Finance (No. 2) Bill

Baroness Hodge of Barking Excerpts

Committee stage & Committee of the Whole House (Day 2)
Tuesday 20th April 2021 Commons Chamber

[Dame Margaret Hodge (Barking) (Lab) [V]]

It is a pleasure to follow the right hon. Member for Sutton Coldfield (Mr Mitchell), with whom I work very closely on this issue; it demonstrates the best of Parliament that we are able to do so across the House.

I rise to speak in support of amendment 77, which stands in my name and that of members of the all-party group on anti-corruption and responsible tax. Our proposals command support across the House, and I know the Minister will therefore address this issue thoroughly and seriously, not just in his response today but in the work that I know he is doing to bear down on those who enable and support tax avoidance and financial crime. I simply say this to the Minister: he may have reservations about the technicalities of our proposals, but he should at the very least accept the principle that underpins them and say so today.

Big corporations and high net-worth individuals who engage in tax avoidance schemes and financial crime do not dream up these schemes on their own; they are invented and developed by the huge army of tax professionals—accountants, lawyers, banks and advisers—who spend their working life trying to identify loopholes and wheezes. The schemes they devise do not just help but actively encourage people not to pay their rightful contribution through tax to the common purse for the common good.

At present, HMRC may slowly and belatedly catch up, and may deem such schemes unlawful. If it does so, the individuals have to pay up and sometimes face enormous tax demands, but the enablers of tax avoidance mostly get away scot-free; at worst they may lose the fees they earned from setting up the scheme for their clients. Our amendment would hold these enablers to proper account. If advisers and promoters involved in a scheme know that the scheme does not work, they are committing the criminal offence—mentioned by the Minister—of cheating the public revenue. They are breaking the law, so they should be pursued, charged and convicted with a criminal charge.

That does not happen now, and our amendment seeks to make it easier for the enforcement agencies to pursue criminal prosecutions. Not only would they hold the advisers to account, but I am completely convinced that the threat of a criminal prosecution would act as the most effective deterrent and bring to a halt many of the activities of these rogue advisers. It would be the most efficient way of tackling tax avoidance at source. It is a common-sense approach to the problem, and it would be welcomed by all taxpayers, who are so frustrated by paying their tax unquestioningly while seeing others avoid tax or break the law. It would restore confidence in the tax system. It is a good idea, and I hope that when the Minister responds he will say that he shares our view that we need to amend our legislation to make it easier to pursue and prosecute advisers who deliberately promote egregious schemes that are unlawful.

I know from my time chairing the Public Accounts Committee how embedded the culture of avoidance, evasion and financial crime has become in our financial services sector. We saw it plainly with the revelations from HSBC, with the Falciani leaks from its Swiss branch. It was there in the PricewaterhouseCoopers leaks keenly exposing that firm’s activities in Luxembourg. The Panama papers uncovered the shenanigans involving the law firm Mossack Fonseca, while the Paradise papers disclosed the nefarious activities of another law firm, Appleby. While it may no longer be seen as cool to be involved in tax avoidance, the latest leak of documents contained in the FinCEN papers spells out the complicity of major global banks in facilitating and enabling financial crime, from tax avoidance through to fraud and money laundering.

Normal working people, however, often suffer the most. The film tax relief that was exploited ruthlessly by the company Ingenious Media left many facing huge tax demands, though the chief executive, Patrick McKenna, is still lauded through public appointments in the creative sector. The loan charge scheme was promoted vigorously by enablers. They walked away scot-free, but left devastation in their wake. I understand from the all-party parliamentary loan charge group that seven suicides have been reported to the group—people driven to suicide because they were conned by enablers into participating in a scheme that later unravelled. That is truly shocking.

I welcome the consultation that the Government have launched on tackling the promoters of tax avoidance. The all-party parliamentary group will be preparing a response to that consultation. Most advisers, of course, work in an honest and straightforward way, and we do not want to pursue with criminal charges those who make an honest mistake, but there are still individuals, companies and organisations who deliberately and wilfully promote egregious schemes that they know do not work. Such enablers move quickly, they are well resourced and they are well capable of outmanoeuvring HMRC. As soon as one wheeze is uncovered, they move on to the next. Worst of all, they act with impunity, safe in the knowledge that they will escape any real punishment if they are ever caught.

