House of Lords
Introduction: Lord Holmes of Richmond
Taxation: Tax Law Enforcement
(11 years ago)
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Lord Phillips of Sudbury
To ask Her Majesty’s Government how they will enable those who enforce the tax laws to accomplish their tasks better.
Lord Newby (LD)
My Lords, this Government are investing in HMRC, so that it will be collecting £10 billion a year more from its compliance activities by 2015-16 than it was at the start of this Parliament. The number of HMRC staff in compliance roles fell under the previous Government; under this Government there will be around 2,500 more staff tackling tax avoidance and evasion in 2014-15.
Lord Phillips of Sudbury (LD)
My Lords, at a time when decent Brits are struggling to pay their full taxes, is it not wholly counterproductive that many of our richest citizens and companies are evading and avoiding tens of billions of pounds in taxation? According to the HMRC calculation, every extra pound spent on enforcement resources yields £10 to £30. Although the statistics are encouraging, surely we should be doing yet more to avoid the citizen disenchantment that is currently brewing.
Lord Newby
My Lords, I absolutely agree with my noble friend. I would remind him that this Government reinvested an additional £917 million in compliance activities in the 2010 spending round. They added another £77 million in last year’s Autumn Statement. Therefore, we have a track record of providing HMRC with additional funding, should it come forward with proposals that result in additional tax yield. It is not inconceivable that HMRC might come forward with such proposals in respect of this year’s Autumn Statement.
Lord Davies of Oldham (Lab)
My Lords, should Ministers not be taking some initiative, irrespective of HMRC and its officials? Are Ministers aware of the level of anger in the country, and not just against the multinationals? We all recognise that that is a challenging nut to crack and needs international co-operation. Internal British companies—not least the energy companies—are able to locate their senior companies in offshore tax havens in order to avoid paying their legitimate tax. Is the Minister not aware that action is necessary from Ministers and not just from HMRC officials?
Lord Newby
I think the decision taken by Ministers to give an additional £1 billion for compliance activities was pretty clear. Many of the problems that we see with multinationals paying less tax than would appear appropriate are international by nature. That is why we have put a lot of resources into the OECD. We put another £400,000 into the work that it is doing following the G20 summit earlier this year. There is a determination across the international community, to a degree that has not been apparent before, that companies cannot get away with avoiding taxes. This must be dealt with internationally, and that is what we are promoting effectively.
Lord Forsyth of Drumlean (Con)
My Lords, does my noble friend agree that what the Treasury should be about is maximising the revenue that is taken in tax, and that the best way to achieve that is by having a lower, flatter, fairer tax system?
Lord Newby
My Lords, one of the things I learnt as a junior Customs and Excise official—
Lord Newby
It was a very long time ago, my Lords. While there are many good theoretical principles on which taxes need to be based, the single most important is the ability to collect the tax in the way you want. That must be a guiding principle. I do not believe that there is an easy answer to generating higher levels of tax revenue just by having a straightforward tax system. If it were as simple as that, it would have been tried by now.
Lord Campbell-Savours (Lab)
My Lords, what additional mechanisms, procedures and arrangements are being put in place to maximise the potentially substantial income available from the letting of residential property, particularly in London, by people overseas? At the moment that revenue is often not collected.
Lord Newby
My Lords, as the noble Lord will know, in last year’s Budget and Finance Bill, the stamp duty payable on high-value properties in those circumstances was significantly increased. That has led to a substantial increase in the overall yield of stamp duty on property transactions.
Lord Tebbit (Con)
My Lords, is my noble friend aware that a very good precedent has been set on the avoidance of tax by the immediate past Prime Minister, Mr Brown? He does not pay tax on the earnings that spring from the things he does as a former Prime Minister because he gives all those earnings to charity. Is that not an example which might be followed by other former Prime Ministers?
Lord Foulkes of Cumnock (Lab)
My Lords, I am not going to continue this attack on Sir John Major because it is disgraceful. With respect, the Minister has been giving us the same answer about extra staff for almost the past three years, yet we have illustration after illustration of evasion. First it was Starbucks, then it was Amazon, then it was Philip Green and Irvine Laidlaw; one after the other has been avoiding tax. Has the Minister not yet come to the conclusion that what is needed is legislation to close the tax loopholes?
Lord Newby
My Lords, leaving aside the fact that, sadly, I have not been a Minister for three years, the question of closing tax loopholes and dealing with companies that are international by their nature is an international problem. The level of activity now being undertaken via the OECD is on a scale that we have not seen for a generation. Some 15 work streams are currently under way, looking at different aspects of this problem, with a two-year deadline to resolve them. If it were possible to legislate in one country and deal with all these issues, not only we but the US, Germany, France and other countries that find themselves in the same boat would have done it. You cannot operate against multinationals on a domestic basis alone; it must be done internationally. That is what we are doing, and we are putting huge effort and impetus into that work.
EU: UK Contribution
(11 years ago)
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Lord Vinson
To ask Her Majesty’s Government what action they are taking to raise public awareness of the United Kingdom’s net contribution to the European Union’s budget over the last six years exceeding £53 billion, as set out in the HM Treasury Pink Book 2013, and the effect that has on the United Kingdom’s public sector borrowing requirement.
Lord Newby (LD)
My Lords, to ensure transparency and increase public awareness, HM Treasury publishes details of UK contributions to the EU in its European Union finances and public expenditure statistical analyses publications. The previous Government gave up a significant portion of our abatement, and consequently our net contributions were always likely to increase. Following the real-terms cut to the 2014 to 2020 payment ceilings negotiated by the Prime Minister in February, they will now be going up by less.
Lord Vinson (Con)
My Lords, I thank the Minister for his considered reply. Perhaps I may illustrate my point. Recently, the Chancellor returned from China, pleased that he had raised £13 billion to build the new nuclear power station so desperately needed for our energy security. Is it not paradoxical that over the past six years our net contribution to the EU, which is substantially used for infrastructure, has been over £50 billion? That is enough to build at least three nuclear power stations. How is it that we can find the money to build other people’s infrastructure but not our own?
Lord Newby
My Lords, by looking at the net contribution to the EU, the noble Lord is concentrating on only one dimension of our relationship with the Union. He is ignoring the very substantial economic benefits that we enjoy through increased internal trade via the single market, increased external trade via, for example, the recently concluded EU-Canada trade agreement, and increased investment in the UK by companies such as Nissan. He is also ignoring the non-economic benefits of membership in the fields of the environment, justice and external affairs.
Lord Tomlinson (Lab)
Will the Minister take urgent steps to gain control of expenditure in the European budget? That can best be done by introducing a system of zero-based budgeting, such as my noble friend Lord Kinnock sought to introduce when he was a Commissioner. The Government have always said yes to this in principle but done nothing in practice.
Lord Newby
My Lords, the first thing that we sought to do on the European budget was to ensure that it was not increasing in real terms. As the noble Lord knows, the agreement made by the Prime Minister at the European Council in February will result in €80 billion less expenditure over the next budgetary period than the Commission proposed. The first step in getting the budget dealt with appropriately was to cap it.
Lord Hannay of Chiswick (CB)
Could the Minister say how many nuclear power stations the Government could have built with the rebates that we have received since 1975 under Mrs Thatcher’s arrangements?
Lord Pearson of Rannoch (UKIP)
Does the Minister agree with two things about the net payment to Brussels of £12.2 billion for the past year alone? First, that it equates to the £30,000 per annum salaries of 1,100 nurses, policemen or any other public servant per day. Secondly, that there is no such thing as EU aid to us, because for every £1 they now send us back we have sent them £2.56.
Lord Newby
My Lords, I am not going to get into a statistical analysis with the noble Lord, but I revert to my earlier point. Our membership of the EU brings with it a whole raft of benefits which do not simply relate to the EU budget. One area of expenditure that we incurred some time ago was dealing with a war in the Balkans, which cost this country more than £1 billion. Since the Balkan wars finished, Croatia has joined the EU and other Balkan states will join. We will not fight other Balkan wars. That does not fit into the noble Lord’s narrow formula.
Lord Marlesford (Con)
My Lords, following the good point made by the noble Lord, Lord Tomlinson, about the need to control the EU budget, does the Minister recognise that in the 1970s, when government spending in Britain got totally out of control, it was brought under control to a considerable extent by the noble Lord, Lord Healey, when he was Chancellor? Helped by Sir Leo Pliatzky, the Second Permanent Secretary to the Treasury, he introduced cash limits. At the moment, the Commission constantly argues that more money is needed to fulfil the obligations of earlier policy undertakings. Cash limits would do it, or help do it. Will the Government try to get the EU to introduce cash limits?
Lord Newby
My Lords, there is a cash limit. There is an overall payment ceiling of €908.4 billion over the next budget period. That is a cash limit.
Lord Ashdown of Norton-sub-Hamdon (LD)
Regarding my noble friend’s last answer, I do not know how much the European Union spent on creating a sustainable peace and a functional state in Bosnia-Herzegovina. However, I wonder if my noble friend would accept from me that, however much was spent, the figure amounted to tens of times less than it would have cost everybody, including British taxpayers, if there had been a return to conflict.
Lord Newby
My Lords, I am grateful to the noble Lord. I completely agree with him.
Lord Stoddart of Swindon (Ind Lab)
Will the noble Lord confirm that the gross cost to the taxpayer is not £55 million per day but £18 billion every year? If we were not paying that amount in exchanges, would not the Government be able to reduce the deficit on expenditure very much more quickly than they intend to at the present time?
Lord Newby
My Lords, the net payment over the past six years has been about £34.8 billion. This equates to less than 1% of our total public expenditure over that period. It is a very substantial amount, but, as I have now said several times, you have to set against that amount all the economic and other benefits, including those mentioned by my noble friend Lord Ashdown, that the UK derives.
Schools: Curriculum
(11 years ago)
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Baroness Massey of Darwen
To ask Her Majesty’s Government whether free schools and faith schools will be required to deliver a broad and balanced curriculum which addresses the needs of all pupils.
Baroness Hughes of Stretford (Lab)
My Lords, I beg leave to ask the Question in the name of my noble friend Lady Massey at her request. She has had an accident and sends her apologies today.
The Parliamentary Under-Secretary of State for Schools (Lord Nash) (Con)
My Lords, perhaps the noble Baroness could send a message to the noble Baroness, Lady Massey, that we wish her a speedy recovery.
All mainstream academies and free schools, whether they be faith schools or non-faith schools, must deliver a broad and balanced curriculum. That is a non-negotiable element of their funding agreements. Other state-funded schools, including faith schools, must also deliver the national curriculum and a broad and balanced education for their pupils, as specified in Section 78 of the Education Act 2002.
Baroness Hughes of Stretford
I thank the Minister for that reply and will pass on the good wishes that he has expressed in the House to my noble friend Lady Massey.
Is the Minister aware that, in the light of concerns over many months about the extent of new risks to young people from social media, the internet and grooming, Members across the House and in the other place, schools, children’s organisations and now even Nick Clegg and the Daily Telegraph are calling on the Government to update the guidance to schools on the sex and relationship education curriculum, which was first issued in 2000? Would that not be eminently sensible, and can the Minister tell the House why the Secretary of State has refused to do so?
Lord Nash
My Lords, we looked at that recently during the PSHE review and concluded that the SOE curriculum provides a good foundation on which teachers can build. We trust teachers to deliver the education that pupils need and adjust it for the modern world. Technology is moving very fast, and we do not think that constant changes to the regulations and top-down diktats are the way to deal with this.
Lord Quirk (CB)
I wonder why Her Majesty's Government do not insist that those schools should teach the national curriculum, as all maintained schools have to; or, to put it the other way round, what parts of the national curriculum will the Government be happy to see ignored in schools that do not have to teach it?
Lord Storey (LD)
My noble friend is aware that the national curriculum is neither national nor has to be a curriculum for all schools. How do we ensure that those areas of child development and education, about which we have all expressed concern in this Chamber, which are essential to young people and children are taught in all schools—whether academies, faith schools, free schools or what were called county schools?
Lord Nash
All good schools seek to develop their children’s character through a PSHE programme. We do not feel that the programme should be legislated for in its content. Circumstances of the different schools and pupils in them vary greatly, and we should leave it for teachers to decide exactly the approach that they take.
Lord Howarth of Newport (Lab)
My Lords, given that the charity Mentor said, to cite the Home Affairs Select Committee report, Breaking the Cycle:
“We are spending the vast majority of the money we do spend on drug education on programmes that don’t work”,
and given that his department said it does not monitor the programmes or resources that schools use to support their teaching, is the Minister content with such a casual and laissez-faire approach on the part of the Government in an area where young people are so vulnerable?
Lord Nash
The noble Lord implies that casual equals laissez-faire; we do not accept that. As I said, we accept that most schools should do what all good schools do, which is to have an active programme of promoting their children’s interest, including drugs education, which they must be taught about in science classes anyway. Often, the best way to engage those pupils with those difficult issues, such as forced marriages or gangs, is not for teachers to do that—they often will not open up to their teachers—but for outside agencies and charities with skilled people in those difficult areas to talk to them about that.
Lord Lexden (Con)
My Lords, will my noble friend confirm that the overwhelming majority of free schools have been rated good or outstanding in Ofsted inspections? How does that compare with the performance of schools as a whole?
The Lord Bishop of Lichfield
Does the Minister agree that the use of the phrase “faith schools” can be profoundly unhelpful in the context of this discussion? Schools of a religious character come in many forms. Is it not true that the nearly 4,700 Church of England schools sit very firmly within the mainstream of English education, and that even C of E free schools and academies are linked to diocesan boards to ensure that the education that they provide is broad and balanced, academically challenging, personally inspiring and serving the needs of the whole local community?
Lord Nash
I agree entirely with the right reverend Prelate. Faith schools are a long-established and highly valued part of our educational establishment, and church schools are, too. Church schools consistently outperform maintained schools; they are very popular and often highly oversubscribed. The applications procedures of many of them do not rely heavily on faith; they have a much wider intake.
Baroness McIntosh of Hudnall (Lab)
My Lords, will the Minister return to the answer that he gave to the noble Lord, Lord Quirk, who asked him an extremely apposite question about which bits of the national curriculum he would be content to see any school ignore? I did not hear him answer that question.
Lord Nash
As I said, they must teach English, maths, science, and religious education, and they must follow a PSHE course. We will have a best eight assessment criteria, whereby schools will have to include other subjects. Then we have destinations, because we want our pupils to be work-ready and for them not to turn out as recently evaluated by the OECD—that is, that after 13 years of the Labour Government we have the most illiterate school leavers in Europe and, according to Alan Milburn, the most socially immobile society in Europe.
Banking: Co-operative Bank
(11 years ago)
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Lord Sharkey
To ask Her Majesty’s Government to what extent their aims of producing more diversity in banking and of reforming banking culture will be affected by the change in ownership of the Co-operative Bank.
Lord Newby (LD)
My Lords, the Co-op Bank is negotiating a deal on its capital with its creditors. It will cease to be fully mutually owned, but will continue to compete in retail banking markets. The Government’s reforms will make the banking sector safer, more competitive and diverse. We are implementing the recommendations of both the independent and parliamentary banking commissions. These fundamental reforms will be unaffected by the change of ownership for the single bank.
Lord Sharkey (LD)
The fact is that the Co-op Bank will now be owned by a couple of vulture funds, which I suppose is diversity of a sort. What advice would the Minister give customers who are looking for ethical values in retail high street banking?
Lord Newby
My Lords, the Co-op is undoubtedly having a significant change in ownership, but one would hope that even vultures will be able to see that the Co-op’s USP is its particular ethical stance. Its strength appears to me, at least, to be very much in that direction. So for the development of the Co-op, one would hope that they would see continuation of those traits being in their own interests, as well as those of anybody else. Of course, there are other mutuals that the discerning customer can put their money with; the Nationwide is very successful, as are other building societies. We must be clear on the difference between “for profit” and “ethical”. I would not want to brand every other high street bank as unethical just because they are also making a profit.
Lord Davies of Oldham (Lab)
My Lords, I am grateful to the Minister for his comments on the Co-operative Bank, which after all is one of the few which did not go to the Government and to the taxpayer for support during these difficult times. However, what is the Minister proposing to do about increasing bank competition? Some 55% of the British population have never switched their accounts. The degree of switching and of competitive banking is low. Large banks owe their pre-eminence to historical development and being early in the field. Surely the Minister is going to take advantage of the Financial Services (Banking Reform) Bill to enact some of the proposals from the banking commission, chaired by Andrew Tyrie MP, and also amendments being tabled by the Labour Opposition to increase competition in the banking sector, which it sorely needs.
Lord Newby
My Lords, the banking Bill incorporates many of the proposals of the Parliamentary Commission on Banking Standards. On switching, a new seven-day switching service was introduced last month. In its first month, there has been an 11% increase compared with the previous year in the number of people who switched their bank accounts. One would expect that number to increase as the service becomes better known. This year the big change in terms of new entrants to the market is that the regulators have greatly reduced the time that it takes to become a new bank and greatly reduced the amount of money it takes to establish a new bank. Those are key drivers for getting new competitors into the market.
Lord Flight (Con)
My Lords, as the noble Lord, Lord Sharkey, has pointed out, it is perhaps somewhat of an irony that the Co-op Bank should being bailed out by hedge funds. The crucial point is that the Government have made clear that the time of taxpayers bailing out banks is over. Bluntly, if a bank cannot organise its own financial affairs, the resolution mechanism is the only alternative.
Lord Newby
My Lords, one of the key purposes of the Financial Services (Banking Reform) Bill is to provide, in ring-fenced retail banks, relatively risk-free places for ordinary customers to put their money. Beyond that, the key thing is that the Bill’s resolution provisions will require banks to put in place mechanisms to be activated if they got into financial difficulties, such that they would not need to come to government in those circumstances.
Lord Tomlinson (Lab)
Is the Minister aware that when giving evidence to the House of Commons Select Committee yesterday, the former chief executive of the Co-op Bank said that he was assured by the financial regulator about the safe state of the Britannia Building Society? The Co-op Bank takeover of the Britannia Building Society has given rise to the liquidity problems in the bank. Will he acknowledge that and inquire what the financial regulator was doing in giving that assurance?
Lord Newby
My Lords, I think the merger with the Britannia Building Society was one of the material causes of this problem. I cannot comment on what the regulator may have said. Generally, where banks of all sorts have sought to make large acquisitions and they have then gone wrong, the principal responsibility for due diligence rests with the management of the bank involved in the takeover. The role played by the regulator, whatever its scale, does not detract from the fact that responsibility for major corporate decisions of that kind lies primarily with management.
Lord Naseby (Con)
Will my noble friend confirm for all of us who believe in mutuality and are sorry that the Co-op Bank has got into its current situation—I believe that mutuality is supported by both sides of the House—that when the new owners have got the bank onto a stable footing and making a profit they will possibly return it to mutuality?
Lord Newby
Well, my Lords, that is possible but, as noble Lords know, the sad truth is that the process has tended to be something of a one-way street with regard to mutuality. When mutuals have ceased to be mutuals, they have tended to cease to be mutuals for good. Still, one can always hope. I should also have mentioned the raft of provisions in the banking reform Bill to bring building society legislation up to date and make it easier for them to compete in the marketplace.
Pensions Bill
Alan Turing (Statutory Pardon) Bill [HL]
Lord Sharkey (LD)
My Lords, I record my gratitude to all those who have helped the Bill’s progress, particularly my noble friend Lord Ahmad of Wimbledon for his words at Second Reading and my noble friend Lady Trumpington for her constant support and enthusiasm.
Lord Tebbit (Con)
My Lords, I have no intention of obstructing my noble friend Lord Sharkey’s Bill. As it continues on its journey towards the statute book, though, there is something that should be said. As we know, Mr Turing committed, and was convicted of, an act that would not be a crime today. So have many others, and many other crimes have been committed similarly. I hope that the Bill will not be used as a precedent. Even more, I hope that we will never seek to extend the logic of the Bill to posthumously convict men of crimes for acts that were not criminal when they were committed, but would be if they were committed today. There is a dangerous precedent within this Bill.
NHS: London
(11 years ago)
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The Parliamentary Under-Secretary of State, Department of Health (Earl Howe) (Con)
My Lords, with the leave of the House, I shall now repeat a Statement made by my right honourable friend the Secretary of State for Health in the other place earlier today on changes to health services in London.
“With permission, Mr Speaker, I would like to make a Statement on the Shaping a Healthier Future programme, a locally led review of NHS services across north-west London.
The NHS is one of the greatest institutions in the world. Ensuring that it is sustainable and that it serves the best interests of patients sometimes means taking tough decisions. The population of north-west London is growing, and will reach approximately 2.15 million by 2018. Around 300,000 people have a long-term condition.
However, there is great variation in the quality of acute care. In 2011 there was a 10% higher mortality rate at weekends for emergency admissions, and the number of hospital readmissions differs considerably across the area. The Independent Reconfiguration Panel expressed concerns that the status quo in north-west London was neither sustainable nor desirable, and might not even be stable.
In order to address these challenges, the NHS in London started the Shaping a Healthier Future programme in 2009. It proposed significant changes to services, including centralising A&E services at five hospitals rather than nine; 24/7 urgent care centres at all nine hospitals; 24/7 consultant cover in all obstetric wards; a brand new trauma hospital at St Mary’s Paddington; brand new custom-built local hospitals at Ealing and Charing Cross; seven-day access to GP surgeries throughout north-west London; over 800 additional posts created to improve out-of-hospital care, including a named accountable clinician for all vulnerable and elderly patients, with fully integrated provision by the health and social care systems; and increased investment in mental health and psychiatric liaison services.
These changes represent the most ambitious plans to transform care put forward by any NHS local area to date. They are forward thinking and address many of the most pressing issues facing the NHS, including seven-day working, improved hospital safety, and proactive out-of-hospital and GP services. The improvements in emergency care alone should save around 130 lives per annum and the transformation in out-of-hospital care should save many more—giving north-west London probably the best out-of-hospital care anywhere in the country.
The plans are supported by all eight clinical commissioning groups, the medical directors of all nine local NHS trusts, and all local councils except for Ealing. It was as a result of a referral to me by Ealing Council on 19 March 2013 that I asked the Independent Reconfiguration Panel to conduct a full review. The panel submitted its comprehensive report to me on 13 September 2013, which I have considered in detail alongside the referral from Ealing. I am today placing a copy of the panel’s report in the Library, alongside the strong letters of support for the changes I received from all local CCGs and medical directors.
The panel says that Shaping a Healthier Future provides,
“the way forward for the future and that the proposals for change will enable the provision of safe, sustainable and accessible services”.
Today I have accepted the panel’s advice in full, which will be published on the panel’s website.
The panel also says that while the changes to A&E at Central Middlesex and Hammersmith hospitals should be implemented as soon as practicable, further work is required before a final decision is made about the range of services to be provided from the Ealing and Charing Cross hospital sites.
Because the process to date has already taken four years, causing understandable local concern, I have today decided it is time to end the uncertainty. So while I accept the need for further work as the IRP suggests, I have decided that the outcome should be that Ealing and Charing Cross hospitals should continue to offer an A&E service, even if it is a different shape or size to that currently offered. Any changes implemented as part of Shaping a Healthier Future should be implemented by local commissioners following proper public engagement and in line with the emerging principles of the Keogh review of Accident and Emergency services.
I have written today to the chair and vice-chair of the Health and Adult Social Services Standing Scrutiny Panel of the London Borough of Ealing Council, the chair of the IRP—Lord Bernard Ribeiro—the chief executive of NHS England and local MPs, informing them of my decision. These much needed changes will put patients at the centre of their local NHS, with more accessible, 24/7 front-line care at home, at GP surgeries, in hospitals and in the community. More money will be spent on front-line care which focuses on the patient. Less will be wasted on duplication and underperforming services.
Let me be clear that, in the joint words of the medical directors at hospitals affected, there is a,
“very high level of clinical support for this programme across NW London”.
Local services will be designed by clinicians and local residents and be based on the specific needs of the population. None of these changes will take place until NHS England is convinced that the necessary increases in capacity in north-west London’s hospitals and primary and community services have taken place.
I want to put on the record my thanks to the IRP for its thorough advice. As the medical directors of all the local hospitals concerned said in their letter to me, these changes will,
“save many lives each year and significantly improve patients’ care and experience of the NHS”.
When local doctors tell me that is the prize, then I will not duck a difficult decision.
I commend this Statement to the House”.
My Lords, that concludes the Statement.
Lord Hunt of Kings Heath (Lab)
My Lords, I am grateful to the noble Earl, Lord Howe, for repeating the Statement. I refer noble Lords to my interests, particularly as chair of a foundation trust.
Decisions on hospital reconfiguration should always be made on the basis of the best clinical evidence available. The noble Earl’s announcement today means the closure of a number of accident and emergency departments in London, with the centralisation of A&E services at five, rather than nine, hospitals. That is to happen at the same time as accident and emergency departments are under heavy pressure up and down the country, not least in London. Taking all major A&E units together, London as a whole has missed the Government’s A&E target in 48 out of the past 52 weeks. Is the noble Earl convinced that the system will be able to cope with the reduced number of A&E departments in London?
I note that the chief executives of the three major health regulators have been summoned to meet the Prime Minister to discuss the pressure that services are likely to come under this winter. These meetings are complementary to the weekly meetings that the Secretary of State has with these eminent people. Apparently these discussions are dominated by winter performance planning, particularly relating to accident and emergency departments. What measures are being taken to increase capacity in the community, to enable the flow of patients and their discharge at the right time?
What is being done about the accessibility of general practitioners? We heard much from the Prime Minister about a move to seven-day-a-week access, which the noble Earl will know has provoked a lot of opposition from primary care interests, citing cost at a time when the NHS is cash strapped and when there is a shortage of general practitioners. Does that mean the inevitable merger of smaller GP practices? Can the noble Earl spell out the Government’s intentions? In the Statement, we are told that there is to be seven-day access to GP surgeries throughout north-west London. Can the noble Earl confirm that that means that all surgeries will be open from 8 am to 8 pm, seven days a week? If that is not the case, what happens to patients in practices which are not prepared to open seven days a week?
I now turn to the noble Earl’s announcement about Charing Cross and Ealing hospitals. Very simply: is this a permanent reprieve? The report of the Independent Reconfiguration Panel says that the future of the proposed local hospitals at Ealing and Charing Cross, and the final decision about what might best be provided from each location must be the subject of a specific programme of work which should address the needs for in-patient services for the vulnerable and frail elderly, and that its outcome would determine whether there is a need for further consultation. In his Statement, the noble Earl has said that, whatever the outcome of that further work, Ministers have decided that Ealing and Charing Cross hospitals should continue to offer an A&E service, even if it is a “different shape or size” to that currently offered. Can the noble Earl spell out what, exactly is meant by that? Can he guarantee that both Charing Cross and Ealing hospitals will continue to run full, 24-hour A&E services in the long term?
The Statement is about hospitals in London. I was surprised that the noble Earl made no mention of Lewisham Hospital. The victory won by the people of Lewisham in the Court of Appeal yesterday will give hope to patients everywhere. Back in the summer, the Opposition explicitly warned the Secretary of State to accept the first court ruling. Instead, he ploughed on with a hopeless case, wasting taxpayers’ money in a cavalier fashion. Will the noble Earl confirm that there will be no further appeal to the Supreme Court? Will he give the people of Lewisham and the staff who work in Lewisham Hospital a commitment that their accident and emergency and maternity units will be protected in the long term? Given that the Lewisham clinical commissioning group opposed those changes, what does it say about the assurances that he gave during the passage of the Health and Social Care Act 2012 that the whole purpose of those misguided changes was actually to let local clinicians decide? What happened to that in Lewisham?
The noble Earl tabled an amendment to the Care Bill only a few days ago, which he described as making a small change, so he will of course know that the Government have sought, very rapidly and very quietly, to change the law so that what happened in Lewisham cannot happen again. My interpretation of that amendment is that in the future there is a risk of services being shut down without the agreement of local people, without extensive consultation and without agreement from local commissioners. We, on this side of the House, support reconfiguration of health services when supported by the clinical evidence, but it must be on the basis of a requirement to go through a properly defined and structured reconfiguration process with extensive consultation with the local community.
From all we have learnt, we know that successful reconfigurations need to take the form of open and honest leadership, a patient process of engagement and consultation and proper consideration of the wider impact. The changes that the Government seek to make in legislation will ensure that that does not happen in the future. I hope that the noble Earl will be able to say that, in the light of yesterday’s ruling, the Government are giving second thoughts to their intentions in this regard.
Earl Howe
My Lords, I am grateful to the noble Lord, Lord Hunt of Kings Heath, for his questions. I preface my answers by saying that this is the first significant set of local reform proposals under the Government’s NHS reforms and it is a set of proposals that has been led clinically by the CCGs. There is an unprecedented level of clinical support for the changes that I outlined. The chairs of all the local CCGs wrote to the Secretary of State personally expressing absolute support; the medical directors of all the local hospitals affected wrote to him expressing absolute support; and the Independent Reconfiguration Panel report is crystal clear that the principles of this scheme are right and will benefit patients.
