(9 years, 9 months ago)
Commons ChamberRead Hansard Text Read Debate Ministerial Extracts
18:57 - The House divided: - Ayes: 213 / Noes: 286 - Question accordingly negatived.
19:10 - The House divided: - Ayes: 289 / Noes: 208 - Question accordingly agreed to.
Mr Speaker
I inform the House that I have selected the amendment in the name of the Prime Minister.
Shabana Mahmood (Birmingham, Ladywood) (Lab)
I beg to move,
That this House notes with concern that following the revelations of malpractice at HSBC bank, which were first given to the Government in May 2010, just one out of 1,100 people who have avoided or evaded tax have been prosecuted; calls upon Lord Green and the Prime Minister to make a full statement about Lord Green’s role at HSBC and his appointment as a Minister; regrets the failure of the Government’s deal on tax disclosure with Switzerland, which has raised less than a third of the amount promised by Ministers; welcomes the proposals of charities and campaigning organisations for an anti-tax dodging Bill; and further calls on the Government to clamp down on tax avoidance by introducing a penalty regime for the general anti-abuse rule, which is currently too weak to be effective, closing the Quoted Eurobonds exemption loophole, ensuring that hedge funds trading shares pay the same amount of tax as other investors, introducing deeming criteria to restrict false self-employment in the construction industry, and scrapping the shares for rights scheme, which the Office for Budget Responsibility has warned could cost £1 billion in avoidance.
When citizens hand over their hard-earned cash to the Government in the form of taxation, they do so on the basis that at some level they have faith in our system of democratic governance—a system in which the Government are entrusted to make decisions about how to use that money in the best interests of all their people, and to keep them safe. The collection of tax is a core responsibility, and trust underpins the whole structure—trust that if I pay my fair share, so will my neighbour, and trust that the rules are applied as vigorously to the sole trader as to the huge multinational, and as fairly to the basic rate taxpayer as to those in the higher band. However, that foundation has been profoundly shaken.
The global crisis, austerity and a series of media disclosures about the low tax bills and complex avoidance schemes of multinationals and high net worth individuals have led members of the public to question like never before whether, when they pay their tax, their neighbour is doing the same. This week’s revelation that an arm of a leading high street bank, HSBC, helped clients to evade and avoid tax using Swiss bank accounts has simply added fuel to an already roaring fire. It seems that the Government have neither the will nor the ability to get a grip on the situation, which is fast spiralling out of control.
Mark Garnier (Wyre Forest) (Con)
The hon. Lady is quite right that the news is coming out this week, but is it not fair to say that the crime, if you like, happened in 2007 during the lead-up to the financial crisis? This is old news being brought out today, not new news.
Shabana Mahmood
I am grateful to the hon. Gentleman for his intervention. He and I have had a number of discussions on the airwaves about these issues, given that the Government have failed to field any Ministers to debate on those media channels. He has been doing a grand job of trying to defend the indefensible, but he is quite wrong. The central point in what we have discovered about HSBC this week is that the data with evidence of what had happened with tax avoidance and tax evasion were handed over by the French authorities to this Government in May 2010. That is the central point: that is the point at which we had evidence of wrongdoing that needed to be acted on, but that is not what happened.
Charlie Elphicke (Dover) (Con)
Is the hon. Lady’s case that Ministers should have direct and executive responsibility and decision-making powers over how and when Her Majesty’s Revenue and Customs should prosecute and collect taxes in specific taxpayers’ cases? Yes or no?
Shabana Mahmood
The hon. Gentleman is completely missing the point about the debate we have been having this week about the HSBC affair. As I said in answer to the intervention from the hon. Member for Wyre Forest (Mark Garnier), we know that data with evidence of tax avoidance and tax evasion were handed over to the Government in May 2010. That raises serious questions about due diligence and the appointment of Lord Green, the man in charge of the bank at the time, as a Minister in this Government only eight months after the data were handed over. Nobody on the Government Benches has answered the point about why that happened, and I hope that the Minister might try to answer some of those questions today.
Steve McCabe (Birmingham, Selly Oak) (Lab)
When David Hartnett said that the whole nation knows we had our disc from the Swiss, is it conceivable that he meant that everybody but the Prime Minister? Or is it the case that rather than sunlight being the best disinfectant, the stench from Downing street would knock over a horse?
Shabana Mahmood
My hon. Friend makes a powerful point. I agree and I shall come on to that a little later in my speech. We have had an ever-moving, ever-changing story about what the Government or members of the Government knew or did not know and the questions that they asked or did not ask about HSBC. That goes to my central issue of trust: trust is being undermined in our tax system, which absolutely depends on it.
The Government have tried to trumpet their record in recent days, but I am afraid that it is not the great source of pride that they have been trying to pretend it is. We know that the tax gap—that is, the difference between how much tax should be collected and how much is collected—rose from £31 billion in 2009-10 to £33 billion in 2011-12 and now to £34 billion in 2012-13, which is the information available for the latest year.
Toby Perkins (Chesterfield) (Lab)
Alongside the appalling impact of the tax gap on our public services and the public finances, does my hon. Friend agree that it has a massive impact on the businesses that are playing by the rules and paying their taxes? To stand up for law-abiding businesses and say that everyone should pay their taxes is not an anti-business argument but a profoundly pro-business one.
Shabana Mahmood
My hon. Friend makes an incredibly powerful point. All businesses and all individual taxpayers need to know that the tax system is based on a level playing field, that nobody is getting away with gaming the system, and that when the system is being gamed we have robust measures to deal with it. That is profoundly pro-business and it is also in the interests of individual taxpayers, UK plc and our economy as a whole.
Shabana Mahmood
I am going to make a little progress; then I shall give way again.
The famous Swiss deal between the UK and Swiss Governments in 2011 came into force on 1 January 2013. Ministers told us it would mean that British domiciles would start to be taxed on their banking deposits in Swiss institutions and raise £3.12 billion. We are now told that this has raised just a fraction of that amount—just £873 million, or a shortfall of £2.247 billion.
The Government have increased opportunities for tax avoidance. We know that the Office for Budget Responsibility has warned that the Government’s shares for rights scheme could open a tax avoidance loophole costing hundreds of millions of pounds. On page 52 of the policy costings section of the 2012 autumn statement, the OBR states:
“It is hard to predict how quickly the increased scope for tax planning will be exploited...this could be quantitatively significant as a quarter of the costing already arises from tax planning”.
I have to say to the Minister that it is one thing to have to close loopholes that have been an unforeseen consequence of legislative change, but quite another to make changes in the full knowledge that they will lead to a loss in the tax take.
Charlie Elphicke
Not so long ago, the Opposition opposed the Government measure on disguised remuneration, effectively a tax anti-avoidance measure taken by this Government in relation to hedge funds. Why did the Opposition do that?
Shabana Mahmood
I am surprised the hon. Gentleman has not done his homework. If he were to read the debate on that measure in the Finance Bill Committee, he would know that concerns were raised about the effectiveness of the initial draft legislation put forward by the Government. In fact, the Government had to table 100 amendments to their own legislation at the last moment on Report before the Bill became law. At the time, the concern was that nobody even understood what the impact of those 100 amendments would be. That is why the Opposition took that view at that time. If all the issues relating to the 100 amendments were remedied, of course we would support the thrust of that measure, but that was a technical issue discussed in Committee. The hon. Gentleman does himself no favours by not knowing the detail, given how much of an interest he takes in Finance Bill Committees and how much I have enjoyed debating with him in those Committees.
Mr Jim Cunningham (Coventry South) (Lab)
I thank my hon. Friend for giving way. Has she thought that had the Government collected all the taxes due to them, rather than protecting their friends, they might not have needed to inflict cuts and could have paid off a good bit of the national debt?
Shabana Mahmood
I am grateful to my hon. Friend for his intervention, which goes to the central point: we need to make sure we are collecting all the tax that is owed. That is fundamental not just for trust in the system for our taxpayers and businesses, but for our public services that depend on that tax take.
Sir Oliver Heald (North East Hertfordshire) (Con)
Does the hon. Lady not accept that Labour was lax on tax? Look at the arrangements for hedge fund managers paying 18% tax, when their cleaners were paying a lot more. It is quite wrong for her to take this high position. When was the Lagarde list from? It was from 2007, when the shadow Chancellor was City Minister.
Shabana Mahmood
The hon. and learned Gentleman should look at last week’s Financial Times report on tax avoidance and tax collection. It compared the Government’s anti-avoidance measures for companies with the measures Labour put in place to tackle corporate tax avoidance during its time in office. It found that the tax collected by the Government’s measures was going to be 90% lower than under measures introduced by the previous Labour Government:
“Measures put in place by Labour during its 13 years in power to counter corporate tax avoidance are projected to raise ten times as much over the next four years as those introduced by the current coalition government.”
Andrew Gwynne (Denton and Reddish) (Lab)
Does this not come down to a question of priorities? In the current economic climate, money for public services is very tight. We need to really clamp down on tax avoidance measures that have been abused for far too long—for example, by closing the tax loopholes that allow hedge funds to avoid paying stamp duty. That money, which we have identified, will go towards paying Labour’s £2.5 billion time to care fund to save our national health service.
Shabana Mahmood
My hon. Friend makes a powerful point. I entirely agree with him, and it is something I shall come to later.
Richard Graham (Gloucester) (Con)
I am grateful to the shadow Minister for giving way; she has been generous in taking interventions.
I think that everyone in the House agrees that every company should pay the tax it owes. The hon. Member for Chesterfield (Toby Perkins) is right that it is not encouraging for companies that pay the right amount of tax when others do not, but Labour first talked about introducing a general anti-abuse rule in 1997. It has taken 16 years and this Government to introduce one. Does she not agree that it is this Government who are implementing steps to prevent serious avoidance?
Shabana Mahmood
I shall deal with the substantive thrust of that intervention when I come to the general anti-abuse rule later.
In the context of what has been happening on the Government’s watch in revelations to tax avoidance, we have now had the shocking revelations about HSBC. We now learn that the Government were handed information about malpractice at HSBC, and that one of their first acts was to make the then boss of the bank, Stephen Green, a lord and then a trade Minister. Richard Brooks, a former HMRC tax inspector and BBC reporter, has said that the Treasury and HMRC
“knew that there was a mass of evidence of tax evasion at the heart of HSBC”
in 2011, but that they
“simply washed their hands of it”—
a damning indictment, if ever there was one.
The consequences are clear. More than 1,100 individuals were identified as allegedly guilty of tax avoidance or evasion, but we are led to believe that in only one case was there sufficient evidence to prosecute. In November 2012, a senior HMRC official told The Times that the Government had adopted “a selective prosecution policy” towards cases related to HSBC. Later that month, HMRC told the Public Accounts Committee that another dozen criminal prosecutions were to follow. However, there have been none since. It seems that HMRC adopted a deliberate strategy to minimise the number of prosecutions, rather than pursue them, which explains why just £135 million has been recouped, which contrasts unfavourably with France, for example, which has prosecuted more cases and raised more money on the basis of fewer account files being handed over.
Chi Onwurah (Newcastle upon Tyne Central) (Lab)
My hon. Friend is making some excellent points. Has she contrasted this Government’s aggressive sanctioning and demonisation of benefit claimants with their lax approach to those who avoid tax, and does she think it might be because they know far more tax avoiders than benefits claimants?
Shabana Mahmood
My hon. Friend makes a powerful point. We should pursue with equal vigour all those who game the rules in our country, whether it be benefit fraud or tax avoidance and evasion.
