the UK, however, were basically nothing and it did not pay any tax whatsoever. I regard that with concern, because its Government contract earnings were about £42 million.
Even more concerning was the fact that a small amount of tax was paid by Microsoft, which is interesting as it has about £700 million from Government contracts and paid £19 million in the UK on a turnover of £2.35 billion. It has a global operating margin of 40%, so if we apply the consolidated operating margin to the UK we can see that its projected profits in the UK would be about £945 million. Its projected tax would have been about £246 million. I am not saying that Microsoft should not have some wriggle room for the fact that its IP was generated outside the UK, but when we award Government contracts we should take into account how much tax will be paid in the UK by the person to whom it is awarded. There are difficulties with that under European procurement rules, but we could have a box on the procurement form asking how much corporation tax and how much in PAYE the company anticipated paying in the UK in relation to that contract. That would enable us to assess best value in awarding Government contracts. We could and should consider that.
I am particularly concerned about IBM, which turns over about £4 billion in the UK but has a global operating margin of 16%, which means that its UK projected profits should have been about £642 million. Its declared profits in the UK, however, were about £327 million. Again, the tax gap is substantial and rather than the projected UK tax take of £167 million, only £41 million of tax was paid. We have a shifting and sliding in that the amount of tax we are getting is rather less than one might expect, even if we take into account the question of IP being based elsewhere and not being generated in the UK. We need to consider that more deeply and should consider the whole question of royalties paid for IP as well as licensing fees.
We should see how we can make the corporation tax system in this country flatter and much simpler by getting rid of a lot of the deductions that enable our tax system to be flouted. That would bring the rate down and give the UK a system with even lower tax than we already have.
I pay tribute to the work that the Government have done; I am merely trying to advance the argument, the discussion and the debate. We have a Chancellor who has started to take real and positive action in the OECD to start the discussion on how to change the international rules. We have a Prime Minister who is leading an international summit in Northern Ireland and making tax, including international tax, a key priority. The Government have taken tax very seriously, and rightly so. Over the past 15 years, the amount of income tax paid by the working nation has gone up by about 80% whereas the amount of tax paid by business has gone up by just 6%.
The previous Government were very keen on the whole prawn cocktail circuit; they were keen to be close to big business and to let it off the hook. It is well known that the former Prime Minister and his adviser, now the shadow Chancellor, were keen that the Revenue took a softly, softly approach to big business. I think we all feel that it has gone too far, and it is time to take international as well as domestic action and to be much firmer on big businesses that do not pay their fair share.
We have a deficit to clear. We need the revenue, so we need to be firmer, but we also need a system that has a level playing field, where there is a lower, more globally competitive rate that makes it more attractive for businesses to set up and trade in Britain whether they are domestic or foreign. The way forward is to start an honest and open debate about bringing in a flatter tax system in the UK and taking the rate of corporation tax right down, so that hopefully it will be even lower than in Ireland.
Stephen Williams (Bristol West) (LD)
Much of the debate so far has been about the domestic impact of corporate tax avoidance, and rightly so. Safeguarding the UK tax base and watching over how the Government spend its proceeds is one of the primary duties of the House of Commons, over which you preside, Mr Speaker.
I begin by mentioning some of the international tax impacts of corporation tax avoidance. Over the last year, I worked closely with ActionAid and Christian Aid to highlight how multinational companies divert their profits all around the world and avoid paying tax in the countries where they derive much of that money, particularly in the developing world. It is entirely appropriate that a great deal of our increasing budget for international development is spent on upgrading the capacity of developing countries to safeguard their tax base, so that they build expertise in their equivalents of HMRC to make sure that they can stand up to multinational companies.
I endorse what the hon. Member for Stevenage (Stephen McPartland) said earlier, when he referred to the report of the International Development Committee. One of the things we need as a country in terms of our corporate law is country by country reporting so that we can see clearly, whether as shareholders, Government, consumers or citizens, where UK-based companies are earning their profits, where their economic activities take place and, more importantly, how much tax on those activities is being paid and where.
We are concerned about UK-based companies that have huge UK activity but apparently pay little UK corporation tax. Several companies were highlighted in the course of our debate; Starbucks was one of them. Several months ago, I was the first Member of Parliament to criticise the UK operations of Starbucks, so I was pleased that the chief executive of Starbucks UK, Mr Kris Engskov, came to see me in my office in Portcullis House and used all his Arkansas charm to run through some of the corporate numbers line by line to persuade me that the company was doing nothing wrong. I have to take at face value what he said about high rental charges in the UK, although they do not seem to affect competitors in the field. None the less, Starbucks structures its international corporate affairs so as to minimise its tax liabilities. If royalties are paid on the brand of a company that originated in Seattle, yet the brand value lies in the Netherlands and the cup of coffee is bought elsewhere in Europe, where even with the generosity of the common agricultural policy we do not grow coffee, it is obvious that aggressive tax planning is taking place. Consumer pressure has led Starbucks to seek to make voluntary tax payments.
Several Members mentioned Amazon. The hon. Member for Bognor Regis and Littlehampton (Mr Gibb) described in some detail what Amazon does. I disagree that the company has a novel business structure that has enhanced the book-purchasing experience. I have never bought a book from Amazon. The company has in essence developed older business models, such as mail order and telesales, which have been around for half a century. There is nothing particularly innovative or transformational about it, yet we are asked to believe that there are huge amounts of intellectual property and that royalty and interest payments are needed to have what appears at first inspection to be an artificial structure, contrived for tax rather than business purposes.
Of course, Amazon also damages the high street, and the principal reason I have never bought anything from it is the loss of bookshops from all our high streets. It structures its sales via Luxembourg because the corporation tax rate there is 21%. Over time, the coalition Government will reduce the differential between that country and the UK; it was 7% in 2010, but that will be eroded. Perhaps at some point Amazon will ship its books and DVDs from some other lower-corporate-tax haven.
What would my Liberal Democrat colleagues and I like to happen, so that we can tackle the problem? First, we need the right resources in Her Majesty’s Revenue and Customs. I listened carefully to Labour Members earlier, when they lamented the reduction in HMRC’s total staffing numbers. Of course we all lament the fact that cuts have to take place, but what is more important is not the total headcount of a public sector organisation, but what people are doing in it. What HMRC needs is specialists and forensic accountants to tackle these complicated transactions. That is why I am pleased that, in the autumn statement, the Chancellor announced extra resources in that area, and that we would look at transfer pricing. The second thing that I would like is the introduction of a general anti-avoidance rule—something for which my colleagues and I have called many times in the past few years. There will be legislation on that later this calendar year.
Thirdly, there needs to be much more transparency about the deals that HMRC is striking with several international companies. I am talking about the sorts of issues frequently raised in the pages of Private Eye; Vodafone is a classic example. We often see people who might be characterised as benefit scroungers named and shamed in the press, and it is right that that happens. I would like much more transparency about the deals being done with large companies, with regard to how much tax is at stake and what deal has been arrived at.
Fourthly, and more importantly, we need more international action through the European Union. It is ludicrous that corporation tax rates vary so much in what is supposed to be a single market, and within the OECD, in the model tax treaties. They are double taxation treaties that are meant to prevent double taxation of the same profit by more than one country, but they are being used for the perverted purpose of avoiding tax altogether. We need to get to a system in which the commercial substance, rather than the legal form, is looked at closely by tax authorities, and that is what ends up being taxed.
