Tax: Avoidance and Evasion

Debate between Lord Berkeley of Knighton and Lord Tunnicliffe

Tuesday 13th September 2016 Lords Chamber

[Lord Tunnicliffe (Lab)]

My Lords, I thank the noble Lord, Lord Leigh of Hurley, for introducing this subject. I have a confession to make: I rather like paying tax. I pay a great deal of it. I like paying tax because it means I have a good income, it allows me to repay the enormous investment the state has made in me, providing me with a very pleasant life as a result, and I believe in redistribution. The taxation system is a sensible and essential part of any wealth redistribution system. But in paying tax, I want it to be fair.

I have also been privileged to work most of my career in the public sector. That is a wonderful thing because your objective is the general good. As such, I have not been particularly involved in taxation issues. When I look at the private sector, where most economic activity takes place, I see the vast majority of individuals paying their tax somewhat grudgingly but fairly. However, when you look at companies, you see aggressive tax avoidance, with companies claiming a fiduciary duty to minimise tax. You have a new group of individuals running these companies who have an objection to either the companies or themselves paying tax. This has all created a massive tax avoidance industry. Indeed, it has created a tax gap according to HMRC in its report of 22 October last year of 6.4%, or £34 billion. Many believe that that is an understatement.

The Labour Opposition have long believed that an important target of policy must be to try to reduce this gap. Many talked about different ways of doing that but I am talking about the direct effort to reduce that gap. The Labour Opposition proposed many amendments to the Finance Bill and I think a couple were agreed. We thank the Government for that but it is does not go nearly far enough. The Opposition set out the first of their policies on taxation in April, putting forward 10 points of a tax transparency enforcement programme. I will not go over all 10 points but we called for: a public inquiry to examine the loss of tax revenues; increased powers for HMRC; the introduction of a general anti-avoidance principle; cracking down on accounting tricks; and the introduction of minimum standards of transparency for Crown dependencies and overseas territories.

More recently—in fact, last week—the Labour Party published a report on Her Majesty’s Revenue & Customs, titled Reforming HMRC: Making It Fit for the Twenty-First Century. The report was done by a group of 14 experts, led by Prem Sikka, and was designed to inform official Labour proposals expected in spring 2017. It made 13 recommendations under three general headings: resources, governance and transparency.

First, the resources of HMRC have been seriously cut back over the past nine years. When it was formed—in 2005, I believe—there were 91,000-plus employees. In 2014, the last year for which I have figures, there were 61,370. Amazing evidence was presented to the Public Accounts Committee when it was discussing the Google issue, when Jim Harra, the director-general for business tax, said that there was a 75:1 yield ratio—every pound invested in HMRC on large business investigations would generate £75 of profit. In other statements, HMRC has said that when it comes to the local application of tax the ratio is 18:1; for high net worth individuals it is the same. More recently it has said that when it comes to large corporations the yield is something like 97:1. So one of the report’s key recommendations was:

“Additional investment in HMRC resources and staffing”.

I believe that that would create a better yield—to reduce that tax gap—and, complementary to many things that have been said in this debate, an increase in the quality of advice from HMRC in improving tax policy development.

Secondly, the report said that HMRC’s board is dominated by,

“individuals previously connected with major corporations”,

and with large accountancy firms known for marketing avoidance schemes. It has no members representing small businesses, ordinary taxpayers, HMRC’s own staff or claimants of benefits. As a result, the panel’s recommendation was for:

“The formation of a Supervisory Board, consisting of stakeholders, to watch over HMRC Board to give it direction and enhance its public accountability. The Board shall act as a bulwark against corporate capture and inertia and be accountable to parliamentary committees”.

Thirdly, the report touches on transparency. Over and again, scrutiny of tax affairs is obstructed by a general statement about taxpayers’ confidentiality. On 24 February the PAC said about the Google matter:

“The lack of transparency about tax settlements makes it impossible to judge whether HMRC has settled this case for the right amount of tax. Taxpayers’ legal right to confidentiality means that HMRC cannot explain how it has arrived at this or other settlements, or demonstrate that the rules have been applied correctly”.

In relation to that, the panel recommended:

“The tax returns, related computations and documents of all large companies must be made publicly available. The public availability of corporate tax information will improve the quality of information available to parliamentary committees to scrutinise the effectiveness of HMRC in meeting its objectives”.

It further recommended:

“Parliamentary committees should be empowered to examine any tax information, no matter how sensitive. It would be up to the relevant parliamentary committee to decide whether scrutiny of any documents and practices should be conducted in private or closed meetings”.

In summary, I believe that HMRC should be more dynamic and better resourced and governed. It should be much more open and available to scrutiny. I accept that it may be some time before a Labour Government will be able to introduce these reforms, but in the meantime I hope the Government will pick up some of our ideas, close the tax gap and create fairness for taxpayers such as me.

[Lord Berkeley of Knighton (CB)]

Before the noble Lord sits down, perhaps I might give a brief example which demonstrates exactly what he was saying and which the Minister might care to reply to. A couple of years ago, my family attempted to give the Revenue a considerable amount of money for something that we realised was a benefit in kind which we owed. It took it over a year to answer, let alone to deal with it. It occurs to me that if the Revenue has that much difficulty in dealing with people who are trying to give it money, how much more difficulty must it have with people who are trying to avoid giving it money?

[Lord Tunnicliffe]

I thank the noble Lord for that intervention but I hand it on to the Minister.