Why do these rogue advisers not get prosecuted? The answer lies in what the Minister said: HMRC has to demonstrate dishonesty to proceed against them and it is virtually impossible to do so. The advisers can always claim that they honestly believed that the scheme would work. We therefore want a new test, which makes criminal prosecutions feasible and practical.

We suggest adopting the test that is in place for the work of the GAAR—the bar for prosecution for those ne’er-do-wells should be just as stringent. It would simply make it possible and practical to take action. HMRC would have to demonstrate not simply that the avoidance scheme was not reasonable; it would have to demonstrate that it was not reasonable for anybody to think that the avoidance was reasonable. Sorry for the complication, but that is a double reasonableness threshold. I assure the Minister that that double reasonableness test is in effect the same as the “beyond reasonable doubt” test that he mentioned in his opening remarks. Of course, it would be easy for enablers to avoid prosecution —they just need to stop promoting or recommending tax avoidance that is so aggressive that they know it will fail.

Our amendment tackles a gross injustice in the system. People are completely fed up with reading endless stories about scurrilous tax avoidance schemes promoted by those working in the financial services sector. The perceived difference in the way that hard-working taxpayers and rich individuals are treated breeds mistrust. We suggest a practical change in the law that would make it possible to pursue the enablers, not because we want to see the courts clogged up with prosecutions against bankers, accountants, lawyers and advisers, but because we think that that is the best way of making those advisers think twice before they promote unlawful schemes. It would deter most of them from trying to cheat the public revenue. I urge the Minister, please, to be bold on the issue, to state today that he will tighten up the law and to give us the assurance that, if he does not like our particular solution, he will come forward in a timely manner with his own proposal.

[Peter Grant (Glenrothes) (SNP) [V]]

I am pleased to speak in this debate and to speak to the amendments and new clauses to which I have added my name and which were detailed earlier.

All the SNP amendments relate to schedule 6, under clause 30. Amendments 70 to 72 and 84 and 85 seek to amend subparagraph (3A) of paragraph 2. Taken together, the paragraph would read:

“Where the condition in subsection (1)(l) or (2) is not met in relation to a body or person at any time, but the body or person expects it to be met at any time, the body or person may allow for the condition to be treated as being met until the body or person is not expected to make expenditure on construction operations exceeding £3 million.”

On the face of it, it does not look like a major change, but the amended wording is more in keeping with the spirit of the existing construction industry scheme. It allows, for example, for a de minimis amount of minor works to be disregarded in the operation of the scheme.

Amendment 73 seeks to remove paragraph 3 from schedule 6. I know that the Minister has spoken against this amendment and amendment 74, but we have seen no convincing argument that this change is necessary just now, and we believe that it would be much better for industry to be allowed to continue with the existing scheme for the current year rather than asking it to change the way of doing things. Let us face it, with its being a major part of our recovery from the covid recession, industry has far more important things to concentrate on.

A similar reasoning applies to amendment 74, which seeks to leave out paragraph 4 from schedule 6. That paragraph relates to the way in which the costs of materials purchased for a construction contract are taken into account for tax purposes. The construction industry has had to meet a number of challenges this year. We do not see how changing the way in which it has to account for tax on purchases by a subcontractor for another subcontractor, for example, during this current year will help. We do not see why it needs to be done just now.

New clause 14 requires the Chancellor to report back to Parliament on the impact that the changes proposed in clause 30 and in schedule 6 have had on key economic indicators. One would think that it would be automatic that, when a Government make changes to the tax system, they would go back a wee while later to see whether the changes have had the desired effect. This Government are perennially hopeless at doing that. We seldom if ever see a published assessment of what impact the new legislation or changes to the tax system had. That makes it much more difficult for MPs and the public to hold the Government to account. Even more importantly, it means that, when mistakes are made—that is when, not if—there is no reliable process to identify that and to put things right.