The noble Lord asked me about A&E services, in particular, at a time when we know that A&E departments are under pressure—a fact which I do, of course, readily acknowledge. The key to these recommendations is twofold. First, the way investment will be deployed will mean that we shall have centres of excellence in emergency care which will copy, in some respects, the way that stroke and trauma care has been centralised across London. This was controversial at the time but is now acclaimed by clinicians and, I think, politicians alike as proving to save hundreds of lives every year. There will be more critical care consultants on duty 24/7; more obstetric consultants on duty 24/7 on labour wards; consultants in other specialities, such as paediatrics, on duty between 12 and 16 hours a day, seven days a week; more trained and experienced emergency doctors on site 24/7 in A&E departments; and more investment in mental health, so that psychiatric liaison services can better co-ordinate care for vulnerable mentally ill people. In general, we will have all nine of the hospitals concerned across north-west London with urgent care centres open 24/7.
That is one half of the equation; the other half is investment in the community. I mentioned that there will be access to GP surgeries seven days a week across north-west London. That is not to specify which surgeries —the key is access to GP services. It will be for the local commissioners and NHS England to work out which surgeries they should be. Eight hundred additional posts will be created to improve out-of-hospital care and some £190 million will be spent recurrently every year on GP and other local services by 2017-18. Therefore the preventive aspect of these proposals should mean that fewer people land up in A&E in the first place.
The noble Lord asked me about the proposals for Ealing and Charing Cross. The IRP’s advice is clear that the current problems and future challenges faced by the NHS in north-west London require large-scale change in the way that services are designed and delivered. I concur with that entirely. However, it also says that while the changes to A&E at Central Middlesex and Hammersmith Hospitals should be implemented as soon as practicable, further work is required before a final decision is made about the range of services to be provided from the Ealing and Charing Cross Hospital sites. As the process to date has already taken four years, as I mentioned, my right honourable friend has decided that it is time to end the uncertainty. Therefore, while he accepts the need for further work, as the IRP suggests, he has decided that the outcome should be that Ealing and Charing Cross Hospitals should continue to offer an A&E service, even if in the end that is of a different shape or size from that currently offered. What does that mean?
In the first instance, we are clear that a 24/7 urgent care service should be run from both those sites, involving senior consultant cover and the ability to admit patients 24/7. Any changes implemented as part of the Shaping a Healthier Future proposals should be done by local commissioners following proper public engagement and in line with the emerging principles of the Keogh review, as I mentioned. However, none of the changes to these critical services will take place until NHS England is assured that all the necessary increases in capacity in north-west London’s hospitals and primary and community services have been satisfactorily developed.
The noble Lord asked me about Lewisham. I will not disguise the Government’s disappointment at the result of the court judgment yesterday. However, we respect that judgment. Our priority now is to end the uncertainty for patients in south London. It is time for the new Lewisham and Greenwich NHS Trust to move on and work with its commissioners and the community to develop a local solution that is clinically and financially sustainable. The proposals that we came forward with earlier in the year cannot be proceeded with in their entirety. In our view that is a pity, because we now have a local health economy with an annual financial shortfall, which has to be addressed in some way. In so far as we can assist local commissioners to find a way through that problem, we will be happy to do so. However, it is largely up for local determination.
As regards the appeal, we felt that that was the right and responsible thing to do. This is the first time that the trust special administration provisions have been used and it was important that the law should be tested to be absolutely clear what it meant. We make no apology for the fact that our interpretation of the law as Ministers was different from that of the judge. However, as I said, the judge has made his ruling, and we need to respect it.
I hope that I have answered most of the noble Lord’s queries. However, he ended his remarks by observing that, as he perceives it, the Government have created a situation where service configuration can take place in the future without local clinical support or consultation. I would just like to assure him that that is not so. Indeed, the importance of having local clinical support could not be stronger. We see it here in the example of north-west London, and even in the rare case where trust special administration is required, the consultation involved is clearly set out in legislation. Local people will not be left out of the dialogue. I hope that that is of some reassurance to the noble Lord.
Baroness Hanham (Con)
My Lords, may I say how glad I am to hear that the proposals have support from all the clinicians and the CCGs? The noble Lord will know that I was chairman at St Mary’s Hospital when the Imperial College Healthcare NHS Trust was formed —and it was formed on the basis of full support from clinicians and the local community. The local community is not always at one with change, so I shall ask the noble Lord a couple of questions. First, this is not a short programme. These proposals will not take five minutes to implement. Most of the changes in the health service over recent years have taken an enormous amount of time, and it would be fair to say that the Imperial Trust, which includes Charing Cross, has probably only just completed its previous reorganisation, and now it is being reorganised again. The first question is: what is the proposed timescale?
Secondly, the noble Lord mentioned consultation, and may I say that it is absolutely vital that the local community be brought along with this? Otherwise, it will take even longer. Thirdly, there is an expectation that there will be a lot of new consultant and other medical posts. I am aware that A&E is not flush with clinicians taking up the specialty, so may I ask what encouragement is being given, by the colleges in particular, to ensure that there will be enough staff available to deal with the new services? Finally, may I say how glad I am that St Mary’s has figured again in trauma services?
Earl Howe
My noble friend, with her experience, asks some very pertinent questions. On the question of timescale, we believe that it will take between three and five years for the proposals to be actioned to their fullest extent. It will be necessary to take that kind of time. Some elements can happen relatively quickly, but my noble friend is absolutely right that there are important workforce issues to be taken into account. Indeed, one of the IRP recommendations was that the NHS should review its workforce programme and ensure that it has the means in place to deliver what is required. I am sure that in working through the proposals, local commissioners, as well as NHS England, will need to satisfy themselves on that point—not least with regard to the new posts to be created in the community, but also in terms of accident and emergency consultants in the A&E departments of the relevant trusts. On local communities, again I agree with my noble friend. As the Shaping a Healthier Future proposals are developed by the clinical commissioners, it will be vital that any further proposals are consulted on locally, and that there is real buy-in from patient groups and the public generally.
Lord Winston (Lab)
I declare an interest as a member of Imperial College London and a practitioner who has been a consultant in north London for a long time. It is right that the financial shortfall means that there has to be considerable reconfiguration. In this case that is a move in the right direction. However, it raises a number of questions to which I would be very grateful if the Minister would respond. One is that if you close casualty you affect the training of surgical trainees. Do the Government have a view on that issue?
The Minister also referred to obstetrics in west London. As he will almost certainly know, the neonatal paediatrics department at one of the best obstetric hospitals in the country—Queen Charlotte’s, based at Hammersmith Hospital—has always been somewhat threatened. Is that secure, given that one of the issues in north-west London is undoubtedly that of duplication in many hospitals, which is expensive? Does the Minister feel that this is the only reconfiguration that will be required, given the amount of duplication that there is?
Earl Howe
To answer the last point, it is clear from the IRP report that its authors believe that this is a comprehensive set of proposals which will stand the test of time in north-west London. It is a very thorough set of proposals which takes into account every aspect of healthcare provision. On maternity and paediatrics, I can tell the noble Lord that under these proposals there will be more obstetric consultants on duty 24/7 in labour wards. As he will know better than anyone, that, of course, is designed to reduce the number of complications during birth and to ensure one-to-one midwifery care for women during labour. Consultants in other specialties such as paediatrics will be on duty, as I mentioned, for 12 to 16 hours a day, seven days a week, providing much better cover than at present.
It was very striking in the IRP report that the first point made by the noble Lord, Lord Winston, did not elude the panel. The panel concluded that the pragmatic and explicit approach used by the NHS reflected the clarity of the aim to improve quality outcomes by implementing life-saving standards through the establishment of major hospitals. The report referred to the economic realities of the NHS and the urgency of making progress in the light of known risks to the sustainability of emergency services such as the abilities of staff, A&E and emergency surgery rotas, and the desire to minimise the negative impact on access of concentrating services. That was shorthand—as the noble Lord will see if he reads the rest of the report—for saying that the desirability of concentrating expertise in centres of excellence is a clear imperative for the quality of care that patients receive. As regards surgical experience, I think that if my noble friend Lord Ribeiro were here, he would confirm that that is absolutely the direction of travel, but that we must ensure that surgical expertise is built on a sufficient number of hours and cases for the quality of care to be maintained. That is exactly what underlies this whole set of proposals.
Lord Walton of Detchant (CB)
My Lords, since the relevant professional bodies, not least the British Medical Association, have decided that they wish to support a move towards the provision of all acute and relevant services in the NHS for a full seven-day period, it is inevitable that there will be major reconfiguration of services not just in north-west London but in many other parts of the country. This will involve the concentration of specialist services in fewer hospitals and could even result in the closure of some smaller hospitals. However, that is not immediately relevant. The point I will make is that it is good to know that the clinical commissioning groups and the local hospital trusts have all supported this proposed reconfiguration.
However, I must ask the Minister a couple of questions. First, is he satisfied that the five A&E departments into which all accident and emergency services are to be concentrated, with four others closing, have the capacity to provide facilities for all the relevant staff and to deal with the increased number of patients who will go through those five hospitals? That is point number one, which is crucial.
Secondly, is the Minister satisfied that this concentration of services, with the new 800 posts in the community to which he referred, can be carried out within the existing financial constraints? Have these changes been costed? As the Minister knows, under the so-called Nicholson challenge, the NHS is required to make substantial savings across the country over the next year or so, and it is crucial that he can reassure the House that the necessary money will be available to provide this reconfiguration, which is clearly in the best interests of patients and their communities.
Earl Howe
My Lords, the noble Lord raises the important question of capacity. The key point is that none of these changes will be implemented until such time as commissioners and the relevant providers are satisfied that the necessary capacity exists. That is a key point. Secondly, on the costing and the financial aspects of the proposals, the way in which we will be able to spend more money on front-line care and better-quality facilities is by spending less on duplicated facilities, underperforming services, and badly designed and out-of-date buildings, which cost a lot to maintain. Therefore, as part of this package, there will be new custom-built hospitals at Ealing and Charing Cross, costing about £80 million each, designed to deliver the specific services needed in those respective communities. That will be part of the way in which the money released will be invested for the betterment of patients in the area over future years.
Baroness Barker (LD)
My Lords, the most important part of this Statement is the part stating that none of these changes will come into effect until NHS England is convinced that the necessary primary and community services are in place. How will that be determined by NHS England? Secondly, who will be responsible for the integrated commissioning of community and primary services to bring about the necessary preventive services on which this reconfiguration is based?
Earl Howe
Largely, the judgment by NHS England will be made by local area teams—but not in isolation. It has to be a collaborative exercise, which is my overall answer to my noble friend’s second question. The successful integration of services must depend on close collaboration between the different constituent parts of the NHS but also with adult social care and local authorities. It is striking that already we are seeing this happening in north-west London, as we are in many other parts of the country. For the system to work as we want it to, all the constituent parts need to be effective and efficient. The integration of services, which is one example of how the NHS can become more productive in the future, as well as more clinically effective for patients, is an essential way of ensuring that we have a sustainable NHS in the future.
Lord Kennedy of Southwark (Lab)
Will the noble Earl confirm, first, that there will be no further appeal in respect of Lewisham hospital after the decisions of two courts; and, secondly, that there will be no attempt to change the law in respect of Lewisham hospital? What lessons have been learnt by the noble Earl and his ministerial team that they can apply to what is going on in north-west London? We are all aware that the Minister has never visited Lewisham hospital; the last ministerial visit was in May 2010. Will he tell the House—if not from the Dispatch Box, then by writing and placing a copy in the Library—when Ministers last visited the hospitals in north-west London that have been mentioned?
Earl Howe
I can certainly find out the answer to that last question. As regards the appeal, we have only just received the judgment, as the noble Lord will know. But that is only the outline judgment. We have not received the full text. It is important that we read that and inwardly digest it before we finally decide on the way forward. The lessons of Lewisham are very clear. I confirm that we shall not be legislating around Lewisham and the recent provisions in the Care Bill were not retrospective, as the noble Lord is aware. I have not personally visited Lewisham, which is clearly an omission that I should at some point rectify, but it is important for me to put on the record that the concerns expressed by the people of Lewisham are, and have always been, entirely understandable. Ministers greatly respect the wish of local residents to see their hospital thriving, as it always has in the past. Nevertheless, as I said earlier, Lewisham and Greenwich now have a challenge. There is a financial issue that needs to be addressed and I hope that commissioners and providers, acting together, can do that successfully over the months ahead.
Baroness Masham of Ilton (CB)
My Lords, can the Minister say whether, if A&E departments are shut, hospitals will be downgraded? Will the resources of the ambulance service be increased to transport ill patients around, as the ones with A&E departments may not have enough capacity to treat them?
Earl Howe
I do not think that it is appropriate to talk about downgrading in this case. However, it is appropriate to talk about changing the way in which services are delivered to the local population. In the case of two hospitals, we are seeing fully fledged A&E departments becoming 24/7 urgent care centres. That means that the most serious A&E cases, such as trauma and cardiovascular emergencies, will be taken to centres of excellence where patients will have a much higher chance of survival. That is a pattern that we are seeing throughout the NHS and one that has been proved to be successful and in the interests of patients. On ambulances services, we are already seeing in London, for example with stroke care, ambulances taking patients to centres of excellence for stroke care. Eight of these centres now exist compared to 32 some years ago. That means longer journeys in an ambulance but also much higher survival rates for the patients. I do not think that we should look on the kind of reconfiguration that I have described in a negative way. On the contrary, the whole thrust of these proposals is to improve the quality of care for patients.
Lord Rea (Lab)
The noble Earl said that, as part of this reconfiguration, there will an increase in the services available in the community. Can he say whether this will be done in co-operation with the royal colleges and the British Medical Association rather than being imposed from above? The latter solution is unlikely to work.
Earl Howe
The noble Lord is absolutely right. These solutions should not be imposed from above. Indeed, the Shaping a Healthier Future proposals were designed by local clinicians in consultation with their patients. It was not a prescription dreamt up in Whitehall. We are very clear that the local NHS should continue to feel local ownership of these ideas as it takes them forward. I have no doubt that, if it feels it necessary, it will turn to the royal colleges for particular kinds of advice. It is free to do that as it wishes.
Lord Tomlinson (Lab)
Is the noble Earl aware that on this side of the House he is very highly regarded as a model of clarity? However, in the second part of his answer to the noble Lord, Lord Hunt, today, he was somewhat equivocal in relation to the future of Lewisham Hospital. I hope that he will accept an invitation to visit Lewisham Hospital. I declare an interest as somebody who lives in that area and has opposed the closure. Does he also realise that such is the strength of feeling in Lewisham, he had better have read the whole judgment carefully and cleared all his lines before he goes there? The threatened closure created such community anger as I have never seen before and he would be most unwelcome unless he were able to give a clear and unequivocal response about its future.
Earl Howe
My Lords, I certainly understand the noble Lord’s strength of feeling on this. It is certainly my intention to read the judgment when we receive it in full. Nothing is closing in Lewisham. The service remains as it has been. There is nothing that Ministers intend to do to change that situation. However, as I mentioned earlier, there is an issue to be addressed in Lewisham and indeed in Greenwich. It is a pressing financial issue that commissioners as well as the hospitals themselves have to face. I have no doubt that a visit to Lewisham would benefit me enormously and I shall await an invitation to that effect.
Media Convergence: Communications Committee Report
Lord Inglewood
That this House takes note of the Report of the Select Committee on Communications on Media Convergence (2nd Report, Session 2012–13, HL Paper 154).
Lord Inglewood (Con)
My Lords, we speak at a moment of high drama in the politico-media world. Lord Justice Richards, sitting with Mr Justice Sales, earlier today dismissed PressBoF’s application for a judicial review of the Privy Council’s decision to reject its charter on press self-regulation, and will dismiss its application for an injunction on the Privy Council’s sealing of the alternative all-party charter later today.
Barring any attempts by PressBoF to challenge this decision at the Court of Appeal, I believe that, as things stand, the Privy Council is still due to meet to seal the royal charter on the self-regulation of the press later this afternoon. I dare say that historians of the media will one day find it ironic that at the same time this House met to debate media convergence, a phenomenon which raises the question: for how much longer will the press truly require its own discrete self-regulatory arrangements at all as distinct from those which may yet come to be established in the future, which will have a wider focus and include forms of news media available online, in text, audio or indeed audio-visual form, with which the activities of what we now know as newspapers may have seamlessly merged? It is a coincidence of events that must generate at least a little Schadenfreude.
Of course, until recently, separate media industries were actually distinct. They were easily distinguishable by the way in which they delivered their content; for example, newspaper businesses were newspaper businesses to a great extent because their content reached us on large sheets of thin paper rather than over the spectrum or through the flickering light of a projector at the cinema. Media convergence, however, has changed all this. Alongside their individual traditional delivery mechanisms, content providers increasingly digitise their material and distribute it through the use of internet protocol, known as IP. Conveyed by IP, content, which has been reduced down to packets of data, can be assembled as text, image, video, sound or however else technology permits. This occurs on a growing range of devices, both fixed and mobile.
In turn, this has stimulated media providers of all kinds into a search for new ways of delivering their content, many of which have been straightforwardly borrowed from industries they each used to consider neighbours. This has blurred the boundaries between them. These experiments, in turn, have given audiences all kinds of ways to consume virtually any content, at any time, anywhere and on any device. In some instances, the impact of this revolution is far-reaching and often entirely positive, not just for the regulation of content standards, but also for content creation and competition. Barriers of all kinds are dissolving.
The impact of all this may not be fully felt at once, or even for some time, across the whole population. A recurring theme of our deliberations in this inquiry was the need, therefore, for haste rather than panic. As they say, we were looking for an evolutionary, rather than a revolutionary response. However, equally clear was that some thinking, some preparation and, to some extent, action, is required now to ensure that the evolutionary path is smooth and that we do not allow the regulatory architecture for the media as a whole to become entirely mismatched with the technological and commercial landscape which it oversees. I hope that our report and my remarks will make it clear why.
In our report, we submitted recommendations under three main headings. First, content standards; secondly, content creation and thirdly, competition. I should like to take each briefly in turn.
On content standards, which occupied us the most, it is worth saying that this country’s content standards framework has to date proven remarkably resilient. However, we found that the confidence and trust which the public have grown to enjoy in it will come under increasing pressure in two areas in particular. First, there is news content. Newspapers are not just printed, but are online and they carry video packages with the look and feel of traditional television. Broadcasters publish websites, including text-based articles, similar to online and print. The scheduled news programmes are still broadcast, but are also available on demand, both on digital channels and on a variety of websites. It is tremendously exciting, but potentially rather confusing because the regulatory framework has been left behind.
Broadcast news is required to adhere to the broadcasting code, with its full range of protections relating to accuracy and fairness, as well as an obligation to uphold due impartiality. While the emerging press regulator, with oversight of participating newspapers and websites, may well include some of these protections in its code, it will certainly not include an obligation to uphold due impartiality. It bears saying that this is a good thing. The abiding difference between the balanced, impartial news provided by the broadcasters, and the vigorous, partisan news provided by the press, has helped to create a beneficial tension and a valuable mixed ecology. Nevertheless, the impact of convergence means that the providers of the one will become increasingly difficult to distinguish from the other. The binary distinction between impartial and partisan news will no longer be mirrored in the difference between the news which UK audiences happen to watch and the news which they happen to read. In order to ensure that UK citizens continue to be able to identify and have confidence in the provision of impartial news coverage, and that they can identify and bring accurate expectations to partisan content, these blurred lines should be tidied up.
The second area that will come under increasing pressure is what we might call non-news, audio-visual content—sometimes known as TV and TV-like content. Perhaps the sharpest example of this pressure point can be seen in the content now available to the public through internet-connected televisions. On these, regulated and unregulated content, licensed and unlicensed services, sit side by side on one device. Increasingly, the public will be able to switch seamlessly between them. As the European Commission says in its Green Paper, Preparing for a Fully Converged Audiovisual World: Growth, Creation and Values, from the consumer’s point of view, the difference between linear and non-linear services might blur. Providers under no obligation to observe the watershed, for example, are increasingly only one press of the button away from those that do. The clues which the public might have used to sense that they are entering a different environment, in which different standards are to be expected and to be found, are disappearing. With that comes the risk that regulators will no longer be able to be sure that the public can confidently make sensible decisions about what is suitable for them and their families.
I turn now to our recommendations on content standards and want briefly to make one preliminary point. During the inquiry, we received a number of thoughtful proposals for a complete overhaul of the regulatory framework. These aimed for a new, logically coherent system. While some of the thinking that had gone into the proposals was impressive, we felt that they did not account for one or two important points. For example, the pace of media convergence is contested, and it was put to us repeatedly during the course of the inquiry that traditional services such as linear broadcast television remain hugely popular and resilient. What is more, there are very marked generational differences in the ways that younger groups are using media compared with their older peers. This meant, we felt, that it would not be right, in considering reforms of the content standards framework, to try to set a course for the promised land. Rather, we should look more simply for a framework that enables audiences to make good decisions in the circumstances of the time about the content which suits them and their families. The framework will almost certainly need updating from time to time to the extent that it fails to achieve this, and fails by extension to earn or deserve their trust. To that end, we made two recommendations which could and should be adopted in the short term, and we postulated on a basis, one that is entirely up for debate, around which further change might occur in the medium to longer term.
First, in the shorter term, broadcast licences should be amended to ensure that standards similar to those set out in the Ofcom broadcasting code, amended for the relevant environment, would apply to any service using the same channel name or brand as a licensed broadcast service. It is at present an anomaly that the BBC, to give an example, is required to uphold the broadcasting code when it broadcasts, but not when it makes content available through the iPlayer, and especially in light of the director-general’s recent announcements about online commissions, we feel that this is an important step. Secondly, there is a case for positively encouraging other non-broadcast providers to join the framework in return for some form of public recognition or kitemark. Were such an opportunity to be provided, I suspect that some of them would seize it, not least for their own commercial advantage but equally so that the UK public could build accurate expectations of the standards and character of their products.
We also made a number of recommendations as regards the content standards framework that focus on the medium to long term, but I do not propose to rehearse the detail of these. In a nutshell, we recommend a slight reconfiguration of the regulatory framework involving the establishment of four different approaches to content standards across four clearly defined types of content. The first one is public service broadcasters, the second one would be non-public-service broadcast news providers, the third would be non-news television and television-like content, and the fourth would be the open internet. Some of the impact of this reconfiguration might seem to be a bit striking at first blush. For example, no longer would broadcasters other than public service broadcasters be required to uphold an obligation to due impartiality. In place of the watershed, a standard system of age-based classification would be adopted for TV and TV-like services, providing the public with useful information to take into account in making their own decisions about what they and their family should look at. Ofcom would be given a new proactive role with regard to the content available to UK citizens over the open internet, with a duty to consult on and publish UK citizens’ expectations of the responsibilities of digital intermediaries, and to monitor performance against those expectations.
While we believe that these recommendations point in the right direction, they are entirely up for debate, one that we would welcome and thoroughly encourage. The Government’s response to our report was, as I said at the time, disappointingly thin—albeit that that is probably better than being thick. They deferred the substance of any response to our report to what was at the time a forthcoming policy paper called, Connectivity, Content and Consumers: Britain’s Digital Platform for Growth. However, the Government appear to have avoided the major questions, saying that they will look to industry and regulators to provide clarity on the right approach to content standards and regulation in the digital world. But because we believe that what is required is a reconfiguration of the framework around the media as a whole, there is an important and necessary role for the Government in setting out a view and leading debates that can be orchestrated sensibly only from that particular podium. For example, there are matters of principle: should we, generally speaking, adopt a more libertarian approach in which the public are expected to make their own choices about which media and content to use, informed by appropriate information, or should there be a more paternalistic approach in which regulators impose certain standards and help make those choices on behalf of the public? As our recommendations show, our report tends to lean towards the former over the latter. However, where the line is drawn is an important matter for genuine and legitimate debate.
Secondly, there are matters of process. How can we bring about evolutionary change to a system of regulation which is cemented in statute, and which in recent years has been subject to a slow cycle of change—10-yearly or thereabouts—imposed by the parliamentary timetable as much as anything else? In our report we propose a new approach, including the use of the super-affirmative procedure. We believe that this would avoid the “stop/go” approach, and provide the legislative mechanism to ensure smoother evolutionary change in an era when time for primary legislation is allocated elsewhere. In summary, I urge the Government and the industry to read carefully the thinking behind our recommendations on content standards, and to engage properly with this important set of debates.
I now turn briefly to the two remaining aspects of our report, which address content creation and competition. On content creation, convergence has made it possible for new investors to reach audiences outside the traditional broadcast environment. Your Lordships will be aware that my noble friend Lord Dobbs recently had a great hit on Netflix, entirely funded by that enterprise. Our congratulations go to him. However, investment in content from these new entrants remains dwarfed by the investment from the five public service broadcasters and their spin-off channels, which still represent something like 90% of UK spend on first-run, originated output. This seems very likely to remain the case for some time to come. In that light, it is important to recognise that the ability of the public service broadcasters to continue investing in content depends on their ability to reach large audiences in this country.
We therefore recommend that the Government consider the implications of changes in the way that public service content will be discovered and accessed by viewers on new connected TVs and other converged devices and, specifically, what interventions on prominence and “must carry online” obligations may be appropriate and possible in non-linear environments. In our view, as far as possible the on-demand services offered by public service broadcasters should achieve due prominence on any relevant home screen or guide which directs users to content.
Having said that, the way that the public access content is almost inevitably going to change, and the range of brands they choose to consume is likely to widen. Against that background, convergence can be seen to raise some very important general questions about public investment in content creation. As audiences continue to fragment and models for funding content creation adapt, exactly how public service broadcasting is provided, by whom, and the contestable process of allocating public money to pay for it, are all matters which deserve debate. The issue again is that these questions must be considered from a higher vantage point, and in a manner which is more holistic—to use a word I dislike—than is currently the case.
To date, decisions about each type of public service broadcaster—the BBC, Channel 3, Channel 4 and Channel 5—have largely been made independently of each other. In future, given the paramount importance of sustainable and sensible funding in order to safeguard public service broadcasting, we think that it is crucial for its future to be considered in the round by the Government. However the detail may be configured, a stable and sustainable future is required for the system as a whole, not just for each player within that system.
We believe that the Government would be well advised to get ahead of the curve, rather than waiting for difficulties to arise. Therefore we recommend that as preparation for, and in advance of, the next BBC charter review, the Government consider fundamental strategic questions surrounding the public service broadcasting system as an interconnected whole, and the potential impact on it of convergence. For example, what is the right scale and scope of PSB? What purposes should it serve? How can it best be sustained in a converged world?
On matters relating to competition, it is equally clear that convergence has sharpened long-standing debates over Ofcom’s ability to promote competition across media markets. While we did not have the time to carry out a comprehensive review of broadcasting competition powers, it was clear from the evidence we received that clarification is required of Ofcom’s existing ex ante competition powers for the audio-visual sector. The aim of such clarification should be to enable Ofcom to take effective action where necessary, but also to ensure a high hurdle before any ex ante approach can be adopted. It is important for there to be clarity for all those who might be affected.
In my conclusion, I thank the noble Lords, Lord Bragg and Lord Gordon, both widely knowledgeable and constructively hard-working members of the Communications Committee at the time of this inquiry, who have since left it. Their contributions to our final report were significant. I know that they are both sorely missed at our regular Tuesday afternoon meetings.
Finally, I also thank our specialist adviser, Robin Foster, for his expertise and enthusiasm throughout the inquiry. On a subject of often thorny complexity, Robin’s advice was always forensic, clear and logical, and his easy and droll manner equally helped to make the committee’s whole experience of this inquiry a pleasure.
I look forward to the debate and to the Minister’s response. I beg to move.
Lord Gordon of Strathblane (Lab)
My Lords, it is a great pleasure immediately to follow the noble Lord, Lord Inglewood, and thus be the first to have an opportunity to congratulate him not only on securing this debate but on his skilful chairmanship, navigating us through the undergrowth of a very difficult subject, which could easily have led us off in tangential directions. Instead, we managed to focus on some main issues, which he adumbrated this afternoon.
I am one of those who believe that the invention of the internet may well turn out to be more important in human history than the invention of printing. One known unknown is that we cannot predict the nature of the change that is coming about, any more than people could have forecast that one of the prime uses of mobile phones would be text messaging. One known, however, is that it will all happen very fast. The noble Lord, Lord Inglewood, was right to draw attention to the importance of flexibility in the Government’s response. For that reason, the super-affirmative procedure is probably the best way forward from a legislative point of view. I add a further suggestion: it would be useful if the next communications Act did not try to go into too much detail. After all, we have got by in public service broadcasting for a very long time with the simple words, “inform, educate and entertain”. If we left legislation giving us general objectives and then left it to regulatory authorities to use common sense in applying those in the circumstances of the time, the legislation would stand the test of time rather better.
The Communications Act 2003, to which reference has already been made, did not contain much in the way of references to the internet, although I seconded a successful amendment, tabled by the Earl of Northesk, making it an obligation of Ofcom to ensure widespread access to high-speed data transfer, which is the same thing as broadband. The internet was felt then to be different from broadcasting, in that it was a pull-down rather than a push-out medium. Therefore, both libertarians and others united in thinking that we did not need to regulate the internet. My sense is that that is not the public feeling today; we most certainly do need to regulate it. At a minimum, we all agree that we should not allow child pornography on the internet, or incitement and aid to terrorism. However, if we are able to do it for those two subjects, we could do it for a whole range of others, so the decision is about whether we want to regulate, not whether we are inhibited by the technology from doing so at all.
