Pension Fund Reliefs

Lord Sikka Excerpts

Tuesday 4th February 2025 Lords Chamber

[Lord Livermore (Lab)]

I am not sure that the noble Lord should talk down the British economy in quite that way.

[Lord Sikka (Lab)]

My Lords, for 2023, the cost of tax relief on pension contributions was £46.8 billion, and another £23.8 billion of relief was given on related national insurance contributions. Some 63% of the total tax relief went to 6 million higher and additional rate taxpayers, and only 37% went to 28.1 million basic rate taxpayers. By fixing the tax relief at 20% for everybody, the Government can not only reduce inequalities but have £14.5 billion a year surplus. Will the Minister consider this reform?

[Lord Livermore (Lab)]

I am grateful to my noble friend for his question. He is correct that the Government spend around £70 billion annually on pension tax reliefs, because we want to encourage pension savings. That is why, for the vast majority of savers, pension contributions made from income during working life are tax free, and it is why, like many other countries, the UK exempts from tax the returns pension funds receive on the investments they make. Tax is not within the scope of the pensions review.

Growing the UK Economy

Lord Sikka Excerpts

Monday 3rd February 2025 Lords Chamber

[Lord Livermore (Lab)]

I am grateful to the noble Baroness for her question. I completely agree with her, which is why the Government have set a 2% productivity target for all government departments as part of the spending review. We have been very clear that, clearly, in a constrained fiscal environment, productivity and reform will be central to delivering better public services. In an environment where the noble Baroness opposite and I do not agree on very much, this is definitely an area where we agree, in terms of the importance of driving productivity not just in the private sector but in the public sector too. Please let me reassure the noble Baroness that this is absolutely top of mind as we consider the spending review decisions that we have to take.

[Lord Sikka (Lab)]

My Lords, the key lesson from the last 14 years is that sustained economic growth cannot be secured without improving the purchasing power of the bottom 50% of the population. The two-child benefit cap, the winter fuel payment cut for pensioners below the poverty line and a freeze on personal allowances are just some of the impediments. Can the Minister say when these policies will be reversed and when steps will be taken to secure equitable distribution of income and wealth because, without money, people simply cannot buy products and services?

[Lord Livermore (Lab)]

Although I disagree with my noble friend on some specifics that he raises, I think we all agree that it is right that we have a goal to raise living standards in every part of the UK by the end of this Parliament, which is why that is central to our Plan for Change targets when it comes to the economy. We have already provided stability to the economy, enabling the Bank of England to make two interest rate cuts; we have protected working people by keeping our promises on tax at the Budget; we have frozen fuel duty; and we have increased the minimum wage, and we are now seeing wages starting to rise. All those things are beneficial in terms of living standards. My noble friend will appreciate, though, that we have to grow the economy before we can start distributing the benefits of that growth.

Low and No-Tax Jurisdictions

Lord Sikka Excerpts

Thursday 30th January 2025 Lords Chamber

Moved by

[Lord Sikka]

That this House takes note of the tax implications of corporations shifting profits to low and no-tax jurisdictions.

[Lord Sikka (Lab)]

My Lords, I begin by welcoming the noble Baroness, Lady Coffey, to this House. I really look forward to hearing her maiden speech.

It is a good time to talk about profit shifting, as the US is tearing up tax treaties and the OECD’s base erosion and profit shifting—BEPS—project has stalled. HMRC states that since 2010 some £500 billion of tax has not been collected. A methodological annexe issued by HMRC, dated 20 June 2024, states:

“Some forms of base erosion and profit shifting (BEPS) are included in the tax gap where they represent tax loss that we can address under UK law. The tax gap does not include BEPS arrangements that cannot be addressed under UK law and that will be tackled multilaterally through the OECD”.


Basically, HMRC does not really know how much profit is shifted out of the UK and what the related tax losses are.

Multinational corporations are shifting annual profits of around $1.4 trillion into tax havens, causing Governments around the world to lose $348 billion a year in direct tax revenue. I am sure the Minister will be able to tell us how much the UK is losing. Over $329 billion of profit is shifted into the UK’s Crown dependencies and overseas territories by multinational corporations every year, causing a tax loss of $80 billion.