For this Committee sitting alone the Government have had to table no fewer than 22 amendments in order to correct mistakes or to remove inconsistencies and ambiguity from their own Bill which they themselves commended to the House only last week. We can only hope that they have spotted all the mistakes by now, but surely with such an important piece of legislation it makes sense to ask the Chancellor to report back to us to tell us whether it is working, or whether there have been unintended consequences that need to be addressed sooner rather than later.

New clause 15 again requires the Chancellor to report back to Parliament, but this time on the effectiveness of various anti-tax avoidance measures in clauses 117 to 121, and the follower notice penalties in clause 115. I note that the Opposition have tabled something similar, although a bit more restricted in scope.

We welcome the further measures included in this Bill, but they still do not go nearly far enough. Time and again, it has been pressure from SNP MPs that has forced the Government to take any action at all on the scandalous levels of tax avoidance that they continue to tolerate. We still do not have an overarching and workable general anti-avoidance rule. We have an inadequate system of company registration and regulation that makes it far too easy for companies to hide the truth about who really benefits from the profits that they make on the hard work of citizens of these islands and who is really in control of the company. For example, the SNP has highlighted over and over again the need for legislation to combat the abuses of so-called Scottish Limited Partnerships by money launderers and organised crime. As things stand, almost anybody in the world can set up one or several Scottish Limited Partnerships and then use them to get round even the inadequate regulatory and transparency requirements that apply to other companies.

Finance (No. 2) Bill

Baroness Hodge of Barking Excerpts

Committee stage & Committee of the Whole House (Day 1)
Monday 19th April 2021 Commons Chamber

[Andrew Jones]

One of the biggest challenges that the UK economy has faced for many years is its productivity. The UK has some of the highest-calibre companies in the world, among the smartest and most productive on the planet, but outside the south-east, there are areas of the UK where productivity matches parts of southern Europe. For many years there has been a long tail of companies whose productivity is very poor. There are many causal factors in that, including skills—particularly digital—and infrastructure challenges, which I have focused a fair amount of my time on. One of the key issues is a lack of business investment, and one element of the Bill, which I shall focus upon in my few words, goes right to the heart of tackling that: the super deduction.

Until March 2023, companies can claim 130% capital allowances, which basically means that for every £1 a company invests, its taxes are cut by up to 25p. I have no doubt that this will prompt investment. Investment is a driver of economic growth. While the UK has performed well on growth over the last decade, it has lagged on investment, so if investment rates can be improved, the UK will do even better.

The Office for Budget Responsibility estimates that the UK will rise from 30th to first in the OECD world rankings for business investment. That is a very positive thing. Being a beacon for investment is a positive, not a negative; we should not listen to Opposition Members on this. However, such a rise in the world rankings will not be achieved unless there is real scale to this measure. For the two years that it is in place, it is estimated to amount to £25 billion. It would therefore be the largest business tax cut in modern British history, so there is indeed real scale to it.

When we talk about productivity in this place, there is a danger of speaking in jargon. What people could take away is the message that they will have to work harder, do 40 hours per week instead of 38, or work in a team of six rather than eight but still do the same work. What I know we mean, and what I am talking about, is working smarter, so that there is more economic output for the same input. Investment in new machinery and the latest technology is one way to increase productivity, and the super deduction will increase investment.

There are amendments ahead of us this evening about measuring the impact of those policies. Those amendments are not necessary as the Treasury always reviews the impact of its policies, but as the Treasury does its work it will be interesting to see the impact of the super deduction on different parts of the country. It will simply reflect the different economic mix that we have in different areas, and some will benefit more significantly than others. I think the policy will be very helpful in the levelling-up agenda.

[Dame Margaret Hodge (Barking) (Lab) [V]]

With the support of a wide range of Members from across the House, I tabled amendment 78. Although we will not put it to a vote tonight, we intend to return to the subject on Report. Sadly, I cannot look the Minister in the eye, but I strongly and sincerely urge him to give the matter proper and serious consideration. A knee-jerk rejection to a practical idea simply because it is proposed by Back Benchers from across Parliament would confirm yet again that the Government listens only to the few—the powerful corporations and influential tax advisers—and ignores the views of most taxpayers in Britain today.