There remain serious questions for the Government to answer. I hope we hear some answers from the Financial Secretary to the Treasury to these pressing questions. Did he ever speak to Lord Green about tax avoidance and evasion at HSBC? If not, why not? I am happy to give way to him, if he wants to clarify those matters now, but it does not seem as though he is willing to take up that offer. I hope he will see fit to answer some of those questions in his speech. The Prime Minister was asked about conversations with Lord Green four times during Prime Minister’s questions today, but he failed to answer each time.
It has been difficult to keep up with the conflicting reports about who knew what and when, but today the Government have claimed they knew that HSBC customers were in the frame for tax avoidance and evasion but not about any possible culpability by the bank itself. It is ridiculous to suggest that, despite having files showing that 1,100 customers of a bank possibly avoided or evaded tax, Ministers did not consider the possibility that perhaps the bank itself had a hand in it and did not bother to ask any questions of a ministerial colleague they knew was head of the bank over the period in question.
The Government were given the data in May 2010; Lord Green took office in January 2011; and the Swiss tax deal was signed in August 2011. In fact, the Minister and David Hartnett, the senior tax official, started negotiating the Swiss tax deal straight after the data on HSBC were received from the French authorities, so at a time when the Government knew, or should have known, that serious wrongdoing had been going on.
I think we need some answers from the Minister about whether he ever discussed the Swiss tax deal with Lord Green, who was, after all, a colleague who had run an organisation with a Swiss banking arm. We need the Minister to explain the conversations he had—or the conversations that, on reflection, he now feels he should have had—with colleagues in government, and to clarify whether he has any regrets.
We also need to hear explicitly from Lord Green—our motion calls for this—with a full and frank statement about what he knew and what discussions he had with those in government about his knowledge of what was going on in the Swiss arm of HSBC. I also think it is about time we heard from the Chancellor. He has been quiet since Sunday, when all this started to come to light, so we need to hear from him as the head of the Treasury what he knew.
Paul Farrelly (Newcastle-under-Lyme) (Lab)
Richard Brooks is a fine journalist for Private Eye, not the BBC, and has done seminal work in investigating tax avoidance and evasion. Does my hon. Friend agree that the fact that neither HSBC nor any of the individuals involved are being prosecuted shows that HMRC is still a pussycat when it comes to big tax avoiders, yet will eagerly go after the small fry and small businesses?
Shabana Mahmood
There are real questions to be answered about how HMRC conducts its investigations and the rigour with which it pursues its different investigations. These take place, of course, within the context of legislation set by this Government, so ultimately these are matters for the Government. It is also the Government who decide on the amount of resources HMRC gets to do its job—an issue that I have discussed with the Minister on a number of occasions.
Fundamentally, the failure to act is symptomatic of the Government’s failure to tackle abuse within the tax system. That is why people are losing faith in it. Our motion sets out what we would do to restore that faith in the system. First, we have said that we will introduce penalties for those caught by the general anti-abuse rule, which is supposed to catch those who set up abusive schemes—the most egregious forms of abuse. However, there is currently no penalty scheme association with the so-called GAAR, which lacks teeth.
A Labour Government would introduce a tough penalty regime with fines of up to 100% of the value of the tax avoided. That will provide a tough and genuine deterrent to those who try to abuse the system and avoid paying their fair share of tax. [Interruption.] The Minister says from a sedentary position that the Government are now consulting on whether to have a penalties regime for the GAAR—but only after we announced our policy that we would have such a regime.
The truth is that when the GAAR was introduced, there was a huge amount of discussion and a review was carried out for the Government, with lots of academic work done on whether or not we should have a general anti-abuse rule in this country. The Government could and should have introduced penalties immediately. Where they have failed to act, we will act.
Secondly, the quoted eurobond exemption is used legitimately by many companies to raise finance on the international bond market, but it is also abused by some companies to shift profits out of the UK into tax havens, and so reduce the amount of corporation tax they pay. HMRC itself identified the problem, but the Government failed to act. Again, where they failed to act, we will act.
Shabana Mahmood
I will not give way; I want to make some progress. Thirdly, we have had much discussion relating to—
The Financial Secretary to the Treasury (Mr David Gauke)
Will the hon. Lady give way?
Mr Gauke
On the quoted eurobond exemption, the hon. Lady will be aware—we have debated the issue on a number of occasions, and it is a quite technical matter—that I made available Treasury and HMRC officials to talk through with her the reasons why it would be ill advised to pursue this policy; it would not raise any significant sums of money, but would just create an administrative burden. I made that offer over a year ago, and the offer still stands. Will she take me up on it?
Shabana Mahmood
At the risk of repeating our previous debate about the quoted eurobond exemption, I said at the time that I was fearful that the Minister was patronising me. He assured me then that he was not, and I take that point on board again. I have not taken the Minister up on his offer of a meeting and I have no intention of doing so. The HMRC’s proposal for closing down the exemption on which the Treasury consulted involved instances in which there was no regular or substantial trading of the bonds in question.
We all accept that there is limited liquidity for many legitimate eurobond issues, so such a criterion would be difficult to put into operation. However, we propose to explore the possibility of removing the exemption when bonds are issued to connected persons. We are making a substantially different offer with the aim of closing a loophole that everyone knows is being abused, and on which the Government have failed to act. I should be happy to meet the Minister and talk to him about how we propose to close down the eurobond exemption. I do not have access to the same officials as he does, but I do have another way of closing down that exemption.
Shabana Mahmood
I will not, because I am going to make some more progress.
Thirdly, we have said that we will prevent hedge funds that are avoiding stamp duty on shares from being able to do so. Hedge funds currently avoid stamp duty by not buying the shares directly; instead, they get intermediaries to buy them on their behalf. Those intermediaries are investment banks, which benefit from tax relief on stamp duty. The hedge funds then enter into a contract for difference with the banks, which means that they benefit from changes in the share prices without holding the shares directly. That is an exploitation of intermediaries’ relief by hedge funds.
We have had a great deal of discussion about hedge funds in the past few days. I note, in particular, that during Prime Minister’s Question Time today, the Prime Minister did not address the point of the relief that is being abused. He wanted to get involved in a debate about who had introduced the relief, rather than about the fact that it is currently being abused by hedge funds. We have said that we will stop the practice, but we hear nothing from the Government about what they intend to do about an issue of which they too are fully aware.
Fourthly, we will take forward proposals that we were developing in government to deem construction workers to be employed for tax purposes if they meet criteria that most people would regard as obvious signs of employment. That would reverse the Government’s decision to abandon these measures, thereby dealing with a major cause of avoidance in the construction sector.
Finally, we would scrap the Government’s shares for rights scheme, which allows individuals to trade key employment rights for shares in a company. The policy has received widespread criticism. Writing in the Financial Times, Paul Johnson of the Institute for Fiscal Studies has said:
“just as concern over tax avoidance is at its highest in living memory, just as government ministers are falling over themselves to condemn such behaviour, that same government is trumpeting a new tax policy that looks like it will foster a whole new avoidance industry. Its own fiscal watchdog seems to suggest that the policy could cost a staggering £1 billion a year, and that a large portion of that could arise from ‘tax planning’.”
Labour will scrap the shares for rights scheme and redeploy HMRC resources to other areas where they are greatly needed.
Caroline Lucas (Brighton, Pavilion) (Green)
I welcome the proposal for an anti-tax-dodging Bill, to which the motion refers. Does the hon. Lady support the idea of country-by-country reporting requirements, which I proposed in a private Member’s Bill a few years ago? They could at least have helped to show just how dependent HSBC was on Switzerland, and begun to ring alarm bells for the tax authorities at a much earlier stage.
Shabana Mahmood
I agree that we need a public form of country-by-country reporting. In government, we would seek an international agreement, if possible, on public forms of such reporting. At present, the agreement arising from the base erosion and profit-shifting process is to make country-by-country reporting available to tax authorities, but we believe that there is a strong case for the information to be made public. We will seek a multilateral agreement, but if that is not possible, we will discuss with business in this country the best way to introduce a public country-by-country reporting format on a unilateral basis.
As I have said, we will take further action to stop umbrella companies exploiting tax relief, and to force the United Kingdom’s overseas territories and Crown dependencies to produce publicly available registers of beneficial ownership. [Interruption.] The Minister again chunters from a sedentary position. I note that there was no chuntering from him when it came to his record and the decisions that he made about Stephen Green, but he has suddenly come back to life. He says from a sedentary position, “How?” I say to him that the Prime Minister himself said this was a vitally important policy, which was desperately needed in order to open up the secrecy associated with the overseas territories and the Crown dependencies.
The Prime Minister has been writing increasingly shirty letters to the Crown dependencies and overseas territories, saying that they need to move forward with a publicly available register of beneficial ownership, and nothing has happened. Actually, since my right hon. Friend the Leader of the Opposition made his announcement at the weekend that we would seek a blacklisting of overseas territories and Crown dependencies if there was no movement on a public register of beneficial ownership within six months of the next Labour Government, today Gibraltar, for example, has said it will take very seriously our call for a public register. I think that turning up the heat on this issue and being serious about action can gain a lot more than the Government’s approach thus far.
As I said in response to the intervention by the hon. Member for Brighton, Pavilion (Caroline Lucas), we will make country-by-country reporting information publicly available. We will tackle the use of dormant companies to avoid tax by requiring them to report more frequently, and we will ensure stronger, independent scrutiny of the tax system, including reliefs, and the Government’s efforts to tackle tax avoidance.
The problem of tax avoidance and tax evasion is not new. For as long as the state has been levying tax, people have tried to avoid it—a fact that, rightly and understandably, is resented by those who do pay what they owe. Members on the Government Benches have failed to understand that those levels of resentment, frustration and mistrust have risen to critical levels. This is a problem that requires a new level of determination to fix. The problem corrodes the central tenet of the contract between the Government and their people. It is simply not okay to have one set of rules for those who have enough money to require a Swiss bank account and another set for those who do not, one set of rules for those with armies of accountants and another set for those who do not, and one set of rules for those who are well connected and another for those who are not. The Government have failed to rise to the enormity of the challenge; the motion I speak in favour of this evening shows how the next Labour Government will do so.
The Financial Secretary to the Treasury (Mr David Gauke)
I beg to move an amendment, to leave out from “House” to the end of the Question and add:
“notes that while the release of information pertaining to malpractice between 2005 to 2007 by individual HSBC accountholders was public knowledge, at no point were Ministers made aware of individual cases due to taxpayer confidentiality or made aware of leaked information suggesting wrongdoing by HSBC itself; notes that this Government has specifically taken action to get back money lost in Swiss bank accounts; welcomes the over £85 billion secured in compliance yield as a result of that action, including £850 million from high net worth individuals; notes the previous administration’s record, where private equity managers could pay a lower tax rate than their cleaners, very wealthy homebuyers could avoid stamp duty and companies could shift their profits to tax havens; further recognises that this Government has closed tax loopholes left open by the previous administration in every year of this Parliament, introduced the UK’s first General Anti-Abuse Rule, removed the cashflow advantage of holding onto the money whilst disputing tax due with HMRC, and allowed HMRC to monitor, fine and publicly name promoters of tax avoidance schemes; notes this Government’s leading international role in tackling base erosion and profit shifting; welcomes the commitment to implement the G20-OECD agreed model for country-by-country reporting and rules for neutralising hybrid mismatch arrangements; notes the role of the diverted profits tax in countering aggressive tax planning by large multinationals; supports the Government’s adoption of the early adopters initiative; and recognises that as a result the UK is collecting more tax than ever before.”