I would like to concentrate mainly on the main theme of the report, content standards. We would all concede that the main argument for public service broadcasting has lost two of its main pillars of support; scarcity of frequencies does not now apply. But as Professor Tommaso Valletti told the committee during the inquiry, the economic argument has gone, but the BBC is the envy of the world—“Why break it?”. That is very much my feeling. It could also be said that PVRs have reduced the power of programme scheduling to create high-quality programmes and get a large audience for them. Some 45 years ago, I presented a political programme on television which secured a somewhat larger audience than would normally be expected for political programmes. I would like to think that it was the intrinsic quality of the programme; realistically, I think that it had a lot more to do with the fact that it was sandwiched between “News at Ten” and “New York Police Department”, and remote controls had not yet been invented, so people could not be bothered to get out of their armchairs to switch me off.
Public service broadcasting is worth preserving and, indeed, encouraging outwith the traditional sector. How can we do that? One way is charging for spectrum. The report is ambivalent on whether we should do this but draws attention to its difficulty. It would remove more funds from public service broadcasters which could otherwise be concentrated on programming. I firmly think that there should be no charge for spectrum for public service broadcasters. That would provide an incentive for more people to provide public service programming.
The noble Lord, Lord Inglewood, referred to EPG prominence, which is also important. I suggest that getting some payment from the platform provider could be addressed. If the trade-off is that there should no longer be a “must carry” obligation on the part of the platform provider, it would enable us to find out what the real market rate for a programme was. After all, the bulk of viewing on Sky is still of traditional PSB broadcasters. It would not want to do without the BBC. Why should it get a payment from the BBC for broadcasting programmes that are one of its main attractions? It is interesting and somewhat ironic that, in the United States, Fox Television is leading the charge for precisely that—payment from cable providers over there.
We also face new forms of broadcasting, to use that omnibus word, and we will need regulation to ensure prominence in non-linear broadcasting television sets. During a visit to the BBC’s Blue Room, the committee was somewhat taken aback to find what we would regard as a traditional television set on which programmes came fairly well down the line. First, you are exposed to various products of the television manufacturer, gaming, online games and everything else and then, finally, you get through to an EPG programme guide. I think that we have all assumed that television sets are passive; they are not now. We must ensure that broadcasting—public service broadcasting in particular—gets due prominence. That was alluded to by Mr Simon Pitts of ITV, whose remarks were reported in paragraph 163 of the report. That will clearly be an issue.
The noble Lord, Lord Inglewood, also referred to what he called TV-like content: things that are received on the same television set side-by-side with traditional public service broadcasting programmes. I think that most of us would shy away from the idea that they should all be regulated as public service broadcasters, but I think that there was a general sense that it would be a good idea if they aspired to produce good programming. Perhaps the kitemark idea is the best way forward. After all, people have a vested interest in being respected. The advertising industry supports the Advertising Standards Authority. Ofcom ensures that it operates, but the industry does it itself because it is in its self-interest. I do not want to go to a chemist who is unregulated; I do not want to go on holiday with an unregulated travel company. Regulation is in the self-interest of the provider.
The British Board of Film Classification has established age categorisation that has stood the test of time and, I think, could be expanded into other spheres of programming. People will make substantial edits to their film to secure a better classification that will ensure a wider audience. That is a good example of enlightened self-interest.
Moving on to what has been referred to in the report as the wild west of the internet, it might be made a little less unruly if the internet providers—four big companies control 85% of the market—could be persuaded that it was, again, in their self-interest to ensure that the more undesirable aspects of programming were simply not broadcast. Name and shame them if they do not do it and they will come round to the idea. We could make a lot of progress in this way.
Finally, the BBC represents a major market intervention —in general, overwhelmingly for the public good. However, during our visit to the Telegraph Media Group, our attention was drawn to the danger of the BBC crowding out other providers by its expansion on to the web. If the BBC is providing a good free online service, it is increasingly difficult for newspaper publishers to erect paywalls and thus to secure payment for content that is often expensive to provide.
The collection of the licence fee has been greatly aided by a requirement to notify of a purchase of a television set. A licence fee request will then follow. However, television can now be watched on smartphones, laptops and other devices. Requiring anyone who buys a smartphone to buy a television licence would, I think, be unsupportable and could well lead to the loss of the licence fee altogether. The alternative is to find another way of funding the BBC. On that gloomy note, I renew my thanks to the noble Lord, Lord Inglewood.
Lord Clement-Jones (LD)
My Lords, I follow the noble Lord, Lord Gordon, in congratulating my noble friend Lord Inglewood on his lucid introduction and on his excellent chairmanship of our committee. This was an extremely timely report. Even since it was written, digital media in the UK have developed further. Only yesterday, we heard in committee about the growing success of digital regional media.
The tablet that I am holding represents convergence. There are newspapers in digital form delivered over the internet with news clips embedded. There are news and sports apps with clips and text commentary. There are programmes made for television delivered on demand through non-broadcast apps. There are broadcasters’ catch-up services. These are subject to wholly different regulatory regimes: contrast the Ofcom regime over commercial and public service broadcasters with that over newspapers. Incidentally, I welcome today’s judgment on the alternative royal charter.
My noble friend Lord Inglewood is right.The Government’s response was disappointing. It was effectively a holding response. It did however anticipate last July’s White Paper, Connectivity, Content and Consumers: Britain’s Digital Platform for Growth. Much of the focus of both the response and the White Paper was on child safety on the internet and connected television. That is a clearly defined area where action is required. It is a matter of current concern and I commend the Prime Minister and the Secretary of State for their proactive stance and the subsequent actions of ISPs and mobile phone service providers. I commend the Government, too, for the new tax break for animation and high-end television production.
However, the Government’s response to our report promised a holistic strategy for the communications sector. There is little sense in the White Paper of such a strategy in the area of content, despite talk in the White Paper of getting ahead of the curve and despite a long gestation period of more than two years in setting out a strategy. The imperative in an age of converging media—which is common ground between the committee and the Government—is to maintain public trust in the regulatory regime applied to different types of content on the internet, despite the blurring of boundaries. We proposed,
“a new content standards framework”.
The questions are: what content falls into what regulatory regime, and into what regime, if any, should content fall? The Government in their proposals assert that,
“people still expect different standards from their TV, radio, newspapers and social media”.
The committee’s paper examines that proposition extensively. One size certainly does not fit all, and the committee recommended a “graduated approach to regulation”. However, we strongly recommended that research be carried out into public expectations of standards for various media content. Do the Government themselves have plans to do this?
The Government use the phrase “flexible, industry led approach”. I would prefer the initial leadership to be provided by the Government, but either means being clear about what kind of new elements need to be built into a new Bill, even if they need to remain flexible.
The Government promised to outline:
“Targeted updates to our legislative framework”.
However, they do not set out what they believe should be done by primary legislation in a new Bill and what can be done by voluntary action. Indeed, there is clearly some doubt about whether there will be a new communications Bill in the first place. What are the Government’s intentions? Will there be a Bill in the remaining months of this Parliament? I certainly hope that there will be.
There was some discussion of Ofcom’s ex ante competition powers in the White Paper. We are promised a consultation on this, but surely it will be an important part of any Bill. Competition must be able to flourish, and great content to flourish on a plurality of platforms. We need a debate and some certainty about Ofcom’s future role in this area. The committee itself was not convinced that we need to go further than ensuring clarification, rather than extending some powers.
There are other areas where primary legislation may be relevant, on which Ofcom itself gave a useful detailed response in June. These include some of the committee’s recommendations on, as my noble friend Lord Inglewood mentioned, giving the Secretary of State power to vary Ofcom’s powers by super-affirmative resolution so that where appropriate it could introduce a common co-regulatory framework for TV and TV-like content; the guidance that should be given to Ofcom on the establishment of any co-regulation system, and imposing a duty on Ofcom to advise the Secretary of State on the timing of any such order; the whole question of the removal of the duty of impartiality for non-PSB news services; a more proactive role for Ofcom regarding the internet, as the noble Lord, Lord Gordon, has stated; and perhaps the issue of EPG prominence, especially in the light of the kinds of television that we saw, as the noble Lord also mentioned, in the BBC’s Blue Room.
The need for flexibility in legislation is common ground. The landscape is changing rapidly. As the Government rightly point out in the White Paper, YouTube did not exist back in 2003 when the Communications Act was passed. There are, of course, areas where voluntary action may be more appropriate. Clearly, linear viewing will remain strong, certainly in older generations, but, as viewing habits begin to markedly differ, have the Government taken a view on the idea of a common system of age rating classification for on-demand material, which could be by the BBFC, as the noble Lord, Lord Gordon, said?
There are other areas where we need more public debate. Is it not essential, as the committee recommends, that we assess the role of public service broadcasting in the age of convergence? It faces risks and threats but also great opportunities. As we have heard, there are major issues about retransmission for public service broadcasters and the carrying terms for PSB channels. The Government say that they want to see zero net charges—that is, fees cancelling each other out. However, some of the commercial PSBs claim that their investment is being put at risk by an,
“outdated system, which tilts the channel and platform relationship in favour of pay-TV platforms such as Sky and Virgin Media”.
They say that,
“these arrangements require PSB channels to subsidise pay-TV platforms by providing their main PSB channels to pay-TV platforms for no payment, or in the case of Sky to actually pay them to carry them to carry those channels”.
As a result, there is concern that none of the revenue that pay-TV platforms make from these business models reaches the PSBs that make the original investment, or the talent who make our programmes possible. PSBs are the cornerstone of our current broadcasting ecology. Their role is changing rapidly but, rather than welcoming the fact that these reviews by Ofcom take place, the Secretary of State has proposed that Ofcom’s duty to review PSBs every five years should be phased out.
I sense in all this no really coherent strategic intent, and perhaps no real intent at this stage to amend the Communications Act 2003. I look forward to the Minister’s reply but if we are not careful we will bumble along until well after the next general election, and that would be a mistake, as I think the committee’s report clearly shows.
Lord St John of Bletso (CB)
My Lords, I am grateful to the noble Lord, Lord Inglewood, for his able chairmanship of this very topical, broad-ranging and fascinating inquiry. The speed of the technology revolution of the past decade has been nothing less than remarkable and, as the report said:
“Converged devices have become a mass market reality”,
with audiences expecting everything any time and anywhere. The possibilities for multifaceted smart devices with ever-greater interactivity seem limitless. In a very short time we have moved from an analogue to a digital, to an on-demand and now to an interconnected age. The emergence of common standards has meant that we are more connected than ever.
There is no denying that the younger generation are at the vanguard of media convergence. I have to admit that, as the father of four young teenagers, I rather pine for the days when my children were not constantly on their iPads, iPhones and BlackBerrys. The digital evolution with media convergence has presented huge opportunities but, as this report aptly puts it, with a number of major challenges. While the UK market for on-demand services is one of the most advanced in the world, it is reassuring that linear broadcast TV still remains largely popular and resilient with most of the population getting their news from television. I noted in the recent Ofcom report that UK households currently spend less than 10% of their TV viewing time watching on-demand content.
A key observation of this report is that new technologies and behaviours are evolving more quickly than regulatory protections. The Government’s forthcoming White Paper on communications will certainly need to address some of the regulatory challenges on content, content creation and competition. Statute is a blunt instrument and should be used only when totally necessary, but a regulatory framework needs to keep pace with this ever-changing world in an evolutionary manner.
Clearly the competition regime for media markets should seek to promote choice, innovation and competitive pricing. The new platforms to distribute content over the internet and via satellite have allowed UK viewers increasingly to take advantage of international content and businesses to globalise. While this provides opportunities for wider economic growth, it raises the thorny issue of jurisdiction over the content of some of these programmes. This should and could affect a number of areas of regulation and enforcement, particularly as Ofcom has the ability only to regulate services that originate in the United Kingdom. The impact of globalisation on national regulation of media content raises a major challenge.
The noble Lord, Lord Inglewood, gave us an excellent overview of the key findings and recommendations in this report. Without repeating his points, I will touch briefly on the safer internet, which was briefly raised by the noble Lord, Lord Clement-Jones. It was summarised in recommendations 220 to 222. It is essential that adequate protections are put in place to ensure that children’s use of the internet is controlled in a safe manner. I know that the Government are working closely with the UK Council for Child Internet Safety to pursue a self-regulatory approach to keeping children safe online. However, I do not believe that simply installing filters on IP smart devices, including mobile phones, iPads and computers, is sufficient. Parents need to be better educated as to their responsibilities to ensure parental controls on these devices. It is also essential that ISPs, mobile phone operators, device manufacturers and retailers as well as software developers all work together to ensure adequate protections.
One area of the Internet of major concern to me is the “deep web”, sometimes referred to as the “invisible web”, which is accessed through an anonymous network called Tor. This was originally developed by the US Navy, but is currently being used as a hub for illicit activity, including the notorious website Silk Road, which was fortunately shut down by the FBI recently. Sadly, similar websites are cropping up as we speak. The deep web has also been used as a source of child pornography.
Normally, file-sharing and internet browsing can be tracked by law enforcement through each user’s unique IP address, which can be tracked back to individual computers or iPads. The Tor network on the deep web effectively hides the IP address, opening the internet to unsavoury elements. A lot more focus needs to be placed on trying to control this content which is not part of the surface web.
I briefly draw reference to paragraph 155 of the report, where we pointed out that one of the risks of convergence is the fragmentation of audiences and revenues, which could impact adversely on investment in high-production-value content. As ITV pointed out in a recent briefing note, the sustainability of their investment in content depends on their ability to make a viable financial return on their investment and also, obviously, to reach large audiences. I entirely agree with ITV that in a digital age, an effective intellectual property regime is vital. It is essential that any exceptions from intellectual property protection are as narrowly and well defined as possible. Advertising revenues are no longer sufficient to ensure continued investment in world-class drama programmes. I call on the Government to give assurances that a strong intellectual property framework will be incorporated into the forthcoming communications White Paper.
I noted that, in the Government’s response to our report that, while the process of convergence poses a challenge for how we continue to ensure public expectations about content standards, the time is not yet right for convergence of linear and non-linear regulation. There should be no movement to reduce the amazing opportunities that are presented by convergence and the internet more broadly. Regulation should not stand in the way of innovation but, equally, more needs to be done to address the challenges facing media convergence. I agree with the noble Lord, Lord Gordon, that there is a need for some form of regulation of the internet.
In conclusion, there needs to be an evolutionary approach to the regulatory framework to keep pace with this rapidly changing world. I wholeheartedly support the recommendations in this report and hope that many of them will be incorporated into the forthcoming communications White Paper.
Lord Stevenson of Balmacara (Lab)
My Lords, I thank the committee for its excellent report. I probably should say “latest in a range of excellent reports” because in recent years the committee has been doing exemplary work, stalking around the areas to do with communications and the audio-visual sector more generally and bringing forward a range of proposals and ideas which are fantastically useful to those who are interested in this area. Indeed, it confirms the rightness of your Lordships’ House in deciding that the committee should continue; long may it do so. I also thank those who have contributed to the debate today. We are small in number but high in quality. We have certainly given most of the main recommendations in the report a good whirl.
The report starts in relatively easy mode. It takes as its typical reader someone—not unlike myself, I suspect—who does not really understand what exactly they are talking about, and tries to explain what media convergence is. I was okay for the first three or four lines. In fact, I think I could answer a certain number of questions on the first three or four paragraphs. I liked the bit that said that it was a technological phenomenon where the various platforms come together, but that does not really help us get into the question of how, when and on what basis regulatory and other measures might be needed to deal with this brave new world.
I was happy to read the quote from Lara Fielden, who explains in essence what we are talking about:
“Newspapers are not just printed but online and carry video packages with the look and feel of traditional TV; broadcasters publish websites including text-based articles similar to online print offerings; scheduled programmes are broadcast but also available on-demand, on digital channels and a variety of websites; user-generated material vies for online audiences alongside professionally produced content; professional and amateur bloggers share the same debates”.
As the noble Lord, Lord St John of Bletso, said, our kids consume all of this, and more, all the time. I often come home to discover them lounging on a settee watching television, plugged in to an iPod, listening to other music that is playing loudly and also texting and doing other things. How do they do it? Indeed, it occurs to me that the need for regulation is probably in inverse proportion to the number of platforms a person consumes on average. Think about it.
The value of this sector to the UK economy is some £53 billion. The sector is growing, providing jobs and new business opportunities, creating exports and boosting inward investment, generating benefit for the UK. All the signs are that this will continue. As the report recognises, intellectual property is a crucial element in this mix and while the report acknowledges it, it is a pity that the committee has not, so far, dealt with it. I hope that it will return to this topic. That aside, it seems to be generally accepted that convergence has the potential to increase the value that this sector generates even further, allowing new business models to emerge and offer people exciting and innovative new products and services which will bring about great benefits for consumers and businesses alike.
However, I have some sympathy with those who warn that, while technology and consumer behaviours are changing, it is important to remember that the process of convergence is taking place unevenly. Different media are becoming more converged in different ways and at different speeds and we find that audience expectations have not changed as fast as the technology or the markets. It is interesting that audiences have continued to distinguish between content on the basis of where they find it and on what service it is provided. Indeed, in that respect they may be ahead of both this report and the Government.
If I have one concern about the report, it is that it implicitly gives the impression that, other things being equal, more convergence will require more regulation. I can see the arguments for that, but I am not sure that the evidence is there yet. It may be that smarter, different regulation is what is required, but, at least in the interim, I hope that we can all agree that there should be no movement to reduce the amazing opportunities that are presented by convergence and the internet more broadly. I agree with the committee’s assessment that a flexible, industry-led approach will be key to addressing the challenges and making the most of the opportunities of convergence.
The Government say that they have been undertaking a wide-scale review of the sector over the past two years—it seems like a lot longer than that—and it has been good to read that, shortly, they will be publishing their strategy and vision for the sector. Will the Minister enlighten us on the timetable for legislation? Are we to see more publications along the lines of the ones that have already been produced, perhaps even the long-promised White Paper, first referred to in this House in about 2010, but which seems no nearer publication?
We have had a good discussion about the detail and I shall pick up on two points. The committee points out that the process of convergence poses a challenge in ensuring that public expectations about content standards are met. I note that the Government do not believe that the time is yet right for convergence of linear and non-linear regulation. I should be very grateful if the Minister could say more about that because we do need clarity here—indeed it came up as a Question in the House only yesterday. The committee makes good points about news and its imaginative proposals for non-linear news provision have some merit. I hope that its suggestion of legislating early on the principles but holding back on the detail will catch the eye of the Government. It may be that the age-rating system that was referred to during the debate could work, although I have to say that I have my doubts, particularly if the British Board of Film Classification system was to be expanded wholesale.
There are some recommendations for content standards in the section on “A safer internet”. That area has many challenges. Clearly, we need to make sure that children experience the internet in as safe a way as possible. However, their parents have major responsibilities in this area, and it is also important that the internet is open and transparent, in line with the aspirations of its founding parents. At this stage a self-regulatory approach is surely the right one for non-broadcast material. As has been said, securing the engagement of industry and organisations across the whole value chain, from internet service providers, mobile phone operators and device manufacturers, to retailers, software developers and parents, should deliver results. It would be good if the Minister could outline his Government’s expectations on this issue.
The quality and diversity of our content is something for which the UK is admired internationally and UK-originated content is a successful export. Research commissioned by PACT and UKTI shows that the revenue generated from international sales of UK television programming and associated activities grew by 9% between 2010 and 2011. We all want to ensure the continued health of the industry as a whole and continued investment in UK content both by public sector broadcasters and non-public sector broadcasters. That suggests a need for stability and certainty in the sector to avoid any potentially chilling effect on such investment in the longer term.
As my noble friend Lord Gordon noted, the report rightly raises the importance of ensuring that terrestrial television has sufficient spectrum to enable it to compete effectively with other platforms. The report covers the worries that exist in the industry about the long-term future of DTT and makes points about the possible impact of Ofcom’s administered incentive pricing scheme. Again, it would be useful if the Minister could share the emerging thinking on this point.
Finally, before my voice finally deserts me, the committee should be congratulated on an excellent report, and on being so far ahead of the game—so far ahead that it has produced a very limp response from the Government so far. As the noble Lord, Lord Clement-Jones, says, what is the strategy here? I should be grateful if the Minister could enlighten us.
At the start of his remarks the noble Lord, Lord Inglewood, drew attention to the royal charter sealing which was scheduled for about now. He may not know it, but we have been able to find out—by skilful use of devices on a multi-platform basis—that an appeal has now been lodged in the Royal Courts, and so the sealing may be delayed. Nevertheless, that means that we are thoroughly up to date. We are catching up with the committee, which is far ahead of us at all times, but it has left us with a very good report that we hope will stimulate the long-needed debate in this area.
Lord Gardiner of Kimble (Con)
My Lords, I in turn thank my noble friend Lord Inglewood and all members of the committee for their report. The Government very much welcome this second report into media convergence. Noble Lords have asked a number of questions, some of them a shade too technical for me. I hope that they will forgive me if some of the answers come in written form; perhaps they will then get a better response. Like the noble Lord, Lord Stevenson of Balmacara, I congratulate your Lordships on setting out in the report an excellent description of what convergence in the world of media content means. I must say that it was extremely helpful to me.
Each of us enjoys content, be it news or entertainment, and modern technology offers a plethora of ways of accessing that news and entertainment. Only last week I read that viewing of BBC TV programmes on mobiles and tablets accounted for 41% of the 176 million requests for the iPlayer in September of this year. The noble Lord, Lord Gordon of Strathblane, raised the issue of this new technology for so many that is proving so popular. That is why convergence is an exciting prospect and a daunting challenge.
The Government have recently completed a review of the legislative framework that governs the media and telecommunications sectors to ensure that it remains appropriate for the digital age. That culminated in the publication in July this year of our strategy paper, Connectivity, Content and Consumers: Britain’s Digital Platform for Growth. Our discussions with industry, regulators and consumer groups demonstrated that the present framework is broadly working well, is generally working for the consumer, and is supporting economic growth and innovation. I was particularly taken by what a number of your Lordships said about the need for evolutionary rather than revolutionary change. That has been borne out in the discussions that have taken place.
The internet and the growing technology to access it both create advantages. There is the advantage, to which my noble friend Lord Inglewood referred, of being able to move seamlessly from television channels regulated by the broadcasting code to channels streamed directly from the internet. There are also the disadvantages for users confronted with unregulated content that they might not have wanted. I understand that point.
The committee’s valuable report presents a comprehensive overview of the converging media landscape and the opportunities and challenges that it creates. We must look at how best to address those challenges. We know that some issues will need to be discussed on a European or even a global level in the future. However, we are not yet living in a fully converged world, so the Government seek to address issues that can be tackled on a national level to achieve the best outcome for our country. We also seek a safer internet environment by working closely with member states as part of the EU Commission’s Safer Internet programme.
The value of the media sector to the UK and the economy is not to be underestimated. Over the past decade it has gone from strength to strength. It is also crucial to us all as consumers, allowing us to communicate as never before and giving us access to ever more sources of information and content. However, sometimes having more information does not necessarily mean that we receive better information, so we should look at ways in which we can be sure of the reliability of that information.
Convergence has the potential to increase the value that this sector generates even further, allowing new business models to emerge that offer people exciting and innovative new products and services, and bring about great benefits for consumers and business alike. We therefore fully agree with the committee’s view that there should be no movement to reduce the exceptional opportunities presented by convergence and by the internet more broadly.
We have also taken into consideration wider international discussions that will impact on the audiovisual sector—for example, about issues such as copyright—and which are briefly mentioned in the report. I shall take this issue a little further to draw attention to the UK’s support for a comprehensive multilateral treaty that protects the same rights in different technologies, and covers traditional wireless broadcasting, as well as internet broadcasting and rebroadcasting.
As your Lordships’ report states,
“the fluidity of change is uncontested; dramatic developments in media industries and audience behaviour will continue to run on in the wake of convergence”.
While technology and consumer behaviours are changing, it is important to remember that, as noble Lords have already mentioned, different media are converging in different ways and at different speeds. Indeed, people still expect that their television, radio, newspapers and social media will encompass and embrace different opinions, different values and, indeed, different levels of partiality. My noble friend Lord Inglewood also referred to this. What is important is that we should identify the source of the news or content we are accessing, so that we can feel comfortable in applying those expectations.
The Government believe that our basic approach to regulation in this area, through Ofcom and the Authority for Television on Demand, strikes the right balance between the freedom of the internet and the tighter regulation of live broadcast material. It is impossible to predict with any certainty how convergence will continue to develop and at what pace. All noble Lords who have spoken referred to this. We do not want to make the mistake of attempting to predict the course of developments and of inadvertently stifling growth. The noble Lord, Lord Stevenson of Balmacara, hit the nail on the head: we must be careful that we do not choke off desirable advances by seeking to regulate. That is an important feature that we need to study carefully. In many respects convergence has not yet significantly affected consumer behaviour, but predictions for future developments regarding technical development and consumer behaviour are uncertain. That continues to bear out our approach.
The Government therefore favour greater partnership working and collaboration with industry across the media market. Your Lordships’ report reflected comprehensively on the issue of common media standards. We agree that non-broadcast content providers should be positively encouraged to ensure that there is a common framework for media standards in preparation for a more converged future. However, we want industry and regulators to work together on a voluntary basis to achieve this.
The recommendations in the committee’s report for content standards refer to content standards on TV and TV-like services. We agree with the committee’s characterisation of the emerging environment for content standards with the convergence of live and on-demand TV-like content, and the increasing role of the internet in providing content. We are also in agreement with your Lordships’ report that the process of convergence poses a challenge to how we continue to ensure public expectations about content standards are met. However, we believe that the time is not yet right for convergence of broadcast television and television-like content regulation, because, since the process is incomplete, we can only speculate at this moment on how best to manage it.
The noble Lords, Lord St John of Bletso and Lord Stevenson of Balmacara, spoke powerfully about the recommendations on content standards in Chapter 4, headed “A safer internet”. We agree with the committee’s findings about the challenges and opportunities of the internet, and what UK citizens expect in relation to this. The Government have been working through the UK Council for Child Internet Safety and with industry to drive action that will help ensure that parents can keep their children safe while online. My noble friend Lord Clement-Jones rightly referred to the major speech that the Prime Minister made on 22 July, in which he set out a range of measures that he has asked internet service providers, mobile network operators, public wi-fi providers and Ofcom to deliver to ensure the UK stays at the forefront, internationally, of delivering a safer internet.
Much online activity takes place in the home. Providing parents and guardians with easy-to-use and effective tools to help limit the content that children can access is a key aspect of the overall package of measures that should be available. The Government recognise that some parents may be less comfortable using the internet and may feel unsure about how to go about keeping their children safe. That is why we have charged the internet service providers with making the parental control tools they are developing as simple as possible. The noble Lord, Lord St John of Bletso, raised the question of awareness. Internet service providers will run an awareness campaign early next year with advice to help parents become more confident in setting up parental controls tools.
In addition, as part of the Government’s reforms to the national curriculum, we have strengthened the requirements to teach e-safety as part of the changes to the new computing programmes of study. From September next year, e-safety will be taught to pupils at all key stages.
The Government have been working with industry to secure the commitment that, by the end of this year, the four largest internet service providers will provide, free of charge, family-friendly network-level filtering for new customers. This means that, when someone sets up a new broadband account, the settings to install family-friendly filters will be automatically selected and will cover all devices in the home connected to that service.
Internet service providers have also committed to contacting existing customers during next year and providing them with an unavoidable choice on whether to set up filters. The Government believe that working with and through industry is the most effective way in which to increase the safety of children online through securing the engagement of industry and organisations across the whole sector. This is an essentially international situation. I know that the Secretary of State visited America precisely to have discussions on this issue.
Ofcom has been asked to report, by the end of this year, on a number of areas in relation to child internet safety, predominantly around parental awareness of—I hope that that will be endorsed by the noble Lord, Lord St John of Bletso—and confidence in using, the available internet safety tools.
The recommendations on content set out a clear picture of how public service broadcasters—PSBs—have an important and continued role within the wider context of content creation and commissioning in the UK. I listened very carefully to what the noble Lord, Lord Gordon of Strathblane, said. Indeed, the Government are about to update existing regulation on PSB prominence. The quality and diversity of our content is something for which the UK is admired internationally, and the PSBs are central to this success. I applaud all the channels that work so hard and are so much part of our creative industries. They invested £2.8 billion last year in UK content. Non-PSBs have also increased the amount they invest in UK content. In addition, UK-originated content is a successful export. Research commissioned by the Producers Alliance for Cinema and Television and UKTI shows that the revenue generated from international sales of UK television programming and associated activities grew by 9% between 2010 and 2011 to a figure of £1.475 billion.
We want to ensure the continued health of the industry as a whole, and continued investment in UK content both by PSBs and by non-PSBs. Further, we are mindful of the need for stability and certainty in the sector, to avoid any potentially chilling effect on such investment in the medium to longer term. Again, the noble Lord, Lord Stevenson of Balmacara, referred to that. We need sometimes to be cautious. That is why we have set out the outcomes that we want to see, and the action that we will be taking in working in partnership with the industry.