Stephen Lloyd (Eastbourne) (LD)
I pay tribute to my hon. Friend the Member for Redcar (Ian Swales) for securing this debate. I am well aware that many of the companies mentioned today have not broken the law, but they have broken the spirit of the law. We know that, HMRC knows that and, most important, the public know that. Companies such as Amazon, which has been mentioned frequently this evening, and which paid a tax rate of just 2.4% in 2011, have outraged the British public in recent months, and rightly so. These companies have used the vast resources at their disposal to bypass the tax system, while taking a great deal of money and profit from their UK customers. At a time of such tough worldwide economic circumstances, that is nothing but an insult to the hard-working individuals and businesses who pay their fair share of tax, who understand that we all need to contribute, and who appreciate that, whatever the partisan nay-sayers may say, we are all in this together, because that is the only way that we will get through our desperately indebted situation. Some companies understand that, and some do not.
Let me read a brief quote from two companies’ corporate social responsibility promises on their websites; the companies are in the same sector. The first company says it
“will be accurate and truthful in representing business transactions to government agencies.”
Some hon. Members may have already identified that this CSR missive is from Starbucks. Did it understand that we all need to contribute? Of course not. The whole country probably now knows that since 1998, despite expanding at an incredible rate to almost 800 stores UK-wide, the parent company paid just £8.6 million in tax over that whole period, having racked up more than £3 billion in sales. It said that was because the company failed to make a profit. That not only absolutely beggars belief, but insults the British public, for one very simple reason: many Starbucks stores are franchises, which means that such rapid expansion could only have happened because the parent company promised, and delivered, real profits to the independent franchise owners.
Starbucks has not so much been failing to tell the truth to us or to its franchisees as telling a whopper of such magnitude that it is almost funny. Its clearly nonsensical distance from reality could become a catch phrase equivalent to Baldrick’s “I have a cunning plan”—a great catch phrase which we all know because it is so completely disconnected from reality, similar to Starbucks’ “Trust me, we only made £8.5 million profit over 14 years, while expanding to every high street in the United Kingdom,” except, of course, that it is not funny. It is contemptuous of its franchisees, the public, the taxpayer and its suppliers. The behaviour of Starbucks and other such companies represents the contemptuous face of global capitalism—a pernicious, ugly underbelly beneath the glossy, shiny exterior.
We all know, and it has been discussed this evening by numerous colleagues across the Chamber, that the rules around globalisation mean that companies can switch accounts from country to country to hide their real profitability from the tax man. This makes it difficult for HMRC to challenge the corporate giants, but there is an upside to the whole tawdry affair, and it has been mentioned this evening: the public have the power, and did they not show it with their boycotting of Starbucks coffee shops? I pay tribute to the previous speaker, my hon. Friend the Member for Bristol West (Stephen Williams), who played such a key role in the boycott of Starbucks. In a very short time his campaign had well over 10,000 members of the public determined to call Starbucks to account, and they did—a fantastic effort all round.
I would not want anyone in the Chamber to think that I am anti-business. Nothing could be further from the truth. In my constituency, Eastbourne, my No. 1 priority since the general election has been growing the town’s economy, because to me it is all about jobs and communities, be they local or national. That makes companies which avoid tax through legal loopholes even worse. Their lack of any sense of community integrity or community responsibility means that they do not pay their way.
I am not here just to condemn, so here is an excerpt from my second company’s vision: “We understand the need to incorporate environmental, social, ethical and consumer concerns into the heart of our business operations”. Who is that? Same industry, similar scale and, one could say, similar vision; the difference is the tax take. The second company has paid £34 million in tax over the past two years, compared with Starbucks’ grand total, as I said earlier, of £8.6 million over 14 years. Starbucks paid one quarter of the amount over a period seven times longer. That is deplorable. Hats off to Costa Coffee, which is the second company. It paid its dues, so it deserves the recognition.
The public have power if they choose to use it. Another example is a company called Fruit of the Loom, a clothing manufacturer which summarily decided a few years ago to close a factory in Honduras and sack all the employees, after the 1,200 workers there formed a union. A boycott of the company’s products took off in the US and subsequently the UK. This initiative cost the company dear, not just in reputation but on the bottom line. After $50 million in lost trade it saw the light, reopened the factory and gave the reinstated workers $2.5 million dollars in compensation. That is what I call people power.
The Government’s additional investment in specialists in HMRC will increase the tax take significantly over the next few years. In the final year it will be £9 billion more than a couple of years ago. In addition, we should name and shame. I disagree with one of my colleagues who said earlier that we need to be careful about going down that road. I agree with those Opposition Members who said that we need to name and shame and harness the power of the public. The public are ready for that and they have the power. I believe fundamentally that tax avoidance is immoral. It may not be against the law, but it is wrong.
John Pugh (Southport) (LD)
I congratulate my hon. Friend the Member for Redcar (Ian Swales) on introducing this important debate. I begin with the slightly shocking confession that I recently bought a cup of coffee in Starbucks at the Leicester Forest service station. I had no alternative. I am afraid that on that occasion caffeine addiction overcame moral outrage.
I want to take head on some of the concerns about the general anti-avoidance rule that have been raised by hon. Members, because I have a long-standing interest in this going back over several Parliaments. I have observed at close quarters Labour’s approach, which was basically to spot an abuse and legislate against it. Owing to the efforts of Madam Deputy Speaker, the right hon. Member for East Ham (Stephen Timms) in particular, and the right hon. Member for Wentworth and Dearne (John Healey), that produced some quite commendable stuff. Those efforts were often buried quietly away in a Finance Bill or obscure statutory instruments.
Now, because resources are short, we need to get in expected tax revenue far more than we ever used to because, brutally, the alternative is deeper cuts, but even in those days the post hoc approach was seen to have its weaknesses. It was seen to be shutting the door after the horse had bolted; an endless chase against some pretty sophisticated opponents and some horrendously complicated schemes devised by clever and extraordinarily well resourced people. Dealing with avoidance in that way led to a more complicated tax code, which, as we have all acknowledged, is already complex enough. That is why I welcomed the introduction by Labour of the vetting and pre-approval scheme, which has not been mentioned much today. The duty to disclose was introduced by the last Government and it was a good and commendable move, but it is also why I argued in favour of a GAAR in the face of some scepticism. Some scepticism persists, and I want briefly to address that.
The main argument against the GAAR is that it will lead to tax uncertainty and so make tax planning and investment decisions more difficult. After all, many of us take steps to defray tax liability—to organise our affairs, quite legally, to minimise tax—and we need to be sure that these arrangements will not be retrospectively penalised. Let us not be hypocritical about it either: as a country we are not averse to encouraging foreign nationals to avoid their domestic taxation regimes and come here and invest here. This argument about certainty is a little overblown. In many walks of life, the law seeks to inhibit genres and types of behaviour without always being over-specific or utterly specific, and yet we all cope. There is the tort of nuisance, but not a complete list of actionable nuisances. Dangerous driving is entirely contextual and is not defined by road speed. When I go out on the town, which I all too rarely do, I do not have a pocket list of what counts as disturbing the peace. Without the law being absolutely specific, in many contexts we manage with tolerable certainty and without rampant and obvious injustice.