This daylight robbery is facilitated by financial engineering and opacity from a rapacious tax abuse industry located in the UK and its global dependencies. The Criminal Finances Act 2017 was introduced to tackle corporate tax evasion but, to the best of my knowledge, to date no one has been charged or prosecuted under it. So how exactly are profits shifted? I have a couple of examples.

Consider the case of BHS, which collapsed in 2016. I declare an interest as an adviser to the Work and Pensions Committee during its investigation into BHS. Lady Green, spouse of the chief executive, held 98% of its shares. In 2001, BHS sold some of its properties for £106 million to Carmen Properties Ltd, a company based in Jersey and under the sole control of Lady Green. The properties were then immediately leased back to BHS in England. Between 2002 and 2015, BHS paid £153 million in rent to the company in Jersey. These rents were tax-deductible expenses in the UK and reduced the tax liabilities of BHS. The rents booked in Jersey were not taxed because the profits were not made on the island. The profits of Carmen, the Jersey-based company, were then paid as dividends to Lady Green, who resided in Monaco, which levies no income tax at all.

Through this related-party transaction, BHS was able to manufacture a tax-deductible expense and reduce its tax liability. Lady Green received dividends on which no tax was paid in the UK or anywhere else. This type of financial engineering is not uncommon and the resulting losses do not form part of HMRC’s tax gap numbers, which are grossly understated. Governments can easily check the leakage of tax revenues by deducting tax at source from dividends, interest and other payments to entities in low and zero tax-rated jurisdictions. If the recipient can show that he or she paid the tax on the transaction elsewhere then the tax withheld can be refunded, but successive Governments have made no effort to curb this sort of tax avoidance.

My second example relates to the use of affiliates and subsidiaries in low or no-tax jurisdictions to shift profits. Starbucks, Microsoft, Google, Amazon, oil, gas and numerous other entities use complex corporate networks to shift profits. Apple’s profits are parked mostly in Jersey, where it really has no physical presence. Transnational corporations have huge opportunities for profit shifting and tax abuse. A microchip company has its product designed in country A, manufactured in B, tested in C and patented in D, and has its marketing rights located in E. Determining the cost, profits and allocation to each country is highly problematic.

Companies adjust their import and export prices and shift profits, especially as around 60% of world trade is internal to companies. The OECD’s transfer pricing rules require the use of arm’s-length prices, but in the absence of active independent markets such prices are almost impossible to ascertain. The top 500 companies in the world control around 70% of world trade; 80% of global sales of coffee are attributed to just three multinational corporations; and two companies control 40% of the global commercial seed market. Around 10 companies dominate the global pharmaceutical industry, four dominate the agricultural commodities market and around 14 dominate global auto manufacturing. This gives them huge opportunities for profit shifting and tax abuse.

I will illustrate this with an example relating to bananas. I am sure that all noble Lords have had bananas and have wondered where exactly most of the UK’s bananas come from. The UK’s bananas come from an island that does not grow any bananas and which no banana-laden ship has ever visited—that is, Jersey. Companies such as Chiquita, Dole, Fresh Del Monte, Fyffes and Geest control banana production in west Africa and Latin America, but all the paperwork is routed through Jersey.

For bananas selling for £1 in a UK supermarket, 13p goes to the growing country, of which 10.5p is for the cost of production, 1.5p is for labour and 1p is profit. After that, the games begin: 8p goes to a purchasing network located in the Caymans, within the same group of companies; 8p goes to a Luxembourg subsidiary for providing financial services, including interest payments on intragroup loans; 4p goes to Ireland for the use of a brand name; 4p goes to the Isle of Man for providing insurance; 6p goes to Jersey for management services; and 17p goes to Bermuda for providing a distribution network, even though no ship ever visits there.

By the time the bananas are unloaded in the UK, the 13p-worth of bananas magically has a cost of 60p and is sold in the supermarket for £1. The supermarket incurs costs in selling those bananas and will eventually declare a profit of 2p, which if taxed at the rate of 25% will yield half a penny for the Chancellor, out of the £1 that the customer has spent. So 47p of the profit made from UK customers is booked in low or no-tax jurisdictions and those profits are not taxed anywhere in the world. These numbers do not form part of HMRC’s tax gap calculation. Almost every multinational company is engaged in this type of profit shifting and tax abuse. I used to work for an oil company; another day I can maybe give the House examples of what the oil companies get up to.