Boosting investment to stimulate growth is a vital and shared objective, especially as we emerge from the shadows of the pandemic, but the super deduction is both hugely expensive and poorly targeted. With a cost of £25 billion over two years—nearly half the total annual defence budget—the Government must ensure proper value for hard-working taxpayers. Our amendment seeks to target taxpayers’ money more effectively. Every new tax relief, as the Minister well knows, provides a new opportunity for the unscrupulous to identify loopholes and then to shirk their responsibilities and avoid paying their fair share of taxes. Capital allowances have long been fertile ground for tax avoidance. Anybody looking online will find an army of people advertising expertise in classifying expenditure to help companies to exploit the eligibility criteria and so avoid tax.

With a super deduction, the opportunities for exploitation are obvious. The tax relief will last for only two years, so it is unlikely to fund the aviation industry or genuinely new capital investment, which takes time to plan and to implement. It will mainly be used to cut taxes for companies that were investing anyway, and those that will benefit most are those that have prospered the most during the pandemic. They are the companies with oven-ready capital investment plans, benefiting from the increased demand that they have enjoyed over the last torrid year—companies such as BT, whose share price rose by 7% on the day the super deduction was announced, or, as others have mentioned, the notorious tax avoider Amazon.

In 2019, Amazon’s UK turnover was £13.7 billion, but by claiming that its UK sales took place in Luxembourg it exported its profits and avoided corporation tax. It declared only a bit of profit in the UK, as the shadow Minister said, on its warehousing and logistics activities. Its corporation tax contribution was less than 0.1% of its turnover. Analysis by TaxWatch shows that even that miserly contribution would be wiped out with super deductions. It would write off its investment in IT equipment and machinery against its deliberately understated profits. 8.30 pm

Does the Minister really intend to fritter taxpayers’ money away on bungs for global companies that do not pay fairly into the system? Jeff Bezos, whose personal fortune rose to $200 billion during the pandemic, and his $1 trillion company are pocketing money from the British taxpayer and flagrantly refusing to pay back into the system. Does the Minister really think that taxpayers support this sort of daylight robbery? Our amendment would provide a straightforward way for the Government to ensure that this did not happen. It would require proper transparency, with multinational corporations showing where they undertake their economic activity and where they make their profits as a condition of eligibility for super deductions.

The House voted in favour of country-by-country reporting in 2016, as the Minister said, but that power has never been enacted. Our amendment urges the Government to use that power to ensure that this egregious behaviour by companies is visible for all to see, and to ensure that taxpayers’ money is not wasted on those who greedily grasp the nation’s money and assiduously avoid contributing to the public purse. Accepting our amendment would achieve two important objectives. First, it would stop taxpayers’ money being squandered. Secondly, with President Biden pioneering a new global settlement for corporation tax and the EU reaching agreement on country-by-country reporting, it would ensure that Britain played a leading role in developing a fair and responsible global system of taxation.

[John McDonnell]

Following on from my right hon. Friend the Member for Barking (Dame Margaret Hodge), I find it almost incredible that we are having this debate at all, given what we know about the track record of abuse of this type of tax deduction, as she so eloquently pointed out. The Minister is right to suggest that amendment 11, tabled in my name and those of other right hon. and hon. Friends, would have the effect of removing the provision of capital allowance super deductions.

There has been considerable evidence, and concern, from economic think-tanks and Committees of this House that tax reliefs have failed to deliver their stated objectives and, worse, that they have often had unintended consequences through the creation of perverse incentives. Members have raised example after example in recent years, including the entrepreneurs allowance, the patent box and the tonnage tax, all of which have not only failed in their objectives but lined the pockets of company directors and shareholders, exactly as my right hon. Friend said. Accountants, lawyers and others have been using them effectively for tax avoidance. The scope for perverse incentives and unintended consequences is even greater with these super deductions. If the Chancellor wants a sweetener to go alongside his corporation tax rises, surely at a time of rising unemployment it is more urgent to incentivise job retention through a temporary cut to employers’ national insurance contributions rather than introduce what has been described as this dog’s dinner of untargeted super deductions in clauses 9 to 14.