The Chancellor certainly believes that there are arrangements that the Treasury and tax planners can identify as egregious tax avoidance schemes—I think those are his words—and that we all ought to identify as out of order, whether or not they are formally outlawed. One thinks of profitable companies in the UK using their profit to repay a pointless loan to an associated company in Luxembourg; or people who are in all respects BBC employees taking their wages as a contractual payment to their company whose sole function is to receive that payment; or business men who instead of a pay increase receive a pension contribution to a pot with surprisingly quick draw down facilities. All are very obvious attempts to frustrate the intentions of the Treasury, and so the Government, and so the nation. There is no doubt that the Government want profits and employment taxed and not disguised.
If one simply hid one’s money, it would be described as tax evasion. If one cloaks it as something else, it is very similar and has to be described as egregious tax avoidance. It not only ignores the intent of tax legislation in a way that, say, putting money into research and development does not, or having some of one’s wages paid to a charity does not, but it manifests the fundamental and second feature of egregious tax avoidance: it has no business purpose beyond frustrating the intent of tax legislation. If a business asks itself whether a scheme frustrates the intention of tax law and whether it would be used if it did not do so, it should really have no doubt about whether it would be caught by a GAAR.
There is an interesting parallel with the situation we found in this place in 2009 during the expenses saga. The media and the public managed quite satisfactorily to distinguish between proper and improper use of the second homes allowance by considering its purpose. To plead that egregious behaviour could be excused by being within the rules was sufficient for neither MPs, nor the public. If tax planners, having asked the right questions, are still in doubt, they can acquire even greater certainty by using the HMRC pre-approval scheme, which will presumably put all concerns to rest. If even then they are still worried about what will be the general effect on commerce, they can simply look at other regimes and what might be achieved there.
Although it is a classic saying that only two things are certain in life, death and taxes, I would argue that the proper functioning of commerce requires any tax burdens to be reasonably probable, not absolutely certain. To insist on absolute certainty as a precondition of a GAAR is simply wrong. Fundamentally, recognising the intent of tax law and not frustrating it is a good thing, and if people have an issue with that, the way to change it is not to engage in subterfuge but to seek to change the law democratically.
Simon Hughes (Bermondsey and Old Southwark) (LD)
This has been a really good debate. I pay tribute to my hon. Friend the Member for Redcar (Ian Swales) for going to the Backbench Business Committee and persuading it, with the support of some of us, that this is a debate we ought to have. We are on the centre court at the beginning of a new year, and I think that the Exchequer Secretary and his colleagues will be aware that this issue will remain an important one for the Treasury and the Government for the second half of this Parliament.
We have heard valuable contributions from among others my hon. Friends the Members for Bognor Regis and Littlehampton (Mr Gibb), for Stevenage (Stephen McPartland) and for Dover (Charlie Elphicke) and the right hon. Member for Oldham West and Royton (Mr Meacher), who is not currently in his place. We have paid tribute to others who have been part of the culture change, such as ActionAid’s tax justice campaign, people such as Richard Murphy and journalists such as Ian Griffiths and others who have ensured that we confront the issue.
My constituents, like yours, Mr Speaker, and others, will see posters reminding them that they have until 31 January to complete their tax returns if they have not done so already—MPs included. We all understand that there is a civic obligation to pay tax as individuals, but we all expect, particularly in times of austerity, that there should also be a corporate obligation to pay due tax, and that is what the debate is about. If we are encouraging people to be entrepreneurial and to start their own businesses, it is not a great encouragement for someone who wants to set up a coffee shop, a book shop or a garage, for example, to think that they will have to pay tax while some great international company might put them out of business or prevent them from gaining a foothold in the market by avoiding paying. It is about justice between small and medium-sized enterprises and big international enterprises.
There is a UK obligation, because some of the companies that offend most use tax havens that are UK Crown dependencies. Bermuda, the British Virgin Islands, the Cayman Islands, the Turks and Caicos Islands, Guernsey, Jersey and the Isle of Man feature regularly as places where the system is abused. There is clearly both a national obligation—we can do things ourselves—and an international obligation to act, and I am grateful that the Prime Minister understands that, as do others, and that it will be on the agenda for the G8 summit in Fermanagh later this year.
As I made clear earlier, when intervening on the right hon. Member for Oldham West and Royton, it was not really fair to criticise this Government on corporate tax, because all recent Governments have been very weak on it. The right hon. Gentleman conceded that new Labour had been poor and criticised it equally. I compliment the Government on their investment in additional effort in the Treasury on this issue, on the commitment to implement the anti-abuse rule later this year, on putting the subject on the international agenda and on making the UK more competitive for business to provide a disincentive for trying to fiddle the system. In particular, I congratulate my right hon. Friend the Chief Secretary to the Treasury on picking up on an idea I have lobbied him about a great deal: making sure that the Government look at those companies with which they, and local government, do business and ensuring that we do not give Government money to those who do not pay their taxes properly; it is exactly the right principle that they should not get contracts from the Government either. Of course, there have also been bilateral agreements with other countries.
Let me flag up one main area and one subsidiary area —in relation to the tax treatment of interest payments—which I ask Ministers to look at. Traditionally, interest has been seen as the cost of doing business while dividends are seen as the distribution of profits. For that reason, under accounting rules, interest payments are deducted from operating profits before corporation tax is paid, while dividends are distributed after tax has been paid. Debt can be used to strip out cash generated by companies and to move it offshore before it is taxed. There is also a large problem with private equity funds buying companies, making those companies take on a lot of debt, and using the cash to pay off the loans that they took out to buy them in the first place, so that they can end up owning a company for a fraction of its real price. Companies receive a huge tax advantage from the ratcheting up of debt.
In the finance sector, that is called creating a more efficient capital structure, and people will say that they are just working within the structure put in place by the Government. However, it has a huge effect on the businesses concerned and on the economy as a whole, as well as on the Treasury. It is not about efficiency, because the companies affected are often left seriously weakened and at risk. Many operate on the margins and are unable to withstand any financial shocks. That magnifies the impact of recent downturns. Comet is a recent example of the consequences of excessive borrowing. The increase in debt gives companies far less freedom to invest in new machinery or to make other capital investments, and that holds back growth.
Charlie Elphicke
If we believe in deleveraging the economy and deleveraging business, should we not put equity and debt on a similar footing?
Simon Hughes
That is a valid point.
As well as tax treatment of interest payments being an unfair incentive to avoid paying due taxes, shareholder loans are a particularly iniquitous example of these practices. That is my second and subsidiary point. Where owners of a company are receiving interest payments, they can manipulate the interest rates in order to remove their tax liability. The current transfer pricing rules are supposed to stop that, as they prevent a company from lending to a subsidiary at a higher rate than the market rate, but what is the market rate in a negotiated transaction between two parties that are, as it were, two sides of the same coin?