Profit shifting requires urgent attention. The Companies Act 2006 does not require company accounts to provide any information about profits shifted. Accounts are totally opaque. Can the Minister say what plans the Government have to give visibility to profit shifting? Some visibility can be provided by public country-by-country reporting, which would enable proper transparency on both the amount of taxes avoided by multinationals and how far the UK’s measures have been effective in tackling that.

Section 122 of the Finance Act 2015 contained a requirement for multinationals operating in the UK to publish a public country-by-country report. But the legislation was never implemented and was subsequently repealed by the Finance (No. 2) Act 2023. The UK is now way behind other countries. The EU and Australia now require companies to make these disclosures through public country-by-country reporting. Can the Minister explain why the UK shuns tax transparency?

The UK Government have signed up to the OECD global tax deal, requiring a 15% minimum effective tax rate on multinational corporate profits, but President Trump has withdrawn from that agreement and threatened sanctions against Governments which levy 15% minimum tax on US companies operating in their countries. There is a way forward in the UN framework convention on international tax co-operation, but, unfortunately, last November the UK Government voted against it. It would be helpful to know what their strategy is.

Finally, it would be helpful if corporate tax returns are made publicly available, so that we can all see how they are shifting profits and what kind of taxes are being abused. That would empower the Public Accounts Committee to scrutinise those corporations and any sweetheart deals done by HMRC. I beg to move.

--- Later in debate ---

[Lord Sikka (Lab)]

My Lords, I thank the noble Baroness, Lady Coffey, for her excellent speech. I look forward to interacting with her in the months and years to come. I also thank all other noble Lords for their contributions. I think this issue will become more, acute because successive Governments have shifted profits away from corporations to what I call normal people. They have been given the choice: either pay more for crumbling services or lose hard-won social rights completely. Therefore, the way we treat corporations and corporate power will become a vital issue for debate.

Transfer pricing rules are now broken, because world trade is dominated by a handful of companies, as I indicated earlier. Numerous actors are dominated by very few companies, which means arm’s-length prices are almost impossible to find. Some noble Lords may have noted that the BRICS countries, especially Brazil, and others have developed their own way of applying arm’s-length prices because companies have been abusing them. That is also worth looking at.

I am sure there will be lots of reflection on the various contributions, but my final point is that a UK resident company is liable to pay UK corporation tax on its global profits, subject to tax treaties and double taxation agreements—in other words, giving benefit after credit for the taxes paid somewhere else. If those companies’ profits are not taxed anywhere that means the UK Government can tax them, but I have not come across any example of where any Government have actually done so, so there are billions of pounds waiting to be collected. Perhaps in the next debate—I might try my luck next year—we can have this point clarified. Once again, I thank all noble Lords.

Motion agreed.

Non-domicile Status

Lord Sikka Excerpts

Tuesday 28th January 2025 Lords Chamber

[Lord Livermore (Lab)]

I am grateful to the noble Lord, and I am of course happy to look at that. Obviously, we keep this policy under review and will continue to engage with stakeholders to ensure that the system operates as it should. It is important to remember that the basis of this policy is ensuring that everyone who makes their home in the UK should pay their taxes here; that is absolutely the right thing to do. We want to ensure that our system remains internationally competitive, and the system that we are introducing as a result of these reforms is far more internationally competitive than the system that it replaces.

[Lord Sikka (Lab)]

My Lords, for far too long the wants of the few have been prioritised over the needs of the many. I cannot recall marches or petitions calling for concessions to wealthy non-doms, but despite marches and petitions, the two-child benefit cap and winter fuel payments cut for pensioners below the poverty line remain. Can the Minister offer some guidance to families and pensioners as to how they can get a concession too?

[Lord Livermore (Lab)]

The Government are committed to making sure that the wealthiest in our society pay their fair share of tax, consistent with our commitment to economic growth. That is why the Chancellor announced a series of reforms at the Budget to help to fix the public finances in as fair a way as possible. That is absolutely what we are doing, and we are ensuring the fairest treatment to those affected.

Sterling: Rise in Yields on 30-year Gilts

Lord Sikka Excerpts

Tuesday 14th January 2025 Lords Chamber

[Lord Livermore (Lab)]

They already are. We have seen many planning projects already unblocked by this Government as a result of changes to planning. As soon as this House passes the planning Bill, we will see even more growth in the UK economy.