Unlike Ministers, in dealing with business, I do not believe in a something-for-nothing culture. If the Government are giving tax breaks to businesses, the Government, as guardians of the public purse and the public interest, should demand something in return. New clause 1, in my name and those of other hon. and right hon. Members, asks simply that, in return for companies being eligible for these super deductions, they should pay their workers the real living wage and should recognise trade unions for collective bargaining purposes—two simple things that reflect that they are responsible employers.

I regret very much the Minister’s reference to these as “burdensome” requirements. Paying a decent wage and recognising trade unions are not a burden, but actually things that enhance the role of an individual company. As has been said in debate after debate, even by Government Ministers, in many instances the greater involvement of the workers in a company increases productivity. These are just low barriers for companies to pass. It does not take long to recognise a trade union or to be accredited as paying the living wage. Companies that do not currently meet these extra criteria could easily do so during the passage of this Bill and its enactment.

I also back the Front-Bench amendments in the name of the Leader of the Opposition, and I pay tribute to my hon. Friend the Member for Ealing North (James Murray). He is right that companies such as Amazon that dodge their taxes and evade their responsibilities to their workers should not be given tax breaks on top. The Chancellor of the Exchequer made much of his compact with unions and business groups over the furlough scheme. This modest new clause 1 puts in legislation the approach I am putting forward. I believe that it is within the spirit of that relationship between Government, trade unions and employers, and I just urge the Government to think again about accepting it.

New clause 2, in my name and those of other hon. and right hon. Members, combines a request for an evidence base for super-deductions in respect of capital allowances and to explore what economic benefits could be derived from attaching social and environmental conditions to the receipt of super deductions. I heard one hon. Member in this debate say that the Treasury monitors these policies and does indeed review them; unfortunately, it does not.

Historically, tax reliefs have been introduced, and over the years an accumulation of tax reliefs have never been reviewed and never really been tested for their effectiveness in the way they should be. The Office for Budget Responsibility stated in its March “Economic and fiscal outlook” that the super deductions, as others have said, are expected to cost at least £25 billion in total between 2021-22 and 2023-24. This is a huge commitment, and it is surely in the public interest that we have an assessment of policies’ effectiveness and also ensure they deliver on social and environmental goals.

In new clause 6, I seek to create an evidence base on which this House can assess the merits and drawbacks of the super deduction policy. The Public Accounts Committee has previously looked into the operation of UK tax reliefs, and its findings painted a worrying picture. These reliefs already cost more than £100 billion a year in forgone tax, and HMRC does not even know how many reliefs exist or monitor their cost, let alone their effectiveness. Let me quote my right hon. Friend the Member for Barking, who is the former Chair of the Committee. She said:

“HM Treasury and HM Revenue and Customs…do not keep track of those tax reliefs intended to influence behaviour. They do not adequately report to Parliament or the public on whether reliefs are working as intended and what they cost and whether they represent good value for money.”

She went on:

“HMRC does not effectively monitor changes in the cost of tax reliefs so is slow in identifying instances where a relief is being exploited for a purpose”

beyond what Parliament intended. I think that is an accurate but damning indictment and one that should concern the whole House, but especially Treasury Ministers.

New clause 6 specifically recommends that the Public Accounts Committee is tasked with reviewing the effectiveness of existing capital allowances and that this House then votes on the clauses that provide for super deductions in the light of that evidence. I urge the Government to get a grip on the whole process of tax reliefs. We have seen how they can be abused. We have seen how ineffective they can be. We have also seen an industry develop, with accountants and lawyers who have profiteered from tax reliefs that the Government have introduced over decades. To add now to that abuse of taxpayers’ money in this way, I deeply regret. I urge the Government to think again. I give the Government this warning: in a few years’ time, if the Bill goes through as it is now, I bet we will be returning to this debate with example after example of how this system has been abused, to all our cost.