I want to give three examples of companies involved and then conclude with some proposals to add to those of my hon. Friend the Member for Bristol West (Stephen Williams) and others. I have often cited in this House the water industry in general and Thames Water—the local water company here, and a monopoly—in particular. In 2012, it paid £500 million in interest, which accounted for the vast majority of its operating profit of almost £650 million. In the same year, it paid no tax and instead received a tax credit of £38 million. In the previous year, it paid just £500,000 in corporation tax despite showing an operating profit of £600 million. Half its debt has been issued through its finance subsidiary in the Cayman Islands. Put simply, Thames Water raised the debt and gave the cash to Macquarie, which is based in Australia, so that that company could pay off the loans that it took out to buy Thames Water. The level of debt in the company is now equivalent to 90% of its value. Arqiva, which has Government contracts, receives annual revenues of about £1 billion a year, holds £3 billion in debt, and has an interest rate of 13%, which is extraordinarily high for a monopoly infrastructure provider. Boots, now Alliance Boots, has escaped paying £500 million in tax through a complex arrangement of companies.
I hope that in the forthcoming Budget Ministers will look at the tax treatment of interest payments and, specifically, do what countries such as Germany do in limiting the amount of interest payments that can be deducted before tax, adopting the earnings-stripping rule which applies there and elsewhere. I also ask them to consider whether that should be further dealt with if the company uses a tax haven, to address the question of UK dependencies, and to have an annual debate, as part of the Budget, on how to avoid such abuses of the tax system.
Catherine McKinnell (Newcastle upon Tyne North) (Lab)
Let me take this opportunity to wish you, Mr Speaker, and colleagues throughout the House a happy and productive new year.
I begin by commending the hon. Member for Redcar (Ian Swales) for securing this afternoon’s debate on corporate tax avoidance, an issue that provokes increasing attention from all parties in this House and about which the public’s awareness and media interest have probably never been higher. That is thanks in no small part to his and his colleagues’ work over the past year or so on the Public Accounts Committee, which is formidably led by my right hon. Friend the Member for Barking (Margaret Hodge). The quality and range of contributions that we have heard from Members of all parties build on those made during the excellent debate in September on tax avoidance and evasion, which was secured by my right hon. Friend the Member for Oldham West and Royton (Mr Meacher), who also spoke today, passionately and thoughtfully, about his General Anti Tax-Avoidance Principle Bill, or GAntiP.
I also commend the many valuable, thoughtful and powerful contributions made by my right hon. Friend the Member for Birkenhead (Mr Field) and my hon. Friends the Members for Paisley and Renfrewshire North (Jim Sheridan), for Edinburgh East (Sheila Gilmore) and for Hayes and Harlington (John McDonnell), and to those Government Members who have spoken, including the hon. Members for South Norfolk (Mr Bacon), for Lincoln (Karl MᶜCartney), for Cities of London and Westminster (Mark Field), for Bognor Regis and Littlehampton (Mr Gibb), for Amber Valley (Nigel Mills), for North Cornwall (Dan Rogerson), for Stevenage (Stephen McPartland), for Thurrock (Jackie Doyle-Price), for Dover (Charlie Elphicke), for Bristol West (Stephen Williams), for Eastbourne (Stephen Lloyd) and for Southport (John Pugh) and the right hon. Member for Bermondsey and Old Southwark (Simon Hughes). I hope that I have not missed anybody out.
Members have touched on a wide range of issues, many of which I will pick up on in my comments. There seems to be a degree of cross-party consensus on the problem. I am less sure that there is an entire consensus on the solution, but I am sure that we are all much better informed about the issue and members of the public will know the strength of our feeling about it after today’s debate.
I join those Members who have applauded the individuals and organisations who have fought for some time to move this issue up the political agenda, whether they be Private Eye, Reuters, the Tax Justice Network or development organisations such as Christian Aid, whose tax bus I joined in Newcastle last autumn. Today’s debate has vividly illustrated the fact that the issue of tax avoidance and the strength of feeling about it will not go away any time soon.
It is clear that many ordinary people and businesses are angry about corporate tax avoidance. They are angry about the unfairness and injustice of working hard and paying their far share in taxes while a small but significant number of incredibly wealthy and powerful multinational corporations go to great and complicated lengths not to do so—and get away with it.
Let me be clear—hon. Members have referred to this—that nobody doubts the importance of multinational corporations to the British economy in terms of the jobs they create and support, the investment they bring and the goods and services they provide to UK consumers. Labour absolutely believes that we need the most competitive tax and regulatory environment possible for British businesses as part of a wider package of measures to drive the economy back to growth.
People are angry, however, at the apparent ability of multinational corporations to use extremely complex and, indeed, aggressive tax-planning arrangements, devised and promoted by highly paid tax experts, to shift profits offshore that have actually been generated from economic activity here in the UK. These profits have been generated from hard-working, UK tax-paying consumers and firms, in what appears to be yet another example of one rule for those at the top and another rule for everybody else.
People are also angry at the hugely significant amounts of money being lost to the Exchequer at a time when living standards are being squeezed, Government borrowing and debt figures are up, growth forecasts have been downgraded yet again, and the public services on which we rely are being cut up and down the country. The Government’s priorities are to give a tax cut to millionaires while striving, low and middle-income families and pensioners are struggling to make ends meet, so it is little wonder that we are seeing increasing hostility to those multinational corporations that are managing to avoid paying their fair share—and, indeed, to a system that allows them to do so—when it appears that the poorest and often the most vulnerable in society are bearing the brunt.
We all know that there are varying assessments of the tax gap—the difference between the tax owed and the tax that would be collected if everybody complied with the letter and the spirit of the law. Her Majesty’s Revenue and Customs recent estimate stands at £32.2 billion, which differs from the estimates of other organisations, such as the Tax Justice Network, which puts the figure at £120 billion. Whatever the actual figure, a hugely significant sum of money is being lost to tax avoidance. Although those involved in this practice may believe that they are simply beating the taxman, their tax planning arrangements are actually beating our schools, hospitals, Sure Start centres and all the other vital services that rely on public expenditure. This issue is becoming ever more pressing in this period of austerity and growing Government debt.
What must be done? The recent recommendations of the Public Accounts Committee following its investigation into tax avoidance point us in the right direction. However, I will turn first to the Government’s response to the problem to date. It is fair to say that tackling tax avoidance has risen up the coalition’s agenda. I have no doubt that the light being shone by the Public Accounts Committee and others on this complex and sometimes murky world has speeded up that process.
The position in which the Government find themselves—being forecast to borrow £212 billion more than they planned two years ago and failing the one test they set themselves of balancing the books and getting the debt down by 2015—lends ever greater urgency to the situation. Indeed, the Prime Minister, who has previously described tax avoidance as “morally repugnant” pledged last week that he was going to make “damn sure” that “really aggressive tax avoidance” by multinational corporations would be stopped. He even went on to suggest that such behaviour lacked “moral scruples”. Those are tough words, but they have been questioned today by some Members, including those on the Government Benches, notably the hon. Member for Lincoln. We are yet to see those tough words being backed up by tough action.
The coalition has been making itself look busy in tackling tax avoidance with a series of recent announcements. The Chancellor’s announcement ahead of his autumn statement of £77 million of new funding for HMRC to expand its anti-avoidance and evasion activity was certainly welcome, but it is a tiny proportion of the more than £2 billion of swingeing cuts to HMRC that he is already pushing through. If the Government were really serious about tackling tax avoidance, they would at least rethink the plan to cut a further 10,000 staff from HMRC, which risks being a false economy, as was argued powerfully by my hon. Friend the Member for Hayes and Harlington.