All noble Lords asked about legislation and consultation. The Government will consult on a range of issues. There will be a consultation on broadcasting competition, to which my noble friend Lord Clement-Jones referred, and if necessary, legislation may follow. We will also consult on electronic programme guides and the level of payments. We intend to legislate on nuisance calls, spectrum, switching the bundles, R18 video on demand content and premium-rate services. The Government believe that the right way forward is to legislate on the key areas of concern and not have—I think the committee’s report endorses this—new and radical root and branch new legislation that would be unhelpful to the sector.
A dynamic and competitive broadcasting industry is essential to boost growth, encourage creativity and innovation and improve consumer choice. We recognise that the current competition regime is not perfect, particularly in a converged world. This reflects the thrust of the committee’s report in this area. We are looking at how we can improve it for the benefit of consumers and industry. We committed to consult on broadcasting competition, as I have said, in our paper, Connectivity, Content and Consumers. We will keep the legislative framework under review, but we do not consider that wholesale changes, either at national or EU level, are necessary or appropriate. It is important that EU regulation in this area could be a negative if it were to stifle growth. We need, again, to be careful and cautious on that.
In considering how best to address the challenges and, indeed the issues of regulation, I believe that there is no single bullet. Technology is constantly changing, as the noble Lord, Lord Gordon of Strathblane, said. I agree entirely with him that legislation should be less complex and more understandable, but there are occasions when the draftsmen defeat us all. I believe that we should avoid legislation with a short shelf life, particularly in a changing environment. We must, however, have a framework in which the industry can grow and in which consumers—most important of all—are protected. Various strands of ongoing work are in place that aim to address many issues set out in the committee’s report, and there are still further developments to consider all the time as convergence evolves.
The noble Lord, Lord Stevenson of Balmacara, challenged me on what might be called the strategic priorities for the Government. That is why the paper was produced. The Government wish to establish world-class connectivity throughout the UK, to support the production of world-beating, innovative content and services that originate in this country, and to ensure consumer safety in an increasingly online world. We also wish to keep the cost of living down by ensuring that consumers have choice.
I assure noble Lords that we have discussed both the committee’s report and the paper, Connectivity, Content and Consumers with colleagues and officials. The Select Committee’s report has given great insight into many issues with which we are all having to wrestle during this continuing process. I assure your Lordships that we think that much of what the committee proposes should be developed further. I renew my thanks to all who have worked on this report and acknowledge it as a valuable resource that has indeed helped enormously in addressing the challenges that undoubtedly lie ahead.
Lord Inglewood
My Lords, I thank all those who have taken part in this debate. I hoped that we might have been slightly more numerous, but I know that the particular circumstances today have meant that a number of noble Lords who would have liked to take part have been unable to do so. I begin by thanking all those, in addition to the Minister, who took part. They endorsed and underscored the approach of the committee, pointing out, as I said, that the issue is complicated and not straightforward. Wider implications are involved and nothing is clear.
I turn specifically to the Minister. It is true that, in my opening remarks, I commented on the physiognomy of the initial response. Rest assured, we did not write the report in order that we might get a clap on the back from the Government. We wrote it, and believe it is important, because the kind of things that I and other Members of your Lordships’ House described are going to happen. That has huge implications for the country, and we need to respond to the changes, working with the Government to bring about the best for the country.
I will make one point in response to something that the noble Lord, Lord Stevenson, said. There is a difference between regulation and the regulatory framework surrounding this sector. We are not necessarily keen on seeing more regulation; we believe that the regulatory framework within which this sector operates will have to adapt. If we have made a positive contribution —as I believe we have, from what the Minister said—towards trying to bring about an evolving policy that is sensible, realistic, workable and effective, we will feel that we have done a constructive job. I beg to move.
Tackling Corporate Tax Avoidance: EAC Report
(11 years ago)
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Lord MacGregor of Pulham Market
That this House takes note of the Report of the Economic Affairs Committee on Tackling corporate tax avoidance in a global economy: is a new approach needed? (1st Report, HL Paper 48).
Lord MacGregor of Pulham Market (Con)
My Lords, I am pleased to introduce the report of the Economic Affairs Committee entitled Tackling Corporate Tax Avoidance in a Global Economy: Is a New Approach Needed? I declare my interests, although I think they are pretty remote for this inquiry, as chairman of the British Energy Pension Fund Trustees and of the Eggborough Power Ltd Pension Fund Trustees.
I begin by paying tribute to the Leader of the House and the business managers for giving us an early opportunity—and in prime time in the Chamber—to debate this Select Committee report. This is a welcome and swift response to criticisms by Select Committees that they have often had to wait a long time to get a debate and response from the Government, and then get one only in the Grand Committee Room.
I am grateful to all the witnesses who contributed oral and written evidence to the inquiry and to our specialist adviser Professor Michael Devereux, director of the Oxford University Centre for Business Taxation and associate dean of research at the Said Business School. Professor Devereux’s knowledge, expertise and advice made an essential contribution to our report. I am also very grateful to our committee clerk, Bill Sinton, and his staff for their first-class assistance.
We decided to undertake this inquiry because of the rising public, media and parliamentary concern that multinational companies are not paying their fair share of UK tax. We also decided to make it a relatively short one, over the spring and early summer, because, given the topicality and urgency, we did not think that we should carry on the hearings after the Summer Recess and into the winter. The Public Accounts Committee in the other place was concurrently holding its hearings and we had the benefit of having the chairman of the PAC as one of our witnesses.
Before and as we launched our inquiry, there was a steady stream of stories in the media about multinational companies that in practice pay little or no UK corporation tax, even when they are doing very good business here. Examples included Google, Amazon and Starbucks, as well as the British-based Vodafone, Thames Water and Cadbury before its takeover by Kraft. This practice undermines public trust in the fairness of the system, calls into question corporate sector responsibility, raises doubts over the effectiveness of HMRC in ensuring compliance with corporation tax, reduces the tax revenue to HMG that should legitimately be coming here, and can place UK-based firms at a competitive disadvantage if they operate mainly or solely in this country and pay their full taxes here. This can in particular affect small to medium-sized businesses that are attempting to compete and grow.
In some cases, UK corporation tax seems to a considerable extent to be a voluntary tax for multinationals. Starbucks’ volunteering of extra payments in the UK after bad publicity suggests that it recognises that. As the PAC noted, Google generated $16 billion revenue from the UK between 2006 and 2011 but paid just $16 million of UK corporation taxes in the same period. Even after accounting for all its expenditure, it is still a huge gap.
There is a serious issue of avoidance of corporation tax to be tackled. Part of the problem is the complexity of the UK’s tax system but the main scope for corporate avoidance arises from the international tax system, which allows multinational companies to shift profits between countries to lower-tax regimes and reduce their tax liabilities in the UK, even when they are doing good and substantial business here.
Our report, based on the evidence, fully recognised that the Government are giving priority to tackling these issues but, recognising the challenges and concerns, also made some further recommendations. I have to say that I find the Government’s response somewhat disappointing, defensive and perhaps slightly complacent. That may not have been the intention but the impression is given that it can be summarised as, “Of course there is a problem but we are doing all that is required to tackle it”, and they are dismissive of any other recommendations.
Two key points underlie our analysis. First, international companies, like all others, are entitled to frame their tax policies with a view to minimising tax within the rules, although multinational companies are diverting huge resources to exploiting to the maximum what the rules enable them to do. I will have something to say later about whether HMRC is sufficiently resourced to ensure that companies are paying their proper share. Secondly, we recognise that fundamentally this issue can be fully and properly tackled only at the international level because it is so often the difference between the tax regimes that makes the exploitation and ability to minimise the tax possible.
I will turn briefly to the areas in which we are in agreement with the Government’s response and where we actually said so very firmly in our report. We acknowledge that changes are being carried out throughout the corporate tax road map and steps are being taken to simplify the tax system and make UK corporation tax one of the most competitive in the world. We acknowledge all the efforts to tackle tax avoidance, in GAAR, DOTAS and so on. We acknowledge and support the increased resources and manpower for HMRC to tackle tax avoidance and evasion, and the successes it has achieved. Above all, we acknowledge the key importance of international action and the Government’s leading role in the OECD multilateral project on base erosion and profit-shifting. All this is agreed and supported by our committee.
However, three of our recommendations were not accepted. The first is our proposal for an urgent review, to be undertaken by the Treasury, of the UK corporation tax regime, which should report back with proposed changes to be made at home and pursued internationally. Our report lists six issues for this review, of varying importance. The one I would single out is a review of alternative tax structures, such as a destination-based cash-flow tax, which we analyse in some detail.
I will explain the reasoning for that recommendation. There is general agreement that the various individual countries’ tax regimes do not reflect the changing business models, the domination of multinational corporations and the challenges of the digital economy. This is well recognised in the G20 Leaders’ Declaration of September 2013. Their solution is the OECD’s action plan on base erosion and profit-shifting, to be completed in two years.
One attraction for doing the work into alternative tax structures that we are recommending is that there is no certainty, to put it mildly, of a successful outcome of the OECD’s BEPS—as it is known—action plan within two years. One needs to look only at the OECD’s plan of action, published in July, to see what a truly formidable range of work has to be undertaken, let alone agreed among so many Governments. There is a serious risk at international level that we are putting all our eggs in one basket and that three or four years on we would be no better off. The advantage of the destination-based cash-flow tax is that it could be introduced unilaterally.
Secondly, I note that the Government have by implication rejected our recommendation that HMRC should be better resourced, by outlining all that has already been done. I acknowledge that the evidence so far is that extra resource has been more than self-financing in the revenue it has produced. I have looked at this quite a few times in the past and our recommendation for more resources was designed to help and support HMRC in the good work that it has been doing. That is why I am disappointed that the Government have dismissed our recommendation. As a former Chief Secretary, I have to say that it is the kind of extra resource I would encourage. It is difficult to judge how much extra resource is needed but the evidence is that it would well justify itself.
Thirdly, I regret that our recommendation of a joint parliamentary committee, along the lines of the Intelligence and Security Committee, to oversee HMRC has been rejected on grounds of taxpayer confidentiality. The same argument about confidentiality could be used against the existing intelligence committee on grounds of national security, but there has never been a breach or leak. Meanwhile, Parliament has to take it on trust—relying on the National Audit Office, another body of officials—that all is well in HMRC with the resources that it has. I hope that this recommendation will be looked at again.
Finally, I have three specific questions for the Minister when he comes to wind up. Can he update us on progress since publication in July of the OECD Action Plan on Base Erosion and Profit Shifting? Is the way ahead any clearer? Can the Minister also update the House on progress on some of the Government’s other anti-avoidance initiatives, such as giving HMRC the ability to name high-risk promoters of tax avoidance schemes? I understand that consultation on this ended on 4 October. Can the Minister brief us on the current status of the Government’s proposals to exclude companies whose tax affairs are not in good standing from bidding for public procurement contracts? How would such measures be consistent with that respect for taxpayer confidentiality which the Government invoked against the idea of naming and shaming users of aggressive tax avoidance schemes, as well as their advisers?
I shall leave it to other noble Lords, who have practical experience of corporate issues, to focus on some of the matters I have not had time to deal with, such as debt equity finance. I look forward particularly to the maiden speech of my noble friend Lord Leigh of Hurley.
I conclude by saying that our committee is composed of many with great experience and knowledge in business, finance, tax and academia, and they have brought that business experience and wider knowledge to bear on this report. I am indebted to them all; it is a privilege to chair such a committee. I beg to move.
Lord McFall of Alcluith (Lab)
My Lords, it is a pleasure to participate in this debate and to have been a member of the Economic Affairs Committee under the wise chairmanship of the noble Lord, Lord MacGregor. As he said, this is a short report which will advance matters a small amount, but it contains the opportunity for the Government and others to act on issues and to take them forward.
Our report asks whether a new approach is needed. The answer is an unequivocal yes. At the heart of the report is the statement that the UK has serious problems with the avoidance of corporation tax. As the noble Lord mentioned, that is partly due to the complexity of our domestic tax regime, but principally it is because of an international tax system which gives multinational companies the ability to shift profits between countries in ways which minimise their tax liabilities in the UK. The effect of that is to damage the economy and undermine trust in the taxation system. It has both social and economic consequences. We are witnessing democratic failure here and the electorate have caught on. They are unconvinced that the political class will solve these big issues, and there are no issues as big as this to solve. The electorate are of that opinion because they see the social contract as broken—the social contract which was founded on the premise that everyone got a slice of the pie. Over the years, some got a bigger slice, but now we find that, while some are still getting a big slice, others are getting nothing.
The noble Lord, Lord King, the former Governor of the Bank of England, made the point recently that wages and standards of living in 2017 will be the same as they were in 2007. Professor Joseph Stiglitz, who is a professor at Columbia University and a former chief economist at the World Bank, stated, in his book, The Price of Inequality, that the global economy is sick, has been sick for a long time, and that that is infecting our politics. He cited figures to show that, in the US since 1979, output per hour has gone up by 40%, but pay has barely increased. Meanwhile, the top 1% in the US takes home more than 20% of national income. He asked whether the great recession has made things worse. It has made things worse for 99% of people, but 95% of the gains between 2009 and 2012 went to the top 1% of society.
We can see the same trends in our own country. The electorate feel that their views are less important than those of the banks and financial institutions, the energy companies and the multinationals like Google and Starbucks. Our report backs that up when it says that multinational companies are unique in that their corporation tax payments are largely a voluntary activity. That is endorsed by Sir Martin Sorrell of WPP, among others. However, it is not a voluntary activity for the rest of society. The message from HMRC at the end of the year will be that people better get their self-assessment tax returns in by 31 January otherwise they are liable to a £100 fine per day. Rightly so, we should say. But, if we are to have a level playing field, and the chance to restore both economics and politics to health, then we must urgently look at this situation.
Earlier this month, HMRC estimated that there was a £35 billion tax gap which it was failing to collect. The noble Lord, Lord MacGregor, made the point that our proposal for HMRC to have extra resources had been rejected. If it had those resources, as it has done in the past with positive results, then some of that £35 billion could be clawed back. If the Chancellor had that £35 billion in his hands, he could reduce the basic rate of tax from 20p in the pound to 12p. There is a big pot to get hold of, but we need the resources to do so, and it is disappointing that the Government have rejected that proposal. Tax evasion is relevant to the everyday lives and struggles of us all, particularly at this present time of austerity.
Is the UK a soft touch here? It does seem so. The recent examples of Starbucks and others who shifted their profits elsewhere illustrate that point. Since their naming and shaming, the voluntary payment of £20 million by Starbucks is welcome, but it is not the answer. We need to change the structure. The use of outlandish gimmicks to shelter profits in other countries must cease. Google is claiming, absurd though it is, that its intellectual capital resides in Bermuda. That would be okay if it was not for the fact that it was approved by the US Internal Revenue Service. That illustrates just how difficult the situation is and how we need to tackle it globally. In my capacity as a member of the Parliamentary Commission on Banking Standards, we saw how our own domestic banks—HSBC, UBS, Standard Chartered, Barclays and others—were fined almost $4 billion by the American authorities for engaging in money laundering activities. The HSBC evidence to the Parliamentary Commission on Banking Standards was very clear. It admitted that, on day one of assuming control of a Mexican bank in 2002, there was an e-mail from the head of compliance which made it clear that there was no recognised compliance or money laundering function in the company. Yet it allowed that to fester for years.
Why do I mention that in the context of a global financial situation? It is not a victimless crime. During the period of HSBC’s ownership of that Mexican bank, 35,000 individuals in Mexico died at the hands of local drug gangs. So there is a moral as well as an economic case to be looked at. We need international co-operation. We cannot do this alone. The G8 took place in Lough Erne, where warm words and a forced solidarity of leaders gave some reassurance. However, the mild language in our report where we say that we are not yet clear how effective the proposed solutions can be or whether they are achievable within the timescale puts a question mark against the purpose of the G8 in ensuring that this issue is tackled.
I want to put forward a few proposals for what we need to do. First, we need to tackle the opacity of the international structures. They are giving companies an easy advantage in using differences in tax rates between jurisdictions to avoid paying tax legally. The International Financial Reporting Standards, which are overseen by the International Accounting Standards Board, need to be urgently reviewed. Presently the International Accounting Standards Board is an independent, non-governmental body comprised of representatives from the accountancy and tax professions, but it is not overseen or regulated by government. Given the state we are in, there has to be a role for government oversight of this issue. We have to look at how tax structuring is based in the IFRS and elsewhere. The Government need oversight of these accounting standards.
Secondly, we need also to ensure that we remove the lack of transparency of, lack of control over and lack of accountability in the basic tax system that we are now witnessing. Thirdly, in promoting transparency and more democratic accountability, we need a stronger culture. A public beneficial ownership registry is an important aspect of that. Both the Government and the EU have carried out cost-benefit analyses on it. The Government’s cost-benefit analysis produced a figure showing a saving of £30 million in police time alone, while the European Commission has said that the United Kingdom could save €420 million if this register was created. It would be the correct thing to do to have such a register so that we know who owns the companies and what benefits they bring. Apart from revealing savings and costs and being able to tackle money laundering and fraud, one of the key aspects of such a register would be transparency.
For example, in the recent horsemeat scandal, the key companies were set up by the same Cypriot professionals who helped the infamous arms dealer, Viktor Bout, to create his web of secretive companies. If such a register was established, it would provide business with important information about partners, suppliers, investors and customers, and it would ensure that the law enforcement and tax authorities, including those outwith the UK, would have quick and guaranteed access to information. That would be helpful to us all. At the G8 summit the Prime Minister promised,
“to push for more transparency on who owns companies”.
We need this public register. I know that this Thursday and Friday the Open Governance Partnership will hold its summit meeting, and I would like to think that the Government will take up this recommendation and ensure the establishment of a register.
I turn now to transfer pricing and the many ways companies find to shift profits between countries. As the noble Lord, Lord MacGregor, said, the Government’s response on this issue is inadequate. Stepping up the fight, as they say, misses the point. Our report shows that currently there are legal ways to avoid paying UK taxes that are owed because of the very many existing loopholes. We need to identify and close those loopholes. If I was asked to choose between name and shame or ensure transparency, I would ensure transparency on the basis that if we name and shame the “bad” acts, we will see that many of those acts are perfectly legal at this time. Transparency is the key here.
In the end, Starbucks did us a favour because the public finally became aware of an international financial structure that has substantially reduced government tax receipts in a way that directly affects the daily lives of many lower and middle income families in the UK and around the world. The question should not be “How much is Starbucks paying in tax and is that fair?” but “What are all UK companies paying in tax?”. Paragraph 86 of our report makes this point clearly by stating that,
“large companies operating in the UK should make public disclosure of their UK corporation tax returns”.
If the amounts are low when we see the figures in the public domain, the Government can review the applicable tax structuring and identify what legal arrangements are needed to allow these companies to continue operating in the United Kingdom.
In addition, it is essential to make country by country financial reporting publicly available in order to identify problematic tax arrangements. The charity Christian Aid has identified the fact that $160 billion are lost from poor countries every year due to tax dodging. That is more than all the developing countries together receive in aid. This haemorrhaging of the much-needed resources that are required to combat poverty and hunger and to fund vital public services is a continuing scandal. The situation is being allowed to continue to fester.
As the noble Lord, Lord MacGregor, said, the OECD has been charged with some responsibilities, but it has stated that the information from country to country reporting should be made available only to tax authorities, not to the public. I suggest that if that practice continues, we are not going to advance this issue by one whit. The Government urgently need to take this on as part of an international agenda and ensure that country by country financial reporting is secured. Professor Paul Collier of Oxford University has done much to highlight the social and economic injustices of global tax structures. He has noted that the G8 countries are now beset by the corporate opacity that Africa has faced for decades. He identifies the G8 as being far more important now, in times of austerity, than it was in the easy years of the rising economic tide.
I suggest that this short but sharp report can help us to think about the bigger picture, one that we should use to put our own house in order so that at last we can do something beneficial not only for our own citizens, both rich and poor, but for the poor in developing countries around the world.
Lord Smith of Clifton (LD)
My Lords, I thank my noble friend Lord MacGregor of Pulham Market for introducing this debate and for his consistent and exemplary chairing of the committee. I also join with him in thanking our clerk, Mr Bill Sinton, and our special adviser, Professor Michael Devereux.
The very widespread practice of exploiting low-rate foreign tax havens and corporate tax avoidance facilities should be placed in the wider context of the contemporary character of commercial behaviour in the UK and, indeed, in other major western economies. We have witnessed a plethora of scandals in banking, insurance, fund management and elsewhere; hardly a sector remains untouched. All of these scandals derive from the nature of modern business which is based on greed and the quest for quick bucks while ignoring long-term considerations, and has contributed to a mindset that induces corruption, bribery, fraud, insider dealing and other criminal actions. These have been all too little investigated in the past, although the prosecution rate is now increasing, particularly in the United States. The UK has some way to go in order to catch up in this respect.
Turning a blind eye to such illegalities has encouraged a lowering of standards across the board. If criminality goes unchallenged, sailing close to the wind, stretching the rules and following only the letter but not the spirit of the law become par for the course. We live in an economic polity where much, probably excessive, reliance is placed on regulators to monitor activity in the public interest. The system simply cannot cope, and there is hardly a regulatory agency in this country that is fit for purpose. The BBC Trust, the Independent Police Complaints Commission, the Care Quality Commission, the Serious Fraud Office in particular, Ofwat, Ofgem, Ofsted et al have all been subject to severe criticism. Quis custodiet ipsos custodes? is as pertinent a question today as ever and is one that Her Majesty’s Government should seriously ponder. Perhaps the Minister could comment on the merits of this observation. It is a problem that will not go away.
As this report shows, Her Majesty’s Revenue and Customs is also a deficient regulator when it comes to policing tax avoidance by companies. Unlike tax evasion, avoidance per se is not criminal. However, it is unethical and flies quite blatantly against the spirit of the law. Its widespread practice is indicative of the contempt so much of UK business has for high standards and ethical conduct—in other words, contempt for the public in general.
In the report the committee points to the extent of the practice and the deleterious consequences that follow from it, and acknowledges the difficulties of securing internationally agreed rules to minimise it. The report also points to the growing discontent among the public, which the noble Lord, Lord McFall, also referred to. This is all too understandable in a period of austerity. Why should large corporations, which are either resident in the UK and/or making huge profits here, escape paying corporation tax and behaving like good citizens? The report also raises the question of how far HMRC falls short as a regulator, and how difficult it is to assess this given the secrecy in which it operates. It suggests that HMRC’s resources are too meagre for the job it is required to do.
The report questioned the appropriateness of employing secondees from the big four accountancy firms to advise on how best to deal with the problems of tax avoidance, given that these very firms earn considerable sums advising major companies how best to minimise their corporation tax liabilities. As we noted, only two days ago the Public Accounts Committee again questioned HMRC senior staff on the apparent feebleness of its treatment of what Mrs Hodge called the “immoral” tax avoidance schemes employed by Google, Starbucks, Amazon and many others. Accordingly, we recommend that HMRC has better resources, that company tax advisers should be regulated, and that a joint parliamentary committee be appointed to oversee the work of HMRC.
Her Majesty’s Government’s official response to these rather modest proposals, according to my rough calculations, was to “agree” with three of our recommendations and “disagree” with eight, while merely “noting” 11. This tally, which is in effect a complacency index, is disappointing to say the least, as the noble Lord, Lord MacGregor, mentioned. In view of Her Majesty’s Government’s attitude as revealed by this tally, “deplorable” might be a better description. I ask my noble friend Lord Newby whether he thinks that this is an acceptable tally.
Perhaps because of this official complacency, the Independent and its sister newspaper the Independent on Sunday were very recently prompted into a week-long, detailed analysis of offshore tax avoidance by major companies. They concentrated on the quoted Eurobond exemption loophole created in 1984. The papers revealed that the practice is far more widespread than our report showed. More than 30 companies across a wide range of economic activity use the loophole, at an estimated loss to the Exchequer of £35 billion. Companies being advised by the big four accountancy firms to exploit this loophole range across high street retailers, care and health providers, and public utilities in gas, electricity and transport.
While these companies are clearly not model citizens, the former editor of the Independent, Andreas Whittam Smith, concluded last week that Her Majesty’s Government are the real culprits, because they speak with a forked tongue. Using the helpful terminology of Murray Edelman, “exhortatory” political language is used to beguile the public, and to stress that the Government believe in fair taxes and are fully committed to stamping out “aggressive tax avoidance” schemes. However, the Government employ Edelman’s secretive bargaining language of politics to give businesses a nod and a wink that the Government will turn a blind eye to all but the most blatant practices, in order to encourage home and overseas investment. That helps explain the feebleness of HMRC.
Most tax havens are of course British Crown dependencies. If the Chancellor promised to rein them in, he would have a powerful card to play in seeking internationally agreed tax avoidance rules. But I fear that Mr Osborne will not play that card, as he is clearly intent on making the UK itself a tax haven.
What is the result? Business is aware of how low it has sunk in public opinion. Its PR advisers polish up the tried and trusted—at least by them—technique of owning up to shortcomings in a very generalised way, and initiating new dialogues about the need for greater ethical concern. Unsurprisingly, as I speak, this is already being diluted to “integrity”, which is a lesser word in this context. Hence the meeting on 24 October of some 200 senior business executives with religious leaders, headed by Archbishop Vincent Nichols with the support of Archbishop Justin Welby, to discuss the draft for a “blueprint for better business”. I wonder whether they arranged a conference call to seek the views of Sir Richard Branson from his Caribbean tax haven.
In a similar vein, Sir Richard Lambert has been asked to direct a standards board for the banking industry. Although I do not doubt the sincerity of those involved, the truth is that as always their proposals will be but the latest edition of the “Book of Proverbs”. They will have as much practical impact on the pursuit of business life as other such endeavours, from the Cadbury report on good governance in 1992 to the more recent Vickers and Davies reports. Is that too cynical a view? Remember that our report stated that Cadbury had been aggressively avoiding tax for years, long before its acquisition by Kraft. Nothing alters, it seems.
In the light of the Independent’s revelations and the findings from the Public Accounts Committee’s questioning of HMRC officials last Monday, will the Minister say how the Government will adopt a much stronger approach to tax avoidance, or will this be yet more empty rhetoric?
Lord Lawson of Blaby (Con)
My Lords, I start by thanking my noble friend Lord MacGregor for his outstanding chairmanship of the committee, and for introducing this debate today. He has been outstanding. He has been a friend of mine for a very long time, since before either of us entered the House of Commons, let alone this very illustrious House. Indeed, for part of my time as Chancellor he was my Chief Secretary to the Treasury, and I could not have had a better one. He has proved that he is a man of many talents, because he is as good a chairman of a Select Committee of your Lordships’ House as he was a Chief Secretary to the Treasury.
This report is called, Tackling Corporate Tax Avoidance in a Global Economy: Is a New Approach Needed?. Our answer was yes and the Government’s answer was no. That is a slight difference between us. My noble friend Lord MacGregor, who is a man of great understatement, said that in his judgment the Government’s response to our report was complacent and inadequate, as indeed it was, and in many ways it was also appallingly petty. I will refer to one or two things in a moment, but first let me reflect on why it was quite so bad.
One change that has occurred since my time has concerned me more and more. During my time there were two revenue departments—the Inland Revenue and Customs and Excise. The Inland Revenue was an absolutely first-class department, and it was a privilege to be the Minister responsible for it. Customs and Excise was very different; it was excellent on the drugs side. Its intelligence network, which is of the greatest importance in combating drug imports, and so on, was considerably superior to that of the police. It was also pretty good in its anti-smuggling responsibilities. Where it fell lamentably short of the standards set by the Inland Revenue was on the tax side. What happened is that subsequently, after my time, the two departments were merged and, instead of the standards of the better department being the standards of the whole, it has gone more the other way round. That happens very often with mergers of one kind or another, which look extremely rational but have that result.
Another thing that has greatly weakened tax policy in this country is that, again in my time, there was a very small tax policy division in the Treasury, but there was also a powerful tax policy division in the Inland Revenue. Since then, tax policy has been put entirely in the Treasury. There is now no tax policy division in the Inland Revenue, with the result that people on the policy side know nothing, or very little, or certainly very much less, about how the system works in reality. The knitting together of policy and administration is crucially important. So I am not surprised—although I do not think that it is the only reason—that the Government’s response to our report was so pathetically lamentable. I think that that has contributed to it.
Before I say anything more that my noble friend the Minister might find disagreeable, I will say one thing that pleased me about the Government’s response. Perhaps he would like to speak about it. One recommendation that we made was that the Government should look again at the different treatment of debt and equity capital in a company’s accounts. This completely different treatment, in which there is a tax allowance for interest on debt but no allowance of any kind for the dividends paid on equity, encourages the accumulation of debt. The noble Lord, Lord McFall, mentioned that he was a member of the Parliamentary Commission on Banking Standards, as was I. We made a recommendation on that, because it is real Alice in Wonderland; you have the regulator telling the banks that they must have less debt and more equity and the tax system saying that they must have more debt and less equity. That really cannot be very sensible. Even apart from banks, as the Mirrlees report pointed out, and as we point out in our report, there are very good reasons why this should to be looked at seriously.