Financial Services Bill

Baroness Hodge of Barking Excerpts

Report stage & 3rd reading & 3rd reading: House of Commons & Report stage: House of Commons
Wednesday 13th January 2021 Commons Chamber

I strongly urge the Economic Secretary to keep a watchful eye on the FCA’s progress. I look forward to hearing from him when he sums up, and to continuing our constructive dialogue on trying to ensure that these unnecessary regulatory hurdles come to an end for the betterment of investors generally. We must remove KIDs from investment trusts so that they can do no more harm.

[Dame Margaret Hodge (Barking) (Lab) [V]]

I will speak about new clause 4, which is in my name and those of others from across the House. I start by thanking Sue Hawley and Spotlight on Corruption for their support in our work.

Historically, Britain has prided itself on offering honesty and integrity, particularly in financial services, but, tragically, the Government’s actions and inactions have helped to breed an environment where fraud and corruption flourish. Today Britain is the jurisdiction of choice for too many villains and kleptocrats. The National Crime Agency estimates that £100 billion is laundered through Britain annually. The recent FinCEN leaks named 3,267 UK-incorporated shell companies and nearly £70 billion flowed from Russia into the UK’s overseas territories. The banks and those who run them often get away scot-free if they turn a blind eye to dirty money or engage in fraud.

New clause 4 would provide law enforcement agencies with a powerful tool in their fight against money laundering and fraud. A new criminal offence would hold individuals, corporations and their directors to account for either facilitating or failing to prevent economic crime. The argument is overwhelming; everyone agrees that the existing powers are weak and ineffectual. We need criminal as well as regulatory powers.

A new offence would provide both an effective deterrent and stronger consequences.

We are way behind our international competitors. We pursue small businesses and let the big banks and well-heeled bankers off the hook. The British public hate feeling that there is one law for the powerful institutions and their leaders and another for the rest of us. As we build Britain outside Europe, it is foolish and wrong to think that we can create a sustainable and strong finance sector on the back of dirty money and fraud. Losing our reputation for integrity will over time damage our prosperity, so we have to clean up our act, and clean it up now, not promise to do so some time in the future.

It is shameful to find that America is more effective at pursuing corporations and their directors than we are. Let us consider Standard Chartered, a British-headquartered bank. In 2019, it was fined for money laundering failures and breaching sanctions—£102 million in the UK, but £842 million in the USA. In both the LIBOR scandal and the subsequent rigging of foreign exchange rates, most of the outrageous behaviour took place here in the UK, but most of the fines were imposed in the US. In 2019, the US dished out £1.67 billion-worth of money laundering fines. We took less than £300 million. The Government may want to promote outsourcing, but does that really mean we want to outsource enforcement to the Americans?

That is why the director of the Serious Fraud Office has called for corporate liability reform. Last October, she said:

“So, what would be on my wish list for the SFO, if I had a magic wand?

Unsurprisingly, a ‘failure to prevent’ offence still tops it.”

I agree, and I agree with the Financial Times comment, after the Barclays fraud case failed, that,

“the bank could not be held accountable for the actions of the chief executive, but neither could the chief executive be accountable for the actions of Barclays.”

Is that really what the Government want? The right hon. and learned Member for Kenilworth and Southam (Jeremy Wright) described the LIBOR scandal as demonstrating,

“weaknesses in our current law”,

and noted the

“clear implications for the reputation of our justice system.”

The Minister is wrong: when the Government called for evidence on a new corporate liability offence, three quarters of respondents urged the Government to toughen up the regime with criminal sanctions, and most of those were private companies and law firms. Why are the Government reluctant to act? They promised action in their 2015 manifesto. They took forever to complete a consultation and now they are parking the proposal with the Law Commission. Why? The House should not need to divide on this issue. Most people strongly agree with our proposal. If Ministers kick the proposal into the long grass, they will anger the public, damage the long-term integrity and reputation of our financial services sector, and fail to build a better Britain. I urge support for our new clause.