The disclosures of the last few days have reminded us of an era when it was all too easy to squirrel assets offshore, reliant on offshore centres providing secrecy from tax authorities; a time when mass market avoidance schemes were prevalent, tax avoiders could enter schemes, however artificial or contrived, and wait for years before paying their taxes; a time when highly paid employees could disguise their remuneration and avoid tax on it; a time when the payment of stamp duty on expensive properties was seen as voluntary; and a time when HMRC did not get the support it needed to take effective action against those dodging taxes.
That time is behind us. Under this Government, loopholes are being closed, tax avoiders are paying their tax up-front, bank secrecy is being abolished, prosecutions are increasing, the international tax rules on multinationals are being reformed, and HMRC is bringing in the money to a greater extent than ever before. For all the bluster we hear, look at the record. As a Government who care about the public finances, we have done far more than our predecessors.
I will set out what we have done over the course of this Parliament. First, let me turn to the issue of HMRC. Lord Green was a very effective trade Minister, but let me be crystal clear: there is no suggestion, and no regulator has suggested, that Lord Green was at fault with regard to what happened with the Swiss subsidiary of HSBC. Ministers, and indeed the general public, were aware of the release of information pertaining to individual HSBC account holders. There is a long-standing legal requirement for taxpayer confidentiality. Ministers cannot under any circumstances be made aware of individual cases. At no point were Ministers made aware of the evidence that has emerged in recent days of wrongdoing by HSBC itself.
Shabana Mahmood
I am glad that the Financial Secretary to the Treasury is giving us some answers, although they are not shedding quite enough light on what actually happened. Let us look at the media reports. In September 2010, for example, everyone knew that The Daily Telegraph was talking about the number of HSBC customers who were involved. It therefore beggars belief that the matter was not raised with Stephen Green when he was appointed trade Minister just a few months later.
Mr Gauke
Let me put it this way. It was, and is, the case that UK residents can have bank accounts in Switzerland without committing any illegal acts. It is also the case that a Swiss bank can provide banking services to a UK resident without committing any wrongdoing. It was the case, in terms of what was known at that time, that a disc was acquired by HMRC relating to HSBC accounts. The question that HMRC was asking was whether the UK residents whose names were listed within those data had paid the tax they should have. Were they declaring their income as required under UK law? That was what the investigation was about. [Interruption.] I am afraid that the hon. Member for Birmingham, Ladywood (Shabana Mahmood) is making a non-point. It was known that there was an investigation into HSBC account holders—that was in the public domain. However, regarding the evidence we have seen of, for example, bricks of cash being handed out and advice being given to keep several steps ahead of the taxman who is dealing with tax evasion, that information has come to light in the public domain—and, indeed, to Ministers—in the past few days.
Ian Lucas (Wrexham) (Lab)
If the information was in the public domain, will the Minister answer the question that the Prime Minister refused to answer four times today? Did the Prime Minister discuss these matters with Lord Green when he appointed him to the Government?
Mr Gauke
The position is this: Lord Green was appointed in January 2011 and at that point the information about the fact that there was an investigation into HSBC account holders was in the public domain. There was no big secret about that. Of course, I was not privy to the specific conversations that were held, but there is no suggestion that Lord Green had acted improperly, that he was complicit in tax evasion or that he was involved in this particular activity. That could not be clearer.
Shabana Mahmood
I am grateful to the Minister for giving way; he is being generous. Does he agree that Lord Green’s continued silence on what he knew about what was going on at HSBC is creating a climate in which more questions are being asked? Does he also agree that what we need—and what our motion calls for—is a full and frank statement from Lord Green about what he knew? Yes or no?
Mr Gauke
It is a matter for Lord Green as to what he says. It is clear that the Government have taken the strongest action to deal with tax avoidance and tax evasion. Ministers are responsible for tax law and for resourcing HMRC’s enforcement of that law, so I would suggest that questions about activities that took place between 2005 and 2007 should be directed to those who were Ministers at that time. They might be in a better position to answer them.
Ann McKechin (Glasgow North) (Lab)
The Minister will be aware that in November 2012, a senior HMRC official who was being questioned by the Public Accounts Committee said that 12 prosecutions relating to HSBC cases were in line to be proceeded with. None of those prosecutions has been brought. Has the Minister received any explanation from HMRC as to why? Why did the Minister not, in turn, advise the House and the Public Accounts Committee of the change in tack?
Mr Gauke
Let me address the point about decisions to make a prosecution. First, HMRC determines whether to bring a prosecution and build up a criminal case, and then it is a matter for the Crown Prosecution Service to make a judgment as to whether it is confident that a conviction can be achieved. Rightly—I would hope there is consensus on this point—those decisions are made by HMRC and the CPS, not by politicians. It is very important that that independence be maintained. I do not believe it would be right for politicians to decide how many prosecutions are made, and that has not happened in this particular case.
Andrew Gwynne
The Minister continues to insist that Lord Green had neither knowledge of nor involvement in these matters while he was chairman of HSBC, having said that during Monday’s urgent question. That still suggests that the Government must have asked those questions, given that they are so certain in their answers. This is not just a matter for Lord Green; it is simply a matter for Ministers and the Prime Minister. The easiest way to resolve it is for the Prime Minister to place all the information in the House of Commons Library, so that Members of this House can be the judge.
Mr Gauke
I make the point that I have made before: there is no suggestion and no evidence that Lord Green was complicit in any wrongdoing—that remains the case. Opposition Members can stand up to make allegations and suggestions, but there is no evidence that he was engaged in that type of behaviour and certainly no information was available to Ministers to suggest that he was.
Mark Field (Cities of London and Westminster) (Con)
The Minister made the important point in earlier exchanges that there should never be any political inference, whichever Government are in power, in disciplining or legal action over these sorts of matters. We would be going down an incredibly dangerous path, particularly this close to an election, if the pressure became so strong that politicians tried to play to the gallery and interfere in any way with the legal process.
Mr Gauke
My hon. Friend makes an extremely good point, and the fact that some Opposition Members do not appear to agree with it is troubling. The role of the Government is to set out the policy. Our philosophy is clear: individuals and businesses must pay what they owe, just like the vast majority of UK taxpayers. That point has been reiterated by the Prime Minister and the Chancellor again and again. Aggressive tax planning and, indeed, tax evasion are simply not acceptable. As I will set out, this Government have a proud record on that front.
Ian Lucas
I agree with the point made by the hon. Member for Cities of London and Westminster (Mark Field), but let me come back to the question of what the Prime Minister discussed with Lord Green about the political matter of his appointment as a Minister, and these allegations. Why will the Prime Minister not tell us whether he had conversations with Lord Green about these matters?
Karl Turner (Kingston upon Hull East) (Lab)
We did not have the information.
Mr Gauke
The hon. Gentleman says from the Front Bench that the Opposition did not have the information, but just a few minutes ago he was saying that it was all in the public domain. He cannot have it both ways. The position is that Lord Green was appointed and his appointment was widely welcomed. We can hear the rhetoric from the Opposition, but the reality is that this Government have backed up rhetoric with hard, decisive action. Since we came to power in 2010—
Mr Gauke
I am going to make a little progress. Since we came to power in 2010, we have made a huge investment in HMRC to tackle avoidance, evasion and non-compliance. That investment has clearly made a difference. HMRC has secured more than £85 billion in compliance yield since the beginning of the Parliament, £31 billion of which was from large businesses and £850 million of which was from high net worth individuals.
HMRC’s successes were recognised last week by the National Audit Office in its report “Increasing the effectiveness of tax collection: a stock-take of progress since 2010”. In that report, HMRC’s response to the recommendations to tackling marketed tax avoidance has been exemplary, particularly in terms of co-ordinating action and seeking new powers to tackle promoters and scheme users. In every year of this Parliament, my right hon. Friend the Chancellor has stood up at the Dispatch Box and closed loophole after loophole, which, I am afraid to say, had been left open by the previous Administration.
We have made more than 40 changes to tax laws since 2010. Let me trot through just a few of them as I am conscious of time. We stopped groups of companies clubbing together to reduce their overall tax bill by using loans and derivatives between themselves; we stopped businesses using trusts to pay employees in order to pay less tax; we stopped banking groups avoiding tax on profits that they were able to make by buying back their own debt cheaply; we blocked the practice by which companies could wipe out their tax bills by accessing losses made in a different group and we stopped hedge fund managers in partnerships obtaining unfair tax advantages by allocating profits to companies they controlled.
In 2013, we introduced the UK’s first general anti-abuse rule to tackle abusive tax avoidance arrangements and to deter those who might be tempted to use them. We are not stopping there. We are currently consulting on options to target serial avoiders and, on the very measure the Opposition seek in their motion, a general anti-abuse rule penalty.
In the Finance Act 2014, we introduced a set of ground-breaking measures aimed at the small minority of wealthy people in this country who involve themselves in tax avoidance schemes. If individuals and businesses are suspected of involvement in tax avoidance schemes, they have to pay HMRC the disputed amount of tax up front while the dispute is being resolved.
Accelerated payments remove the cash-flow advantage that those who deliberately try to bend the tax rules by avoiding tax previously had over the majority who paid their tax up front. We saw the problem and we dealt with it.
Paul Farrelly
Given that list, will the Minister explain to the House why tax avoidance schemes used by multinationals such as the double Irish and the Dutch sandwich are still in existence and what the Government are doing to tackle that sort of multinational tax avoidance, which we have debated and scrutinised here on many occasions?
Mark Durkan (Foyle) (SDLP)
Will the hon. Gentleman also address the controlled foreign companies rules that were introduced by this Government? Those rules cost revenue here and in developing countries. Sir Martin Sorrell told “Newsnight” that they, and not the change in corporation tax, were the main reason why he was coming back from his business in Dublin.
Mr Gauke
The CFC regime is part of corporation tax. The hon. Gentleman makes my point for me. As a consequence of our changes to the controlled foreign companies regime, we are seeing businesses move operations back to the United Kingdom. It was not that long ago—2007 and 2008—when business after business was looking to move its head office out of the UK. That flow has not only been staunched but reversed. We are seeing businesses choosing to locate in the United Kingdom, which is good for business, a successful achievement for this country and something of which we should be proud.
The changes in accelerated payments will bring forward billions in tax revenue in the coming years to help us afford the public services on which the country depends. I am pleased to say that, since the introduction of accelerated payments only a few months ago, avoiders have already agreed to pay more than £185 million to the Exchequer’s coffers, and millions more is being collected from those who, having received their up-front bill, have conceded their tax position and settled.
As well as tackling the end users of tax avoidance, we have also introduced structural changes targeted at the small but persistent minority of promoters who peddle schemes that typically use concealment or misdescription. If those promoters do not change their behaviour voluntarily, HMRC now has powers to monitor, fine and publicly name them. All this has contributed to the fall in the use of tax avoidance schemes over this Parliament. The Opposition motion suggests several areas for further action—this Government will always give a fair hearing to measures that increase compliance and tackle evasion—but they have to be properly thought through and I am afraid that some of their suggestions simply do not pass that test.
Therefore, we will not be abolishing the intermediary relief in contract for difference trading. There is no way to raise sums of the kind mentioned by the Opposition without causing serious damage to London’s position as a global centre for listing companies, as was recognised back in 1997, when the measure was introduced, and again in 2007, when it was expanded. Yes, it is relevant that the Labour party was in government at the time.
Nor will we introduce a deeming test for self-employment in the construction industry. We considered that, but it was not practicable. Indeed, to be categorised as self-employed, a bricklayer would have had to supply their own bricks. Instead, we have addressed false self-employment in construction and other industries through the Finance Act 2014 measures on onshore intermediaries, raising £2.1 billion in the process.
The Opposition motion urges us to close the quoted eurobonds exemption loophole, but it is not a loophole. I have explained repeatedly to the hon. Member for Birmingham, Ladywood that that measure would create an administrative burden, but not raise money. I have even offered a meeting with officials to discuss that, which, once again, she has declined. She set out a new proposal, but it has been looked at and it is simply not practicable.