I am glad of one good deed in a naughty world. The Government said in their response that they welcome,
“the Committee’s interest in this area. In response to the recommendation of the Parliamentary Commission on Banking Standards, the Government is reviewing the wider case for an allowance for corporate equity. The tax treatment of debt is one of the issues being explored by the OECD BEPS project”.
I am very glad to hear that, and I hope that my noble friend the Minister will tell us where they have got to on that, and what is their latest thinking.
For the most part, I am afraid that this is an extremely disappointing reply—and that is an understatement. I will give the House a flavour of the reply. On our main recommendation the Government say that they,
“do not consider that a fundamental review of the corporate tax system is necessary or would add value at this stage … and to change the rules unilaterally could undermine our attractiveness as a location. Changes on this scale could impose significant transitional costs on HMRC and businesses”.
There are a number of fallacies there. First, it is certainly desirable that we should have in this country as benign a tax regime as we can, consistent with finding the finance to pay for necessary public expenditure. But in my experience, what people look to when they are thinking about where to locate their investment and do business is, first, the size of the market, and how prosperous and good it is; whether the rule of law can be relied on; and whether the overall tax regime is attractive. The personal tax regime has, in my experience, more of an effect in many cases on how people see the jurisdiction than corporate tax or other forms of taxation. They also take into account the social legislation and whether there is too much regulation. All those things are taken into account. The idea that somehow, if we go it alone on corporation tax, we will no longer be attractive, is totally absurd.
We have to go it alone, because there has been a fundamental change in the world economy. Nothing in this world that I have ever come across is all good; there are always some disadvantages. Some of our witnesses tried to pretend that a lot of modern commerce has become dematerialised through the internet age. Nothing could be as material as a cup of coffee, yet Starbucks was among the most prominent of the early users of tax avoidance, which, I may say, is totally legal. That is the point: it is totally and completely legal. But globalisation has changed things—and, overwhelmingly, it has done good. If I had to choose the single best thing that has happened as a result of globalisation, it would be the success of so much of the developing world. The emerging world has really emerged successfully, which would not have been possible without globalisation or the freedom of trade and capital movements. Those private capital movements dwarf aid flows into complete insignificance, as well as being of rather better quality than aid flows. Globalisation has enabled China and a number of other countries, most but not all of them in Asia, to develop in the most wonderful way in the past 25 years. But nothing is without its drawbacks and disadvantages.
The Government have to face up to the fact that globalisation means that the corporation tax system is no longer fit for purpose, and will not and cannot be fit for purpose, because multinational companies will move profits legally to wherever the tax regime is lowest. A number of ill effects flow from this. One is that the Chancellor loses much needed revenue—and I feel for him, particularly when we have a deficit the size of the one we still have, although happily it has gone down a great deal. Loss of revenue is a serious business. A second flaw, defect or downside, as other noble Lords said, is that it brings the whole tax system into disrepute. That is not a good thing at all.
The third thing is that it is grossly inequitable. Although all those multinationals—I have nothing against multinationals—can shift their profits and intangible assets around the world in such a way that they pay little or, in some cases, no UK corporation tax, the backbone of this country is the small and medium-sized enterprises that are national companies, not multinationals. They still have to pay the full rigour of corporation tax. There is no level playing field. It is a totally inequitable system.
What are the Government doing? They are just prancing around and saying, “We are talking about it with our opposite numbers from other OECD countries and other European countries” and goodness knows what. They love going to conferences, and every so often they go to a conference and make a statement that they have reached a great understanding or agreement, but they have not. The system is just the same. The problem is just the same; it has not gone away. Then they say, “We will approach it this way, but we could not possibly take a lead”. God forbid that the United Kingdom should take a lead and introduce a sensible tax system of its own, which would probably comprise—although we do not lay down what it should be—a very low level of tax on corporate profits with a low level of corporate sales tax, because sales in this country are sales here that could be taxed here.
So what is the answer? We should take a lead, but instead, nothing happens. I have to say to the Government, “You’re not even getting nowhere fast; you’re getting nowhere slowly”. This simply will not do. They have to realise that corporation tax in the modern world has had its day as a major source of revenue. We have to find a new system. The modest proposal that we made, which was that there should be a review, is incontrovertible. I hope that my noble friend will sing a different song from the pathetic government response which this committee was accorded.
Lord Browne of Ladyton (Lab)
My Lords, it is a genuine pleasure to speak after the noble Lord, Lord Lawson of Blaby, and not just because I rise while the sense of the Government getting a bit of a drubbing is still in the air—although I am not unhappy about that. The noble Lord’s robust, challenging interrogation of the Government’s position did the House a service beyond just making life difficult for the Government. I apologise to the Minister for glorying in that a little. The noble Lord shared with us some common sense, straightforward arguments based on his extensive experience that made many points with which I agree much more understandable to me than they were before I rose to speak.
I look at the list of those who have chosen to speak in this debate. Excluding those who speak from the Front Benches, I see that there is an unwise minority of us who are not members of the distinguished Select Committee. As I am the first of that unwise minority to speak, it falls to me to thank the noble Lord, Lord MacGregor of Pulham Market, and his committee for the service that they have provided to the House not only in taking on this short inquiry but in producing such a readable, comprehensive and accessible report in an area of great complexity. The committee has produced a series of serious, simple recommendations. I join the noble Lord, Lord MacGregor, my noble friend Lord McFall and the noble Lords, Lord Smith of Clifton and Lord Lawson, in expressing regret and disappointment that the Government’s response was so self-congratulatory. It was not just disappointing but complacent.
I intend to devote a significant amount of my short contribution to expanding on the argument, which has already been made, about whether the Government are entitled to any degree of complacency or self-congratulation in this area. There is significant and recent evidence provided through the witness examination of the Public Accounts Committee that there is no room for complacency or self-congratulation, but that the challenges are still significant and growing.
In its report, the committee justifies the whole process in the first phrase of the first sentence of the summary, which states:
“The UK faces a serious problem of avoidance of corporation tax”.
The last sentence of that paragraph states:
“This damages the economy and undermines trust in the tax system”.
I know from previous debates that the Minister shares the view that that is a serious and significant challenge. That view has gone well beyond those who are in the know about the detail of what happens in the Treasury or in her Majesty’s Revenue and Customs. The people of the United Kingdom know in spades that we face a serious challenge on that, and there is an expectation that we will respond in a serious manner to those challenges.
When we search for some proxy for describing the nature or the scale of that challenge, in previous debates, we have gone to the tax gap. I now know, although I did not fully appreciate this, that the avoidance of taxation by the methods referred to in this report are not included in the tax gap, but the tax gap is a good proxy indicator of the scale and nature of the challenge.
I last spoke on these issues in your Lordships’ House on 6 June, when we debated a Motion moved by my noble friend Lord Foulkes of Cumnock that this House take note of the economic and social consequences of tax evasion and avoidance. In the Official Report, at col. 1308, the noble Lord, Lord Newby, followed the estimate that we were all using that the tax gap was about £32 billion—not all of which, of course, is avoidance of tax by corporate bodies, and none of which, it would appear, is avoidance of tax by multinationals operating the devices referred to in this helpful report.
It was said to be £32 billion and falling. To test whether the Government’s confidence in what they intend to do to reduce tax avoidance is well-placed, I go to the first answer given by a man by the name of Edward Troup, who is the tax insurance commissioner for Her Majesty’s Revenue and Customs, when he gave evidence before the Public Accounts Committee only this Monday, 28 October, at a hearing of the committee to which the noble Lord, Lord Smith of Clifton, has already referred. The transcript is a veritable mine of useful information to test whether what we are doing as a country to address this issue is having any effect at all, or any measurable effect.
I should say that this is the uncorrected transcript of the oral evidence, and it may be adjusted later, but the very first question put to Mr Troup is about the tax gap. He says that it is £32 billion and falling but that it,
“has gone up from £34 billion on an adjusted basis last year to £35 billion in cash”.
I am not sure whether those two figures are comparable, because I am always conscious of vocabulary, but he says that it has gone up from £34 billion on an adjusted basis last year to £35 billion in cash. Thereafter follows some significant to-ing and fro-ing between the members of the Public Accounts Committee and the witness. That to-ing and fro-ing is calculated to leave everybody utterly confused about how those figures are made up and how reliable they are. What is unequivocal is that the tax gap is going up. That is the evidence that was given only a few months after the Minister who will respond to this debate unfortunately told your Lordships’ House that it was lower than that and going down. That was the best information with which he was provided from the same sources. I understand that because I have been in that position myself. The first proxy for this that we can find indicates that the situation is getting worse, not better.
My first question is: what is the current estimate of the tax gap? Is it £32 billion, the figure which was being deployed in June? Is it £34 billion which was apparently the unadjusted figure for last year? Is it the £35 billion cash figure for this year, and is the gap going up or down?
Secondly, this evidence makes it clear that the tax gap does not include any estimate of the taxation we as a country are being denied by the practices identified in this report, with which we have all become familiar. This is for good reason. As the noble Lord, Lord Lawson, said, this is not illegal. Until the policy and the law change, there is no way of estimating what it is. From page 8 onwards in the transcript of the evidence there were some interesting exchanges between Austin Mitchell, a Member of Parliament, and the same witness. The committee tries to put some scale to the taxation avoided by these processes. The way it does so is interesting. The scale is drawn from information communicated to the SEC in the United States of America by companies discussed before in the debate—Google, Starbucks, others—about the scale and nature of their sales in the United Kingdom. The disparity between the figures is astounding. These companies are telling the United States regulators and others that they are doing billions of pounds’ worth of business in the United Kingdom whereas they are telling Her Majesty’s Revenue and Customs that they are doing at most hundreds of millions of pounds’ worth of trading here.
The most interesting thing about this evidence is that nowhere does there appear to be any estimate of the revenue lost. Nowhere does there appear to be an estimated figure we can put to the nature and scale of this problem. That passage of evidence alone—I shall end on this because I want to do service to this report but I cannot go into all the detail of it—generates an incontrovertible argument for the recommendation of the Select Committee for some method of coherent and appropriate accountability to Parliament. That method should follow the example of the Intelligence and Security Committee. The reason the argument is incontrovertible is that as you follow the evidence you discover that HMRC witnesses cannot give any answers. They cannot answer for policy because apparently they have no involvement in policy. They cannot answer for estimates because their business is collecting the taxation that is due, not estimating. They cannot answer in relation to individual taxpayers’ experience with Her Majesty’s Revenue and Customs because that is confidential. Thus there is no accountability at all.
This is not a question of confidence in the taxation system being bolstered by a process in which there is no accountability. It is an example of confidence in the taxation system we have in this country ebbing away because there is no accountability for it. Rebuilding confidence will require Her Majesty’s Government to realise that transparency, accountability and a shared knowledge of what is going on inside our tax system lie at the heart of the matter. As to what the noble Lord, Lord Lawson, has suggested about restructuring the taxation system, I should have to look at the details carefully, but what is necessary is accountability in Parliament. We, at least, need to know who owes what or who should have been paying what, and we do not.
Lord Leigh of Hurley (Con)
My Lords, it is with great pleasure that I rise for the first time, to speak on this important issue of tackling corporate tax avoidance in a global economy, in the same debate as my noble friend Lord Lawson whom I have admired for so many years, for reasons connected to this debate, which I will come on to shortly.
I want to start by thanking the many people here who have helped me in so many ways, particularly since my introduction. This includes those who work here, for what seems to be very long hours, and who have guided me through the past few weeks. I am very grateful to my supporters, my noble friends Lord Feldman of Elstree and Lord Fink, who have been close personal friends for some time, and with whom I have had the honour to work in my role as a treasurer of the Conservative Party.
I understand that it is customary in a maiden speech to make a few remarks about oneself. Members of my family first arrived in this country in 1780, whereas other scions arrived here later in the 1880s. My ancestors probably left the Middle East some 2,000 years ago. I suspect that in that time, during their itinerant travels, no country has treated my family better than this one.
I hope to contribute to this House in a number of areas, not least because some 25 years ago I started my own business with one partner and one assistant and it has grown to become well established in its field of expertise. Accordingly, I have spent the last 25 years advising businesses, principally entrepreneur-owned small and medium-sized enterprises, and have some understanding of the issues that SME businesses face, partly as I started one and still have an interest in one, and partly from talking to those entrepreneurs on a daily basis. I hope that my daily interaction with these businesses, together with my activities within my other communities, will enable me to contribute to the House.
My early career started in chartered accountancy at a large multinational firm where I specialised in tax. In addition to serving on the council of Institute of Chartered Accountants I qualified as a fellow of the Chartered Institute of Taxation some 30 years ago, before moving to my current specialist field of mergers and acquisitions. Accordingly, although it might seem a little early for me to make my maiden speech so soon after my introduction, I was keen to have the opportunity to speak in this debate on tax matters.
I congratulate my noble friend Lord MacGregor and his colleagues on this excellent report. Reflecting upon my time as a tax adviser, albeit nearly 30 years ago, it is interesting to see how much has stayed the same and how much has changed. Equity financing as opposed to debt financing was an issue, as every inward investment had to have an agreed structure negotiated in advance. At that time, some 30 years ago, the mood was changing dramatically and suddenly the United Kingdom became an attractive place to invest after years where businesses had felt that there would be no point in coming here, either because they were not going to make a profit, or simply because they felt unloved. We need to ensure that we never go back to those very dark days.
This takes me back to my earlier reference to my noble friend Lord Lawson, who did so much to change the climate of taxation in this country, taking bold and imaginative steps dramatically to reduce both the legislative and fiscal burdens, which helped us to have a boom for the subsequent 25 years. It is with that in mind that I am nervous to read about proposed fiscal steps that might make multinationals feel less than encouraged to come to the UK, either because there is a feeling that this country might become anti-business or because there is uncertainty about how their tax affairs will be treated.
As the OECD report on base erosion and profit shifting notes, in the past 30 years there has been a huge change in the way multinational corporations arrange their finances. They are now perfectly able to choose in which country they want to invest, where their profits arise and, frankly, where to pay taxation.
The rules that I had to work with then, and many are still extant, are not fit for purpose as domestic tax regimes fail to interact globally, sometimes leaving gaps but sometimes doubling up. As a result, an enormous amount of legislation is being churned out to plug holes, which may work but frequently just creates other inequalities. For example, the aforementioned worldwide debt cap, which HMRC introduced some five years ago to limit the total tax deduction for interest that the UK part of a corporate group can claim as a fair deduction, has in fact produced an absolute bonanza—but only for the firms of accountants that have charged millions in fees trying to calculate this elusive proportion.
Accordingly, a wider holistic approach to this problem is needed. The UK has a track record in leading the way. Our approach to CFCs is regarded as the best in class worldwide. I welcome the Government’s decision to contribute a further €400,000 to the OECD to establish a global solution to these issues. This is important, as there is nothing so frustrating and annoying to hardworking entrepreneurs in the SMEs than the belief that a large multinational competitor is somehow avoiding paying its fair share of tax to the community from which it derives its income.
There are of course other organisations that benefit from a reduction in tax by the use of debt finance, whose activities are entirely based in the UK but whose use of offshore tax havens to shelter interest payments—and thus, of course, profits—may need further investigation.
I could comment much more on the report, particularly on my concerns over the regulation of tax advisers and the very good points made about the secondment of staff to HMRC, but my Whip, my noble friend Lady Jenkin, has given me excellent advice on many matters, particularly timing, for which I am grateful. So this time—it is the first and it may be the last—I will abide by her instructions and resume my seat, with thanks to her and to many others in this House.
Lord Hollick (Lab)
My Lords, it is a great privilege and pleasure to follow the noble Lord, Lord Leigh of Hurley, in his maiden speech. He is very welcome to this House. He and his family have been on the most interesting journey. His 30-year or so perspective on the tax matters that we have been looking at is most helpful. It is interesting that he was grappling with some of the same problems then, although there are also some new ones.
What struck me is that when the noble Lord said that tax arrangements were not fit for purpose, and he speaks with great authority, he used the expression that the UK was “leading the way”. One of the most disappointing things about the Government’s response is their failure to pluck up the courage to lead the way. This is something that as a country we rather hold our heads up high about and say that we believe we can find a way forward on these difficult matters, but unfortunately that has not been the response of the Government. I thank the noble Lord for his remarks.
I also thank our chairman, the noble Lord, Lord MacGregor, for leading us at a brisk pace through a complex area, and for coming up with some important and sharp points that need to be taken on board and considered at length by the Government; indeed, I hope that the House will remind them of the need to do that.
I declare my interests in several companies and partnerships, which are listed in the register of interests. As has been said, corporation tax makes an important contribution to public finances, accounting for between 9% and 10% of total tax receipts over the past decade. As we know, for the vast majority of companies—SMEs and companies that are based here—tax payment is a matter of routine: taxes are calculated, reviewed and audited, and payment is made. However, for many large companies, some based here but also some multinational companies headquartered elsewhere, the tax charge can be manipulated downwards—in some cases, near to vanishing point—to boost profits, to the great benefit of owners. This is because of the sheer complexity and asymmetry of tax laws here and in other countries.
These large companies therefore have the opportunity effectively to game the system. They are aided by a sizeable army of advisers—the big four accounting firms, top legal firms, specialist tax advisers and of course banks—all of which make a very grand living from providing that advice. Of course, many of those people also advise the Government and HMRC on the detailed framing and operation of tax regulations—tax regulations that they are then free to game when they return to the commercial world. It is a case of foxes having a free entry pass to the henhouse. The opportunity to play these games, as we heard, arises from the historic structure of corporation tax based on physical presence in one country, but this has been made redundant by globalisation and digitisation.
When I started in business in the City, tax planning used to fall into two categories: avoidance, which was legal, and evasion, which was not. Today there is a third category, aggressive avoidance, which amounts to a no-holds-barred exploitation of loopholes in national and international statutes. The activities may be contrary to the spirit of the law but they are, just, within it. The Prime Minister put it well when he said at the G8 that forms of aggressive tax avoidance,
“raise ethical issues and it’s time to call for more responsibility”,
from companies,
“and for governments to act accordingly”.
The stock defence for companies that engage in aggressive tax avoidance is that they have a duty to their shareholders to maximise their profits. Farrer, the firm of lawyers, based on opinion from leading counsel, recently published an opinion that said:
“It is not possible to construe a director’s duty to promote the success of the company as constituting a positive duty to avoid tax”,
so that defence falls away. When the Chancellor hailed the G20 communiqué that stated:
“Cross-border tax evasion and avoidance undermine our public finances and our people’s trust in the fairness of the tax system”,
he put his finger on the uncomfortable truth that while most companies and individuals are expected to pay their fair share of tax and are vigorously pursued if they do not, large companies with deep pockets to fund the defence of their tax arrangements are treated quite differently. This is the case with Goldman Sachs and Cadbury—and, I am sure, many others that we do not know about—which are able to negotiate an advantageous settlement that rarely sees the light of day. A tax system that is mandatory for all but the very biggest, for whom it is voluntary, is grossly unfair and, as many noble Lords have said, undermines the trust and sense of responsibility that are essential to the proper functioning of the tax system.
Many witnesses confirmed what business leaders say in private and sometimes in public: that the panoply of schemes to shift profits abroad, and to load up companies with debt, enables them to choose the tax charge that they wish to pay, safe in the knowledge that HMRC will not pursue them. In HMRC’s eyes, legal form triumphs over substance, so a business that earns a substantial economic rent in the UK can divide up its activities—such as purchasing, marketing, brand ownership and financing—into different corporate entities located in different countries, to take advantage of the low tax rates in those countries.
This structure completely defies the way the business is actually run. Nevertheless, it is accepted by HMRC. Google has been referenced. Interestingly, the group profit margin of Google is 22.5%. Assuming that the UK, which is one of its largest markets, would achieve the same margin on a turnover last year of £3.5 billion, it would make a profit of just short of £800 million, on which nearly £200 million of corporation tax would be paid. This compares with the £11 million that was actually paid. That is the scale. As my noble friend Lord Browne mentioned, the tax gap does not include any of this. It is a very difficult number to put your finger on but in one company, Google, that is probably the scale of tax avoidance. Eric Schmidt, the Google chairman, pointed out that Google is only following the rules and it is for the Government to determine the rules, and when they do the companies will respond accordingly. He has a point: it is the Government’s responsibility.
Cadbury, which was investigated in a most illuminating article in the FT recently, appears to have strayed a very long way from its founding Quaker principles. Its tax planning was so aggressive that it decided that a couple of schemes were so likely to raise a red flag that it stopped them after 11 months. Therefore, by the time the year-end came around Cadbury did not have to be audited. However, in the 11 months it had spirited away £30 million of profit. I would be interested to hear from the Minister on this point whether HMRC is now looking at intra-year schemes which might not appear on the books but generate considerable savings. I appreciate that he may wish to write to me on that point.
In response, the Government state that they support the principle that profits and taxing rights shall be linked with economic activities, but to achieve this we need better rules. Indeed, the OECD work is important but, as the noble Lord, Lord Lawson, colourfully described, it makes very slow progress and getting multilateral agreement will be particularly difficult. EU agreement might be easier and it would be interesting to know from the Minister whether the Government are prioritising the co-ordination of rules within the EU to reduce manipulation. Many of the schemes we heard about were in fact EU-based.
Of course, there is scope for unilateral action. In his evidence, Professor Picciotto said that,
“it is inappropriate to treat firms which are economically integrated and centrally directed”—
most of the companies we have mentioned today are—
“as if they were a collection of independent entities”.
He claimed that there was discretion under the existing transfer pricing rules of the OECD for countries to take a dim view of this and to say, “That’s not right, it doesn’t work, it’s a sham”. We should have the courage to look into that because the way these companies are reporting for tax purposes is a complete nonsense. It is a complete fiction.
The Government say—and previous Governments have made the same point—that they do not want to frighten away large companies or do anything to upset them. To be fair, as the noble Lord, Lord Leigh, said, it is important that we have a welcome mat but we do not have to lie down and be run over. Large companies such as Google, Amazon, Starbucks and Apple are not going to leave the UK, which is a major market for them, where they make a great deal of money, simply because we require them to pay the right level of tax. It is important that the Government summon up the courage to close the door on these tax avoidance schemes. Yes, as the noble Lord, Lord Leigh, said, we must be clear and consistent about it, but we must also be disciplined if we are to have a fair system. That will actually help competition because it will create a level playing field with international companies having to pay the same level of tax in the UK as the currently disadvantaged UK-based companies. Perhaps a corporation tax system that requires all companies in the UK to pay, in the PM’s words, a “fair rate of tax” will significantly boost revenues and open the door to far greater reductions in corporation tax. A wider net will raise more money, help the Exchequer and allow corporation tax rates for large and smaller companies to come down substantially below the levels that are currently planned.
Yes, these measures will threaten Luxembourg’s remarkable position as the largest coffee exporter in the world and outlaw such mouthfuls as the Dutch sandwich and the Irish double dip but, frankly, these are all based on fictitious accounting and so we should shed no tears. Will the Minister confirm that the Government will look again at the discretionary measures available to them under OECD guidelines?
Mention has been made about high levels of debt. Having worked in the City and in private equity I am very familiar with the benefits and, occasionally, the disadvantages of high levels of debt. Because of the asymmetry between the tax treatment of debt and of equity as the noble Lord, Lord Lawson, and others have pointed out, the incentive is to pile on more debt. That needs to be looked at but the arrangements at the moment mean that debt can be raised to finance foreign activities and to shift profits out of the UK. The Government and HMRC need to look closely at what is going on here.
The noble Lord, Lord Smith of Clifton, mentioned the Eurobond scandal. This rather curious loophole costs the UK some £500 million a year. Yet the Government, having consulted 30-odd people in the City—the usual suspects—decided not to score. They were in front of an open goal with £500 million as the prize. For the Government to claim, as they do in this response, that they are protecting the UK Exchequer from aggressive loan financing is palpably absurd. As the Prime Minister said, it is really time for them—he did not say “them” but I will—to wake up and smell the coffee. This is now a rampant activity, which is losing the Exchequer a great deal of money.
Informed discussion of the tax system and the performance of HMRC is bedevilled by opaqueness. The Prime Minister put it in a nutshell in Davos in January this year when he said:
“We need more transparency on how governments and, yes, companies operate”.
He prefigured our report. His words have been ignored by the Treasury, whose refusal to embrace transparency for companies and to produce effective parliamentary oversight of HMRC smacks of arrogance and complacency. Without specific details of aggressive tax manipulation schemes, it is impossible for Parliament and the public to comment sensibly on the massive tax leakage the UK is suffering. It is helpful that the newspapers have been able to shed light on this but it should be a matter of public record.
In response to the report’s call for parliamentary oversight, the Government trumpet the appointment of the Tax Assurance Commissioner. Now, he is an HMRC insider. He is marking his own homework and doing his own scorecard. Perhaps the Minister can help us here. Why was this not set up as an independent body answerable to Parliament? It would have more credibility and give more comfort to taxpayers. The response also says that the National Audit Office has full access to HMRC. That is a good thing but how much detailed oversight does the National Audit Office actually take of the workings of HMRC? Can the Minister tell us what resources are deployed by the National Audit Office to oversee HMRC’s performance? How many investigations have been carried out annually over the past decade?
That the Treasury’s response to our report is supine is perhaps not wholly surprising. Our recommendation that the Treasury should review a range of radical tax proposals and promote a more assertive approach to profit manipulation probably falls into the “Too difficult, don’t bother me with that” category. Transparency and effective parliamentary oversight would put the performance of the Treasury and HMRC in the spotlight, which might prove to be uncomfortable. The Treasury and the Government are beguiled by those smart folk in the City and large companies, and do not want to disturb a cosy relationship. Of course, ignoring or sidelining the wishes of the Prime Minister, which have been very clearly set out, is a long-established Treasury pastime.
Lord Bilimoria (CB)
My Lords, I declare my various interests in this area. I congratulate the noble Lord, Lord MacGregor, on initiating the debate. I also congratulate my friend the noble Lord, Lord Leigh of Hurley, on his excellent maiden speech. He is a fellow chartered accountant and we have known each other for many years. As he humbly said in his speech, he is also a fellow entrepreneur and a successful one at that. I read a book by a Wharton professor about givers and takers: in life you have givers, takers and matchers. It is not necessarily the case that the givers will get further in life, but when they do get there they always get there in a much better way and have a more sustainable, happier future. The noble Lord, Lord Leigh, is a giver. He has given to this House today his expertise as an entrepreneur, as an expert in corporate finance and as a chartered accountant. We welcome him here.
The noble Lord, Lord MacGregor started with the complexity of the UK tax regime. He spoke about multinationals and the infamous example of Starbucks which, from 2006 to 2011, had UK revenues of $18 billion yet paid UK corporation tax of only $16 million. As the noble Lord said, there is a serious issue of avoidance. The Select Committee on Economic Affairs—I am proud to have been a member of the Finance Bill sub-committee every year—has produced a thorough report, Tackling Corporate Tax Avoidance in a Global Economy: Is a New Approach Needed? The report says right up front that the present system is not working and urgently needs reform. It says that it is confident that the Treasury will bear this in mind as it conducts its proposed review. However, we have heard that the Government have not really listened to the report, and will not be taking much of it into account.
The report highlights that UK corporation tax, having come down to 20%, is the lowest in the G20. The German rate is 29%, France’s is 33% and the United States’s is 40%. This is wonderful news. On the other hand, the report also highlights something which is not understood by the public: a significant feature of the UK’s corporation tax regime is the low rate of allowances for capital spending. Our regime does not encourage investment. In fact, within the OECD and the G20 countries, only one country, Chile, has a less generous allowance than the UK. We must look at this as a whole.
The other major point which has not yet been highlighted in today’s debate is how much corporation tax yields as a percentage of GDP. Again, the report lays this out clearly in a table comparing us with other countries such as France, Germany and the United States. Our UK share of corporation tax receipts has held up pretty well in spite of falling headline rates. As a percentage of GDP, in 2005 corporation tax was 3.2%; today it is 2.7% in spite of rates having fallen. The nub of it all is that, of the contribution by tax to total HMRC receipts, corporation tax stands out in that it is only 8.7%. It is dwarfed by income tax at 32.2%. National insurance contributions constitute 21.8% and VAT constitutes 21.4%. This clearly shows that, yes, everyone is getting upset about corporation tax not being paid by certain companies, but are people talking about all the other taxes that these companies are generating, predominantly through creating employment? Employment generates a far greater proportion of taxes than corporation tax. We are not quite getting the context of and perspective on this. I will come back to that point at the end of my speech.
In fact, 81% of UK corporation tax is paid by the top 1% of companies. Here we are getting upset about 1% of companies; 99%—SMEs have been mentioned—are paying the full rate of corporation tax in many cases. We are losing a sense of perspective. The report says:
“In total, PwC say that Hundred Group members contributed around £8 billion in corporation tax in 2012 and a further £16.8 billion in other taxes borne”.