[Nigel Mills (Amber Valley) (Con)]

It is a pleasure to follow the right hon. Lady. I want to speak in support of new clause 4, and I will start where she finished by reminding the House that this was a manifesto promise of the Conservative party back in 2015. We said that we would introduce criminal sanctions for failure to prevent economic crime. We got as far as introducing sanctions for bribery and tax evasion. What those two measures have shown is that these “failure to prevent” rules actually work: they do crackdown, they do change behaviours and they do stop businesses allowing their staff to carry out the activity or turning a blind eye to it. When the main counter-argument is that these regulations would be too expensive or too hard to implement, we have to understand that the world has carried on with those two powers in place; that is not a compelling argument for not extending them to the rest of the economic crimes as this clause would do. Most economic crime around bribery or tax evasion includes some money laundering as well, so all that we are really doing is tidying up the rules to make sure that they are consistent across the piece.

I think that it is probably fair to say that, since we made that manifesto promise, we have been a little busy on other matters, but now we are through most of those it is time to get back to delivering on that promise. I suspect that we will not convince most Members this evening to accept this new clause, but, hopefully, when we see the Law Commission review later in the year, we can then make some rapid progress on getting our law to the right place.

The Minister said at the start of this debate that the Bill was a part of our taking back control following Brexit, that we will try to make our regulations world-leading and that that was our aspiration. Surely as we embark on our vision of global Britain, we should make it very clear that our values are to be the cleanest financial services sector in the world—not the dirtiest, not a magnet for dirty money, and not one that tolerates any kind of bad behaviour. We need the powers in the new clause so that we can say clearly to the whole world that this behaviour is not tolerated here and that we will go after not only those who behave in that way, but those who allow it to happen: we will go after those businesses that seek to profit from allowing their staff to behave in such a way. That is the kind of vision that a global Britain should have—more beacon than buccaneer in this kind of situation.

Finally, if we are really after world-leading regulation in this area and setting an example, I personally would support more divergence. That is one reason why I supported Brexit, but I am not sure that the best place to start diverging is by not following the EU’s anti-money laundering rules. Last month, it introduced its sixth anti-money laundering directive, which included the requirement that member states take criminal sanctions for failure to prevent money laundering. We did not opt into that directive before the end of the transition period. I would have thought that, as a signal of goodwill when we want the EU to recognise our financial services regulation, it would be a good thing to adopt. It is the right thing to do. It is the right measure. It is one that, given the size of our financial services industry, we should be leading on, not following. Let us not make that our first divergence. Let us introduce these rules. Let us pass this new clause and have real powers in place which we need to tackle this awful economic crime.

Economic Outlook and Furlough Scheme Changes

Baroness Hodge of Barking Excerpts

Tuesday 16th June 2020 Commons Chamber

[Jesse Norman]

My right hon. Friend will be aware that this is a topic of great topicality. The Prime Minister has launched a review of this and within weeks the matter will be decided. I cannot go any further than that, but he will see the direction of travel quite soon.

[Dame Margaret Hodge (Barking) (Lab) [V]]

I add my voice to those who are remembering Jo Cox today and continuing to celebrate her contribution.

I chair one of Britain’s precious theatres, the Theatre Royal Stratford East. Like theatres up and down the country, we are only surviving because of the furlough scheme. For as long as any social distancing measures are in place, theatres simply cannot put on performances. Even with a 1-metre distancing rule, only one in four seats can be either marketed or occupied. If we are not allowed to furlough beyond October, our theatres cannot survive and will close forever. What will the Minister do to save our theatres?

Tax Avoidance and Evasion

Baroness Hodge of Barking Excerpts

Tuesday 25th February 2020 Commons Chamber

[Steve Barclay]

Not only is my right hon. Friend point absolutely right in the point he makes, but he draws attention to the measures taken in 2014—when he was a key figure in Government—through the UK’s G8 presidency, when we drove the adoption of greater tax transparency through the automatic exchange of information. It is part of the UK’s role at the forefront of a number of international bodies, including the G20 and the OECD, to improve tax transparency at an international level. Across the House, Members recognise that many of the measures that are required to reduce the tax gap, which I think is a common goal across the House, need international action, not just action on a domestic level.