The Opposition might be trying to recover lost ground, given their failure to get on top of avoidance and evasion, but they have to do better than this. We have led the way not only domestically, but internationally. Let me deal with the point about multinational companies. We originated the base erosion and profit shifting, or BEPS, process and have set out our commitments to multilateral action through the G20 and the OECD. In last year’s autumn statement, my right hon. Friend the Chancellor announced UK action on two of the internationally agreed outputs of the BEPS project. We are introducing legislation to implement the G20-OECD agreed model for country-by-country reporting, which will require multinational companies to provide tax authorities with high-level information on profit, corporation tax paid and certain indicators of economic activity for risk assessment.
We are consulting on implementing the G20-OECD agreed rules for neutralising hybrid mismatch arrangements. We have gone further still to strengthen our defences against the erosion of the UK tax base. As a complement to the BEPS process, we have introduced the new diverted profits tax to counter the use of aggressive tax planning by large multinationals that seek to avoid paying tax in the UK on profits generated from economic activity here.
Paul Farrelly
I am aware of the international dimension, but HMRC has been criticised frequently for its timidity in challenging some of those arrangements. The hon. Gentleman will be familiar with the important concept of permanent establishment. For example, has HMRC challenged Amazon’s tax arrangements, whereby everything is billed through Luxembourg and it claims, for tax reasons, not to have a permanent establishment in the UK, despite having huge warehouse operations?
Mr Gauke
The first point to make is that it is a matter for HMRC to challenge in accordance with the law, and taxpayer confidentiality applies. As a Minister, I do not get involved in individual cases.
Furthermore, if we want to address broader matters—I am not talking about any individual company here—and if the hon. Gentleman wants to address the issue of businesses carrying on activities here but not paying taxes here because they do not have a permanent establishment, the diverted profits tax is just the measure he should want. It is designed to address that issue.
I say again that I am not talking about the specific case, but in general the measure deals with circumstances in which contrived and artificial arrangements are made so that a business manages to misuse, if you like, the permanent establishment rules. The hon. Gentleman raises an interesting point, but the Government are already dealing with it.
Charlie Elphicke
I welcome the diverted profits tax. Does my hon. Friend agree that there is a double problem, which is partly the European Union rules, particularly the parent-subsidiary directive, which makes tax avoidance all too easy, and partly the fact that international tax law is out of date? It was set in the 19th century, is no longer fit for purpose and needs to be updated and modernised, which is what the Chancellor of the Exchequer and the Prime Minister have been working on.
Mr Gauke
I agree with my hon. Friend, who brings great expertise on these matters to the House. There are constraints with regard to European law as to precisely what measures can be undertaken, and he is right to say that the international tax system needs to be modernised. The strongest voices calling for that happen to be those of the Prime Minister and the Chancellor of the Exchequer.
Under the UK’s presidency of the G8, we called for a new global standard of automatic tax information exchange. Endorsed by the G20, this marks a step change in the ability of Governments to tackle tax evasion. It will rapidly remove the remaining financial hiding places. The common reporting standard instigated by the UK along with our G5 partners—France, Germany, Italy and Spain—has seen over 90 countries and jurisdictions, including all the UK’s Crown dependencies and overseas territories with a financial centre, commit to automatic exchange of information, with the first exchange in 2017 or 2018. This will give HMRC access to information on billions of pounds worth of assets held offshore.
On Switzerland, our agreement has so far raised over £1.2 billion that would otherwise have remained beyond our reach. I think the hon. Member for Birmingham, Ladywood referred to £900 million. That is almost two thirds of the £1.9 billion that the latest forecasts expect it to raise. HMRC has contacted more than 22,000 of the 25,000 people who agreed that their accounts could be disclosed to HMRC and time is running out for those who continue to hide.
The Government have been tough on avoidance and evasion, both here in the United Kingdom and on the international stage. The measures that we have taken so far in this Parliament to tackle aggressive tax planning, avoidance and evasion add up to £7.6 billion in additional revenues in 2015-16. Do the Opposition think their proposals can get anywhere near that sum? As a result of the actions that we have taken, it is now much harder for avoiders and evaders to cheat the system and get away with not paying what they owe. Our multilateral agreements are systematically removing the remaining international hiding places. As a result, HMRC is collecting more tax than ever before, supporting our public services and helping this nation get back on its economic feet, because that is how we get a fair and balanced economic recovery for all.
Madam Deputy Speaker (Dame Dawn Primarolo)
Order. There will be a five-minute limit on all Back-Bench speeches, starting from now. We have just about an hour for Back-Bench contributions before we have to start concluding the debate, so I hope each Member will bear that in mind.
Anas Sarwar (Glasgow Central) (Lab)
I start by congratulating my right hon. and hon. Friends on tabling the motion. The subject is one of extreme importance not just to the United Kingdom, but to the global tax justice campaign. I shall focus my remarks on the international aspect and consequences of what we are proposing today, not just on the domestic consequences.
It is a shocking statistic that three times as much is lost in tax receipts to developing countries as the entire aid budget combined—three times as much. Proper tax systems in developing countries and proper tax regimes in well-off countries like the United Kingdom would reduce our need to spend abroad and would lift people out of poverty and create opportunity. I pay tribute to all the non-governmental organisations that have championed the Let’s Make Tax Fair campaign. I have enjoyed working with them personally, as I know have members of the shadow Treasury team. I want to put on the record our thanks to organisations such as ActionAid, Christian Aid, Oxfam, the Global Poverty Project, the National Union of Students, the Jubilee Debt Campaign and many others that have been leading the way on this important issue.
I think that all of us on the Opposition side agree with the campaign’s three key principles and would wish to implement them if we have the privilege of being elected to government on 7 May: first, making it harder for companies to dodge UK taxes and ensuring that they are not getting unjustified tax breaks; secondly, ensuring that UK tax rules do not incentivise companies to avoid tax in developing countries; and thirdly, making the UK tax regime more transparent, and tougher on tax dodging.
I believe that those principles have the support of public opinion in the UK. A poll conducted last year showed that 84% of the public reported being angry at multinationals avoiding tax and 74% believed the Prime Minister should be demanding international action to tackle tax evasion and avoidance. We need a domestic commitment to international projects. We have already made a commitment to double our current spend in developing countries to help them expand their own tax bases, but we must look at what we do in this country and the negative impact it can have globally.
I think this Government’s biggest failure has been the lack of global leadership and advocacy on this issue on the international stage. The previous Government championed the extractive industries transparency initiative and the cancelling of third-world debt. I think that the same energy and vigour need to be shown by the next Government. However, we can be a credible advocate for global tax justice only if we get our own house in order, and the reality is that it is not in order. A perfect example is our overseas territories and Crown dependencies. That is why we are pushing for a public register of beneficial ownership, not only for the UK but for our overseas territories and Crown dependencies. I congratulate the Leader of the Opposition on making that position clear for the first six months of the next Government.
Let me mention two shocking statistics, both from Christian Aid’s beneficial ownerships scorecard. First, three British overseas territories are among the 20 jurisdictions that are most used by the corrupt—they are the British Virgin Islands, the Cayman Islands and Bermuda. Secondly, the Crown dependencies of Jersey and the Isle of Man also feature on the list, making UK-linked jurisdictions the most used for grand corruption. We cannot credibly say on the international stage that we are champions for tax justice while that is happening.
Another shocking statistic, this one from Reuters, is that between $21 trillion and $32 trillion in private financial assets is held in tax havens, and an estimated 30% of that comes from developing countries. Nearly $1 trillion a year in capital flows out of developing countries, making Africa a net creditor to the world, which in itself is a shocking statistic.
We therefore call for strong action on country-by-country reporting. We will look to get international action to ensure that multinational companies operate in an appropriate way. If we cannot get that action, I congratulate the shadow Treasury team on saying that we will push for unilateral action here in the UK so that we can fulfil our obligations to the poorest and most vulnerable, not only in this county but around the world, and finally make extreme poverty history.
Mark Field (Cities of London and Westminster) (Con)
It is understandable, especially this close to a general election, that political fervour over tax avoidance comes to a contentious pitch. Politicians on both sides of the House would do well to reflect on the fact that there was virtually universal consensus on the appropriate level of regulation to be applied to the financial services industry in the decade or so before the crash in 2008. Since then both the erstwhile Labour Administration and the current coalition Government have made often courageous moves to take a global lead to clamp down on tax avoidance and evasion.
Those moves were courageous because taking unilateral action in that arena has been likely to disproportionately damage the UK’s own narrow economic interests. Moreover, while this Government have flagged up in successive G8 and G20 summits their desire to take that lead, they have also risked being criticised for a lack of delivery, as we have heard today, simply because other nations have been less willing to follow. The truth remains that for as long as the UK has a globally competitive financial services sector, effective regulation against tax avoidance can be achieved only by concerted, international and, ideally, global agreement.
Over the past four years, I have been an adviser to the law firm Cains, and as a result I have seen at first hand the work that has been done within the Isle of Man and other Crown dependencies to get our house in order in the sphere of tax avoidance and transparency. A key focus for the Isle of Man is engaging with the emerging markets to drive investment into the rest of the UK, not least the north-west region of England.
For decades, the Crown dependencies have also had a close and effective working relationship with the City of London. For the Isle of Man, this includes connections with many of the leading law firms, accountancy practices and banks in the City. This is a very important route in providing inward investment into Europe and the UK by foreign nationals and in assisting UK businesses to expand overseas. That involves not just financial services but, for example, precision engineering, aeronautical engineering, professional services generally, property development, shipping, yachting, and aircraft registration. As the local Member of Parliament representing the City of London, I am all too aware of the importance of the services provided by the Crown dependencies to the wider UK economy.
In recent years, the Isle of Man has attempted to strengthen its links with the UK regions, many of which desperately need good economic activity, with a view to providing them with foreign direct investment and jobs. It is working closely with the neighbouring cities of Liverpool and Manchester, and it has signed a memorandum of understanding with Northern Ireland. It believes that by working in a mutually supportive manner with the UK, wealth and jobs are generated for all of us, including those in the more deprived parts of the UK. Specifically, the UK banking industry’s competitive advantage is increased by having access to the Isle of Man funds, which have contributed some £40 billion a year in liquidity to domestic lending. That international offering of UK banking is in my view augmented by what would sometimes be called tax havens, but which are centres of excellence for things such as expatriate banking services.
Transparency lies at the heart of any effective tax avoidance regime. For some years, the UK Government have often led the way in ensuring that standards apply to all UK dependencies so that anti-money-laundering measures and countering the financing of terrorism are at the forefront of our ongoing commitments. Consistent initiatives over recent years have ensured that tax evasion, corruption and related criminality are subject to the strictest international standards.
As the Chancellor of the Exchequer rightly pointed out over the weekend, we are also subjecting so-called tax havens to a new rigorous beneficial ownership regime. The Isle of Man, for example, has already co-operated on this by ensuring and verifying the integrity of the company beneficial ownership information it collects, particularly through taking a leading role in the regulation of trusts and company service providers. As a result, the UK tax authorities have been provided, and continue to be provided, with effective access to all these markets. Nevertheless, the Governments of all our Crown dependencies have always been committed to maintaining domestic legislation, policies and procedures that ensure effective compliance with the international standards; and, where necessary, to progressing further measures in future to implement evolving international standards and the very best practice.
