Queen’s Speech

Lord Smith of Clifton Excerpts

Wednesday 25th May 2016 Lords Chamber

[Lord Smith of Clifton (LD)]

My Lords, I follow the noble Lord, Lord McFall, and my noble friend Lord Oates in concentrating on some developments in contemporary capitalism in the UK. It may be recalled that in 1932 the two eminent American economists, Adolf Berle and Gardiner Means, argued that there had been a paradigm shift in modern capitalism. The emerging separation between ownership and control meant that the profit-maximising greed of the robber barons was disappearing. They were being replaced by a new breed of managers who were inclined to be more profit-optimising and took other, more social, criteria into consideration in running their enterprises.

After some of the disappointments of the nationalisations of the post-war Attlee Government, revisionists, most notably Anthony Crosland, argued—as he did in 1956 in his book The Future of Socialism, along the lines of Berle and Means—that the public was better served by the likes of private sector enterprises such as Marks & Spencer, Boots and Sainsbury’s, thus making the idea of industrial public ownership obsolete. However, while that was being absorbed, a new trend was being exposed in the USA. In his valedictory presidential Address in 1961, General Dwight D Eisenhower warned of the deleterious effects of what he termed the growing military-industrial complex for the future of democracy. It was remarkable, given its source, as well as being a very prescient observation, but he did not anticipate the half of it. Corporate intrusion into public policy-making now extends far beyond defence and dictates much of the public agenda in the USA, the UK and most western countries. The result is that both economy and polity have now morphed into each other.

The wide-scale scheme under the Thatcher and Major Administrations, whereby nationalised undertakings were sold off and so-called privatised, was meant, ostensibly at least, to help rectify some of the problems by restoring the discipline of market forces. It patently did not. Privatisation merely created what Karl Marx called “monopoly capitalism”, and that in turn spawned an industry of regulatory agencies to control these cartels. These are by and large unsatisfactory because they create the revolving-door syndrome whereby the regulators are drawn from the regulated.

A major reason for looking seriously at the nature of capitalism is globalisation. No jurisdiction wants to disadvantage itself by taking steps to introduce laws and other regulations that would discourage conglomerates away from its country. Hence there is no real action against tax havens, international tax avoidance and other such practices. Modern capitalism exists on the myth of shareholder control. In electronic exchange purchases some of these shareholders lose huge amounts of money in nanoseconds. Where there is shareholder control, it is largely by pension funds and insurance companies controlled by executives who have a vested interest in the levels of remuneration, and cost-cutting and short-changing.

I say to the Minister that we are in desperate need of a new and more extensive Berle and Means-type analysis of the shady world of contemporary capitalism. First, I suggest that the ESRC should devote itself to this task with immediate effect. Secondly, the Law Commission should be told to undertake a review of company law so as to make proposals for effective and accountable corporate governance. If that does not happen, we will have the rise in populism that my noble friend Lord Oates warned about. Does the Minister agree? I am not anticipating a reply, but I think that the state of modern capitalism, and its regulation, is a very serious problem.

Tackling Corporate Tax Avoidance: EAC Report

Lord Smith of Clifton Excerpts

Wednesday 30th October 2013 Lords Chamber

[Lord Smith of Clifton (LD)]

My Lords, I thank my noble friend Lord MacGregor of Pulham Market for introducing this debate and for his consistent and exemplary chairing of the committee. I also join with him in thanking our clerk, Mr Bill Sinton, and our special adviser, Professor Michael Devereux.

The very widespread practice of exploiting low-rate foreign tax havens and corporate tax avoidance facilities should be placed in the wider context of the contemporary character of commercial behaviour in the UK and, indeed, in other major western economies. We have witnessed a plethora of scandals in banking, insurance, fund management and elsewhere; hardly a sector remains untouched. All of these scandals derive from the nature of modern business which is based on greed and the quest for quick bucks while ignoring long-term considerations, and has contributed to a mindset that induces corruption, bribery, fraud, insider dealing and other criminal actions. These have been all too little investigated in the past, although the prosecution rate is now increasing, particularly in the United States. The UK has some way to go in order to catch up in this respect.

Turning a blind eye to such illegalities has encouraged a lowering of standards across the board. If criminality goes unchallenged, sailing close to the wind, stretching the rules and following only the letter but not the spirit of the law become par for the course. We live in an economic polity where much, probably excessive, reliance is placed on regulators to monitor activity in the public interest. The system simply cannot cope, and there is hardly a regulatory agency in this country that is fit for purpose. The BBC Trust, the Independent Police Complaints Commission, the Care Quality Commission, the Serious Fraud Office in particular, Ofwat, Ofgem, Ofsted et al have all been subject to severe criticism. Quis custodiet ipsos custodes? is as pertinent a question today as ever and is one that Her Majesty’s Government should seriously ponder. Perhaps the Minister could comment on the merits of this observation. It is a problem that will not go away.

As this report shows, Her Majesty’s Revenue and Customs is also a deficient regulator when it comes to policing tax avoidance by companies. Unlike tax evasion, avoidance per se is not criminal. However, it is unethical and flies quite blatantly against the spirit of the law. Its widespread practice is indicative of the contempt so much of UK business has for high standards and ethical conduct—in other words, contempt for the public in general.

In the report the committee points to the extent of the practice and the deleterious consequences that follow from it, and acknowledges the difficulties of securing internationally agreed rules to minimise it. The report also points to the growing discontent among the public, which the noble Lord, Lord McFall, also referred to. This is all too understandable in a period of austerity. Why should large corporations, which are either resident in the UK and/or making huge profits here, escape paying corporation tax and behaving like good citizens? The report also raises the question of how far HMRC falls short as a regulator, and how difficult it is to assess this given the secrecy in which it operates. It suggests that HMRC’s resources are too meagre for the job it is required to do.