A multinational company is not taxed as a single entity but as a number of legally distinct, individual companies all over the world. The present tax system around the world encourages multinationals to move their profits around the world. That is the reality. We are trying to stop that. The report recommends ways of stopping it. When I was on the sub-committee for the previous Finance Bill, we focused on the GAAR. As the noble Lord, Lord Hollick, said, when he came up in the business world he was taught the distinction between evasion and avoidance. To a chartered accountant it is very simple: evasion is illegal; avoidance is allowed. Now we are going one step further and saying “abuse” as well. However, it is clear that the GAAR will not catch everything. It is narrowly focused. It will not, for example, catch the Starbucks situation at all. That needs to be communicated. I am glad that the Government have listened and that the GAAR will be communicated to the public.
I am proud to be a fellow of the Institute of Chartered Accountants in England and Wales. The report says:
“The ICAEW offers advice to its members that appears to go well beyond the Code of Conduct. It states, for example, that ‘Although tax avoidance may be legal, whether something is within the law isn’t the only thing that matters. You are under a duty to take into consideration the public interest and at all times to comply with ICAEW’s Code of Ethics … The boundary between legal tax avoidance and illegal tax evasion is not always clear and there’s a danger that what starts out as legal tax avoidance may slip into illegal tax evasion’”.
Who is competent to catch all of this? The noble Lord, Lord Lawson, raised the point of the structure of HMRC, this merged entity. Is it fit to deal with this? What about the relationship between the Treasury and HMRC? A lot of the policy is formed in the Treasury and HMRC is meant to execute it. Can the Treasury make this policy properly?
Then there is the question of reputation. In my business, our most valuable asset is our brand. The threat of naming and shaming companies is serious. We, as companies, are all very concerned about our brands. Much more can be done in this area by naming and shaming companies.
The Government actively promoting the implementation of the G8 proposals on the movement of funds between companies is very good. We need to continue to do this. Again, however, it will not solve everything. A unitary tax system, treating multinational companies as single entities in the global economy, is attractive in theory, as the report says, but is quite frankly utopian. In practice, we cannot even get the EU to agree on corporation tax rates. How on earth are we going to get the whole world to agree on something? We have to realistic and practical about this.
The setting up of a Joint Committee to supervise and oversee this matter is a great idea. The expertise of the House of Lords in this area is far greater than the expertise in the other place. This expertise is used in the Finance Bill sub-committee. If it could be used on a permanent basis, that would be great. Will the Minister consider forming such a committee to oversee the issue on a general basis? I think that the confidentiality argument is absolute nonsense, as was said by noble Lords earlier.
I now come to the points made by the noble Lord, Lord Lawson, which I thought were excellent. He hit the nail on the head. He said that corporation tax in the modern world is inequitable between multinationals and SMEs and that, in the way it is structured at the moment, it has had its day. He has summed it up. The noble Lord, Lord Browne, talked about a tax gap of £32 billion and said that the tax gap is going up. I want to refer to a friend of mine, Vindi Banga, who is a former head of Unilever in India and was then on the main board of Unilever here in the UK—companies do not get more multinational than Unilever. He wrote an excellent article earlier this year in the Telegraph, headed, “Tax compliance should be judged by rules and not morals”. This was when the Starbucks issue was at its height, when it was being bashed by politicians—the noble Lord, Lord Hollick, referred to this. The Prime Minister, David Cameron, at the World Economic Forum in Davos, said:
“Companies must wake up and smell the coffee”.
One cannot get more specific than that. Vindi Banga then talked about IP royalties; the way companies move profits around the world, perfectly legally. One way, of course, is to charge royalties from where the IP is headquartered. Let us say that the IP is headquartered in a country outside the UK; royalties are charged and paid, reducing the tax here in the UK. However, what we overlook is that the UK is also a recipient of royalties and we encourage IP. We encourage the innovation of IP, the generating of IP and the holding of IP. In net receipt terms, the UK receives more royalty income than we pay out. So it will go against us if we stop that in trying to address tax evasion.
The other point that Vindi Banga made—this is my main point—is that our tax system has to be competitive because we, as companies, operate in a really competitive environment. In fact, while evasion is immoral, avoidance, if it is legal, is a duty: companies almost have a duty to try to pay as little tax as possible in order to be as competitive as possible and to survive and compete in the global environment. However, there is something that could and should be done. Could the Government bring in even more regulation for companies to disclose all the tax that they are paying in one simple table? Every company would disclose how much it generates as a result of its operations in terms of PAYE paid, employer national insurance paid, employee national insurance paid, VAT collected as a result of sales, and corporation tax. In my company’s case, there would also be the excise duty generated as a result of the company’s existence. That would put into perspective how much tax a company is generating.
The noble Lord, Lord Leigh of Hurley, made a very valid point about the legislation that exists because our tax code is so complex. In spite of all the efforts of the noble Lord, Lord Lawson, we still have such a complex tax system and legislation is constantly plugging holes. The noble Lord, Lord Leigh, said, very correctly, that it is not fit for purpose and that we must continue to try for a global solution. He spoke very clearly about SMEs, which are paying too much tax, in relative terms, unfairly. As a country, we do not have a competitive tax regime overall. Our corporation tax rate may be one of the lowest, but our capital allowances, on the other hand, are not good enough and our top rate of income tax, at 45%, is still very high. The overall tax burden on the consumer and on companies is actually very high. Do the Government have the guts to address the overall situation?
I conclude by getting to the crux of all this, which is that we should not really be focusing on corporation tax, although we must address that. My dream is for us to have a simpler, fairer tax system that is competitive, attracts investment and promotes spending, saving and growth.
Lord Brennan (Lab)
My Lords, I congratulate the noble Lord, Lord Leigh, on a maiden speech of elegance and economy. It is a remarkable example for his fellow accountants. I also commend the Economic Affairs Committee on the high quality of this report. It applies clarity to the complex and gives its recommendations succinctly and to the point. It should be required reading—where necessary, rereading—for those in government dealing with financial affairs who are given to policy complacency or the intellectually superficial. I declare an interest as chairman of Global Financial Integrity, a Washington think tank working on tax issues and illicit cash flows. It works with several Governments in a task force dealing with tax reforms. Its work informs much of what I am about to say.
I want to deal in particular with the international aspect of corporate tax reform. It was described by the noble Lord, Lord MacGregor, echoing the Government, as a topic of key importance. So, what can be done internationally that will prevent our country losing its competitive advantage and yet achieve a more stable and just tax regime? We want to achieve as level an international playing field as possible. The importance of this topic was recognised this year by the G8, by the OECD it its initial report of February and its action plan of July, and by the G20 in calling for action in Mexico last year and in Moscow this year, endorsing the OECD action plan. What does the OECD say needs to be done? There are five principal points. The first is transparency: that is obvious. The second is evidence of beneficial ownership. Who actually owns which companies in which jurisdictions and how are they interconnected? The third is the automatic transfer of tax information. This already applies to the three NAFTA countries, applying to individuals and companies. It is a three-country market of 450 million people and hundreds of thousands of companies. It can be done: it is being done. The fourth and fifth are two interrelated topics: country-by-country reporting and transfer pricing.
The OECD, in its 15-point action plan—four points of which, as a matter of interest, refer to transfer pricing—says that country-by-country reporting and transfer pricing are an essential element in tax fairness across countries. The G8 agrees that this is essential. The OECD is neither amateur nor academic. It has a tax database and a tax policy centre and it is used to reporting on, and seeking to implement, tax reform. I quote from its report on transfer documentation practices, paragraph 71—a sentence that is tediously long but important:
“It seems possible for businesses to provide without undue burden individual country data based on either management accounts, consolidating income statements and balance sheets, and/or tax returns that would provide tax administrators with a general sense as to how their global income is allocated and where pressure points in the transfer pricing arrangements might lie”.
As far as I am aware, no one in the year or two since that was published has produced a plausible argument against its practicability.
Quoting these two issues in its action plan of July, the OECD promised an urgent response. That response was given 10 days ago, on 17 October. It precedes a consultation meeting in Paris in mid-November on country-by-country reporting and transfer pricing. By this rapid interim report it anticipates a set of rules to be developed that will include a requirement that multinational companies provide all relevant Governments with necessary information on their global allocation of income, economic activity and taxes paid in the relevant countries, according to a common template. That has been produced in three months. It requires a consultation response, including from our Government, by mid-November. Action is sought, and expected. Despite the understandable concerns of those in this House about the difficulty of obtaining international co-operation, the OECD reminds us all that the Extractive Industries Transparency Initiative and the Publish What You Pay initiative have both been put into practice by Governments and international energy companies. It can work and it is working. There is no reason why the OECD recommendations should not be accepted in the next month or two on these topics. However, we need to make more significant progress.
The Government and other interested bodies have to push the OECD. It is an important institution, and I praised it. However, Professor Picciotto, a witness to the committee, laments at paragraph 32 of its report some of the OECD’s past waywardness after it had made a good start. Indeed, he complains about the transfer pricing initiatives that it took, saying:
“Regrettably, the OECD officials have been allowed to go their own way, free from any parliamentary scrutiny, and develop the increasingly complex and inappropriate Guidelines”.
So they give the initiative, but the Governments ensure that they are quickly and practically produced for action.
We must next press the accounting profession. The International Accounting Standards Board is responsible for the creation of modern accounting standards, expressed in the international financial reporting standards —the IFRS. As far as I know, at present the standards board has no programme of any action in response to the OECD plan, and neither is any draft work being done on how the IFRS might have to be changed to meet the recommendations with which I have been dealing. Therefore, although Governments call for action, which requires accounting procedures to be in place, they have no oversight over the body responsible for creating them, nor on the profession that will implement them. That surely must be dealt with. We cannot have a two-year programme from the OECD and then a further lamentable year or two—or more—of introducing accountancy standards. A competent accountancy profession can produce a draft along with the OECD proposals.
Surely the third and last point is that this has to be kept in front of the public. It is a matter of serious public concern. We ordinary people pay taxes; why should these giants escape? It is simply not fair, and the public will not forgive politicians or Governments who forget that. It is important to note, to echo the words of Prime Minister David Cameron, that this is an issue whose time has come. I hope that the Government, Parliament and those responsible for these changes will not find themselves left behind.
Lord Shipley (LD)
My Lords, I thank the noble Lord, Lord MacGregor of Pulham Market, for chairing our committee and for leading so effectively this speedy but very important inquiry. I also congratulate the noble Lord, Lord Leigh of Hurley, on his excellent maiden speech.
The days are long gone when tax collectors could stand at the gates of towns and cities and levy tax in cash on goods brought in for sale. They could raise taxation successfully by that means because there was a clear border and goods were visible. As we have heard, HMRC estimates our loss of tax today through avoidance, evasion and non-payment at £35 billion, which begs the question of how it knows. There is a lot of evidence to suggest that the figure is a great deal higher than that, as we heard earlier in the debate.
I remind the Minister that the coalition agreement of 2010 stated:
“The parties agree that tackling tax avoidance is essential for the new government, and that all efforts will be made to do so”.
Therefore it is reasonable for the Government to assess what has been achieved. Our report poses the question: “Is a new approach needed to tackle corporate tax avoidance in a global economy?”. The answer is, “Without a doubt”. The general public certainly agree, because they see it as an issue of fairness. Perhaps, therefore, the Government’s response to this report should have been a bit warmer. As the noble Lord, Lord Smith of Clifton, explained, that response can be construed in the verbs used. I will add one verb to his list of “agrees”, “notes” and “disagrees”. The Government “welcome” what we say just once.
The constant use of the word “notes” seems odd when the word “agrees” would be absolutely justified. For example, paragraph 138 of our report says:
“Corporation tax is a significant component of HMRC’s portfolio of taxes and makes an important contribution to the UK’s total tax revenue”.
That is self-evidently true, but rather than say that they agree, the Government in their response simply “note” what we have to say. I am puzzled as to why this should be. It seems to relate to the fact that the Government agreed at G8 that work to minimise avoidance is an international matter and that we should therefore await the progress of the OECD. It implies that there is little that the Government can do on their own. However, as we have heard, is this true? It is not.
Our report says in Chapter 1:
“It is primarily for the Government to correct the flaws in the UK’s corporation tax regime and to pursue agreement to make the international tax framework more rigorous”.
There is no doubt that following the G8 decision the latter is starting to be done. G8 and G20 countries have realised that something must be done about international rules which allow multinationals to shift profits across borders to avoid tax. Governments get less money, other taxpayers are short-changed, and the general public rightly wonder how this can be fair and what their Government will do about it.
I accept entirely that multinational solutions are needed and I welcome the OECD initiative. However, I have concluded that the Government must do more themselves to correct flaws in our corporation tax structure. Indeed, they have made 33 changes to tax law and are investing more resources in HMRC, which should repay that investment. That is welcome. However, the public expect that HMRC will be properly resourced to reduce the large amount of tax being lost. I hope that the Minister in his reply will be able to confirm that it will be resourced in the way we need.
In response to paragraph 141 of our report, the Government confirm that:
“Paying Corporation Tax is not voluntary; it is an obligation”.
Indeed it is. But if it is an obligation, will the Minister confirm whether it is true that a British multinational company can take out a loan in the UK, count it against its tax liability, and then place it in a finance company in a tax haven, which can then lend the money on to another company elsewhere in the world? If so, what if that company lent via a tax haven to a sister company? Would tax be saved twice—in the UK because the money is borrowed, and in the receiving country because it is borrowed there, too? Can the Minister tell the House how extensive this practice is thought to be, and what action HMRC is taking to block the loophole? I understand that many other countries are now doing that. Surely the UK should not encourage offshore tax havens at a financial loss to our own taxpayers.
We said in our report:
“As things stand, there are too many opportunities for multinational companies to manipulate their affairs to reduce their global tax payments”.
We also said that,
“ways are open, especially for multinationals, to shift profits between countries so as to reduce their overall tax liabilities, and to make UK corporation tax to a considerable extent voluntary for multinationals”.
Surprisingly, in response to paragraph 141 the Government have simply noted our comments saying, first, that corporation tax is not voluntary—when for some multinationals it clearly can be voluntary—and, secondly, that HMRC is to,
“step up its fight against those multinationals that do not pay their tax in accordance with the law”.
But not paying according to the law is tax evasion. Tax avoidance is about devising ways to get round the law. We have ended up with multinational companies able to avoid corporation tax and national companies unable to do so.
We refer in our report to the “tax avoidance industry”—and I think we are justified in talking about an industry because, from the evidence we received, there is clearly an industry at work. There is now little public trust in the corporate tax system and, as we have heard, it has become potentially very damaging to our democratic processes. So, why is there to be no Treasury review? Why is there no publication of corporation tax paid? Why is there to be no regulation of tax advisers? Why is there a refusal to review all statutory measures available to HMRC to combat tax avoidance, even aggressive tax avoidance? Why is there to be no Joint Committee?
As we have heard, developing countries are some of the worst affected by profit shifting. Christian Aid claims that developing countries lose more revenues as a result of tax avoidance and evasion than they receive in aid. That means that while we are delivering the 0.7% target through the front door, a bigger sum is seemingly going out of the back door. The problems of developing countries are implicit in our report, but perhaps we should ensure that as the OECD, the G8 and the G20 lead reform, developing countries get involved and that due account is taken of their needs. Effective tax collection is vital if poor countries are to reduce their dependency on aid.
Will the Minister comment on the practice of trade mispricing, in which multinational companies can reduce the amount of tax they pay in a developing country by buying raw materials at below market rate and reselling them on the international market at a much higher rate? For example, Christian Aid estimates that if Zambia had received the same price for its copper exports in 2010 as Switzerland did for selling on the copper, Zambia could have doubled its GDP. There is a remedy: international guidance prices, at which I hope the OECD will look closely.
I ask the Minister two things in respect of developing countries. Following the G8 declaration, what support are the Government providing bilaterally, and through the OECD and G20, to ensure that developing countries have a say in the renegotiation of global tax rules? Secondly, what other steps are the Government taking to ensure that the UK’s own tax rules do not allow or encourage any multinational enterprises to reduce overall taxes paid by artificially shifting profits to low-tax jurisdictions? The general public think that tax should be paid where the profit is made. The problem is not going to go away. The mispricing of transactions, and the mislocation of the profits of economic activity into a tax haven to avoid tax, have become a very big political issue.
In conclusion, I ask: are the Government doing all they can? It has been reported that last year, for example, HMRC investigated only 1,000 out of 250,000 reports of transactions that were thought to deserve further inquiry. As we have heard, the Government must lead by example. I agree entirely, and I hope that, in summing up, the Minister will be able to confirm that we will do just that.
Lord Lipsey (Lab)
My Lords, as a member of the committee, it would not be seemly for me to blow its trumpet—although I do not mind giving a toot or two for our chairman, who did such an admirable job. The report was generally welcomed as a very balanced one. We did not accept the proposition put to us by many of our witnesses that all was for the best in this best of all corporate tax worlds—a suggestion that many of us ascribed to the fact that many of them made their money advising on precisely that system. But nor did we side with Richard Murphy and the Tax Justice Network, with their ambitious plans to milk the corporates.
It was a balanced report, and it went down well—except with Her Majesty’s Government. I have rarely read a more dismissive—and, I am afraid, at points arrogant—response to a Select Committee report. “No, we won’t review corporate taxation. What a silly idea”, “No, we won’t look at tax relief on interest”, “No, we won’t register tax advisers”, “No, we won’t penalise those caught under GAAR”.
I once wrote a book on the Treasury—little read today, I am afraid—and I am generally a supporter of it in all the difficult jobs it does, warts and all. But this response is a very big wart. What explains the tone of the response? The answer is simple. The clue is on page 2, where the Government say that they are taking action,
“first, to make the UK tax system more competitive … second, to clamp down on tax avoidance … and third, to drive forward reform of the international tax framework”.
I can paraphrase that as follows: “We would quite like less tax avoidance. However, if we do anything to get it, we shall put firms off locating in Britain, where we want them. So the best thing is to minimise national measures. We’ll have to do a few things to pacify the pop newspapers and Margaret Hodge, but meanwhile we’ll concentrate on international measures”. The result of that is that the Starbucks, the Amazons, the Googles and the food companies exposed by the Independent can laugh at us.
With this excessive tolerance we are encouraging an international race to the bottom. Corporation tax rates worldwide are falling. If others think like us they will act like us, and corporate tax will soon be a thing of the past. The noble Lord, Lord Lawson, would welcome that, as he said—and so might I, so long as it was replaced by something equally lucrative to the Exchequer, and preferably more, rather than less, progressive.
The “do nothing nationally” approach enshrined in the response is extended by the Government to measures that would not in any way affect the international competitiveness of our tax system. For example, the report canvasses a proposal for a register of tax advisers, which might facilitate action being taken against those who give egregious advice to their clients, and an accompanying code of conduct. The Treasury does not explain why it rejects this; that would be too much bother, I think. It just says that the Government,
“does not regulate the tax profession”,
as if their failure to do what the committee recommended was a decisive argument against doing so. Honestly, whether or not noble Lords share my view of the committee’s report, it deserves better than this. This is not the response of a Government who are seriously concerned to do anything about corporate tax avoidance and evasion. I hope that this complacency will not be repeated by the Minister in his reply this evening.
Lord Davies of Oldham (Lab)
My Lords, I have read the report and congratulate the committee on the excellent work it has done and the judicious way in which it has presented its arguments. The chairman of the committee who introduced the report today—the noble Lord, Lord MacGregor—continued that pattern in identifying the committee’s arguments. He indicated that the Government had not responded constructively to an issue which the committee clearly recognises is one that exercises the public and is of considerable immediate importance. The chairman’s judicious and careful presentation was somewhat submerged in the subsequent debate in which noble Lords forcefully expressed the view that the Government’s response was utterly inadequate. I think that the noble Lord, Lord Lawson, called the response lamentable. Other noble Lords have indicated that the response goes beyond complacency and is not worthy of a government response to a Select Committee report.
I will comment on several of the speeches made in the debate but it also falls to me to congratulate the noble Lord, Lord Leigh, on his maiden speech, in which he expressed himself with great precision. However, he also did something which is quite exceptional in this House in that he apologised for speaking briefly. He will not encounter brevity too often and he will never find it accompanied by an apology except on this occasion. However, we are grateful to the noble Lord for the points he made.
My noble friend Lord McFall wasted no time in identifying the context in which the report was presented. The committee feels very hard done by in terms of the Government’s response given the serious level of public discontent about corporation tax that has manifested itself over the past 18 months. The public outcry was sufficient for Starbucks to decide that it merited a gesture on its part in the form of making a contribution to the Revenue. My noble friend said that the public felt there was a breakdown of the national contract. That may not be putting it too high. After all, everyone knows that in this time of great austerity and difficulty, when wages have not increased over the past 10 years, people are paying their taxes, as they are obliged to do, and they find it scandalous that some large organisations can treat corporation tax almost as a voluntary levy to which they pay mere lip service. That is why the Government’s response ought to be much more positive.
We have encountered many difficulties with regard to these issues. My noble friend Lord Browne referred to the scale of the tax gap and asked whether that gap was increasing or decreasing. There are clear reports that in the last recorded year the gap was £34 billion, and that it has gone up £1 billion since then. However, as my noble friend indicated, it is very difficult to put the basis on which these figures are presented into clear perspective. That is why it has been constantly argued throughout the debate that the first thing we need is transparency on the part of companies and the second is accountability on the part of HMRC. We all know what the Government’s response was to the question of accountability. The committee stated:
“The threat of naming and shaming represents a reputational risk to companies; and may therefore have the effect of encouraging boards to make sure that the companies they run are not using inappropriately aggressive tax avoidance strategies”.
The Government’s response is that the Government are subject to taxpayer confidentiality rules that protect the tax affairs of all taxpayers. In other words, there is to be no advance in that area, or on the committee’s constructive recommendation that there should be parliamentary scrutiny not dissimilar to that which obtains with regard to the security services: that is, a parliamentary committee should be established to look at these issues on a confidential basis. However, the Government are, of course, utterly and totally dismissive of that proposal. This will not do. It certainly will not do against a background of a determination to make progress in this area at an international level, as my noble friend Lord Brennan indicated. Where is the UK to figure in this? The committee obviously hoped that we would be in the van of progress. The Government’s response makes them look as if they want to be as distant from such progress as they can possibly be.
The Minister has a significant task ahead of him in winding up the debate. I have not even reinforced the points which my noble friend Lord Hollick made about the successful use of eurobonds on the part of multinationals, and indeed on the part of some British companies which are not multinationals. Thames Water, which has approached the Government on the issue of a subsidy with regard to a big investment it wishes to make, is also reducing the tax it pays through the use of the eurobond device which my noble friend Lord Hollick identified. However, there seems to be no response whatever to that point.
Has corporation tax had its day, to use the colourful phrase of the noble Lord, Lord Lawson, who should know about these things? I do not know whether that is the case but it is certainly in need of considerable reform, as the committee identified. The Government’s response makes them look as though they regard those arguments as having being drafted on another planet and therefore are ones to which they have no need to make a coherent, consistent or constructive response. I hope that the Minister does rather better this evening.
Lord Newby (LD)
My Lords, it is a great pleasure to respond to this debate. I start by thanking the committee for its work and for the characteristically thoughtful way in which the noble Lord, Lord MacGregor of Pulham Market, introduced the debate. I congratulate the noble Lord, Lord Leigh of Hurley, on his maiden speech. I hope that his understanding of the advantage of brevity does not diminish with the passing of the years as, sadly, it sometimes does among other Members of your Lordships’ House. His speech was extremely thoughtful, in a House that prides itself on its expertise but which in fact has relatively few experts on financial affairs. Those we have are extremely distinguished. Compared to, say, debates on anti-social behaviour, in debates on any aspect of the economy or finances, we are pretty short on people with real current or past expertise, so I am doubly pleased to welcome the noble Lord to your Lordships’ House and look forward to taking part in many more debates with him.
I start with a confession. I am an alumnus of the lamentable side of Customs and Excise. I worked for a number of years in that part of Customs and Excise that provided tax policy advice to the Treasury at a time when it had virtually no tax officials of its own. Although things have changed, I like to think that we were at least able to match our colleagues in the Inland Revenue, with whom we had an extremely friendly rivalry at the time. I do not want to go into detail about the way in which tax policy is currently organised, but say simply that both departments have a clear remit. HMRC has a strong operational tax policy role, whereas the Treasury is responsible for strategic tax policy, but they work very closely together—literally as well as figuratively. When I worked in Customs and Excise my office was several miles away from the Treasury, which meant that even if I wanted to have a quick chat with somebody it was quite difficult. There is a common and regular movement of staff between HMRC and the Treasury, so there is quite a lot of joined-up working.
I shall deal with the complaint from all sides of the House that the Government are complacent about the issues. We are not complacent in respect of three aspects of the problem that we are facing. First, we accept and completely understand the level of public discontent. Secondly, we believe that that discontent is realistic and soundly based, and thirdly, we are dealing with a major problem. We are far from complacent about the need to do more. I hope to explain both what we are doing and why we will be doing more. One thing that I must say, having been a Treasury spokesman for the Liberal Democrats in your Lordships’ House for nearly 15 years, is that for the first part of that 15 years there was never any movement on the issues that we are talking about today. Pressure groups came year after year, asking why we were not doing this or that. Many of the things that we argued for to no avail for a decade have now been implemented, and a whole raft of other initiatives that have been started very recently have the ability to make fundamental improvements in how we deal with this problem. We are now in the middle of a rapidly moving series of national and international activities, which definitely goes in the direction that the committee wants, and I shall attempt to set that out.
I should perhaps state the blindingly obvious—that the Government’s view on corporation tax is that while we are keen to drive forward tax competitiveness, such a policy does not mean that we should be soft on tackling tax avoidance. We are determined to rebalance the tax regime to ensure that it supports growth and investment, and we want a corporate tax regime that improves our business environment, helps to attract multinational companies and encourages investment. That is why, alongside other reforms, we have reduced the headline rate of corporation tax. Having created a competitive tax regime, we expect companies to play by the rules and to pay the tax that is due. I completely agree with the noble Lord, Lord Hollick, that companies have wider duties than simply to minimise the amount of tax they pay. The Companies Act 2006 lays out clear directors’ duties as well as duties for the company as a whole in terms of having regard to the impact of its activities on society, which was a new and welcome initiative by the previous Government. It means that the two-dimensional view that anything that increases profit is good and anything else is bad is no longer acceptable and no longer recognised in law.
I shall deal with the question of whether corporation tax has had its day. Corporation tax at the moment raises 8.7% of HMRC revenue, as the noble Lord, Lord Bilimoria, pointed out. It is not as much as the top three but it is far above any other in that middle league. As I said earlier today, from a pragmatic point of view, a tax that raises 8.7% of revenue is one that should be made to work better but not, in my view, replaced. The Government have a credible record to date in dealing with companies avoiding tax. That has been demonstrated both through the legislative and operational changes we have made since 2010 and by HMRC’s success in litigating through the courts. The number of cases has not only dramatically increased manyfold; the proportion of cases heard in 2012-13 resulted in a more than 80% success rate for HMRC. So far, we have made 33 changes to tax laws to close down numerous avoidance loopholes.
As noble Lords mentioned, we have introduced the first general anti-abuse rule, which is designed to tackle abusive tax avoidance schemes and is a key part of our plans to drive down tax avoidance. Now that it is happening it is put to one side as though it is a little tick in the box, but we campaigned for years to get some movement on a general anti-avoidance law. At long last it has happened, and while I accept that, as the law beds in, we might over time want to strengthen it, it is a major shift for the better. We have updated the public procurement rules so that any potential government suppliers bidding for large contracts must now declare occasions of significant tax non-compliance. The noble Lord, Lord MacGregor, specifically asked me about this point. These rules were introduced on 1 April this year. It is not so much a case of naming and shaming suppliers who avoid tax but of suppliers disclosing occasions of significant non-compliance so that departments can have a number of remedies at their disposal, up to and including contract termination.
On top of our domestic action, we have taken a lead in the international field. Indeed, a lot of the debate today has been around the international initiative that is now being carried forward through the OECD. The noble Lord, Lord Lawson, said that the Government should accept that corporation tax was not fit for purpose. Indeed, that is why the Government have taken the lead in pressing for international action. A number of noble Lords said that it is about time the Government took a lead. They made it clear that in their chairmanship of the G8, tackling tax avoidance was their top priority. The OECD initiative has come about largely because this Government have taken an international lead. I strongly agree with the noble Lord, Lord Brennan, that the OECD is a body that is capable of getting to grips with this. There is a key component that will be absolutely crucial in determining whether the good work that has started comes to a satisfactory conclusion, which is whether Governments keep their eye on the ball. If it is just left to the OECD and it is not being pressured by Governments to make quicker progress it will not.
We are seeing now a recognition, not just by this Government but by a number of Governments internationally, that they have to take firmer action and keep the pressure on. That is why we have agreed to fund the OECD to the tune of another €400,000, to make sure that it keeps up with the pace and produces what is an extremely ambitious work plan, and ensures that it has effect.
The noble Lord, Lord MacGregor, asked how that was going. The OECD has established 15 actions needed to deal with base erosion and profit-shifting, which include a specific task force to look into the tax challenges of the digital economy—what might be called the “Google and Apple Task Force”—and a review of transfer pricing rules, the “Starbucks Task Force”. This is being carried forward by a number of OECD working parties, which will report back next year and the following year.