Last year, HMRC officials brought in £16.7 billion over and above that returned by businesses and individuals. The Association of Revenue and Customs, which represents senior staff in HMRC, published a proposal in November outlining the case for £120 million of additional investment, arguing that it could deliver £3.7 billion to the Exchequer in return. I understand that the ARC is now developing a comprehensive investment proposal for the 2013 Budget, which sets out a long-term strategic approach to challenging and reducing the tax gap. It believes that the scale of the budget deficit and the tax gap are such that modest investment is no longer enough. It would be helpful if the Minister outlined today what discussions he has had or will have with the ARC on those proposals and if he acknowledged the contribution that HMRC could make to reducing the tax gap and the deficit if it was properly resourced.
There are serious concerns at HMRC that it is being stretched to the limit. Severe pressure is being caused by problems created by the Government’s policies, including the debacle over the changes to child benefit, which come into force today; the impending chaos of the introduction of universal credit, with its dependence on real-time information; and the unacceptable delays for taxpayers and businesses when trying to contact HMRC by phone. Will the Minister clarify whether the £77 million of funding announced in the autumn statement will see entirely additional staff brought into HMRC or whether existing staff will be diverted from other HMRC activity? Given the hugely complex nature of tax avoidance schemes and arrangements, will he outline the specific steps that he is taking to ensure that staff are sufficiently skilled and experienced to take on the highly paid army of accountants and consultants who are engaged in the avoidance industry? That is a crucial part of what we are discussing today and of what has been highlighted so effectively both this year and last year by the Public Accounts Committee.
There is a niggling feeling, whether rightly or not, that HMRC does not deal with multinational corporations and complex tax avoidance schemes in the way that it deals with other tax offences by smaller firms and individuals. In its treatment of companies such as Vodafone and Goldman Sachs, which have been mentioned by a number of Members and in particular by the hon. Member for South Norfolk, there is a sense that HMRC takes the easy road and cuts easy deals, whereas it comes down hard on people paying their plumbers cash in hand. If the Minister could clarify the resources that HMRC will receive to tackle the problem, that would provide some reassurance.
Of course, the nature of multinational corporations means that Britain cannot act alone in tackling the problem. It is therefore welcome that the Prime Minister has written to G8 leaders setting out that tackling tax evasion and avoidance will be one of his priorities for the UK’s presidency of the G8 in 2013. It is absolutely right that that is at the top of the G8 agenda, alongside promoting jobs and growth. I look forward to hearing from the Minister what specific measures he hopes the G8 will agree over the coming months and what outcomes he hopes will be delivered.
I would be grateful if the Minister also clarified what progress the OECD is making in preventing artificial transfers of profits in tax havens, and told us how much funding the UK is committing to providing support for that important work. Will he also state whether changing OECD tax treaty standards on company residence and permanent establishment is on the agenda? I know that Government Members are always heartened to hear about closer European working, so I would be grateful if he also outlined the UK’s position on the European Commission’s action plan on tackling tax avoidance and evasion, which was published last month.
Perhaps one of the key planks of the Government’s approach is the proposed general anti-abuse rule, which is now expected to take effect from July. The hon. Member for Southport made a thoughtful contribution on that issue. The Minister is well aware of the various concerns that have been expressed that the Government’s proposals will do little to tackle the problems that the public feel vexed about.
Finally, I turn to the findings of the Public Accounts Committee, and particularly to the entirely curious announcement by Starbucks on the publication of the Committee’s report that it would pay a significant amount of tax in 2013 and 2014 regardless of whether the company was profitable. That seemed to miss the point somewhat, as Members have said today. I am sure that many of my constituents in Newcastle would welcome the ability to inform HMRC of how much tax they intended to pay and when, regardless of what their circumstances may be, but that is not how our taxation system should work. Taxation is not voluntary, and it requires transparency, public confidence, fairness and integrity if it is to function properly. It is now time to change the situation and ensure that HMRC has the powers and resources that it needs to ensure fairness across the board.
The Exchequer Secretary to the Treasury (Mr David Gauke)
I congratulate my hon. Friend the Member for Redcar (Ian Swales) on securing the debate, and I thank him and the other 19 Members who participated— 14 Government Members and five Opposition Members. Time is short, but I will make a few remarks before my hon. Friend concludes the debate. I will begin by putting into context the problem that we face on tax avoidance, and then I will lay out in some detail the actions that the Government are taking. I will also try to respond to some of the concerns that right hon. and hon. Members have raised.
As I am sure all Members will understand, it would not be right for me to discuss individual examples of alleged tax avoidance. I therefore do not intend to respond to accusations made this evening against specific businesses. However, I do want to point out that the vast majority of UK taxpayers, whether they be businesses or individuals, pay the tax that is due on time. They do not try to dodge, avoid or delay paying their tax. Large businesses, which are the subject of our discussion tonight, pay about 60% of all taxes in the UK, or more precisely, they write the cheques. The Government are fully committed to ensuring that everyone contributes to reducing the deficit by paying their fair share of tax, and we are determined to clamp down on the minority who engage in tax avoidance.
As other Members have pointed out, tax avoidance not only damages the public finances but undermines the perception of fairness in the tax system and is anti-competitive, which in turn risks harming genuine investment by those who play by the rules. At a time when we all have to tighten our belts, it is particularly unacceptable for some taxpayers to manipulate the system and act to reduce their tax liability in a way that is contrary to Parliament’s intention. It is for that reason that where HMRC finds tax avoidance, it takes action.
It is important that those who should pay do pay. It is also important that we have a competitive tax system. Our intention is to have the most competitive tax system in the G20. That is the best route to economic prosperity. Foreign direct investment plays an important role in that. It is worth pointing out that approximately half our total corporation tax receipts in 2011-12 that came from large businesses was from foreign-owned companies. The Chancellor recently announced a further cut to the main rate of corporation tax, so that by 2014 it will reach 21%—the lowest it has ever been and the lowest in the G7. Having set a competitive rate, we aim to ensure that all businesses, including multinational companies, pay the right amount of tax by taking action internationally and domestically.
Mr Gauke
I do not think the right hon. Gentleman sets out a practical approach by proposing that we should deny those companies markets and engage in protectionism. We have to ensure that all businesses pay the tax due under the law in this country.
There are two ways we can look at this: domestically and internationally. Internationally, it is clear that our tax system, as with all other major economies, works within internationally agreed OECD guidelines—we have heard a number of hon. Members make that point. I know that there are concerns about whether the current corporate tax rules adequately capture the profits generated by multinational companies in the jurisdictions where the economic activity is located. We take those concerns seriously. Reform in this area will require concerted international action. This is an issue that all countries face. We need to work with others to develop the appropriate solutions. We are doing just that through the OECD, on the erosion of the tax base and the shifting of profits to lower-tax rate jurisdictions.
Two months ago the Chancellor issued a joint statement with the German Finance Minister calling for concerted international co-operation to strengthen international tax standards. Following that statement, the UK, together with France, offered voluntary contributions, equivalent to €150,000 each, in order to make rapid progress in achieving concrete results. The OECD’s work is vital in helping to promote a better way of dealing with profit shifting and the erosion of the corporate tax base at the global level, and it will be reporting to the G20 Finance Ministers on progress in February. I should also mention that only last week the Prime Minister wrote to G8 leaders calling for international action to tackle tax evasion and aggressive avoidance. He suggested that the issue should be at the heart of the forthcoming summit’s agenda. We agree that more needs to be done in this area internationally. I hope that the fact that the Chancellor and the Prime Minister have intervened on this issue will reassure Members that it is very much a priority for this Government.