The report questioned the appropriateness of employing secondees from the big four accountancy firms to advise on how best to deal with the problems of tax avoidance, given that these very firms earn considerable sums advising major companies how best to minimise their corporation tax liabilities. As we noted, only two days ago the Public Accounts Committee again questioned HMRC senior staff on the apparent feebleness of its treatment of what Mrs Hodge called the “immoral” tax avoidance schemes employed by Google, Starbucks, Amazon and many others. Accordingly, we recommend that HMRC has better resources, that company tax advisers should be regulated, and that a joint parliamentary committee be appointed to oversee the work of HMRC.

Her Majesty’s Government’s official response to these rather modest proposals, according to my rough calculations, was to “agree” with three of our recommendations and “disagree” with eight, while merely “noting” 11. This tally, which is in effect a complacency index, is disappointing to say the least, as the noble Lord, Lord MacGregor, mentioned. In view of Her Majesty’s Government’s attitude as revealed by this tally, “deplorable” might be a better description. I ask my noble friend Lord Newby whether he thinks that this is an acceptable tally.

Perhaps because of this official complacency, the Independent and its sister newspaper the Independent on Sunday were very recently prompted into a week-long, detailed analysis of offshore tax avoidance by major companies. They concentrated on the quoted Eurobond exemption loophole created in 1984. The papers revealed that the practice is far more widespread than our report showed. More than 30 companies across a wide range of economic activity use the loophole, at an estimated loss to the Exchequer of £35 billion. Companies being advised by the big four accountancy firms to exploit this loophole range across high street retailers, care and health providers, and public utilities in gas, electricity and transport.

While these companies are clearly not model citizens, the former editor of the Independent, Andreas Whittam Smith, concluded last week that Her Majesty’s Government are the real culprits, because they speak with a forked tongue. Using the helpful terminology of Murray Edelman, “exhortatory” political language is used to beguile the public, and to stress that the Government believe in fair taxes and are fully committed to stamping out “aggressive tax avoidance” schemes. However, the Government employ Edelman’s secretive bargaining language of politics to give businesses a nod and a wink that the Government will turn a blind eye to all but the most blatant practices, in order to encourage home and overseas investment. That helps explain the feebleness of HMRC.

Most tax havens are of course British Crown dependencies. If the Chancellor promised to rein them in, he would have a powerful card to play in seeking internationally agreed tax avoidance rules. But I fear that Mr Osborne will not play that card, as he is clearly intent on making the UK itself a tax haven.

What is the result? Business is aware of how low it has sunk in public opinion. Its PR advisers polish up the tried and trusted—at least by them—technique of owning up to shortcomings in a very generalised way, and initiating new dialogues about the need for greater ethical concern. Unsurprisingly, as I speak, this is already being diluted to “integrity”, which is a lesser word in this context. Hence the meeting on 24 October of some 200 senior business executives with religious leaders, headed by Archbishop Vincent Nichols with the support of Archbishop Justin Welby, to discuss the draft for a “blueprint for better business”. I wonder whether they arranged a conference call to seek the views of Sir Richard Branson from his Caribbean tax haven.

In a similar vein, Sir Richard Lambert has been asked to direct a standards board for the banking industry. Although I do not doubt the sincerity of those involved, the truth is that as always their proposals will be but the latest edition of the “Book of Proverbs”. They will have as much practical impact on the pursuit of business life as other such endeavours, from the Cadbury report on good governance in 1992 to the more recent Vickers and Davies reports. Is that too cynical a view? Remember that our report stated that Cadbury had been aggressively avoiding tax for years, long before its acquisition by Kraft. Nothing alters, it seems.

In the light of the Independent’s revelations and the findings from the Public Accounts Committee’s questioning of HMRC officials last Monday, will the Minister say how the Government will adopt a much stronger approach to tax avoidance, or will this be yet more empty rhetoric?

Equality

Lord Smith of Clifton Excerpts

Tuesday 8th February 2011 Lords Chamber

Asked By

[Lord Smith of Clifton]

To ask Her Majesty’s Government what is their policy regarding the growing gap between the rich and the poor in the United Kingdom.

[The Commercial Secretary to the Treasury (Lord Sassoon)]

My Lords, action taken in the June Budget and spending review has demonstrated the Government’s commitment to fairness. We set out in the spending review our best estimate of the overall distributional impact of the fiscal consolidation. This shows that the top 20 per cent contribute most to the fiscal consolidation as a percentage of net income and benefits in kind.

[Lord Smith of Clifton]

I thank the Minister for that Answer in so far as it goes. This gap has been growing for three decades. When does the Minister think that the gap will be so great that it constitutes a threat to the social fabric? Will he also give us a progress report on the pay crackdown on bankers promised by the Chancellor of the Exchequer?

[Lord Sassoon]

My Lords, the Government take extremely seriously the question of fairness, which is why we introduced for the first time a distributional analysis to show the effects of not only our Budget but also our spending review decisions. In the measures that we have announced so far, in what is a very difficult fiscal situation, there is a fairness premium of £7.2 billion. The Government are putting these issues centre stage. In relation to bankers’ pay, my right honourable friend the Chancellor of the Exchequer has announced today that the levy on banks will be brought forward, so that the banks will be taxed at a higher level than under the previous Government’s one-off spending plans. We will await further developments in relation to discussions ongoing with the banks.