I wanted to put this on the record today because much feverish and worryingly inaccurate commentary surrounds the activities of our Crown dependencies, which, as I say, often provide great liquidity and real benefit, particularly in some of the poorer parts of the UK. Compliance with the highest international standards is at the heart of their activities nowadays. Our own Government have much to be proud of in their keen insistence that tax evasion become a thing of the past.
Frank Dobson (Holborn and St Pancras) (Lab)
HSBC had a lot of customers in Switzerland with secret bank accounts, and it helped them and conspired with them to break British law. Even if HMRC does not want to do anything about it, it seems to me that this was obtaining financial advantage by deception, which is a general crime, not something that needs to be prosecuted by HMRC.
Why are the names of these self-confessed tax swindlers kept secret? The names of small businesses that get into trouble with HMRC—it is worth bearing in mind the fact that that organisation puts more companies in this country out of business than any other—are not kept secret, even if all that happened was that they could not keep up their tax payments: they have not been doing any fiddling or swindling, or breaking the law.
I want to move on to the much wider question of whether the HSBC subsidiary in Switzerland was the only offender. HSBC has 556 subsidiary companies located in tax havens. Why are they there? It might be because of the weather in some tax havens, but not in all of them. Was the Swiss racket a one-off? No answer. Barclays has 390 subsidiaries in tax havens and RBS has 406, while Lloyds, to be fair, has rather fewer with just 297.
Frank Dobson
No I will not, because other Members want to speak.
Between them, the big four banks have 1,649 subsidiaries located in tax havens. So far, we know about the wrongdoing of only one of them. When will the Government start to find out what the other 1,648 have been up to, and probably still are up to, in tax havens abroad? We know that all four big banks will have been involved in money laundering, sanctions busting, fiddling foreign exchanges and fiddling LIBOR, and some of that is facilitated by having subsidiaries in tax havens. Basically, subsidiaries in tax havens exist to help people and companies avoid paying tax. There is no other good reason for being located in a tax haven other than to save tax.
The fact is that nothing is being done. Many small businesses find it difficult to meet their tax obligations in this country. Firms in Norwich, Carlisle, Worcester or Gloucester that find it difficult to do so will be hounded by the Inland Revenue, but these big companies and big individual tax swindlers in tax havens will not. It is about time that there was a thoroughgoing inquiry into the whole thing.
Ian Swales (Redcar) (LD)
This whole area of tax ranks as another mess that the Government are having to clear up. We inherited a situation in which the Labour party had put into action the philosophy of its former Business Secretary in being
“intensely relaxed about people getting filthy rich”.
Frank Dobson
The hon. Gentleman should complete the quotation. I am not usually regarded as the greatest defender of Lord Mandelson, but the part-sentence he has just quoted was followed by the words “providing they pay their fair share of tax”.
Ian Swales
I accept that correction. On Labour’s watch, the rate of capital gains tax was 18%, and it had been as low as 10%, which especially benefited hedge funds; it is now up to 28%. There was pensions tax relief on up to £250,000 a year; the figure is now £40,000. The rate of VAT on their yachts, sports cars and Rolexes was 2.5% lower. There was lower stamp duty on property, and there was no duty on property bought and sold through corporate envelopes. The rate of income tax was 5% lower throughout the 13 years of the previous Government until 5 April 2010, the day before they left office. There was also tax avoidance on an industrial scale.
We have to be careful of our language, but it is worth saying that avoidance is fine as long as it follows the law. As with pension contributions, many ways of saving tax are perfectly legitimate—in fact, they are encouraged by the Government, sometimes to support economic activity—but many others are not. For example, a Radio 1 DJ used the so-called “working wheels” bogus scheme to create losses on a used car business. That scheme was promoted by NT Advisors. The clue was in the name, because NT stood for “no tax”. That happened in 2007-08. The appropriately named Take That and many others used a scheme to shelter £340 million from the taxman. There was the case involving Patrick Degorce, in which Goldcrest Pictures sold him the rights for two films for the artificially inflated amount of £21.9 million. They were immediately sold back for a fraction of that, which meant that his hedge fund profits of £18.8 million could be entirely sheltered from tax. The promoters of that scheme made £1.6 million on the deal and HSBC made £438,000 for giving the advice. Incidentally, Patrick Degorce later worked with Lansdowne Partners, which is a hedge fund founded by a Conservative donor. To me, such schemes look not just like tax avoidance, but like fraud.
I welcome the moves that the Government are making. The number of prosecutions is up from 165 in 2010-11 to 1,165 in the current year. However, there is a lot further to go. A culture change is needed. When people engage in such activity, they are depleting the public purse. Whereas benefit fraud is treated as a crime in this country, tax fraud is treated as a sport. It is perhaps ironic that tax avoiders often give a great deal to charity. I do not know whether that is because of guilt or because they feel like giving back some of the money that they have salted away.
I have often spoken about tax avoidance in this place. I will repeat what I have said before about one big issue that I constantly raise, where there is more that the Government need to do. International finance directors will say that the main way in which they shift profits around is through their financing structures. It is simple and totally legal to finance a UK activity from offshore, then export the UK profits via interest payments to a low-tax regime. Many companies do that and those that do not may be aggressively taken over, as was Boots, so that somebody else can do it.
Large parts of the financing of the private finance initiatives that ballooned under the last Government have been moved offshore. Some 50% of the PFI schools in my constituency are owned in Jersey. Junctions 1A to 3 of the M40 are 50% owned in Guernsey. Famously, HMRC’s own offices are wholly owned in Bermuda after a deal that was done in 2001.
Dealing with tax evasion and avoidance is important to my party because they are not victimless activities. Every pound that is lost is a pound less for public services or a pound extra that has to be raised from other taxpayers. As the hon. Member for Glasgow Central (Anas Sarwar) said, charities such as ActionAid and Christian Aid point out that aggressive tax avoidance is a drain on third-world countries. I disagreed with him when he said that the UK is not taking a global lead on the issue, because that is one of the things that the Government are doing. We are changing the international climate, as well as closing many loopholes and spending much more to deal with the issue in this country.
There is more that needs to be done. We have not made much headway on tax simplification in this country. We still have the most complex tax code in the world. We need more transparency and more country-by-country reporting. As I said, we need a culture change, so that tax cheats are seen as just as antisocial as benefit cheats.
Based on my experience of this issue in this place, I am left with the nagging feeling, which I think is shared by the public, that Labour lacks the competence to deal with it and the Conservatives sometimes lack the will, whereas the Lib Dems are proud of our contribution and will keep campaigning.
Helen Goodman (Bishop Auckland) (Lab)
I am pleased to follow the hon. Member for Redcar (Ian Swales). Much of what he said, apart from the last sentence, was very sensible.
I am pleased to be called in this debate but disappointed that the debate is necessary. The recent revelations about what has been going on at HSBC are shocking. They are shocking because of the scale of the problem and because of the apparent lack of shame. Even according to the Government’s own figures, the tax gap, which shows the amount of tax avoidance, has gone up from £30 billion to £34 billion in this Parliament.
For two weeks in a row, the Prime Minister has been avoiding—some might say evading—questions about this tax problem. Last week he refused to say why he would not increase tax for hedge funds, and the very next day the Financial Times revealed that the number of big City donors to the Tories has doubled, and that they now account for a third of the Tory party’s income. Today he refused to explain about HSBC and what happened with Stephen Green. In Newcastle there are buses going around asking, “Do you know a benefit cheat?” One wonders whether there were chauffeur-driven cars at the black and white ball saying, “Do you know a tax cheat?” They might have found a few people.
We must take the international dimension seriously. Between 2006 and 2011, Google’s turnover in this country was estimated at £18 billion but it paid only £16 million of tax.
Mark Garnier
I hate to interrupt the hon. Lady, but does she realise that tax is paid on profit and not turnover?
Helen Goodman
I will come to that point.
Facebook’s turnover was £200 million, and its tax payment £0.25 million—[Interruption.] Will the hon. Gentleman just wait? What is going on at the moment? One big thing is the division by multilateral companies of different subsidiaries, and a key aspect is the payment of branding through trade marks and licences registered in low-tax domains. We all understand that marketing and advertising are legitimate business interests, and it is completely reasonable to set them against revenues in order to determine profits and decide the tax liability. That, however, is not what is going on, because brands and trade marks are registered in low-tax domains, and licences and royalties are then paid into those low-tax domains to shift money around.
Helen Goodman
I am glad that the hon. Gentleman is now nodding his agreement.
That is a way of moving money from high-tax jurisdictions to low-tax jurisdictions. Now, of course, these prices are not contested; they are not the result of supply and demand, but are administered just as much as prices in the Soviet Union were administered. Sometimes they are administered at suspiciously high levels, and as far as one can tell that device has been used by Starbucks and Facebook, which is why there is a big discrepancy.
I also want to call in aid our noble Friend Lord Mandelson, who said that we must deal with this issue at an international level. At the moment we have constant competition to see who can cut corporation tax the most, and an arbitraging day-ahead market that is undermining everybody’s tax base—we have seen that with the Irish Republic, and now new freedoms must be given to Northern Ireland. The situation is simply not sustainable, but agreeing international changes to the rules of the game takes time. We in this country must take more urgent, unilateral action, and I hope we can consider the way that trade marks, royalties and licences are being abused.
These arrangements are complex, and to tackle them we need Ministers with determination, the right legal framework, and enough experienced HMRC officials. It is disappointing that Ministers have reduced the number of experienced officials in HMRC who have the expertise to follow up such matters. The Minister kept saying that he has a good record of which he is confident, but the Financial Times says that the amount of tax that will be brought to the British Exchequer from measures taken by the previous Government is 10 times the amount that he will bring in. The truth is that this Government are defending the tax loopholes. We want to address them in order to abolish the bedroom tax, which is paid by the most vulnerable and by disabled people in this country. The Government are defending the hedge funds and the City loopholes because they want the money for the Tory coffers for their attempt to buy the next general election.
Charlie Elphicke (Dover) (Con)
It is a real pleasure to follow the hon. Member for Bishop Auckland (Helen Goodman), who always makes such fascinating and interesting speeches and observations—[Interruption.] Indeed—and colourful, as well.
I want to draw attention to the incredible amount of historical revisionism we have seen in the debate. It is worth looking back first at what happened in the 13 years before this Government came to office. In those years, the Labour party was very taken with its prawn cocktail offensive and allowed a culture of industrial-scale tax avoidance to grow. We can see it in the figures. During Labour’s time in office, income tax rose by 81% whereas non-oil corporation tax receipts rose by just 7%. Under the previous Conservative Government, between 1986 and 1997, income tax receipts rose by about 79% whereas non-oil corporation tax receipts rose by a stunning 144%. If anybody wants to see more receipts and more money coming in from business, they should send for the Conservatives. We have seen that happen again in this Parliament. Income tax receipts have gone up by 11% whereas non-oil corporation tax receipts have gone up 16%. Again, business tax receipts have outstripped income tax receipts.
David Mowat (Warrington South) (Con)
Those points are important, but capital gains tax is equally important. As the hon. Member for Redcar (Ian Swales) said, this Government’s rates change on business assets—from 10% under the previous Government to 28%—is huge and has made a massive difference in the number of millionaires that are being created.
Charlie Elphicke
That is indeed a huge change. The Government have also supported entrepreneurs with entrepreneurs’ relief, which I greatly welcome.
Under this Government, the tax gap for 2012-13 is lower as a percentage of tax receipts than in any year under the previous Labour Government. Tax yield for HMRC has gone up by £7 billion since 2010-11. The Government have been very effective at dealing with the tax gap and bringing in receipts. The corporation tax gap for large businesses in 2009-10 was £2 billion, whereas in 2012-13 it was lower, at £1.8 billion. We see a lot of revisionism from Labour, but when it came to getting money through the door they had an atrocious record. The Conservative party and this Government have had an effective record. Why? We understand that to up the take one must cut the rate. That is what the Government have done with corporation tax, with massive success.