Closer to home, as a number of noble Lords have said and as the committee pointed out, it is obviously key that HMRC is fit for purpose in tackling a very difficult issue and dealing with companies that have considerable resources at their disposal. That is why the Government are investing almost £1 billion over this spending review period, specifically to tackle tax avoidance and evasion and to reduce losses from fraud, error and debt. That will bring in an extra £9 billion a year by 2014-15.
The additional money is spent largely on people. There has been an increase in the number of graduate-level trainees and a significant increase in the amount of technical training inside the department, in part with the Association of Accounting Technicians and Manchester Metropolitan University. An increased number of people are working on transfer pricing, as the rules already allow us to deal with some aspects at least of egregious transfer pricing. That requires highly skilled people, and there are now more of them. As I said earlier today in your Lordships’ House, the Treasury will look at any request it receives from HMRC for additional resources in the run-up to the spending review.
We have also seen—and been actively participating in—a sea change in the way that tax information is exchanged between jurisdictions. Another major campaigning issue has been about the automatic disclosure of tax information between the UK and tax havens—between the UK and our Crown dependencies and overseas territories. That is now happening. Some have signed, while the others have agreed. That will make a huge difference to transparency, which a number of noble Lords mentioned and which we are keen to see promoted.
I will deal with a number of specific points, some from the committee and others raised de novo today. Staff are seconded from the big four to HMRC or the Treasury only when the Treasury or HMRC identifies a lack of expertise and knowledge. The number of people involved here is not huge. We believe that effective safeguards are in place to ensure that official information is treated confidentially. Although there is quite a lot of general talk about people going in and nicking lots of ideas from the Treasury and telling their clients about them when they get back to the private sector, I have yet to see any concrete evidence of that.
The noble Lords, Lord Lawson and Lord Hollick, talked about the rules on interest deductibility, which they felt were too generous. This is one of the areas being looked at currently by the OECD. A number of rules are already in place to limit how much interest a company can deduct from its tax liability, but I was rather depressed to hear from the noble Lord, Lord Leigh, quite how much of a bonanza that was proving for the professionals and tax experts.
On harmonising the treatment of debt and equity finance, I am afraid that I can only repeat what we have already said: we are reviewing the wider case for an allowance for corporate equity. Again, the challenge here is one of cost, because it would be very expensive to do it on a large scale. Would undertaking a comprehensive review of the operation of corporation tax add value at this point? As we are in the middle of the OECD process and of ramping up the number of people working in the area, we seem to have a process in place which, if successful, will meet the requirements of the committee. To have a major review of it in midstream would divert effort in the wrong direction.
A number of noble Lords raised the point about a joint committee. Perhaps this is because I was a taxman, but I personally find it extraordinary to think that we should be establishing a committee of politicians to review the way in which the tax authorities look at individual taxpayers’ concerns. If the Government had proposed it, there would have been absolute outrage. I believe that the way forward is for the NAO to undertake rigorous investigation in this area. If the Public Accounts Committee in another place feels that not enough resources are being devoted to it by the NAO, we hope it will discuss that with the NAO and we will get more resources devoted to it.
The increase in the tax gap from £34 billion to £35 billion, which the noble Lord, Lord Browne of Ladyton, was very keen to hear about, was largely due to an increase in the VAT gap of 1.5%, caused by the rise in the standard rate of VAT from 17.5% to 20%. It had nothing to do with the issue that we are discussing today.
The noble Lord, Lord Shipley, asked a very specific question, which I will need to write to him about. In terms of what the Government are doing, bilaterally and through the OECD, to ensure that developing countries have a say in the renegotiation of global tax rules, we are, first, doing quite a lot with capacity-building via a joint HMRC-DfID programme, so that these countries are more capable of doing the job themselves. They are involved in various aspects of the task force work. A number of noble Lords raised the problem of mispricing. The extractive industry transparency initiative and the EU accounting directive now mean that there is a lot more country-by-country accounting in those areas and a lot more transparency, which will yield results over time.
The noble Lord, Lord Hollick, asked whether HMRC looks at intra-year tax avoidance schemes. Yes, it does. Corporation tax is calculated on the end of year accounts, and where a scheme to reduce taxable profits takes place during the year but has ended before the end of the year, HMRC will investigate. The DOTAS regime requires companies to disclose tax avoidance schemes when they are undertaken.
The noble Lord, Lord McFall, made a very powerful case about establishing a register for beneficial ownership. Such a register is being set up, and the case for making that public is currently under active consideration by Ministers. As I have always said, as a Leeds United fan, I would very much like to have known whether Ken Bates really did own Leeds United—that is the side of the argument on which my vote comes down.
I hope that I have gone some way to answering the points that have been made and reassured noble Lords that the Government are not in the slightest bit complacent. This is an area that we take extremely seriously and on which we will continue to focus.
Lord MacGregor of Pulham Market
My Lords, for a potentially dry and technical subject, we have had a lively and well informed debate. Of course, it is not a dry subject; it is a crucial one that is fundamental to the well-being of our citizens and our businesses.
We have had many excellent contributions from noble Lords this evening and I thank them all. I particularly thank my noble friend Lord Lawson for his overgenerous remarks about me. It has been hugely rewarding for me to have had so many opportunities to work with him over the years. I congratulate my noble friend Lord Leigh of Hurley on his maiden speech. He was modest in the length of his speech and temperate in his comments. But even in the short time he spoke, he demonstrated that he has wide expertise and knowledge, from which we will all expect to benefit in future.
It is also clear that the Government and the officials who drafted the response to our report gave too little thought to it. The Government gave the impression of complacency—that they are doing all that is required and reject all other recommendations for action. That approach means that they have not perhaps obtained enough credit for what they have been doing. The Minister certainly endeavoured strenuously to put that right in his response tonight.
I share very much the view of the noble Lord, Lord Lipsey, on the Treasury. Based on my experience, I thought that his book on the Treasury, which I have read comparatively recently, was good and very revealing. I hope that this debate has demonstrated that the Treasury will need to give much more serious consideration to some of our recommendations than it has done so far. Symptomatic, I think, was the terse rejection on false grounds of our recommendation of a parliamentary committee to oversee HMRC. The participants in this debate have demonstrated the expertise in the financial and commercial world that would make such a committee highly relevant.
Ours was a swift but intensely considered report. The debate tonight and the inadequacy of the Government’s written response have convinced me that it is a subject to which we will have to return.
Syria
(11 years ago)
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The Lord Bishop of Coventry
To ask Her Majesty’s Government what steps they are taking to address the humanitarian crisis caused by the ongoing conflict in Syria.
Lord Popat (Con)
My Lords, if Back-Benchers stick to eight minutes, we should be able to finish by 10 pm.
The Lord Bishop of Coventry
My Lords, despite the admirable diplomatic activity of recent weeks, the humanitarian costs of the ongoing conflict in Syria show no sign of abatement. As violence expands exponentially and cruelty abounds, no one can fail to be moved by the scale of the crisis, which is nothing short of a catastrophe.
This debate seeks neither to underestimate the efforts of Her Majesty’s Government to rise to the challenge of humanitarian support, nor to question their resolve to work towards a political resolution of the civil war. Rather, I hope that it will give an opportunity for your Lordships’ House to focus its expert attention on the humanitarian costs of the conflict and the humanitarian imperative of bringing the conflict to an end, and, in so doing, of checking that every stone is being turned in the cause of compassion and the pursuit of peace.
I am honoured that the noble Lord, Lord Bates, whose personal commitment to these issues is an inspiration to your Lordships’ House, will be replying on behalf of the Government. The Government are to be applauded for orchestrating the UK’s largest ever response to a humanitarian crisis. The United Kingdom is at the forefront of the humanitarian battle, leading others in the provision of strategic, targeted humanitarian aid. Such decisive, compassionate action is an important step towards healing the wounds of history that many of our past interventions in the Middle East have caused, which were powerfully explained by the noble Lord, Lord Bates, in a previous debate.
However, are we content that the humanitarian battle is being fought with the ferocity, skill, determination, sense of urgency and application of resource that are necessary in order to win this war on human suffering? I ask the Minister, therefore, for his views on how other Governments can be most effectively pressed to commit to the pledging conference that the United Nations Secretary-General has called in January 2014, and then to fully and speedily honour their commitments. Syria needs more than the current 50% return. The cost of the humanitarian aid to which we are committed is high, but it is a great deal lower than the cost of military intervention would have been.
Does the noble Lord agree that without more international generosity and a greater commitment to honour their promises of support, countries neighbouring Syria will be less inclined to keep their borders open? Indeed, I would welcome the noble Lord’s thoughts on what consideration has been given to the UK hosting or resettling a fair percentage of refugees to ease the pressure on Syria’s neighbouring countries, as requested by the UNHCR.
Returning to the January pledging conference, do Her Majesty’s Government accept that as well as increasing their funding commitments, donors must show greater flexibility and impose minimal bureaucratic restrictions on aid agencies, given the complexity of humanitarian operations inside Syria?
If you had one word for the British Government, what would it be? I put that question to a Lebanese humanitarian worker among Syrian refugees recently. His response was an impassioned call to invest—a word he used advisedly—our aid through locally based bodies whose scale and agility give them immediate access to need on the ground that makes them highly cost effective. It is a plea that I have heard from other agencies, several of them faith-based, which are doing remarkable work in Syria and surrounding countries.
I should like to pay tribute to those agencies that remain on the ground in Syria. I have just attended a meeting of the All-Party Parliamentary Group on Human Rights which was addressed by members of the International Committee of the Red Cross. They spoke movingly about all sorts of subjects, including the kidnapping of three of their aid workers and the recent killing of more than 20 Red Crescent workers. Yet they are committed to remaining on the ground, engaged and seeking local solutions. It would be good to learn from the noble Lord what percentage of UK effort is directed to meeting emergency needs, and what percentage is earmarked for long-term humanitarian assistance.
The other impassioned word from the Lebanese humanitarian worker was that, without a comprehensive solution to the humanitarian situation in Syria, and to the conflict itself, the wider region will continue to deteriorate. The United Nations Security Council endorsement of Resolution 2118 of the Geneva Communiqué and the backing for a follow-up conference provides a much-needed consensus among the P5. Such impetus for a political solution is necessary to prevent the fossilisation of systems of aid into semi-permanent structures. We know, from that same region, that this can happen.
In the light of recent announcements from some elements of the Syrian opposition, it would be helpful to hear the views of the noble Lord on how the will for peace, upon which the success of Geneva II depends, can be engendered in the country itself. Securing a sustained and monitored cessation of hostilities in Syria, as set out in paragraph 5 of the original Geneva Communiqué, will not be easy. However, a ceasefire is essential to improve the humanitarian situation and to allow, at the very least, a short humanitarian pause in hostilities. Furthermore, surely a complete and immediate halt to arms and ammunition to Syria, as set out in paragraph 12 of the Geneva Communiqué, is another necessary component in the cause of peace. I would welcome the noble Lord’s reflections on steps that are being taken to halt the flow of arms into Syria.
The noble Lord is all too well aware that paragraph 5 of the Geneva Communiqué was given a renewed lease of life by the recent UN Security Council Presidential Statement. Parties to the conflict are still failing to uphold the basic obligation, under international humanitarian law, to facilitate the safe, unhindered passage of humanitarian convoys in areas under their control. In the light of the penetrating comments from the noble Baroness, Lady Amos, in her United Nations capacity to the Security Council, it would be good to know the noble Lord’s views on progress towards implementing this provision and how it might be benchmarked.
At the meeting I have just come from, there was a very moving account from a British doctor who has just returned from Aleppo. He spoke about how access for humanitarian aid is absolutely critical. He asked: if it could be done for a weapons’ inspector, why could it not be done for an ambulance?
One issue sadly missing from the guiding principles of the Geneva Communiqué is any consideration of the wider refugee crisis and how the right of return will be provided for. This appears to be a glaring omission. Those displaced by the conflict need to be given a stake in Syria’s future. Perhaps the noble Lord will provide some insight into how this issue might be resolved.
In conclusion, if the existing humanitarian costs of this conflict are shamefully terrifying, the humanitarian costs of not reaching a political settlement at Geneva II would surely be intolerable for the moral conscience of the world. Even with a political solution, the scars of this conflict will take many generations to heal. It will require the continued generosity of the international community in a sustained and strategic humanitarian commitment. I hope that Her Majesty’s Government will continue to take a courageous lead and make this not the last business of a long day but the priority of every morning until the holy land of Syria is healed.
Baroness Jenkin of Kennington (Con)
My Lords, I thank the right reverend Prelate for introducing this debate so ably and movingly. Like other debates on similar topics, I cannot help feeling slightly uncomfortable as we, so comfortably ensconced on these red Benches, appear to wring our hands and feel helpless in the face of the injustices being perpetrated on the innocent victims of this terrible war. How can we have any idea of what they are suffering and going through? How can we begin to put ourselves in their shoes? But, in the end, one of the privileges of being a Member of this House is to keep the topic both in our own minds and those of others who care about the tragedy unfolding in Syria, and I am grateful to the right reverend Prelate for providing us with the opportunity to do so.
As a trustee of UNICEF UK, I have of course been briefed on a regular basis about its activities on the ground and I, too, pay tribute to it and to the other NGOs and agencies providing humanitarian aid in almost impossible circumstances. Operating any form of assistance in Syria is increasingly challenging, dangerous and highly complex. There is no security for aid workers and rising numbers of armed groups across the country will do little to improve stability or safety. Thousands of aid workers are risking their lives daily to reach those who are most in need. The pace of change in the conflict and the vast array of armed groups all threaten agencies attempting to provide aid. The safety of aid workers must be guaranteed if we are to effectively provide assistance to the people of Syria. The right reverend Prelate pointed out in his speech that we can take pride in the fact that Britain is leading the way in providing aid and assistance. We are the second largest bilateral donor and the £500 million earmarked by DfID for Syria will go a long way to alleviating the suffering of those on the ground, once effective aid routes are implemented and sufficiently protected.
There is so much suffering throughout Syria and in the neighbouring countries, but in the short time available, I wish to focus my remarks on the plight of women and the sexual violence, both in Syria and in the camps, which has tragically become a part of their daily lives. In January, an International Rescue Committee report surveyed Syrian refugees in Lebanon and Jordan and identified rape,
“as the primary reason their families fled the country”.
As Erika Feller, the Assistant High Commissioner at the UNHCR, asserted:
“Syria is increasingly marked by rape and sexual violence employed as a weapon of war”,
to destroy,
“identity, dignity, and the social fabrics of families and communities”.
Alma is one woman who has dared to speak out about the horrors inflicted on women in Syria. She was a battalion commander in the Free Syrian Army from Damascus and was arrested by the Assad regime after attempting to intervene in an incident where a soldier was beating a 16 year-old boy. During her 38-day imprisonment Alma was whipped with a wire, strung up by her wrists and feet, and injected twice a day with a drug that made her feel high. She was gang-raped daily. The things she recalls the men saying as they allegedly raped her multiple times were so filthy that she is loath to repeat them, although she remembers them saying, “Here is the freedom you wanted”, which is a phrase similar to ones other women have reported hearing while being raped in Syria. She has recently received news that her husband, disgusted by the rape, has married a new wife, and her children have remained with him. Speaking out has been a decision she has made after many months of being told to stay quiet. “We have to share this with the entire world to show that women are fighters”, she says.
The reality is that the victims of sexual abuse have much to lose and little to gain from speaking out. It takes a lot of courage and strength for a victim to speak up and they may be on their own with little support as they do it. In addition to the shame and isolation a victim may feel, they now are living in an insecure environment due to the war. They may be in a large refugee camp with no privacy, surrounded by people they do not know or trust. If they tell someone, to whom and where does that information go? It may be hard to put their trust in a stranger when, time and again, there has been little justice for the victims of wartime rape. Added to that must be the physical, psychological and emotional trauma that victims are already suffering from the war and displacement. It is not surprising that they are reluctant to come forward.
However, there are others whose stories are beginning to come out. Now at a safe house in Turkey near the Syrian border, a 25 year-old Sunni woman spoke of how she was detained for more than eight months. Her first days in detention were largely spent without sleep and being relentlessly interrogated for information. She could hear the screams of fellow prisoners being beaten and was continually threatened with sexual violence. She was taken to a cell full of male prisoners in their underwear. Leering, the jailers told her that they would leave her alone with the prisoners, “to take care of her”. To a conservative young Sunni woman, this was unthinkable. She began to scream for them to let her out of the jail. “I thought I was being given to these men for them to rape me”, she said. “I think I screamed for three hours. They wanted to break me, and it worked. Finally I said, ‘Okay, I will tell you the truth’”. When speaking of the degradations she had experienced, she would not use the word “rape”. However, an NGO worker who had been looking after her confirmed that she had been subject to sexual abuse. “But she needs to rebuild her life, and you can imagine what rape means in Syria. She has said that she feels more than violated; she feels ruined”.
A recent UN Commission of Inquiry report on Syria cites five instances of women who committed suicide after being raped, so intense is the shame associated with the crime. The sheer misery of women who have been forced to flee their homes is difficult to convey, and once they have reached supposed safety across the border, the nightmare does not end. Along with the risk of maltreatment and food shortages, there are accusations that Turkish security forces have abused refugee girls and women. According to some Turkish media and news networks, since August 2012 some 400 Syrian women have been raped, with 250 of those rape cases resulting in pregnancy. Increasing numbers of women living as refugees report that they would rather return to their homes, under horrendous conditions, than remain at the risk of rape and sexual abuse in the camps. It is heartbreaking that these women flee their homes with their families seeking safety, only to exchange one place of violence for another.
I am proud that the UK, and our Foreign Secretary in particular, are leading the way in the global campaign against rape as a weapon of war. We should also be glad that so many countries have responded positively. In April in London, the G8 made a historic commitment to address this issue, and in June the UN Security Council unanimously adopted a resolution bolstering the UN’s capabilities, but we need more than words.
Every one of the stories which I have used, and thousands I have not, is a human tragedy. I welcome the commitment by the Secretary of State for DfID to ensuring that vulnerable girls and women in refugee camps have safe access to facilities such as toilets and washing areas, and her commitment to helping tens of thousands of survivors of sexual violence across the region with clinical care and case management, mental health services and financial support. However, we need other donor countries to join us in stepping up and co-ordinating support for refugees. The terrible experiences of these women underline the need to find a political solution to bring this conflict to an end.
Baroness Symons of Vernham Dean (Lab)
My Lords, I start by thanking the noble Baroness, Lady Jenkin of Kennington, for that quite remarkable speech. She vividly brought the plight of women in Syria to our attention. I also join her in thanking the right reverend Prelate the Bishop of Coventry for introducing the debate with such clarity, and indeed such conviction.
The conflict in Syria has obviously had a huge impact on the politics of the whole of the Middle East region, and of course it has divided opinion across the world. The deepening sectarian divisions in Syria and the countries around it, the role of Iran in supporting the Assad regime, and the respective roles of Russia and the United States in attempting to find a way forward to stop the fighting and the use of chemical weapons are issues all very well known to us.
The outlook is grim. Only this week United Nations envoy Lakhdar Brahimi was told by Bashar al-Assad that the civil war in Syria would end only if foreign powers ended their support for those trying to overthrow him. Yesterday brought the depressing news of the sacking of the Syrian Deputy Prime Minister, who had been among those pressing for reform in Syria. He had been liaising with Russian and American officials about peace talks which it was hoped would end the tragic civil war. Qadri Jamil has now been dismissed for allegedly spending too much time outside Syria, neglecting his duties and holding meetings without co-ordinating with the Government.
Today we are not debating the politics of the situation but the impact of the failure of politics and the political process on people in Syria and its neighbours. More than 2 million people have fled Syria, according to the Red Cross. One million of those people are children. It is the worst refugee crisis in 20 years, and we have seen nothing like it since Rwanda in 1994. Every day another 4,000 people cross over into other countries to seek safety elsewhere. They are often women with their children, without their husbands or fathers who have been left to fight. They are escaping brutality and violence which, as the noble Baroness said a moment ago, are almost unimaginable to us. Yet I am bound to say that the appalling pictures that we see in our newspapers of dead and mutilated people, and the unimaginable horror of public summary executions, which sometimes take place in front of very young children, bring home to us the reality of what is happening on an almost daily basis.
Can the Minister please tell us whether and how our humanitarian aid is now being dispersed in Syria? The websites of all the aid organisations are clear that aid workers are hugely at risk. Twenty-two Red Crescent volunteers lost their lives trying to get aid through to those who need it most. Of course, mercifully for us, thousands of volunteers still try to reach those who are in need of their help.
I shall focus for one moment on one individual, Archbishop Yohanna of Aleppo, who disappeared on 23 April this year. I thank Ministers for the updates that I have received on this. The archbishop is a man hugely respected by people of all faiths in the region. I ask the Minister to assure us that the Government will do everything that they can to continue to try to find out where he is and to work for his release.
I concentrate the rest of my remarks on the impact of this humanitarian crisis on Syria’s neighbour, Jordan. There are now more than 600,000 Syrian refugees in Jordan, representing an increase in Jordan’s population of around 10%. That is like us having 6 million more people in this country. Since Jordan opened the Za’atari refugee camp 14 months ago, it has become a place where there are 145,000 Syrians, and it is now the fourth largest city in Jordan. The country has often dealt with the arrival of refugees in the past; what makes this influx so different is that the Syrians arriving in Jordan have little or no money, are living alongside their hosts and put a huge strain on Jordan’s limited resources and job opportunities.
Those of us who know Jordan well know that it is a terrific country; it is beautiful, has wonderful historic sites and vibrant and articulate people. But it has no natural energy source and little water. It has nothing like enough jobs for its own young people. Education, health and water infrastructure and the job market are under enormous strain. To accommodate the 78,000 Syrian children in the education system, schools are now working on double shift in Jordan. Health services are deteriorating, particularly in the northern governorates, and medicines and vaccinations are becoming heavily depleted.
The job market in Jordan is at breaking point. The International Labour Organisation estimates that 160,000 Syrians are now working in Jordan in construction, agriculture and service sectors, while unemployment among Jordanians is now running at something approaching 16%. This is a recipe for real tension between a host community and the refugees whom they are attempting to host.
Water and sewerage pose appalling difficulties in the refugee camps, both at Za’atari and Al-Azraq. The water is now being drawn into those refugee camps and away from established urban populations. The water bill for refugees has increased by more than $40 million in the past year or so. As a result of being good hosts to their neighbours, Jordanian communities are really suffering. What are Her Majesty’s Government doing to assist not only Syrian refugees in Jordan but Jordanian people in need? They, too, are part of this humanitarian crisis. The estimated additional costs continue to rise in hosting the more than 600,000 Syrians, and now stand at $1.68 million.
Jordan is, and has been, a very good friend to the United Kingdom. It has been a positive force for moderate politics in the region in relation to Israel and Palestine and in the councils of the Arab League. If the stability of Jordan comes under severe threat because of the internal strains that have been created by the huge influx of Syrian refugees, we shall all be the poorer. The security of all of us will be undermined. Wringing our hands about the humanitarian crisis is not enough; active and committed support is needed, and it is needed now.
The Earl of Sandwich (CB)
My Lords, I, too, pay tribute to the right reverend Prelate the Bishop of Coventry, whose name has a special resonance in this field of human rights and humanitarian aid.
As the noble Baroness, Lady Symons, mentioned, we see our most experienced negotiator, Lakhdar Brahimi, revisiting President Assad, representing both the UN and the Arab League. Let us not forget that he was the Arab League’s special envoy to Lebanon when he brokered the agreement of 1989, which gradually ended the 15-year civil war there. He was also the UN representative in Iraq in 2004, following the American invasion when, as we now know, his proposals for Iraq were ignored by the Americans and ourselves, with tragic results. The war in Syria has to end sometime, and there is no one better qualified than he is, at least to start the process.
However, our hopes cannot be set too high. The regional powers will first have to come to some understanding. The diplomatic wheel is turning all the time, and it now seems that Turkey and Saudi Arabia are even aligning themselves with Israel in an attempt to prevent US rapprochement with Iran. I believe that some member states of the EU could take a much firmer stand to resist that process, because Iran is surely one of the powers influencing and financing the civil war. As long as there are proxy combatants inside Syria, the war and the suffering will continue.
Turkey, having so warmly welcomed the refugees, is usually seen as aligned with the opposition in Syria, but it also accommodates a substantial Shia Alawite minority in Istanbul. Only last week, a prominent Turkish socialist MP visiting Westminster criticised his Government for their open-door policy. It is obvious that Turkey is allowing arms and al-Qaeda fighters, among other jihadis, through the border with Syria, but it is also extremely wary of more Kurdish autonomy on its doorstep. That is another dimension.
I understand that Mr Brahimi has angered the Syrian opposition by advocating Iran’s presence at the negotiating table in Geneva. Of course, Iran is financing fighters, just like the Saudis, the Qataris and others. That is the whole point. I hope that the Minister will accept that all those engaged in those proxy wars should be invited to the talks, and Iran has already declared its willingness to attend. Meanwhile, as the noble Baroness, Lady Symons, said, Jordan is under severe pressure to look after a huge refugee population, which may now be equivalent to more than 20% of its own population. One can compare that situation to that of UNWRA with the Palestinian refugees in 1948 and 1967. Although Palestinians now have their own services through the United Nations, in Jordan, 90% of the Syrian refugees are not in camps but have had to be absorbed into already stretched urban areas. As has been said, that makes increasing demands on education, health and, especially, water resources.
One could suggest that a comprehensive agency like UNRWA be set up for Syrian refugees, but that would be a public admission that this could be a very long-term issue. Something has to be done. The enormous strain on limited resources is causing stress and increasing resentment among Jordanians. Those refugees must be helped, if only to save Jordanian society from stress and possible friction.
In these conflicts, it is of course the dead and the wounded who claim attention from aid workers and the media. The figure of 100,000 dead, which includes many civilians, is bad enough, but the media can rarely show the number of displaced. To the total number of refugees of 2.2 million must be added the number of people displaced or trapped in conflict areas—up to 7 million or 8 million. Those are the figures that really bring home the scale of the crisis. They are victims such as those described by the noble Baroness, Lady Jenkin. They tell a desperate tale of a vicious civil war which we cannot imagine here and have not known since the time of Cromwell.
As a long-standing supporter of Christian Aid and Save the Children, I have a particular interest in the role of NGOs in conflict and peacemaking. Like others, I must mention the Red Cross and Red Crescent workers, who have been constantly on the front line in Syria—many as volunteers—and without whom there would be many more casualties. Another NGO is less well known: the Mines Advisory Group, or MAG. It is helping thousands of Syrians flocking into areas of northern Iraq, potentially riddled with landmines and unexploded ordnance. Christian Aid’s partner, called REACH, helped to respond to a sudden arrival of more than 46,000 refugees in northern Iraq in August over a period of only 11 days.
Can the Minister confirm not only that civil society and faith leaders will be invited to Geneva but that their voices will be heard? In the aid community, there are some very experienced NGOs with expertise in peace-building and conflict resolution. Sometimes, as the right reverend Prelate said, and as we saw on the news yesterday, there is a need for a local ceasefire, or at least an interval to allow humanitarian access or trapped communities to escape. These ceasefires are almost always brokered by NGOs and the community leaders who are able to contact commanders on the ground. They need to happen more regularly.
I know of NGOs providing this added value in conflict resolution in South Sudan, Nepal, Mozambique and elsewhere, ensuring that civilian leaders are always capable of sitting down with those who are still carrying weapons. We can be sure that although we are not told their names, some of our own NGOs and churches, Christian Aid among them, are already engaged with partners like the Orthodox Churches inside Syria, helping every day to ensure proper access and to negotiate free passage for humanitarian assistance. It is on these organisations that soldiers, politicians and diplomats should in the end be able to build a lasting peace.
Finally, there is the issue of cross-border assistance. Save the Children is asking whether UNOCHA, the UN agency responsible for humanitarian access, can do any more to reduce the obstacles to cross-border aid delivery when and where it is appropriate. The right reverend Prelate mentioned this, too. Will Her Majesty’s Government or DfID encourage OCHA, if possible with new resources, to develop a plan to monitor the border more effectively to ensure that people are more easily reached from neighbouring countries?
This is not a new problem. The Institute of Mechanical Engineers recently published a good report recommending greater preparedness and prepositioning in disasters and conflict. I can remember these arguments 30 years ago and as a world leader in this field, we still have to take them more seriously.
Lord Empey (UUP)
My Lords, like other speakers I congratulate the right reverend Prelate on securing this debate. Unlike many speakers, I do not have a particular expertise in this area, but I was motivated to speak by my frustration at what I see as a long-term policy of western Governments towards the Middle East which has been failing for many years. At the time of the Arab spring, and when the trouble began in Syria, we had leaders saying Assad was finished and that he would be going within a few weeks. The implication, and the encouragement that this was giving, led many of the opposition to believe that if they took up arms against the Government of Syria at that time, that Government could be overthrown. That reminded me of the rhetoric directed at the Marsh Arabs in Iraq. They were encouraged to stand up and fight for their freedom against Saddam Hussein. They were led to believe that the first Bush Administration would ride to the rescue. No such thing occurred and the Marsh Arabs were slaughtered.
The West does not do the Middle East well. We do not understand it. We arrogantly assume that our particular model of governance is the sort of governance that they should have. It is not; it just does not fit.