[Lord Sikka (Lab)]

My Lords, during the 14 years of the last Government, public debt increased from £1 trillion to £2.8 trillion. Public services were decimated, NHS waiting lists tripled, average real wages fell back to the 2008 level and 16 million people now live below the poverty line. Does the Minister agree that the Conservative Party owes the country an explanation?

[Lord Livermore (Lab)]

I agree that the Conservative Party owes the country an explanation—it also owes the country an apology. There was no bigger failure of the previous Government than their failure on growth. First, they introduced austerity, which choked off investment. Then, their Brexit deal created new trade barriers equivalent to a 13% increase in tariffs for our manufacturing sector, permanently reducing GDP by 4%. Finally, their disastrous mini-Budget crashed the economy and set inflation and interest rates soaring. Of course, they left us with the £22 billion black hole in the public finances.

Autumn Budget 2024

Lord Sikka Excerpts

Monday 11th November 2024 Lords Chamber

[Lord Sikka (Lab)]

My Lords, poverty and inequalities hold back economic development and prevent people living fulfilling lives. Our political system is now disconnected from the masses, as evidenced by the 59.7% turnout at the last general election. Many are drifting to the far right, which scapegoats minorities and threatens social stability. Against that background, the Budget is a missed opportunity to reshape the social landscape. No one can build a sustainable economy unless the masses have good purchasing power.

The Budget could have alleviated poverty by abolishing VAT on domestic fuel and reducing the standard rate of VAT, but the Chancellor followed Conservative policies and did not do that. The Budget could have abolished the two-child benefit cap, restored winter fuel payments to pensioners trapped below the poverty line and put a triple lock on benefits. It did not do that. The Budget could have increased personal allowances by at least £1,000 and lifted millions out of poverty. It could have provided free school meals for all children to reduce hunger, but the Chancellor followed the Conservative policies.

In 2021-22, 31 million people paid income tax; that number is set to rise to 40 million by 2028-29. The result of following Tory policies is that the average family will be £770 worse off in real terms by October 2029. Progressive taxation can reduce inequalities, but the Chancellor seems reluctant to embrace it. Despite promises, the carried interest of private equity managers will be taxed at rates lower than wages. Despite some tweaks, capital gains will also continue to be taxed at rates lower than wages and its recipients will pay no national insurance. Dividends will continue to be taxed at lower rates. The result is that there will be plenty of tax avoidance opportunities for the rich—the very thing the Chancellor wants to stamp out.

There is no justification for taxing rentiers at a lower rate than workers. That is unfair and fuels inequalities. For example, capital gains per capita are four times higher in London than in less prosperous parts of the UK, so somebody living in Kensington receives a lot of benefit from that compared to somebody living in Wales. The richest fifth pay 31% of their gross household income in direct taxes and the poorest fifth pay 14%. The richest fifth pay 9% of their disposable income in indirect taxes and the poorest fifth pay 28%. Altogether, the poorest pay a higher proportion of their income in taxes and the Budget does not actually change that. The richest 1% have more wealth than 70% of the population combined. These inequalities in the distribution of wealth and income will continue.

The revival of PFI for infrastructure investment is a matter of concern. Previously, every £1 of private investment resulted in £6 of repayment. The £13 billion NHS investment resulted in a commitment to repay £80 billion. This is poor value for money, as the Government can borrow at a lower cost than the private sector.

Previous Governments found £895 billion of quantitative easing to support capital markets. Can the Minister explain why the same has not been done to support infrastructure investment? The Budget is a missed opportunity to reduce poverty and facilitate economic prosperity.

Finally, the fake anger of the Conservatives over changes to inheritance tax and VAT on private school fees is nauseating. They showed no empathy for the people when they froze personal allowances and benefits, cut real wages of workers, imposed the two-child benefit cap and increased the standard rate of VAT to make the poor even poorer.

I fully appreciate the dire financial position inherited by the Government and hope the next Budget will be more adventurous and redistributive.

