The Exchequer Secretary to the Treasury (Mr David Gauke)
I thank my hon. Friend the Member for Bromley and Chislehurst (Robert Neill) for securing a debate on this matter, which he has raised with me and with HMRC on a number of occasions in the past few years. As he pointed out, I can say the same for my right hon. Friend the Member for Chingford and Woodford Green (Mr Duncan Smith) and my hon. Friend the Member for Old Bexley and Sidcup (James Brokenshire), who is here today.
My hon. Friend made his case very powerfully in his capacity as a constituency MP. He also, in many respects, brought to bear on these matters his considerable experience as a barrister, and a criminal barrister at that. He rightly said that I am constrained by the principle of taxpayer confidentiality and the fact that Ministers and politicians do not interfere in operational matters; there is good reason why that is the case. I hope my hon. Friend will forgive me if I am not able to delve too deeply into this particular matter, given the principle of taxpayer confidentiality, although I will say what I can.
I can, however, discuss the use of provisional liquidations, which my hon. Friend has highlighted, and I hope it will be helpful if I do so. Liquidation is a court-driven process that takes time. It can take several weeks after the presentation of a winding-up petition for a liquidator finally to be appointed. Where the company is being controlled by fraudulent individuals, that delay can provide a perfect opportunity for them to destroy the evidence of their fraud and move assets out of the company. In such cases, any creditor, including Her Majesty’s Revenue and Customs, may petition the court for provisional liquidation. This allows the winding-up petition to be presented without any notice to the company. If the court is persuaded of both the company’s insolvency and the potential for fraud, it will appoint a liquidator to take immediate control of the company, its assets and its records. This protects creditors’ interests. The company directors will have a chance shortly afterwards to argue that the company is not insolvent and so should not be wound up. If they succeed, the provisional liquidator is removed. Where there is clear evidence that a company is perpetrating significant tax or duty fraud, HMRC will apply to the court for an order that the company be placed into provisional liquidation, to stop the fraud and recover assets.
Provisional liquidation orders can be made only by the court and HMRC applies to the court only in the most serious of cases, such as alcohol diversion fraud, whereby alcohol is purported to be exported lawfully without payment of duty or VAT to another European Union country but is then diverted unlawfully for consumption in the UK without payment of duty or VAT. The cost to the Exchequer of this type of fraud is estimated to be more than £1 billion. Provisional liquidation action stops the fraud continuing, because trade ceases, and allows assets to be recovered. It has also been used in cases of VAT missing trader fraud and ongoing pay-as-you-earn and national insurance fraud in the construction industry.
Provisional liquidation is an exceptional action and it is worth highlighting one or two statistics. In 2009, five provisional liquidations were instituted by HMRC. In 2010, there were just two cases and in 2011 there were four, while 2012 and 2013 had just one case each. In total since 2009, there have been only 13 applications to put companies into provisional liquidation, although in some of the cases, associated companies were liquidated simultaneously. In not one of those cases has any company successfully argued before the court that the provisional liquidation order should not have been made. Although my hon. Friend has raised concerns in this regard, I could, if I were so inclined, quote judges stating that HMRC’s behaviour in respect of bringing a provisional liquidation was entirely reasonable and well-evidenced.
It can take a long time to bring cases to a conclusion, but I am informed by HMRC that it considers that the 13 actions have prevented Exchequer loss of at least £150 million. I would not therefore wish HMRC to restrict its use of provisional liquidations in appropriate circumstances.
Before a case gets to court, HMRC has rigorous internal processes, which include the involvement throughout of an independent governance team that is separate from the case team. The specialist team challenges and considers the available evidence and strategy. It is made up of externally qualified insolvency specialists with a great deal of experience of insolvency matters. During the whole process, legal advice is provided by HRMC internal solicitors and, where appropriate, additional external insolvency specialist solicitors, and the final sign-off is at senior level. I hope that I have given a degree of reassurance about the general use of provisional liquidations.
Returning to the case that my hon. Friends have raised with me on several occasions, I will deal with the specific issue of the internal report referred to by my hon. Friend the Member for Bromley and Chislehurst. He is absolutely right that HMRC promised an internal review of the case. The review will be conducted by people separate from the operations directorate, and they will report to the HMRC commissioners. The litigation is still ongoing, as my hon. Friend has mentioned, so HMRC’s position is that it would be appropriate for the review to consider the entirety of the issue and to take into account the conclusion of the outstanding litigation. HMRC will consequently be able to respond not only on the litigation and court hearings that have already occurred, but on the one last outstanding piece of litigation. It therefore wants to undertake the review only once that point has been reached.
Robert Neill
Will the Minister help me on this point? In correspondence with my hon. Friend the Member for Old Bexley and Sidcup, HMRC indicated that the review had been commenced, but not concluded. My concern is that some factual matters that must be the subject of the review go back to the very early stages of the process, when assessments were raised in February 2009 or not long thereafter. One would obviously hope that investigations into those matters had taken place already, while the evidence was still fresh in people’s minds, rather than that they should be reviewed five years or so later. Will the Minister reassure me that work has already started on the review? If he cannot do so today, will he write to my hon. Friends and me about the progress, if not the conclusion, of the review?
Mr Gauke
The best thing that I can do is to take up his invitation to write to him to set out the exact status of the review, the evidence that needs to be assessed and the progress that has been made.
Notwithstanding the outstanding litigation on this matter, may I say to my hon. Friend that I am more than happy to facilitate a meeting of whatever type is appropriate so that his concerns can be raised at this stage? As I am sure was his intention, he has put his thoughts and concerns on the record very clearly and powerfully, and I know that HMRC will look at his every word with great care and attention. As I have said, there is a limit to how much I can say about such an operational matter, but I am grateful to my hon. Friend for raising the case. Let me assure him that his concerns will be taken most seriously.
Question put and agreed to.