Secondly, if Governments were prepared to act militarily in that conflict, the time to have done it was 18 months ago. At that stage, anti-aircraft capability could have been provided to the rebels. It has largely been the air force that has allowed Assad to prosecute the war. However, did we do anything? No. Therefore, I do not understand the point of the rhetoric that encourages the opposition but is then not followed through, and we wonder why people are being slaughtered. If we are not prepared to put up, we should shut up.
I echo the concerns that other speakers have raised about Jordan, which is almost a refugee country and has been for many years. It is being overwhelmed, and indeed Lebanon is being destabilised, having just begun to get settled. If anyone thinks that people are going to leave these camps and walk back to some kind of Valhalla in Syria, they are gravely mistaken. I think that these refugees will be there for years; I deeply regret that, but I feel that they will.
The right reverend Prelate raised the issue of a right of return. We have been talking about a right of return in the Middle East for years but it has not happened. Indeed, for some people there is not even any physical opportunity to return, as their dwellings and properties have been concreted over and taken by others, so I fear that. I also fear the long-term traumatic consequences for individuals. Coming from a minor conflict zone by comparison, I know that 20 or 30 years down the road there will be vast numbers of people who will have been traumatised. What is happening to the children in this conflict is on such a scale that it is almost unimaginable.
While I am very pleased at the contribution that our Government are making, the fact is that vast amounts of money were about to be committed militarily. I wonder if the same people who have been supplying and were prepared to supply the materials for that war are prepared to sit at the table and put their hands in their pockets.
What are the Russians doing? They were quite happy to supply materials to the Assad regime, but are they prepared to do anything either to secure humanitarian aid or to influence the Assad regime by insisting that it has corridors so that people can get aid through securely? Let us face it, there is no more influential Government on the Syrian regime than the Russians. They have large resources of their own, and they ought to deploy some of those resources to help these people, who are facing a second winter under canvas while many parts of their country have been bombed back to the Stone Age.
When we started out by taking a particular side in this conflict, which was perfectly understandable, if we were not prepared to follow that through to its logical conclusion, we would have done better to stay out of it altogether. The debate that we held here in August, when there were 60 or 70 speakers, showed that the ghosts of Iraq were still walking these corridors. The question that I pose is: have we learnt our lesson? I think the jury remains out.
Baroness Berridge (Con)
My Lords, a polio outbreak in north-east Syria was the latest headline this morning on the “Today” programme. I am sure that your Lordships, like me, long for the day when nothing newsworthy is happening in that country. I, too, thank the right reverend Prelate the Bishop of Coventry for securing this debate, and of course, with Coventry’s long association with peace and reconciliation, it was apt for him to do so.
I pay tribute to the Governments of surrounding nations such as Turkey, Iraq, Jordan and Lebanon, who have kept their borders open and welcomed unprecedented numbers of refugees. I hope that if this country were ever in a similar situation, it would have the same response. On the figures that I have seen, the UN has now registered nearly 700,000 refugees in Lebanon and nearly 550,000 in Jordan. The level of the crisis is heartbreaking and the finances needed for the humanitarian response of £3 billion are eye-watering.
I, too, am proud of the generosity of Her Majesty’s Government on behalf of the UK taxpayer with their contribution of half a billion pounds worth of aid. I believe this is the largest ever UK response to a single humanitarian crisis. Of course, in addition to the DfID funds, funds have been raised by many UK charities. Again, I was impressed by the generosity of support for the Tearfund appeal for Syria, which raised more than £1 million. The UK has not been found wanting with the depth of its response. However, there have been disappointing responses from fellow G20 members, notably France, South Korea, Japan, China and, as already mentioned, Russia. I hope my noble friend the Minister can update the House on the progress in ensuring that the UN response is properly financed and can perhaps explain the reasons for the reluctance from other nations.
As the noble Baroness, Lady Symons, outlined, there are more than 2 million refugees—75% are women and children, and half of them are children. They are traumatised and already very vulnerable and can be easy prey for trafficking gangs. We should not underestimate the tactics of those who run the second largest illegal trade in the world, that of people. There are already anecdotal reports of girls being sold and of labour exploitation. Can my noble friend confirm that, although this can be a chaotic situation, there are now proper child protection and security measures in place in the refugee camps? Has my noble friend any independent confirmation of the reports that men who are looking to purchase young women are seeking out Syrian refugees and that criminal gangs are being paid to traffic people including, apparently, to the UK? As the Syrian uprising and conflict has been going on now for two and a half years one can understand the desperation of people trying to escape this intractable situation, but we need to try to protect them from making dangerous crisis-driven decisions.
The difficulties in ensuring that aid is reaching those still in Syria was discussed in your Lordships’ House only last week. I was particularly struck by the comments of the noble Baroness, Lady Kinnock, that the UN inspectors looking for chemical weapons are gaining access to areas of Syria that aid convoys are not allowed to get to. In the past 24 hours, Reuters has been reporting that starvation of the civilian population is being used as a weapon of war. The UN states that 1 million people in Syria still cannot access aid. Can my noble friend the Minister outline whether the trajectory of aid reaching those in need is improving or deteriorating? Only a political solution will end this war but are Her Majesty’s Government looking at proposing at Geneva II a temporary ceasefire to allow humanitarian aid into these areas of Syria?
Only an hour ago, it was covered on Al-Jazeera Twitter that a temporary ceasefire had been brokered by the Red Cross in one of the suburbs of Damascus, which allowed a number of people to flee. Is there not perhaps an appropriate Muslim holiday such as the Day of Ashura on 24 November which, if honoured by the Syrian Government and opposition, would bring some brief respite to the fighting?
Although matters are obviously still desperate for so many refugees I want to look forward to peace in Syria for a moment when a political settlement has been achieved. Whether all its communities can return will depend on what that new Syria looks like. In this vein, on 15 October Margaret Ritchie MP asked whether Her Majesty’s Government will be establishing a resettlement programme in the UK for Syrian refugees. In response, Her Majesty’s Government said they have no plans to do so, but there are reports in the Lebanese press that Germany, through the International Organization for Migration, has accepted 5,000 refugees. Can my noble friend please outline what discussions we are having with our EU partners about responses to this refugee crisis and why the UK is not able to accommodate some refugees as Germany has?
I had the pleasure of hearing the Melkite Greek Catholic Patriarch Gregorios III on his recent trip to the UK when he was appealing for reconciliation. He estimates that about 450,000 of the pre-war Syrian population of 1.75 million Christians have either fled Syria or are internally displaced. The patriarch was resolute in his view that the church in Syria would survive but the plight of religious minorities in any future Syria is uncertain. It is clear from the comments of the noble Baroness, Lady Symons, that the region may not be able to accommodate all of these people. Are discussions being held at EU and UN level about an appropriate response if, at the end of the war, it is not safe for some communities—whether Shia, Alawite, Muslim or Christian—to return home? Surely it is better to be prepared for this eventuality than being caught on the hop and seeing people fleeing into boats across the Mediterranean Sea or being vulnerable prey for the people-traffickers I have already mentioned.
In any event, there will need to be a huge process of reconciliation, akin to that which was undertaken in Rwanda. Just under a tenth of Syria’s pre-war population are in neighbouring countries and many, of course, are accommodated by the UNHCR. I have never visited a refugee camp, but I have looked closely at the images on the internet. One can see that there are satellite dishes and TV aerials on some of the tents and containers in which people are living. Arab culture is oral, which is one reason why TV is so popular even when people have barely enough to live on. Is this small opportunity being taken by the UN to ensure that the programming into these camps includes messages on reconciliation, on remembering the Syria where Sunni, Alawite and Christians lived side by side, and on how to forgive your neighbour? I know that some will consider this a premature drop in the ocean. However, it is never too soon to try to bring about reconciliation.
Lord Judd (Lab)
My Lords, I declare an interest as a former director of Oxfam. I warmly thank the right reverend Prelate for giving the House a further opportunity to review the huge humanitarian challenge that faces us. I also pay tribute—and am sure that other noble Lords would like to do so—to the humanitarian workers from across the world who are serving in this situation. Their courage and resilience has been of a special order.
I acknowledge that, in preparing for this debate, the briefs from the UK NGOs actively engaged in the front-line activities have been impressive and most helpful; I am thinking particularly of Christian Aid, Save the Children and Oxfam. HMG have won the support of all these NGOs and, I believe, of all parts of this House, for the good lead they are giving on behalf of the people of the United Kingdom.
It is important to recognise that, as we have been reminded, the UN estimates that 6.8 million Syrians are trapped in conflict areas and are in immediate need of assistance. A joint NGO assessment carried out in May 2013 found that, in fact, the need may be much greater, with 10.5 million people not getting enough essential supplies and seven northern governorates alone in special need. Moreover, at least 4 million Syrians, half of them children, are in need of emergency food assistance. Save the Children’s latest report, Hunger in a War Zone, shows how food is getting dangerously scarce, expensive and risky to access in Syria, and how efforts to address this are falling dangerously short.
The Syrian Government have permitted assistance provided from Damascus across conflict lines, but administrative, logistical and security constraints continue to prevent this being provided on anything like the scale required. The UN and its partners have faced major difficulties providing aid in this way. Between January and July 2013 only 21 UN convoys crossed the conflict lines.
Many parts of Syria can only, or can more easily, be reached by cross-border operations from neighbouring countries. Agencies have not been permitted by the Syrian authorities to do this; nor have neighbouring countries given their formal approval. The fast-changing dynamics of the conflict, coupled with frequent shelling and the multiplicity of armed groups also threaten the security of agencies delivering cross-border aid.
As we have been reminded, on 2 October, the UN Security Council adopted a presidential statement on humanitarian access to Syria. This called on the Syrian Government to allow cross-border aid deliveries where appropriate and called on all parties to the conflict to agree on humanitarian pauses in the fighting, including along key routes for relief convoys. It called on Damascus to take immediate steps to facilitate the expansion of humanitarian regional relief operations and to lift bureaucratic impediments and other obstacles. Obviously, the UN presidential statement must be urgently implemented. Four weeks after it was adopted, it would be helpful if the Minister could tell us just how much progress has really been made.
What are the Government able to do to urge states with influence over the parties to the conflict to implement the presidential statement? What are they able to do to encourage the UN Office for the Co-ordination of Humanitarian Affairs, the Security Council itself and all donors, both bilateral and multilateral, to expand relief operations and to vigorously pursue the removal of obstacles to cross-border aid delivery? The figure of more than 100,000 deaths is terrible enough, but there are also wider human costs about which we have been hearing in this debate.
Seven million men, women and children have been compelled to leave home. Two million have sought refuge in neighbouring countries such as Turkey, Iraq, Jordan and Lebanon. One million have gone to Lebanon alone and, as we have been reminded, others to Jordan, added to the Palestinian refugees already there. The number of refugees has now reached more than a quarter of the total population. Goodness knows what it will become in the future. We have to face up to the incredible hospitality being provided by neighbouring countries, which puts a huge moral responsibility on us to respond and to ensure that those countries get the support they deserve in infrastructure, education and all that is being done. If the Minister can reassure us of this, it would be very helpful.
I want to say a word about the children. The trauma and the disruption of their education will have long-term effects right into the future, hindering development and the rest. Then there are the horrific experiences of too many women and girls. Women and girls face a nightmare. The needs and opportunities of women must be a priority in all aspects of the response. Clinical care and counselling for victims of sexual assault and gender-based violence is another priority. Physical security, adequate water and sanitation, adequate cultural and gender-specific hygiene and dignity kits, adequate access to healthcare, facilities in camps and host communities—all these should be receiving our focused attention. We cannot neglect equal access for women to income-generating projects and to relief supplies in general. Can the Minister tell us that enough is being done?
We all yearn for peace, but I remind the House, in conclusion, of the wise words of Christian Aid:
“A key concern is that an over-reaching and hasty push for peace without a clearly planned process of moving towards ceasefires could generate an intensification of the conflict as the sides seek to establish facts on the grounds and gain territorial advantage. Initial areas of focus should concentrate on creating openings for looking at reinforcing locally defined ceasefires (of which there are several) into creating opportunities for wider ceasefires and humanitarian pauses. Geneva II should seek to establish a process of negotiation and efforts towards building the foundations of peace through … inclusive talks; civil society engagement, and establishing conditions for ceasefire”—
of which, as I say, there are already a number of examples.
Lord Williams of Baglan (CB)
My Lords, I, too, welcome this debate and commend the right reverend Prelate the Bishop of Coventry for raising this critical issue.
Yesterday was the 150th anniversary of the establishment of the International Red Cross. I take this opportunity to salute the work of the Red Cross, whose efforts are as indispensible today in Syria as they were on the battlefields of Europe in the 19th and 20th centuries. As other noble Lords have noted, no fewer than 22 of its Syrian volunteers have died in the course of their work. However, not just the ICRC is involved; the whole international humanitarian community has been mobilised by the crisis in Syria, and increasingly in the region. Alongside the Red Cross, the United Nations High Commissioner for Refugees and UNICEF, many British NGOs such as Oxfam, Save the Children and others have risen to meet the horrors of the Syrian situation, just as they did in earlier humanitarian emergencies. I also pay tribute to the work of the Government and of DfID in particular for the immense contribution that they are making in so many ways. I am especially pleased that the department is doing its best to help vulnerable groups such as children and women, as well as the many victims of trauma.
It is becoming increasingly difficult to contain the Syrian conflict and the humanitarian crisis. Neighbours such as Turkey and Jordan have long been affected, but above all Lebanon, a tiny country where I was in charge of UN operations at the onset of this crisis in 2010, is in grave danger. Last week alone—in one week —13,000 new Syrian refugees were registered by the United Nations High Commissioner for Refugees in Lebanon, bringing the total number there to over 800,000. That is more than two and a half times the population of the city of Coventry and more than the population of some of our largest cities such as Liverpool or Newcastle. The noble Baroness, Lady Symons, referred to the terrible burdens on Jordan, but those on Lebanon are even greater. By way of comparison, the equivalent of Lebanon’s acceptance of 800,000 refugees would be equivalent to the UK taking more than 10 million refugees over a period of less than three years. The conflict in Syria, a country linked by historical, economic and social ties with Lebanon, is severely and negatively impacting that country.
Inevitably, this puts great strains on Lebanon, its people and its economy. Lebanese schools, hospitals and homes have been opened to refugees in the spirit of generosity for which that country is renowned. However, given the country’s weak public finances the inevitably large costs are unsustainable. Furthermore, the Syrian conflict has challenged the already delicate balance between Lebanon’s myriad communities of Christians, Sunni and Shia Muslims. In order to help Syria in its hour of deep crisis more must be done to stabilise Lebanon lest the Levant as a whole is drawn into a vortex of deep sectarian violence. Already in recent weeks the situation in Lebanon’s second city, Tripoli, has deteriorated markedly, with sectarian violence between Sunni and Alawite communities. In Syria itself the situation continues to deteriorate. On the BBC’s “Today” programme this morning its intrepid foreign correspondent Lyse Doucet reported that thousands of civilians are trapped in three besieged suburbs of Damascus, especially the suburb of Muadhamiya.
In looking to the future we must be mindful that winter is fast approaching in the Levant, and especially in the mountains that will be particularly harsh. The noble Lord, Lord Judd, and other noble Lords referred to the recent Security Council meeting on 2 October, when a presidential statement was issued. A presidential statement is the lowest level of action that the Security Council can take. The Government, with partners, should strive to urge the council to adopt a resolution on the humanitarian situation itself.
Thirdly, more countries need to support the emergency humanitarian appeal of the UN High Commissioner for Refugees. Britain and European countries have done so generously. So have the United States and Canada, and also Russia. Only two Asian countries, Japan and South Korea, have responded, and only one Arab country, Kuwait, has so far answered this appeal. That may be because some Arab countries are taking action unilaterally, but they should be encouraged to do more within the context of the UN appeal than they are doing now.
Finally, next month my friend and former colleague Lakhdar Brahimi will chair a reconvened Geneva conference. The obstacles and difficulties are immense for perhaps the most skilled negotiator in the Arab world. The United Kingdom must do its best to support his efforts, and a conference as inclusive as possible in its representation. Given the problems that lie ahead, thought should be given to establishing a durable mechanism, such as a standing conference, to avoid the threat of early failure in Geneva. Tragically, there will be no easy or straightforward end to this conflict.
Lord Collins of Highbury (Lab)
My Lords, I, too, thank the right reverend Prelate for initiating the debate. The scale and horror of this crisis are difficult to comprehend, but as the noble Baroness, Lady Jenkin, said, it is vital that we keep reminding people of precisely what is going on. Almost one third of the population have fled their homes due to violence, insecurity or a lack of basic services. It is extremely difficult to access water, food, medical and other supplies; 60% of all hospitals are affected by the conflict, with nearly 40% completely out of service. A further 2.1 million people have fled to neighbouring countries—an eightfold increase from 12 months ago, when there were 230,000 refugees. Over 100,000 people have been killed.
The noble Baroness, Lady Amos, in her UN capacity, said last month:
“Inside Syria, protecting civilians is paramount ... The rise in the level of sectarian and sexual violence and ongoing human rights abuses are a major concern”.
Families are being torn apart, and mothers and young children are being separated. Justin Forsyth of Save the Children, who recently returned from Lebanon and Jordan, described his shock at the,
“targeted and systematic violence against children”.
He said that the children he met had been,
“shot at, tortured, detained and separated from their families”.
Oxfam recently produced a report called Shifting Sands, which highlights the fact that many refugee women and girls no longer have access to the resources and services they used to have in Syria before the conflict began, which enabled them to fulfil their traditional gender roles. What assessment and action are the Government undertaking to understand and tailor policies to the impact of the crisis on the women affected, including, as the noble Baroness, Lady Jenkin, reminded us, by the increasing violence against women and girl refugees?
Syria’s neighbours have stepped up to the plate to provide support to refugees fleeing conflict, but as we have heard tonight, they cannot cope with the scale of the challenge. Approximately 1 million people have fled to Lebanon, and now represent a quarter of the population. As my noble friend Lady Symons said, officials in Jordan have estimated that the country needs a $6 billion investment in infrastructure as it struggles to cope with such a huge increase in its population—11% or even, as we have heard tonight, more—owing to the influx of Syrian refugees.
As the noble Earl, Lord Sandwich, said, in Lebanon and Jordan the majority of refugees are living in towns and cities rather than camps, and basic services such as health, education, water and sanitation have reached their capacity. Will the Minister tell the House what the Government are doing to help the host communities not just to address the needs of the refugee population but to mitigate the impact on public services and the local economy, as we were so ably reminded by the noble Baroness, Lady Symons? Like everyone who has spoken in the debate, I pay tribute to the Government for the generous assistance provided by the UK, but despite this the humanitarian appeal for Syria is still only some 40% funded.
As many noble Lords have said, the UK Government must continue to urge the international community to fulfil their pledges of support for refugees and their host countries. Without more funding the Syrian Arab Red Crescent warned that 150,000 people might have to go without food in October. The noble Baroness, Lady Northover, acknowledged earlier this month that the Government would clearly have to work extremely hard to make sure that the pledges to which countries have committed themselves are delivered. While she expressed pleasure that the figure had reached the £1 billion mark, she also acknowledged that aid to Syria is a question not only of funding but of humanitarian access and respect for international humanitarian law. NGOs have repeatedly raised concerns about support reaching all areas of the country in both government and rebel controlled zones. As the noble Baroness, Lady Berridge, said, my noble friend Lady Kinnock referred in the same debate to the MSF view that the Syrian people are now presented with the absurd situation of chemical weapons inspectors driving freely through areas of desperate need while ambulances, food and drug supplies are blocked.
Despite Security Council agreement on access for humanitarian aid, there has been little progress. With most aid being channelled through regime controlled Damascus there is a huge risk that relief is not being provided impartially on the basis of need. As my noble friend Lady Symons said, humanitarian access from Damascus is also being impeded by bureaucratic procedures imposed by the Government of Syria, including delays in issuing visas and lengthy customs procedures, multiple checkpoints on the road and fighting and insecurity which put many brave aid workers at risk, as we have heard. Will the Minister indicate what further action the Government are considering, in concert with the international community, to encourage the Syrian Government to grant those rights of passage for humanitarian reasons?
The noble Baroness, Lady Northover, also referred to the efforts being taken to bring forward the peace process with talks planned in November, as we have heard tonight, with the UK Government focusing efforts on bringing the opposition coalition to the talks. It is vital that these talks are carefully constructed to navigate the most likely path to peace. As we have heard, many NGOs are concerned that without a clearly planned process of moving towards ceasefires the conflict could intensify as the sides seek to establish or gain territorial advantage. Initial areas of focus should concentrate on creating openings for looking at reinforcing locally defined ceasefires, as so ably expressed by the right reverend Prelate, and creating opportunities for wider ceasefires and humanitarian causes. As the right reverend Prelate said, Geneva II should seek to establish a process of negotiation and efforts towards building the foundations of peace through inclusive talks, civil society engagement and establishing conditions for ceasefires in a much broader context.
Of course, a political solution is urgently needed to stop the fighting and to bring an end to the humanitarian crisis. However, until agreement is reached we cannot afford to stand idly by as the tremendous suffering of men, women and children continues.
Lord Bates (Con)
My Lords, I am pleased to answer this Question for Short Debate, and would like to thank the right reverend Prelate the Bishop of Coventry for raising this very important issue and giving the House a timely opportunity to view what is currently being done and what needs to be done. In his introduction he used the term “catastrophe”, which pretty well sums up our view of what is happening there.
If noble Lords will bear with me I should like to update the House briefly on what Her Majesty’s Government are doing on the ground and then devote the vast majority of time to responding to as many of the questions as possible that have been raised by noble Lords. The Government are gravely concerned about the situation in Syria and across the region, and the UK has rightly been at the forefront of the humanitarian response. I would like to highlight three aspects in particular: our comprehensive funding approach, our efforts to improve the effectiveness of the international response, and our ground-breaking work to help avert a lost generation of Syrian children.
The UK’s total funding to Syria and the region is now half a billion pounds. Our support has reached hundreds of thousands of people across all 14 governorates of Syria, as well as Jordan, Lebanon, Iraq and Turkey. It is providing food for almost 320,000 people, improved water and sanitation services to more than 1.2 million people, and medical consultations to more than 315,000 people. We are working with partners to ensure that our own and the international response addresses the immediate and longer-term development needs of Syrians and host communities. The UK has taken a leading role on the international stage. Following UK lobbying at the G20 and the UN General Assembly, $1 billion in new funding has been pledged by the international community. The UK also spearheaded efforts to improve the leadership and co-ordination of the humanitarian response and to improve humanitarian access into Syria. It is unacceptable that humanitarian organisations are deliberately prevented from reaching those in need.
The UK also lobbied strongly for the recent UN Security Council presidential statement which aims to secure safe, unhindered access inside Syria. We will continue to work with the UN and others to implement the actions set out in the presidential statement.
The UK has recognised the disproportionate impact that the conflict has had and continues to have on Syria’s children, to which many noble Lords referred. More than 3 million Syrian children have been affected by the fighting and 1 million Syrian children are now refugees. The UK will not stand by while a whole generation is lost to the conflict, which has now been going on for more than two years. That is why we have put in place a new £30 million lost generation initiative to provide education, protection and trauma care to children affected by the crisis. We are working with UNICEF and others on a comprehensive strategy to meet the needs of children in Syria and the region.
I turn to the remarks initially made by the right reverend Prelate the Bishop of Coventry. He raised a number of specific issues and I shall try to respond to as many of them as I can. He referred to the importance of ensuring that people honour the commitments made at the G20 and the UN General Assembly. It is imperative that that happens, but what pressure can we put on them other than leading by example? Many noble Lords referred to the commitment of this Government of $784 million in aid, which is the second largest donation. Several noble Lords asked what other countries were doing in this regard. It may be of interest to the noble Lord, Lord Empey, who mentioned Russia, that it has provided $32.8 million. My noble friend Lady Berridge referred to France, which has provided $69 million. We will come back to the point that much more needs to be done, as the noble Lord, Lord Collins, said. Although vast sums are being poured in, the need is far greater, and only 40% of the pledged total has been reached so far.
Lord Empey
I am sorry to interrupt, but we should perhaps have mentioned the Chinese. I would be very interested to know what they are doing, as they are making plenty of money out of us and everybody else at the moment.
Lord Bates
I thank the noble Lord for his comment. The noble Baroness, Lady Symons, referred to the importance of Asian countries doing much more in this area. That is absolutely right—not just with aid but in the UN Security Council. The point is well made.
The right reverend Prelate talked about the impact on neighbouring countries. Several noble Lords referred to that and to the special pressure that it puts on those countries. Host Governments and communities have generously welcomed refugees. This has produced huge strains in neighbouring countries on services such as water supplies and education as well as on labour and rental markets. The UK is providing £167 million to meet the needs of refugees and host communities. We are working closely with the UN to support the development of an integrated approach to ensure that neighbouring countries continue to get the support that they need.
The right reverend Prelate and my noble friend Lady Berridge referred to the impact of refugees and asked whether Her Majesty’s Government would consider hosting refugees. The UK currently has no plans to resettle or offer temporary protection to Syrians at this time. The UK believes that the immediate priority should be to provide humanitarian assistance to displaced people in partnership with neighbouring countries and the UNHCR. With more than 2 million people now having been displaced from Syria, regional protection is the only realistic means by which the rights of the vast majority of displaced persons can be safeguarded. Accordingly, that should be our focus.
The right reverend Prelate also talked about the bureaucratic complexity faced on the ground. That is a big challenge. On the one hand, there is a sense of urgency—one wants the aid to get where it is needed as fast as possible—but it is also important to ensure that there is accountability for the funds that are being spent, and that there are robust systems. That is a very difficult balance to maintain but it is one that is certainly being pursued.
Noble Lords asked what percentage of the UK effort is directed to meeting emergency needs. All the UK’s humanitarian assistance at the moment is directed towards alleviating the emergency humanitarian crisis.
The right reverend Prelate asked about the recent comments of the noble Baroness, Lady Amos. We fully support the UN Under-Secretary-General’s call for reinvigorated efforts to find an end to the conflict and all that she is doing to seek to provide safe access. It is right for the House to pay tribute to one of our own—I think we can still say—who is doing such an immensely important job on the world stage at present.
My noble friend Lady Jenkin, who makes a significant contribution in her role as a trustee of UNICEF UK, raised the issue of sexual and gender-based violence. The UK is supporting survivors of sexual and gender-based violence, for example by providing clinical care and case management for 12,000 Syrian refugees in Jordan. We are also providing support to affected households and strengthening confidential support networks for survivors of sexual and gender-based violence. We work to ensure that the needs of women and girls are specifically factored into humanitarian programmes and urge others to do so. When we make great policy statements of this nature, my noble friend Lady Jenkin, as she so often does, reduces the macro down to the micro. Her recounting of the story of Alma brought home the horror of this type of violence.
It is important that in the refugee camps there is greater resourcing and training, particularly for the Jordanian police, to enable them to take a greater role in the camps. There are also some fairly simple solutions, such as ensuring that we have proper lighting in the latrine areas and on routes and pathways.
As a distinguished former Minister, the noble Baroness, Lady Symons of Vernham Dean, has a great deal of understanding in these areas. She specifically mentioned Archbishop Yohanna. I know that my honourable friend Alistair Burt, the former Minister, did a lot of work in this area and was in contact regularly. Officials are in contact with the office of the Greek Orthodox Patriarch, seeking to negotiate the safe release of Archbishop Yohanna and other clerics, who are now routinely being taken hostage.
The noble Earl, Lord Sandwich, referred to Iran. He asked whether NGOs would be able to attend the Geneva II negotiations. I am afraid that there are no plans for that at the moment. But if the work of Geneva II is to be sustained on the ground, it is vital that it is a partnership.
The noble Lord, Lord Empey, said that the West does not do the Middle East well—to which we might all answer that nobody does the Middle East well. If there is to be a lasting, peaceful solution, it will be for the people of the Middle East, who understand the Middle East, to find it.
My noble friend Lady Berridge mentioned child protection. We are supporting the regional protection programme but UNICEF is in the lead on these matters. Reconciliation seems a long way off at the moment but it is right to keep the focus on it. Before there can be reconciliation, there needs to be truth, as well as justice for those who have perpetrated these crimes against humanity.
The noble Lord, Lord Judd, referred to hospitality and asked whether enough was being done. The answer is no, enough is not being done. Much more needs to be done.
The noble Lord, Lord Williams, who has immense expertise in this area, talked about the problems that are being faced. I note his endorsement of Special Envoy Brahimi and his potential to offer a breakthrough at the Geneva II negotiations next year.
Finally, the noble Lord, Lord Collins, gave a moving speech. When he recounted how Justin Forsyth, the head of Save the Children, who must have seen so many horrors around the world, found himself shocked, that brought home to all of us the catastrophe in the region.
In conclusion, the British Government are committed to continuing to support the needs of those affected by the humanitarian crisis in Syria and the region. However, in a country where more people are now displaced than any other, where it costs $30 million a week to meet the food needs of those affected, and in a crisis where the appeals remain chronically underfunded, the international community needs to do much more. That is the message of this debate, which is wholeheartedly echoed by Her Majesty’s Government.