As far as domestic action is concerned, we have strengthened HMRC’s capability in this area. It is worth pointing out that since March 2010 HMRC has collected £14.8 billion in additional compliance revenue through its large business service. In particular, £1.5 billion has been raised since 2010 through increased efforts in tackling transfer pricing. We want to build on that success, which is why we have announced additional sums. In the autumn statement we announced a further £77 million in new investment by the end of 2014-15 for HMRC to expand its anti-avoidance and evasion activity. Together with the package we announced in the October 2010 spending review, we expect to see additional yield, rising from £13 billion a year when we came into office to £22 billion a year by the end of 2014-15. Some of the money we announced recently will be focused on tackling tax avoidance by multinationals.
Let me deal quickly with the point about HMRC staff. The point was made that staff numbers had fallen. The big fall, from around 94,000 to 65,000, occurred under the last Government. Yes, there will be a fall in the total number of staff from 65,000 to 55,000 during this Parliament, but the number of staff who deal with tax evasion—the tax inspectors—is going to go up. The number of people working on enforcement and compliance will go up by 2,500, in contrast to the 10,000 reduction that we saw during the last Parliament.
I should also point out HMRC’s success in other areas, including its litigation strategy. Over the past two years, 85% of tax avoidance cases in the courts and tribunals have gone in HMRC’s favour. We have also taken legislative measures to deal with a whole range of corporate tax avoidance arrangements. Indeed, just before Christmas we closed down a further corporate tax avoidance scheme that sought to exploit tax rules to generate artificial loss relief from a property business. HMRC had become aware of the scheme only a week previously.
We are also bringing in a general anti-abuse rule, following the advice of Graham Aaronson’s committee. He is a distinguished tax QC, and his committee comprised a number of distinguished figures from the tax world. They recommended measures that focused on the abusive end of the matter. We believe that that will not have the disadvantages of the proposals suggested by the right hon. Member for Oldham West and Royton (Mr Meacher), which would create uncertainty for ordinary taxpayers. Also, his proposals contain an exception for any arrangements specifically permitted by legislation, and much avoidance is built on that. His proposals would therefore be defective in some respects. I think that we have struck the right balance, and that the concerns expressed by some of my hon. Friends are unfounded. It is right that we should focus on abuse of the system.
Mr Gauke
I really do not have time to give way, I am afraid. I have to say that the right hon. Gentleman’s speech did him no credit. Some of his wild conspiracy theories will not do his reputation much good.
With more time, I would have liked to address a number of other issues, including EU policy on VAT. My hon. Friend the Member for Redcar will be pleased to hear that, from 2015, the process will be much more to his liking. I want to underline that the Government are committed to dealing with tax avoidance, be it domestic or international. We are taking the necessary legislative steps and giving HMRC the necessary resources. We are determined to address the matter, as I am sure the whole House is.
Ian Swales
In calling for the debate, I wondered what level of interest the House would show in this subject. Then, when I agreed to accept a slot on the first day back after Christmas, I feared that I might find myself sitting here alone except for the Minister and the shadow Minister. Imagine my delight, therefore, at the quality of the debate today. Great expertise has been shown by Members, who have made great speeches and interventions. The overall emotion expressed right across the House was one of concern tinged with anger. The only words of dissent involved a suggestion that the debate was in some way anti-business, but I believe that everyone will recognise that we are talking about the need for a level playing field, nationally and internationally. That is all we are asking for; we are not targeting any business or practice.
Our tax system might once have been simple and smooth, but it is now showing all the signs of having had pieces nailed on, decade after decade, until it has become unrecognisable. I hope that the Minister will have heard the pleas for simplification that echoed all around the House. Today’s debate has shown me that we have a confident and capable group of Back Benchers who are ready to scrutinise this issue and support the Government’s efforts. I welcome the efforts that the Minister summarised in his speech, and the further work that is going on. The whole House will wish him and his colleagues well, but we will be watching the speed of his progress very closely.
Question put and agreed to.
Resolved,
That this House has considered the matter of corporate tax avoidance.
Business without Debate
(11 years, 11 months ago)
Commons ChamberRead Full debate Read Hansard Text
Mr Speaker
With the leave of the House, we will take motions 7 and 8 together.
Ordered,
That the Motion in the name of Secretary Vince Cable relating to Financial Assistance to Industry shall be treated as if it related to an instrument subject to the provisions of Standing Order No. 118 (Delegated Legislation Committees) in respect of which notice has been given that the instrument be approved.
That the draft Purbeck (Electoral Changes) Order 2013, which was laid before this House on 20 November, be referred to a Delegated Legislation Committee.—(Karen Bradley.)
Newark Hospital
(11 years, 11 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Patrick Mercer (Newark) (Con)
I start by thanking the Speaker’s Office for granting this debate, the second debate on Newark hospital in the past couple of years. I thank the Minister for making himself available tonight, I thank colleagues on both sides of the House, and I thank my constituents who have come down here for this evening’s debate. I am most grateful to all of them.
As I said, we have already had one debate on Newark hospital. I do not wish to bore the Minister, but a little bit of history might be useful. I do not know how well he knows Newark, but I hope to enlighten him. We sit right on the border between Lincolnshire and Nottinghamshire, and we are bedevilled by dreadful roads and awful traffic, particularly as we move from east to west and west to east. Newark is a growing town and the population of over-65s is likely to have doubled by 2026. I shall explain later why that is so important.
Newark is a town that I fear suffers from the Nottinghamshire health care model, which has been in place for at least a decade and a half. Centres of excellence have been established in places such as Lincoln, Grantham and the King’s Mill hospital, but not in Newark. I am realistic about that, but it presents huge challenges for a growing town. The hospital delivers superb services, but is diminishing relative to the services offered in the recent past; in addition, with King’s Mill, it is saddled with a private finance initiative that has been in place for two years now but will be in place for 30 years.
The problem is not new. It has been a hot potato in the Newark constituency since at least 2004. We had a helpful visit from a Minister in the previous Government in 2004, and in 2010 the PFI project that I mentioned was put in place. Then, a couple of years ago, the A and E department was closed and replaced with a minor injuries unit.
I have to say that the more I see of the national health service, the more byzantine I find the organisation. I cannot understand how a department that called itself an A and E for the best part of 10 years was not an A and E—it did not qualify to be an A and E. It was always going to be painful when the department’s title was changed—in this case from A and E to minor injuries unit. The fact remains that the goalposts in the national health service seem constantly to change. If, for instance, Mr Speaker, you asked me how an anti-tank platoon was organised, I could tell you how many weapons, how many men and how many vehicles were involved. If you ask what an MIU looks like in one hospital and what an A and E looks like in another hospital, the answers are usually widely different. We definitely suffer from that problem in Newark.
Another point about the growing town is that it has been clear to me for at least the last five years, and was recently confirmed in the Monitor report, that there is no plan for the hospital to increase in size—no matter whether one is critical of the services it currently offers—to take into account the growth and the natural explosion of the population that is likely to occur.
Mr Mark Spencer (Sherwood) (Con)
I congratulate my hon. Friend on securing this debate. He makes a compelling case for the importance of the hospital to the people of Newark, but does he recognise that people in my Sherwood constituency also value the services that the hospital provides?