United Kingdom Declining Birth Rate

Lord Sikka Excerpts

Wednesday 6th November 2024 Lords Chamber

[Lord Livermore (Lab)]

I am very grateful to the noble Lord for his question. The example he gives of the reform that is no longer going ahead is an interesting one. It was a £1.4 billion commitment made by the previous Government but not a single penny was put behind it in the Budget that they prepared. It is exactly an example of how we got to £22 billion of unfunded spending—it simply was not affordable. If noble Lords opposite would like to find that £1.4 billion or tell us how to raise it, we would be happy to spend it. This Government are committed to family-friendly policies; it is at the core of our opportunities mission. In the Budget, we allocated £8 billion to family services because it is one of our key priorities.

[Lord Sikka (Lab)]

My Lords, low wages, poverty, poor housing, food, the high cost of living and household debt dissuade many people from having children. the eradication of poverty must be a priority for the Government. Can the Minister ensure that, within a decade, no one on the national minimum wage will pay any income tax or national insurance, and that the cost of that policy will be borne by the ultra-rich? After all, 1% of the population has more wealth than 70% of the population combined. When will he do that?

[Lord Livermore (Lab)]

I am afraid I cannot agree with my noble friend on that, but I agree with him that alleviating poverty should be central to the Government’s objectives. Clearly, work is one of the best routes out of poverty. Equalising women’s participation rates in the economy with those of men would add 1.3 million economically active people into the workforce, which is why helping women back into work is central to the Government’s goals.

Bank Resolution (Recapitalisation) Bill [HL]

Lord Sikka Excerpts

Report stage
Monday 4th November 2024 Lords Chamber

Moved by

[Lord Sikka]

3: Clause 1, page 1, line 22, at end insert—
“(3A) Before exercising the power in subsection (1), the Bank and the scheme manager must assess whether they consider that there should be a clawback of any part of executive remuneration from the previous 12 months.”Member's explanatory statement
This amendment seeks to address potential moral hazards through requiring the Bank and scheme manager to take directors’ pay and bonuses into consideration when a recapitalisation payment is made.

[Lord Sikka (Lab)]

My Lords, a wise man once said that history repeats itself, first as tragedy and secondly as farce. So it is with successive Governments’ obsession with going easy on the banking industry. We are sleepwalking into the next financial crash, but this modest amendment seeks to check some of the moral hazards by imposing personal costs on bank directors through a possible clawback of their remuneration.

History shows that moral hazards give rise to heavy economic and social costs. The secondary banking crash of the mid-1970s forced the state to bail out banks and insurance and property companies. We have had a banking crisis every decade since the 1970s but Governments continue to indulge the City of London. The big bang, the Financial Services Act 1986 and the Banking Act 1987 formalised light-touch regulation. Then came the banking crash of 2007-08. The obedient state dutifully provided £133 billion of cash and £1,029 billion of guarantees to bail out banks. It also provided £895 billion of quantitative easing to support capital markets.

The reforms that were introduced after the crash have been gradually reversed and the race to the bottom is accelerating. The regulators once again have the secondary objective of promoting the growth and competitiveness of the industry. The Bank of England has watered down the capital requirement rules that were meant to shock-proof the banking system from another 2007-08 style crash. Banks would now have to increase their current capital buffers by less than 1% to abide by the Basel 3.1 standards. That is down from the previous proposal for a 3.2% rise last year, as the Government are now more interested in getting the banks to help to promote growth.

Research by my colleagues at Sheffield University shows that between 1995 and 2015 the scandal-ridden finance industry made a negative contribution of £4,500 billion to the UK economy. No questions have been asked about that, and Governments have done their best to conceal the criminal activities of banks. Documents relating to the 1991 closure of the Bank of Credit and Commerce International are still a state secret. No one has explained why in 2012 the Chancellor and the regulators urged US authorities to go easy on HSBC after it admitted in writing to “criminal conduct”, along with money laundering for criminals. To this day, no Statement about that has been made to Parliament. However, in Committee on the Bill, the Minister urged the House to trust the regulators.

Due to the absence of personal sanctions, there is no urgency for dealing with banking fraud. Thousands of people suffered from frauds at HBOS; these date back to 2003. The Government washed their hands of the matter and left it to Lloyds Bank to investigate its own failures. Dame Linda Dobbs was appointed by Lloyds Bank in 2017 and a report was promised by 2018. To date, no report has been published and no regulator or Minister has inquired into the reasons for the delay or done anything to help the victims of those frauds.