Let me draw attention to another problem with the Labour party: its proposals are completely and utterly muddled. Labour talks about UK overseas territories that do not have a public central register for offshore companies being on some sort of OECD blacklist. The only problem is that countries such as America, Luxembourg, Ireland and the Netherlands and a whole stream of other countries do not do that. The chances of getting the OECD nations that do not do that to agree to blacklist a whole lot of other nations that do not do it are minimal, and that shows the absurdity of the Labour position.
Mark Garnier
A further absurdity of the Labour position is the comments that have been made about tax havens. In the talk about subsidiaries in so-called tax havens, how we define a tax haven was not mentioned. It is a relative thing. Many people look to the UK as a tax haven, yet there are plenty of banks in the UK that nobody would suggest closing down.
Charlie Elphicke
My hon. Friend makes a powerful point. If I wanted to avoid tax on an industrial scale, I would not use the Channel Islands. I would use the European Union: I would use Luxembourg, Ireland and the Netherlands—and, goodness me, that is exactly what happens. Why? Because European Union tax rules are structured to enable that to happen. Labour did nothing in their years in power to deal with the massive problems of the European Union and the nature of the parent-subsidiary directive. They should be ashamed of themselves. Nor did they do anything to deal with the problems of international tax avoidance. Companies such as Starbucks, Amazon, Google and Apple—the list goes on—pay hardly any tax in this country because the tax rules were set up in the 19th century and are not fit for purpose.
In the past decade, the previous Government did nothing at all on this. They were utterly asleep at the wheel. They were in denial. They were too busy snuggling up to businesses to hold them to account. They did not make the case for reform of the international tax rules. What have this Government done? They have made the case internationally to the OECD. This Chancellor and this Prime Minister have said that the rules for branch and tax presence are out of date and need to be updated. The rules on transfer pricing and many other international tax rules are out of date and not fit for purpose in the internet age. They need to be updated. It is this Government who have made the running, not just here at home but internationally. It is this Government who have introduced the diverted profit tax and are seeking to deal with this enormous problem.
As for Labour’s other ideas, they are hopelessly muddled. Who was it who brought in the stamp duty reserve tax on share transfers? My recollection is that it was the previous Labour Government. Now they are saying it is all a terrible mistake. What about the issue of the stamp duty reserve tax and schedule 19? They say it is a relief for hedge funds, but they do not understand that a hedge fund could not actually use this relief. This is another Labour pension tax. We in this House know about Labour’s pension taxes, their attack on thrift, on savings, on the savings culture, and the undermining of anyone who wants to take personal responsibility. This proposal is another attempt at a pensions tax. Again, we see Labour coming to this House with an Opposition day debate, claiming to be concerned about tax avoidance when their record in government suggests the complete opposite. The record of this Government suggests a very strong approach. Labour’s policies and proposals are completely and utterly muddled.
This Government have a strong record that I am proud of. I am proud of what we have done. I am proud of the fact that we have ensured that those who have been gaming the system are increasingly being brought to book. I am ashamed of what the previous Government did and ashamed of the Opposition coming to the House and talking the way they do, when they had such a shocking and disgraceful record in office.
Mark Durkan (Foyle) (SDLP)
In following the hon. Member for Dover (Charlie Elphicke), I am conscious that it is usually Northern Ireland Members who are accused of rehearsing what has or has not happened over a period of decades and engaging in all sorts of historic “whataboutery”. This is one debate where that accusation will not fall to us, but I note the hon. Gentleman’s observations.
I do not disagree with all the hon. Gentleman’s points, not least those relating to wider international matters and the EU. The Financial Secretary put great emphasis on the Government’s commitment to legislating for country-by-country reporting, but we need EU and G20 countries to move seriously in that direction. However, some of the more notorious tax havens happen to be Crown dependencies or Overseas Territories, and various jurisdictions hide behind that as their reason for not moving on full country-by-country reporting. Similarly, we need more transparency on the linked question of beneficial ownership. If the Government are to class themselves as a world leader in the steps they are taking, they need to be leaning on various other countries more heavily.
It might help the Government to develop a better relationship with other EU member states, and one better appreciated by citizens across the EU, if they applied themselves to those questions, rather than the more turgid questions raised around renegotiation ahead of a referendum in 2017. We need public registers on beneficial ownership, but we also have to recognise that the proposals apply to only 10% of multinational companies—those with turnovers of more than €750 million—and that reporting will apply only to the headquarter jurisdictions by treaty. Even the much vaunted country-by-country reporting touches on only a fraction of the problem.
I have tabled questions to the Financial Secretary about other matters, including a spill-over analysis of tax rules and their impact on developing countries—Ireland and the Netherlands have now done them, but we need one from the UK as well. Contrary to the impression he gave, the controlled foreign company tax rule changes, introduced by this Government in 2015, have removed a protection from developing countries, as well as costing us in revenue. The CFC finance company partial exemption allows companies a 75% tax break on the internal profits they make from lending to related companies in tax havens. Surely that is an unfair exemption and should be curtailed.
People have raised concerns about the tax regime in Ireland, and I welcome the curbs on the double Irish and other arrangements, but several years ago, when Martin Sorrell announced on “Newsnight” that he was moving back to the UK from Ireland, he made it clear it was not just about the reduction in the headline rate of corporation tax; the key motive was the change in the CFC rules. He decided that the rules gave him greater tax comfort than the much criticised position in Ireland, which says something about the Government’s actual performance on tax.
I welcome the commitments on which the Government partly led at the G8 summit at Lough Erne, but we need more follow-through. We are not getting real traction in the BEPS process, and there is still too much evasion both within individual countries and jurisdictions and, more importantly, by many multinational companies.
Robert Neill (Bromley and Chislehurst) (Con)
It is a pleasure to follow the hon. Member for Foyle (Mark Durkan), whose contribution, as always, was thoughtful. I did not agree with every word, but I sympathised with much of it, and it was in marked contrast to the Opposition’s “Alice in Wonderland” approach to history and policy. Theirs is a topsy-turvy view of recent history that ignores their repeated failure over 13 years to do anything about tax transparency and efficiency, and ignores the work of this coalition Government—but perhaps we should not expect anything more.
Even worse is the Opposition’s remarkably cavalier attitude not just to the facts—I will come to that in a moment—but to the UK financial services industry. We ought to remember that it employs more than 1 million people. I represent a constituency in Greater London. Some 340,000 people in Greater London alone are employed in the financial services sector. It is a world leader for the UK, and the dismissive and scornful attitude shown by some Labour Members to this vital contributor to the tax revenues that fund our public services is pretty shameful.
Mark Lazarowicz (Edinburgh North and Leith) (Lab/Co-op)
I also represent a constituency to which financial services are important, but should we not be defending and promoting the UK financial services industry, rather than those in offshore havens across the world?
Robert Neill
I am glad the hon. Gentleman raised that point. He and I agree about the importance of financial services, but ironically, the blunderbuss approach taken by the Leader of the Opposition in his extraordinarily inept intervention in relation to the Crown dependencies and overseas territories is a perfect example of the cavalier approach that we have seen from the Opposition. I noticed that the shadow Minister mentioned it only briefly towards the end of her speech, as if some kind of major triumph had been achieved by this statesmanlike international figure, the Leader of the Opposition. I might just dissect that a little in a moment. [Interruption.] If the hon. Member for Birmingham, Ladywood (Shabana Mahmood) wants to intervene, I will give way.
Madam Deputy Speaker (Dame Dawn Primarolo)
I agree with the hon. Gentleman. If the hon. Lady wishes to intervene, she should rise to the Dispatch Box and not shout across the Chamber.
Shabana Mahmood
I am sorry, Madam Deputy Speaker, you are quite right to admonish me. The policy of having a publicly available register of beneficial ownership is a policy of the hon. Gentleman’s own Prime Minister. Does the hon. Gentleman disagree with that policy?
Robert Neill
I am happy to quote the whole of the correspondence between the Labour Chief Minister of Gibraltar and the leader of the Labour party. I thought it amusing in this regard that the hon. Lady should claim that some success had been achieved. In fact, Gibraltar has already accepted the need to sign up for a register of beneficial ownership. There is an argument about the level of publicity, but this was conceded long before the cack-handed intervention of the Leader of the Opposition. Fortunately, the Chief Minister of Gibraltar was able to set the Leader of the Opposition right on a number of his other factual errors—never mind the fact that the OECD is not in a position to create a blacklist in itself. That is a pretty basic level of ineptitude in terms of policy, but it goes a little further than that.
This issue is important. Overseas territories Ministers were in London in December for the joint ministerial conference. Gibraltar’s Minister of Financial Services was meeting officials at the Treasury to progress the arrangements we need to make around tax transparency and a register of beneficial ownership. All the leaders of the overseas territories wrote to the Leader of the Opposition, asking if they could meet him to discuss this important matter. What did the Chief Minister of Gibraltar have to say? He said:
“We are unfortunately still awaiting a response.”
The Leader of the Opposition did not even have the courtesy to reply to the leaders of Britain’s Crown dependencies and overseas territories. What does that say about this man’s level of policy co-operation?
Let me turn to the matter that the hon. Member for Birmingham, Ladywood prayed in aid. She is quite right that the Chief Minister said that Gibraltar is
“specifically…committed to implement a Central Register deriving from the forthcoming adoption of the fourth Anti Money Laundering Directive...along with all Member States of the EU because, as you are aware”—
perhaps it was a mistake on the Chief Minister’s part to assume that the Leader of the Opposition was aware of something as basic as this—
the Treaties that form the EU apply to Gibraltar. As those advising you should be aware, we are unique in this regard when compared”
with other territories. He continued:
“only last week my Minister for Financial Services was at HM Treasury discussing”
this. The Chief Minister rightly went on to point out that this was important in Gibraltar’s case because we have responsibility for the defence of Gibraltar overseas. I shall come on in a moment to deal with the damage done by the Labour party in that respect.
The Chief Minister pointed out, too, that Gibraltar has
“a tax information exchange agreement…with the UK that is fully operational. Gibraltar has a further 26 TIEAs with other countries”
and that
“under Directive 2011/16/EU…Gibraltar has tax information exchange arrangements to the OECD standard”
with OECD countries, and
“132…exchange agreements with some 75 countries around the world…This was confirmed by the…Phase 2 report”,
and Gibraltar was given
“the second highest rating possible”
in its compliance, along with that well-known tax haven, Germany.
It is quite extraordinary that the Leader of the Opposition goes rushing forth into print without having checked facts as basic as that. He also forgot that
“Gibraltar has signed an automatic exchange of information agreement with the UK and the USA as well as its global counterpart being the Common Reporting Standard”,
along with some other 90 countries. The Chief Minister signed this in Berlin in October, together with our Chancellor of the Exchequer. I do not suppose that Google worked too well in the Leader of the Opposition’s office there.
Finally, the Chief Minister wrote:
“you should know that your remarks…have already been picked up by the Spanish press and are being used as a rod with which to beat us.”
The fact that the Leader of the Opposition, through a mixture of ignorance, bad manners and ineptitude, gave comfort to people who were persecuting the British citizens of Gibraltar economically in order to make a cheapskate and inaccurate political point is nothing short of a scandal, and is contemptible.
Madam Deputy Speaker (Dame Dawn Primarolo)
Order. It is now necessary for the time limit to be reduced to four minutes for the remaining Back-Bench speeches. If there are interventions, there will need to be a further reduction before the winding-up speeches.