Patrick Mercer
As my hon. Friend knows, I live right on the edge of my constituency and almost inside his, and my family and I unquestionably depend on Newark hospital—and, of course, on the East Midlands ambulance service—just as much as those in many parts of the Sherwood constituency.
Karl MᶜCartney (Lincoln) (Con)
Might it help the Minister if my hon. Friend told him where the nearest major road and rail routes to Newark are, and where the nearest A and E unit is?
Patrick Mercer
The answer to that question is, of course, Lincoln, but it is by no means true that all the serious cases in Newark go there. I shall say more about that shortly.
Let me continue my brief history. Last autumn, Monitor delivered a devastating report on the private finance initiative and on Sherwood Forest Hospitals NHS Foundation Trust, which includes King’s Mill and Newark hospitals, drawing attention to serious financial problems. It pointed out that Newark hospital was underutilised by 55% at times, that it was closed for admissions after 6 pm, and that many members of the board had resigned as a result. There is no doubt that good has come of that, but on top of all those difficulties, East Midlands Ambulance Service NHS Trust has decided to close Newark ambulance station. I shall say more about that shortly as well.
Where does the problem lie at the moment? First, let me nail a couple of misapprehensions. I am sure that the Minister will not be surprised by my raising them. First, in certain malicious quarters in the town, rumours—more than rumours—have been stoked that the hospital will close. I do not believe that it will close; I see no reason for that to happen. Indeed, Chris Mellor, the new acting chief executive of Sherwood Forest Hospitals NHS Foundation Trust, has made it clear that if the hospital does close, it will be a liability for the next 28 years no matter what, because there can be no withdrawal from the PFI in which Newark hospital is engaged with King’s Mill. Secondly, we still hear forlorn and ill-informed voices talking about the reopening of an A and E unit. No one who understands the problem could think for a minute that Newark will have an A and E unit. That really is not the issue at hand, and, given that the subject will no doubt arise during our continuing conversations, I want to reassure the Minister that, in my opinion at least, it will not happen.
Since the new team has taken over—and I appreciate that it is only a temporary team—some refreshing views have been expressed following the hammer blows of last autumn’s Monitor report. For instance, Eric Morton, who is running the administration of the hospital, albeit temporarily, has responded to a request from me and others for Newark’s minor injuries unit to receive further resources, so that it can at least provide level 2 critical care and become a sort of MIU-plus or A and E-minus—the terms are confusing—and we can be seen as comparable with smaller towns and, indeed, towns of similar size, such as Worksop and Grantham. I have suggested that if a clinical case can be made, there is no reason why such a system should not be introduced at Newark—why, in other words, our services should not be improved.
The GPs with whom I have had some interesting friction over the last couple of weeks—constructive friction, I hope; I say that with the greatest respect to those GPs—have a rather different view. They think that the system would be extremely difficult to implement. I do not know; I cannot judge. I am not a doctor, a clinician or a medical man of any sort. I should greatly appreciate it if the Minister gave me his unequivocal but detached view on exactly how realistic the proposal is, bearing in mind all that I have said about the increasing size of the town, the fact that there seem to be no plans to increase the size of the hospital in line with that, and the fact that it sits on major routes, both rail and road, which are always susceptible to the mass casualties which we see frequently during the year.
Sir Alan Meale (Mansfield) (Lab)
I congratulate the hon. Member for Newark (Patrick Mercer), whose tenacity on this issue is well worth the effort and appreciated by many of us who reside in the area covered by the Sherwood Forest trust. I have been closely involved with the trust for many years, and his description and analysis are honest and probably mostly correct. I believe that the Newark part of the trust has been let down badly in recent years by the reorganisation, and his description of the situation that led to the resignation of most of the trust’s board some time ago was an exact and correct one. I assure him that I and other colleagues in the north of the county will do whatever we can to support his effort not only to keep Newark hospital open, but to build on the services that are required for the growing population in that part of Nottinghamshire.
Patrick Mercer
I am most grateful to my hon. Friend who sits on the Opposition Benches. His view is always valued by me and certainly by the people of Newark. I have tried to keep politics out of this, and my stand has been consistent under the last Government and this Government. I really appreciate his comments, because this issue, more than anything else, stands above party politics.
One of the benefits of having an upgraded minor injuries unit is that more cases could be dealt with in Newark. GPs and others would be more willing to send patients to Newark, rather than hospitals some way away from the town, and this will have a direct effect on availability of the ambulances—their reaction times and their number—needed to cover Newark and the rural areas. For instance, if we ensured that the transfer times for all green 1 to 4 and urgent minor emergencies could be covered locally, the effect would be felt by East Midlands ambulance service right the way across Nottinghamshire.
That brings me neatly on to the point about EMAS and the service it provides, particularly in Newark town and the rural area. As well as all the other difficulties I have mentioned, which the Minister will recognise, we are currently going through a consultation about exactly how the ambulance service in Newark should be reconfigured. The ambulance service’s boss, Mr Phil Milligan, has helpfully admitted that the ambulance service is not performing to the necessary standard and that there are difficulties with EMAS, particularly in the Nottinghamshire area. The details are there to be seen.
I ask the Minister to look carefully at the need, or otherwise, for a hub inside or adjacent to Newark and at the positioning of the two community ambulance points that we are being promised, again either in or adjacent to Newark. We can have the best hospital in the world in Newark, but, unless we have an ambulance service that can take people with whom it cannot deal quickly, effectively and properly to other hospitals, the health care model will not work. That lies at the heart of the two issues here: the upgrading of the MIU and provision of further critical services, and the improvement —not continuation of the status quo—of the ambulance service. Those two major issues, with all their interlocking threats, lie at the heart of the problem of health care across the Newark area.
It is not all doom and gloom. I visit the hospital regularly—I there last on Christmas day and shall be there again on Friday—and am always impressed by the nurses, doctors, support staff, ambulance drivers and clinicians who deal in Newark. Anybody treated in Newark will say that we have an excellent hospital and that the services it provides are second to none, but we must not allow it to dwindle. When I visit, I am always impressed to find people from Lincolnshire and Derbyshire who are electing to be dealt with in that hospital. That raises the question why, when King’s Mill hospital runs out of beds, as it has over the past couple of months, it is not the customary practice for patients to be taken straight to Newark hospital. Surely if the money follows the patient, too many Newark patients are being taken “abroad”, with the money being paid out to different health trusts around and adjacent to ours, including to King’s Mill. Why does the arrangement not work properly in the other direction? That is exactly the point Chris Mellor made to me when he took over in his new job.
There is no doubt that improvements have been made: a bus service now runs between our hospital and King’s Mill; and we have reopened what used to be called the Friary ward, providing extra beds, particularly for the elderly. Those good things have to be celebrated, not sneered at, as certain individuals in the town have done. I look forward to such improvements being replicated throughout the hospital and in the different authority—the different aegis—of the East Midlands ambulance service.