Despite warnings, swathes of banking remain unregulated. The shadow banking system, which is now bigger than retail banking and is enmeshed with the regulated sector, remains unregulated. The cap on bankers’ bonuses has been abolished and bankers are free to be reckless as they pursue personal riches. This Bill ensures that the banks will be bailed out, therefore there are even fewer incentives for the directors to behave in a responsible way. There are virtually no pressure points on directors to curb predatory practices and it takes years to disqualify any company director. Prosecutions for predatory practices are rare and the Government say that the prisons are already full, so we cannot send these people to prison either.

On 5 September, in opposing my amendment during Committee, the Minister said that

“it is a key principle of the resolution regime that natural and legal persons should be made liable under the civil or criminal law in the UK for their responsibility for the failure of the institution. This is delivered by Section 36 of the Financial Services (Banking Reform) Act 2013, which provides for a criminal offence where a senior manager of a bank has taken a decision which caused the failure of a financial institution”.—[Official Report, 5/9/24; col. GC 41.]

Following that exchange, on 12 September 2024 I tabled a Written Question to the Ministry of Justice. The reply on 23 September said:

“The Ministry of Justice Court Proceedings Database has not recorded any prosecutions under section 36 of the Financial Services (Banking Reform) Act 2013 since its introduction”.


There is no pressure on directors; they are not prosecuted —although they may get some honours.

I am not really persuaded that there are sufficient pressure points upon bank directors to curb predatory practices. I urge the Government to accept my modest amendment. The Government can stand up to the banking industry or perhaps, one day, they may well have to pick up the tab from the next banking crash. I beg to move.

[Baroness Vere of Norbiton (Con)]

My Lords, I thank the noble Lord, Lord Sikka, for bringing his amendment and for explaining it so well. We on these Benches are concerned that a statutory requirement to make assessment of potential clawbacks of executive pay may simply hinder the efficient use of the recapitalisation mechanism, which of course usually has to be done in a very timely fashion. Having considered his amendment, we feel that it would not be an improvement to the Bill and will not be supporting it.

--- Later in debate ---

I hope these points reassure my noble friend about the structures in place to hold managers of banks to account. On that basis, I respectfully ask him to withdraw his amendment.

[Lord Sikka (Lab)]

My Lords, I thank the noble Baroness, Lady Vere, for her comments and the Minister for his detailed reply. I am not really persuaded by either of their replies. I feel that this is an important question and there are still no effective checks on the moral hazard created by institutionalised bailouts of the banking sector.

I have made my point and it has gone on the public record. I hope no Government live to regret not accepting this amendment, but given that there is a lack of support, I beg leave to withdraw it.

Amendment 3 withdrawn.

Budget: Taxes and Borrowing

Lord Sikka Excerpts

Monday 4th November 2024 Lords Chamber

[Lord Livermore (Lab)]

I can. We said exactly that in the Budget.

[Lord Sikka (Lab)]

My Lords, I have long said that government debt is overstated, and I am surprisingly supported by a man called Jacob Rees-Mogg. On 2 August 2022, he effectively said that the balance at that time of £875 billion of quantitative easing—the amount owed by the Government to the Government—should not be included in the national debt. Its exclusion would reduce public debt to 60% of GDP, meaning that the Government would have more headroom to borrow, invest and grow the economy. Does the Minister agree?

[Lord Livermore (Lab)]

I absolutely agree with the importance of investment to the economy, which is why we have set out an investment rule which enables exactly that. The Government’s number one commitment is to economic and fiscal stability, which is why we have put in place those robust fiscal rules. It is interesting to note that average borrowing over the next five years will be 2.6% of GDP compared to 5.6% of GDP over the previous 14 years.

Fiscal Rules

Lord Sikka Excerpts

Tuesday 29th October 2024 Lords Chamber

[Lord Livermore (Lab)]

I fully sympathise with the noble Baroness that she struggles to understand the concept of keeping manifesto commitments. She will see in the Budget tomorrow that we will keep every manifesto commitment we made to the British people.

[Lord Sikka (Lab)]

My Lords, is the Minister aware that the party opposite made six or seven changes to the fiscal rules between 2010 and when it left office, and never really explained how that worsened the public finances?

[Lord Livermore (Lab)]

I completely agree with my noble friend.