Mark Lazarowicz (Edinburgh North and Leith) (Lab/Co-op)
Members will recall that earlier today, during Prime Minister’s Question Time, a question was asked about political engagement. We often discuss in the House how we can tackle the alienation which, as we all recognise, has become so prevalent in our country and others. We suggest various technical fixes, such as online voting, as well as constitutional reform and the like. No doubt all those changes would be beneficial to a greater or lesser degree, but one of the biggest reasons for the disillusionment with the political system must be the fact that people see more and more instances in which the behaviour of banks, other large corporations, and mega-rich individuals—time and again—has involved hundreds of millions, or even billions, of pounds, in malpractice of various sorts: irresponsible speculation, excessive profiteering, the ripping off of consumers through mis-selling, and, as we have seen again this week, tax evasion.
What people also see is that, with very few exceptions—a few scapegoats who are thrown off the gravy train—no one ever seems to account for what they have done. Even the few who are forced to resign often seem to end up with equally lucrative new jobs, while many seem to escape with censure, and proceed onwards and upwards to even more prestigious roles and appointments. If the political system will not hold those institutions and individuals to account, it is no wonder that the public are cynical about the system. That is one of the reasons why we must now show that we will crack down on abuses such as tax evasion, not just for the future but, when possible, in order to deal with what has happened in the past.
The HSBC scandal must be properly investigated. I welcome the decision of the Public Accounts Committee to hold an urgent inquiry. I am sure that it will be forensic and hard-hitting, as the Committee’s inquiries normally are, but it will inevitably be time-limited, and I therefore hope that those who are members during the next Parliament will continue its activities then. However, this is not just a matter for Parliament to investigate.
The Minister has tried to wash his hands of any responsibility for action by the Government. He said earlier that it was for HMRC to decide whether to pursue individuals in Switzerland and, if necessary, to go to the Swiss courts. That may be true in relation to individual cases, but this does not just involve individual tax evaders. As was pointed out by my right hon. Friend the Member for Holborn and St Pancras (Frank Dobson), what has been revealed is collusion of various kinds with those involved in criminal activity: a massive criminal conspiracy with an international dimension.
Let me ask the Minister a simple question, to which I hope she will reply. Given this week’s revelations in The Guardian about HSBC—revelations of which I think her colleague the Financial Secretary said he had not previously been fully aware—do the Government now accept that an investigation of those revelations should take place in the United Kingdom, and who do they believe should conduct such an investigation?
This is not, of course, just a question of HSBC; it involves the whole system. While I am pleased that the international community has made certain commitments to tackle tax dodging and some steps have been taken, the fact remains that real progress has been made at a glacial rate. That is why the public are becoming impatient, and that is why there has been such strong support for the campaign for an anti-tax dodging Bill among non-governmental organisations. I welcome the commitment by Opposition Front-Benchers to include such a Bill in their legislative programme soon after the general election.
Robert Jenrick (Newark) (Con)
I want to say a few words about the international dimension of what we have been discussing today, because I think that Opposition Members have been, at the very least, unkind about the Government’s record of tackling the issue internationally.
A real problem confronts most developed countries. Corporate tax receipts remain largely flat, and they face the challenge of raising tax in a global economy in which technology and the internet are upending old industries and old tax-raising methods. There is also the complexity of modern businesses and, indeed, modern lives, with mobile entrepreneurs and people who live in, and marry, those from other jurisdictions. That is the reality of the modern tax landscape.
The issues we have discussed today are inevitably international, therefore, and the solutions will come from working with international partners and some of the processes and projects like the BEPS project we have heard about today. The question is how one could increase tax receipts, harnessing some moral and Government pressure to encourage businesses without damaging the perception of this country and other developed economies in the world as good places to do business—how, essentially, we can shrink the grey areas of tax, particularly for sophisticated businesses and entrepreneurs, without seriously compromising certainty for businesses and entrepreneurs of all sizes and incomes as they do business around the world. That is exactly what this Government have set out to do, and with a level of priority that we have not seen in any previous Government—certainly not in the previous 13 years of the Labour Administration.
All the international comparisons are extremely favourable. My old law school read, the Tax Journal, in its special report on tax avoidance, talked about the measures being taken by the OECD countries to tackle base erosion and profit sharing—the BEPS project. It said:
“The UK government is widely regarded as one of the more enthusiastic proponents of reform.”
That is a fair assessment of what the Minister and my right hon. Friend the Chancellor have set out to do. We only have to look at the position paper published by the Treasury with the Budget last year to see the Government setting out aggressively to tackle tax evasion and avoidance, alongside moves to make the UK a most competitive tax environment.
Adam Afriyie (Windsor) (Con)
My hon. Friend is making a clear and powerful speech. Does he agree that, with £24 billion collected from large corporates in corporation tax over the last year—a record for the country—the measures for tackling anti-avoidance while encouraging businesses to operate here are clearly working very well?
Robert Jenrick
I agree entirely with my hon. Friend’s comments.
The Tax Journal sets out its analysis of all the countries in the world that are taking this seriously. It lists all the major, modern, 21st century challenges—whether the digital economy, the hybrid mismatch arrangements, treaty abuse, re-examining transfer pricing, CFC rules, harmful tax practices, artificial avoidance of private equity status. The Government have a strong record of tackling each and every one of those areas and taking them forward in the international community. Indeed, this survey concluded that the Government are not only taking this seriously, but are in the vanguard of each and every one of those and 15 other areas, which will be the major issues facing tax policy in the years to come. These areas sound dry and technical, but this is the reality of tax reform. It is not about soundbites and playing to the gallery; it is about methodical research and reform to improve the situation and taking it forward with our partners around the world.
As we have heard, we are already seeing the fruits of this work. The idea that this Government are in the pocket of tax advisers and lawyers on these issues is fanciful, and anyone who says that clearly has not met them recently. I was sitting on the back row of a meeting at which the Financial Secretary was speaking to Accountancy Age, I think, some time ago, and he was being given a difficult time because the Government have pursued some of the most aggressive tax reforms, which many feel have fundamentally changed the relationship between companies and individuals and HMRC and the state. I and many others have some concerns about those—such as the risk to privacy and the workability of requiring a beneficial register to be published for all companies in England and Wales—but we cannot consider these to be anything other than radical approaches. Allowing HMRC to claw back from individuals’ bank accounts and arguably looking retrospectively at tax schemes do not have much sympathy from many Members of the House. They are undoubtedly radical attempts to take this issue forward.
The Government have a very strong record in this area of which they should be proud. We must take this forward.
Nia Griffith (Llanelli) (Lab)
Nobody likes paying tax, but we all want our services, such as the NHS, to be there when we need them. Above all, we want fairness. We have an expectation that we should all pay our taxes, wherever we are. We want the same standards to be applied to all. It is damaging for honest businesses to face competition from corporations that are not paying the tax that they owe. Horrifying revelations about HSBC have been made this week. Instead of its clients being encouraged to pay the tax that they owed, they were being issued with credit cards to enable them to spend the money without it being identified. That is utterly shameful behaviour on the part of the individuals and the banks, and how many more are there like them?
Cheating the Inland Revenue is never acceptable, but it is particularly galling when councillors up and down the country are agonising over how to manage their severely reduced budgets, and having to decide whether to cut help for special needs children or help for the elderly, for example. My own indignation at the offshoring of the public money being used to pay private finance initiative debts led me to introduce a private Member’s Bill on the issue. In it, I tried to clamp down on that activity so that our money would not go offshore through those contracts. Furthermore, as my hon. Friend the Member for Glasgow Central (Anas Sarwar) said, the amount of money that is lost to developing countries through companies offshoring accounts and therefore not paying their tax in those countries is three times the global aid budget.
I am very concerned by the Government’s record to date. The amount of tax that is owed and has not been collected has risen from £31 billion to £34 billion in the past three years. The Government were told about HSBC back in 2010, but nearly five years later only one of the 1,100 people involved in the tax irregularities has been prosecuted. The Prime Minister promised that he would lead on transparency in tax havens, but to date not one overseas territory or Crown dependency has produced a publicly accessible central register. The Government’s Swiss tax deal has raised less than a third of what the Chancellor said it would raise. In the 2012 autumn statement, he said that it would raise £3.12 billion, but the latest HMRC figures show that it has raised only £873 million.
On the record, Labour has been praised in the Financial Times for our measures against tax avoidance. During the 13 years of the Labour Government, we produced 10 times the income that the four years of this coalition Government have produced. We have a good record on this, but we can never be complacent. That is why we are making it clear that we would do a lot more to tackle tax avoidance. We would make tax avoidance and tax evasion a priority.
Jonathan Edwards (Carmarthen East and Dinefwr) (PC)
The Opposition motion does not mention the need adequately to resource HMRC. Could that be because, as George Monbiot said in 2010, HMRC was “hacked to bits” under the previous UK Labour Government?
Nia Griffith
We believe it is important to resource HMRC properly, and we would like to see it much better resourced than it is at present. We have seen cuts recently that appear to involve getting rid of very skilled people and putting much less skilled people in their place. We would certainly want to reverse that situation.
The Minister mentioned people being caught up in the general anti-abuse rule. However, we will not get anywhere if we do not have proper penalties to impose on such people. We would put proper penalties in place to ensure that any new ideas that people might dream up could be dealt with effectively. We also want to close the loopholes that allow hedge funds to try to avoid stamp duty, and those that let companies move profits out of the UK to avoid corporation tax.
Also, very importantly, we would scrap the Government’s shares for rights scheme. It amounts to immoral blackmail to ask workers to give up hard-won fundamental rights, and it is proving expensive because of the amount of HMRC inspectors’ time required to deal with the scheme. Paul Johnson of the Institute for Fiscal Studies has said of the shares for rights scheme that the
“government is trumpeting a new tax policy that looks like it will foster a whole new avoidance industry. Its own fiscal watchdog seems to suggest that the policy could cost a staggering £1 billion a year, and that a large portion of that could arise from ‘tax planning’”.
I hope we will hear a commitment from the Minister to scrap the scheme. I also hope that the Government parties will take seriously our suggestions and include them in their manifestos, because we need to take a really good joint approach to these matters. I do not believe that the Government have carried on the work that we successfully set up. Their record is poor, and we need to see them putting in a great deal more effort to crack down on tax avoidance.
Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)
As my hon. Friend the Member for Birmingham, Ladywood (Shabana Mahmood) said in her opening remarks, the tax system in this country is based on trust: trust that the Government will make responsible decisions on how to use the money they collect; trust that if I pay my fair share, so does my neighbour; and trust that the Government will be even-handed in their application of the rules. But, as we have heard in today’s debate, under this Government that trust has been eroded.
I wish to highlight a few points made by Opposition Members in the debate. My hon. Friend the Member for Glasgow Central (Anas Sarwar), who has been a champion on this issue, rightly raised international aspects, the links with tackling poverty and the role of non-governmental organisations. My right hon. Friend the Member for Holborn and St Pancras (Frank Dobson) raised serious concerns about HSBC operations and the links to tax havens, and the role of the other big banks. My hon. Friend the Member for Bishop Auckland (Helen Goodman) highlighted specific examples that have been in the public domain relating to large companies and their position on paying tax, and she stressed the need for fair play. My hon. Friend the Member for Edinburgh North and Leith (Mark Lazarowicz) highlighted the sometimes inappropriate messages sent out to the public when people are not held to account and the need to crack down harder. My hon. Friend the Member for Llanelli (Nia Griffith) emphasised the need for fairness and spoke about the damage done to honest businesses when larger businesses are not held to account. She also rightly raised issues relating to resources for HMRC. The hon. Member for Foyle (Mark Durkan) also spoke about international matters and the need for EU countries to work to take action, as the G20 countries also should.
