Finance Bill

Baroness Wheatcroft Excerpts

Monday 15th July 2013 Lords Chamber

[Baroness Wheatcroft]

My Lords, I echo the words of my noble friend Baroness Kramer in saying what a pleasure it was to sit on the committee chaired by the noble Lord, Lord MacGregor. This is not a subject that everybody would find intensely intriguing, but our deliberations were always entertaining, as well as interesting.

The most important thing that this Government have done on income tax is to make sure that the wealthiest pay the most. The top 1% now contributes more to the coffers of the country than in the past. This is a principle to which we need to adhere and I am glad to see that it will continue. The theory is—and I am sure it will be proved right—that, even as the top rate comes down, we will get more income from the wealthy. There are ways that they can move their domicile and their tax status, should they find their surroundings uncongenial.

However, we need to go a lot further in simplifying tax. My noble friend Lord MacGregor referred to the Office of Tax Simplification. It was created in July 2010, though I fear that tax has not become much simpler since. Indeed, the latest edition of Tolley’s Tax Guide now runs to 16,220 pages. The individual guides on income tax, corporation tax and capital gains tax each run to more pages than War and Peace. There must be progress that we can make there; I would like to think so.

Moving to the Finance Bill, the two issues I wish to address are the GAAR—which has been much spoken about—and the income tax relief limit. The GAAR is going to be a disappointment to a lot of people, and we should not be surprised by that. The hostility to the way in which many multinationals organise their tax affairs runs deep. The hope is that the Government are doing something about it. The GAAR cannot and does not attempt to do that, nor can the Government do so alone. It is right that the route that we are taking is through international organisations such as the OECD and the G8 because, as a country, we cannot move unilaterally to deal with the taxation of multinationals.

Winston Churchill, always a good man to quote, said:

“We contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle”.

It is a good image. If we go out on a limb and create a tax regime that is inhospitable to other countries’ companies, we will be the ultimate losers. We need a regime that is fair, and the only way that this can be done is on a multinational basis. We are going in the right direction and leading the discussion, but I am under no illusion about our chances of success any time soon.

In the mean time, what is to be done? The debate in the other House spent a long time discussing the possibility of companies having to declare the amount of corporation tax that they pay in this country. The Government do not want to go in that direction. However, they could encourage a degree of boasting. Would it not be a good idea if companies were encouraged to declare proudly how much tax they were paying in this country? I do not mean fudging it by folding into their total tax bill VAT, national insurance and anything else that they can think of. We want to know about corporation tax. It would be very good if some companies followed the lead of RTZ, for instance, and spelled out proudly what they were paying, to see whether that would win them a few brownie points from consumers. It was intriguing to see how Starbucks eventually reacted to public fury over its tax bill. While proclaiming all along that it was doing nothing wrong—which was absolutely true in legal terms—it felt obliged to offer a bung of £25 million. That was a strange thing to do in the circumstances: “I’m not guilty but, just in case I am, here you are”.

The GAAR cannot deal with this. As my noble friend Lady Kramer said, it will not be the easiest thing to operate. A double-reasonableness test is a hard one to get over. Not only must an action be seen to be reasonable, even if it is not in some minds reasonable, but the individual undertaking the action need only contend that he had a reasonable belief that it was a reasonable action for the action not to fall foul of the GAAR. One of the most interesting sessions that our committee had was when two tax counsel came before us. Their eyes lit up at the prospect of the work to come. These things will be contested.

Nevertheless, it has to be a step in the right direction, and it is already beginning to change behaviour. I am told that fewer questionable schemes are being put forward. It is good to think that the creativity that has gone into finding ways around the tax laws might be used in more positive ways. Avoidance on the aggressive scale that has been in evidence is against the interests of the country, and it is absolutely right that a measure such as the GAAR should be brought in to try to deal the worst cases of abuse.

The other item in the Finance Bill that I will talk about probably needs very speedy changing. It is the limit on reliefs. I understand why the Government feel that it is right to limit the amount of tax relief of which any individual can make use. However, the law of unintended consequences could mean that entrepreneurs are restricted in what they do at a time when we need businesses to flourish, and young businesses in particular to grow and invest. It would be perverse to bring in something that could involve an individual facing a tax bill that is higher than the profits from their business. The Minister may have seen the evidence put forward by the Chartered Institute of Taxation, which is deeply concerned about how this may work. In the end, our committee recommended that there should be a review of these provisions. It was perhaps unfortunate that the Government did not follow their own tax consultation framework in driving through the proposals. Therefore, a speedy review is a very good idea.