I also look forward to the meeting that the Minister has kindly agreed to have with me on 4 February—it might be on 5 February, but we will tie the date down. I am grateful to him for that, and I have no doubt that we will talk and talk about these issues. However, I hope I can leave him in absolutely no doubt about the isolation that many of my constituents feel in respect of the hospital. The resources of the hospital and its ability to cope with the sick, the halt, the lame, the deaf and the blind have been seriously diminished over the past couple of years and perhaps even longer. To that end, I ask him not only to address these specific points, but, if he has the time, to visit Newark. I would like him to talk to not only the staff of the hospital and the ambulance service, but to the people of Newark, so that he can gauge for himself how strongly we feel about the hospital, how close it is to our hearts and how we hope it will continue to improve in the future.
The Parliamentary Under-Secretary of State for Health (Dr Daniel Poulter)
I congratulate my hon. Friend the Member for Newark (Patrick Mercer) on securing this debate and on his continued, long-standing dedication to and strong advocacy for his constituents, and his local health care services and all the patients who use them. It was good to hear interventions from hon. Members on both sides of the House; we heard from my hon. Friends the Members for Sherwood (Mr Spencer) and for Lincoln (Karl MᶜCartney), and the hon. Member for Mansfield (Sir Alan Meale). That shows that on important issues such as local hospitals we can put party differences aside to come together for the benefit of the people who matter most in the NHS—local patients. I was pleased to hear that party politics had been put aside today and I was glad to hear the hon. Member for Mansfield say that he will continue to do so in the future for the benefit of patients in Nottinghamshire.
As has been articulately outlined by my hon. Friend the Member for Newark, Newark hospital provides an extensive range of consultant-led out-patient services and does so with short waiting times. It provides many high-quality day-case procedures, and diagnostic and other services. It also has a high-quality minor injuries unit and urgent care centre. Some 35 beds are available across two medical wards, with 21 more beds in the surgical ward. As my hon. Friend rightly outlined, one challenge that faces the NHS as a whole and patient provision in Newark is the fact that many people are now living longer and need high-quality, close-to-home community health care services. That is exactly what is provided at his hospital.
We also know that a new 12-bed facility is to open in Newark hospital in February 2013. The Fernwood community unit will be a specialist unit of single-sex bays and private rooms that will meet the needs of the growing number of elderly patients we have discussed, ensuring that people have the right to recuperation and recovery in an appropriate intermediate care setting before they return to their own homes.
The hospital receives full back-up from the teams at King’s Mill and the services provided by the two hospitals are compatible and work well in synergy. I want to put on record my congratulations on and gratitude for the dedication and hard work of all the NHS staff who work on the King’s Mill site and at Newark and who do excellent work to look after patients to a very high standard. I will be happy to take up my hon. Friend’s offer of a visit to Newark hospital when time permits later in the year, so that I can meet the staff and see first hand the excellent care provided there.
It is worth highlighting that there was a local agreement on Newark services, which was signed off on 18 December. Newark and Sherwood district council agreed across party lines to work with the Newark and Sherwood clinical commissioning group and the Sherwood Forest Hospitals NHS Foundation Trust to maintain what they see as essential elements for local services. When looking after older people, it is good to have cross-agency integrated care and working and a commitment to those principles from not only the NHS but local authorities, which play such an important part in the care of older people through housing and social services.
The commitments made in the agreement were that there should be high-quality primary and secondary health care for the people of Newark and Sherwood; a strong and positive future for Newark hospital within Sherwood Forest Hospitals NHS Foundation Trust; and accessible and safe health care services for patients across Newark and Sherwood district that are as close to people’s homes as possible. As has been outlined throughout the debate, it is important that we ensure that older people do not have to travel many miles to receive high-quality care and that they receive that care, if not in their own homes, as close to their homes as possible. That is why I am confident that Newark hospital will always have a strong and viable future as a setting for the provision of high-quality care for many older people and for all the other patients it looks after so well.
My hon. Friend also raised the question of the PFI debt at the hospital trust and he was right to do so. Monitor, the independent regulator of foundation trusts, recently expressed concern about the financial situation at Sherwood Forest Hospitals NHS Foundation Trust. The trust signed its £320 million PFI deal in November 2005 for the redevelopment of King’s Mill, and in 2012-13 the trust’s PFI cash outflow is £42.5 million, which equates to 17% of the trust’s income—a very large PFI debt, with 17% of the income spent on PFI repayments. If we were not already aware of the great damage inflicted on our NHS by PFI agreements, which were sometimes signed in haste and which we have often lived to regret, that agreement would make the case very clearly.
On 21 September, Monitor published a breach of compliance report which referenced a McKinsey’s report it had commissioned. The report concluded that the trust’s PFI commitments were affordable only with additional activity from the local health economy. That means it does not qualify for Department of Health national PFI support. The report outlined the fact that the trust has potential for additional health care activity, which would benefit it financially and put it on a more stable financial footing. The emphasis on additional activity in the report seems to suggest that more can be done potentially at Newark to develop services for the benefit of local patients. That could bring revenue and income into the trust and would do more better to serve the needs of a growing population and its future health care demand.
To answer one of the points my hon. Friend raised, enhancing facilities in the minor injuries unit could play a part in putting the trust on to a more stable financial footing. The new chief executive is keen to look into the issues, as my hon. Friend said, and he is right to highlight the fact that good, dynamic leadership can turn around the trust’s financial fortunes, notwithstanding the massive PFI debt repayments. There are clearly further opportunities to develop what the hospital can do to put itself on a stable financial footing while doing more to look after local patients better. I know that the chief executive and the team at the trust are listening to the debate, and that they will take on board what I have said and the concerns that my hon. Friend raised.
My hon. Friend talked about ambulance services in the Newark area. It is worth pointing out the distances that some patients have to travel to reach a fully functioning, 24-hour A and E service. King’s Mill hospital, one of the acute settings, is 23 miles away, which is about 42 minutes by road. The Queen’s Medical Centre in Nottingham is 22 miles away, a 50-minute road journey, and Lincoln county hospital is 20 miles away, which is 45 minutes from Newark by car. Those are average journey times; there may be busy times and road congestion.
There are particular challenges in making sure that in an emergency patients can get to an appropriate A and E care setting in a timely manner. My hon. Friend pointed out that according to East Midlands Ambulance Service NHS Trust figures, in the years 2009-10 and 2010-11 and in the first quarter of 2012-13, Nottinghamshire did not reach its A8 response targets. Sometimes, those targets are skewed: they can be better in urban areas, such as Nottingham, but worse in more rural settings. I am sure my hon. Friend will want to take things further with the ambulance service and drill into the data for Newark by postcode, to compare response times in a more rural area, where there is a long distance to travel to an A and E, with those in some of the more urban settings in Nottinghamshire. It is obviously unacceptable to all of us if patients in rural communities have to wait a long time for an ambulance and life-saving treatment.
In the ambulance service review and the consultation on its proposals, it is vital that rurality and travel distances to A and Es and other urgent care settings are taken into account in any changes to the service. From the figures I referred to, we already know about the challenge the ambulance service in Nottinghamshire faces, because it is not meeting response targets. If we break down those targets by postcode and by area, we may find that rural areas are even further behind. When the review takes place, it is important that the rurality of Newark is properly taken into account so that patients in rural areas have the same quality of ambulance response as those in more urban settings.
In conclusion, I am pleased to confirm that there is a strong and viable future for services for local patients at Newark hospital. I very much look forward to taking the discussions further with my hon. Friend in early February, and to visiting the hospital later in the year.
Question put and agreed to.