We heard a number of strong speeches containing important points, but we have also heard a lot today about the Government’s record—or perhaps lack of a good record—on tax avoidance. We have heard about a tax gap of £34 billion, which has grown larger by the year, and a Swiss deal that, of course, is full of holes. The Chancellor claimed when announcing it in 2012 that it would raise £3.1 billion, but as we have heard today, it has raised just £873 million. Perhaps the Government are failing because rather than closing existing loopholes, they are busy opening new ones.
The Office for Budget Responsibility has warned that the Government’s shares for rights scheme could cost the taxpayer hundreds of millions of pounds, yet it seems today that the Government regard their record on tax avoidance as a source of pride, rather than as something that needs far more work. Let us go back to that much quoted study by the Financial Times, to which a number of hon. Members have referred, because it is important yet again to put on the record what it actually said:
“Measures put in place by Labour during its 13 years in power to counter corporate tax avoidance are projected to raise ten times as much over the next four years as those introduced by the current coalition government.”
There we have it: 10 times more raised under plans introduced by our Government during those 13 years. And that is even before we get started on HSBC.
We all know the story by now. HMRC was passed information about HSBC’s complicity in abetting tax evasion. Other Governments in other countries received the same information and used it proactively to recover millions of pounds of unpaid tax. What did our Government do? They cut corners and they cut deals behind closed doors. As our motion highlights, just one of 1,000 people alleged to have avoided or evaded tax has been prosecuted. Perhaps the Government are going to point to the money repaid, but it is just a fraction of what is owed. As Labour Members have repeatedly asked, what kind of message does that send? It sends the message that not paying tax is fine for big companies and big corporations because this Government will not pursue them.
My hon. Friend the Member for Birmingham, Ladywood also quoted Richard Brooks, a former HMRC tax inspector, in her opening remarks. He said that the Treasury and HMRC
“knew that there was a mass of evidence of tax evasion at the heart of HSBC”
in 2011, but the Government
“simply washed their hands of it”.
She was also right to say that that is a damning indictment. It is not good enough and it is time we got some answers.
My hon. Friend also put questions to the Chancellor when she wrote to him earlier this week and she reiterated them to the Minister today. Did he ever speak to Lord Green about tax avoidance and evasion at HSBC? Given the scale of the alleged wrongdoing, why was there only a single prosecution? What role did Ministers play in deciding on a selective prosecution policy for those accused of tax evasion or avoidance? These are substantive questions and we deserve substantive answers, but so far we have had no answers at all, and the Government must now come clean and supply answers to those specific questions.
I found it increasingly difficult to listen to what the Ministers were saying. Somehow they were denying all responsibility and failing to join the dots when they were given information, and they failed to ask the right questions. People have lost faith in this Government because they have shown time and again that they cannot be trusted to act fairly and in the best interests of all. Our motion sets out what we would do to restore that faith. We will be able to do that because we recognise a fundamental truth about the tax system that this Government have failed to appreciate, which is that it is about trust and it is about fairness.
Let me reiterate what our plan is to restore that faith. We will introduce penalties for those who are caught by the general anti-abuse rule. We will give the plan teeth by introducing a tough penalty regime, with fines of up to 100% of the value of the tax that was avoided. We will close loopholes on stamp duty that allow the hedge funds to avoid paying hundreds of millions of pounds in tax through intermediary relief. We will take action to close loopholes that allow some large companies to move profits out of the UK and avoid corporation tax. According to HMRC, the tax loss from that loophole is around £200 million each year, and it has been reported elsewhere as £500 million.
Frank Dobson
Does my hon. Friend agree that it is absolutely essential that if people have swindled their tax, confessed and avoided going to court, their names are disclosed, even if they are great big corporations or wealthy individuals, in the same way as a small business in Swindon would have its name disclosed if it was being pursued by the Inland Revenue?
Cathy Jamieson
I think that we all could cite examples of where small businesses and others in our local constituencies have had some fairly aggressive actions taken against them. They find it difficult to understand why the same rules do not seem to apply to others.
To go back to the point I was making, it is important that we use the money that we generate from closing loopholes to save the NHS as part of our £2.5 billion a year Time to Care fund, and we will supplement that with another £400 million a year raised by stopping employment agencies exploiting tax relief and travel and subsistence through the use of umbrella companies. We will act, where this Government have failed to do so, by making tax havens, which have links to the UK, put company ownership information in the public domain. Importantly, we will scrap the failed shares for rights scheme, which the Office for Budget Responsibility warned could enable avoidance and cost £1 billion.
We will also ensure stronger independent scrutiny of the tax system, giving new powers to the National Audit Office and placing new responsibilities on the Chancellor and chief executive of HMRC to report annually on their efforts to tackle tax avoidance and to reduce the tax gap.
As we have heard today, tax avoidance and tax evasion are not new problems. For as long as states have levied taxes, people have sought to avoid them. But we owe it to the taxpayers who pay their taxes to ensure that the rules are applied fairly and that is what we intend to do, because that is how we will restore faith and trust in the system. We will do the right thing, close the loopholes, and ensure that everyone pays their way and that the system is fair for all.
The Exchequer Secretary to the Treasury (Priti Patel)
Like my hon. Friend the Financial Secretary to the Treasury, I shall begin by highlighting the fact that tackling tax avoidance and tax evasion has been a key priority for this Government, and we will take no lessons from the Opposition on that issue. At every opportunity, this Government have introduced measures to clamp down on this corrosive practice. It is this Government who, over the course of this Parliament, have secured £85 billion in compliance yield, £31 billion of which came from large businesses. We are the Government who have abolished the shocking loopholes in the tax system that we inherited in 2010—loopholes that the Labour party chose to ignore when in office for 13 years, turning a blind eye when it could have acted. Now, belatedly, Labour Members lecture Government Members on their new-found wisdom in this area.
We have introduced groundbreaking measures to clamp down on tax avoidance schemes. Internationally we have led the world in this very area, as my hon. Friends rightly highlighted during the debate—for example, my hon. Friends the Members for Cities of London and Westminster (Mark Field), for Dover (Charlie Elphicke) and for Bromley and Chislehurst (Robert Neill), who spoke so robustly about Britain leading the way internationally and the work we have been undertaking in the Crown dependencies and overseas territories, which are all supportive of transparency and have been signing up as early adopters of common reporting standards. Everyone in the House should welcome that and support those measures, rather than belittling the actions of those territories and Crown dependencies. They have led the way.
My hon. Friend the Member for Newark (Robert Jenrick) was clear about the standards we have set, and I deny absolutely the bluster and assertion from Labour Members. To claim, as they have, that Lord Green was at fault with regard to what has happened with the Swiss subsidiary of HSBC when there is no suggestion from anybody, and certainly not from the regulators, that that was the case is quite disgraceful. It is a fact that Ministers and the general public knew about the release of information about individual HSBC account holders, and it is also a fact, as my hon. Friend the Financial Secretary highlighted, that it is a long-standing legal requirement for taxpayer confidentiality that Ministers cannot, under any circumstance, be made aware of individual cases.
Shabana Mahmood
We have been calling for Lord Green to make a full and frank statement. No allegations have been made, but he needs to explain what he knew about what was going on at HSBC. The Exchequer Secretary should correct the record on what we have been requesting from the Government and from Lord Green and say whether she agrees that he should make a full and frank statement.
Priti Patel
Let us be quite clear on the point regarding Lord Green: that is now a matter for him. He is also not a Minister. We should be very clear about that.
When it comes to tax in particular, let us focus on the facts here. We have specifically taken action to get back money lost in Swiss bank accounts. Our agreement has so far raised more than £1.2 billion that would otherwise have remained beyond our reach, which is almost two thirds of the £1.9 billion that the latest forecasts expect it to raise. That is more than 22,000—[Interruption.] The hon. Member for Birmingham, Selly Oak (Steve McCabe) sits there laughing. It was his Government who did absolutely nothing in this area, despite having the opportunity to close down loopholes. Labour Members do not like hearing it, but these are facts.
Priti Patel
No, I will not give way because of time. The right hon. Gentleman has had his chance to speak in the debate. Tax avoidance is a serious issue for the public and for us as a Government. Let us be clear: it was his Government who chose to sit on their hands in this place.
We have taken clear and concerted action to tackle tax avoidance in every single year of this Parliament. We have closed loophole after loophole to clamp down on those who did not follow the rules. We have made more than 40 changes to tax law in this Parliament to introduce major reforms. Those measures to tackle aggressive tax planning, avoidance and evasion add up to £7.6 billion of additional revenues in 2015-16 alone. Many of the issues that we have tackled have been problems for years, but nothing was done until we took that clear action.
The wealthy could avoid stamp duty under a Labour Government, so we stopped that. Private equity managers boasted about having lower tax bills than their cleaners, so we tackled that head on. Nor have we been afraid of addressing and tackling the clear structural issues. We introduced the UK’s first general anti-abuse rule, or GAAR, in 2013. We are consulting on strengthening that. In 2014, there was a new regime for high-risk promoters of tax avoidance schemes under which the most outrageous promoters can be monitored, fined and publicly named.
Last year, we went further. The Chancellor announced in his Budget the accelerated payment of disputed tax in avoidance cases. We removed the cash-flow advantage that tax avoiders had over the majority of taxpayers who pay their tax up front.
These are fundamental changes. Incentives to enter avoidance schemes have been removed. As my hon. Friend the Financial Secretary stated, under these new powers, HMRC has already secured £185 million for the Exchequer coffers. In addition to those new powers, contrary to what the Opposition say, we have supported HMRC with more resources, to tackle avoidance, evasion and non-compliance. Year on year HMRC is able to do more and recover more tax that would otherwise have gone uncollected. This progress was recognised by the National Audit Office last year.
We are taking action on the international stage and leading the world in reforming the current international tax rules, which were first developed in the 1920s. The OECD’s BEPS project, led by the Prime Minister and the Chancellor through the G8, the G20 and the OECD, will help resolve those problems. We announced in the autumn statement that we are taking action on a country-by-country reporting level.
We have not stopped there. We have taken groundbreaking action domestically and introduced the diverted profits tax, which will complement the BEPS process and strengthen our action against multinational companies that try to avoid paying their fair share. From 1 April this year, the tax will be applied using a rate of 25%.
These are clear actions that this Government have taken, contrary to the assertions that we heard from the Opposition. For all the political noises that we heard, for all their new-found wisdom in the area of tax avoidance and evasion, we are the party in government that has been sensible, pragmatic and firm in leading the way and leading the debate. We have been clear in every step that we have taken. Since 2010-11, the percentage tax gap has stayed lower than at any time under the previous Government, saving the country £4 billion. There is always more to do, but this is clearly in line with all the reforms and measures that we have introduced in government. The Government remain committed to all the action that we have taken, which is why the House should thoroughly reject the Opposition motion.
Question put (Standing Order No. 31(2)), That the original words stand part of the Question.
Caroline Lucas (Brighton, Pavilion) (Green)
On a point of order, Madam Deputy Speaker. The Government have allowed a derisory amount of time for consideration of all aspects of the Infrastructure Bill, particularly given that issues around fracking are so controversial. Is there any way of allowing us to speak for at least two hours, rather than the one hour designated for consideration of Lords amendments, not least because there are now substantive new amendments from the other place, and we ought to do them justice by having proper time to discuss them?
Madam Deputy Speaker (Mrs Eleanor Laing)
I can certainly give the hon. Lady advice on that matter. I am about to put the programme motion to the House, and I do not know whether it will agree to it or not. If the House agrees to the programme motion, the amount of time available will be one hour. If it does not agree, there will be another procedure.