[Dame Margaret Hodge (Barking) (Lab)]

This is the first time that I have spoken to the Minister in his current job and I welcome him to it. I see him a bit as a poacher turned gamekeeper, because he was certainly an extremely determined interrogator of many of the big corporations that we think are still not paying the right amount of tax. I hope he still accepts from our interrogations of Google, for example, that although it pays a bit of tax, it is a very small percentage of the profits it makes in this jurisdiction. To help us, we could enact a measure that has been passed by this House, which is country-by-country reporting, which would enable us to see the economic activity of companies within this jurisdiction, the profits they make here and so the tax for which they are liable. Why does he not enact that measure?

--- Later in debate ---

[Dame Margaret Hodge (Barking) (Lab)]

I welcome the debate this afternoon so early in the new Parliament, but the importance of tackling aggressive tax avoidance, tax evasion, economic crime and money laundering cannot be overstated, and this debate will not go away until the Government are seen to have taken far more action, not just uttering warm words of support in principle but demonstrating firm action in practice.

There is a lot of money at stake, and that is not just reflected in the tax gap, as others have suggested. The tax gap does not measure the money that we should be collecting in tax from, for example, the profits from the activities that big digital companies undertake here. Looking simply at the tax gap, as currently defined by HMRC, is not enough if we are serious about tackling tax avoidance, tax evasion and economic crime.

As I said, a lot of money is at stake, which is important when we have a new Government who have pledged to restore some of the cuts that they have implemented over the past decade and to invest in services and who want to level up living standards across the country. Fairness is at the heart of this debate, as has already been said. It is not about castigating the rich or anything like that; it is about ensuring that everybody pays their fair share of tax. Everybody should contribute to the common pot for the common good from the wealth they own or the income they receive. It is about ensuring that everybody is treated equally before the law. Until everybody in the nation, particularly the 85% who pay their tax automatically through the PAYE system, can be sure that there is fairness in who pays tax and how much they pay, we will not be able to raise the necessary revenue to fund the services that this country so desperately demands.

I urge the Government and the Chief Secretary to the Treasury to listen carefully to what is being said in today’s debate. There is a cross-party consensus on many of the issues, and the Government need to heed that. They will be unable to ignore the voice of Parliament, despite their increased majority, because to do so would be morally wrong and totally unprincipled.

Let me give a figure that has not been mentioned so far. The National Crime Agency estimates—the figure has not changed and, if anything, has gone up—that about £100 billion of illicit money flows through Britain each year. We have become the jurisdiction of choice for too many kleptocrats, too many criminals and too many people who want to launder their money. We will never build a global Britain on the back of dirty money. Post-Brexit Britain will not prosper by, at best, ignoring the extent of the problems of avoidance and economic crime or, at worst, facilitating it.

I ask the Government to respond to four current concerns. In 2018, the right hon. Member for Sutton Coldfield (Mr Mitchell), who is in America talking to elected representatives about how to tackle evasion and avoidance, and I led a successful cross-party campaign to place on the statute book an obligation on overseas territories to provide public registers of beneficial ownership. In 2019, the Crown dependencies, recognising that the will of Parliament was to include them in the legislation, voluntarily agreed to come along with that. We accepted a concession that registers should be implemented by 2023—too late, but it was better to have the scheme accepted by all parties. I remind Members of why the change is so important. We have already heard today that half the entities named in the Panama papers were registered in just one of our overseas territories: the British Virgin Islands. Secrecy enables wrongdoing, and we must understand that.

Our Crown dependencies are as complicit as the overseas territories, and I have two examples: Silvio Berlusconi was accused of bribing two judges, and the payments were allegedly made through a secret offshore branch of the Berlusconi empire, with funds sent to the judges’ bank accounts in Switzerland through a Jersey-based company; and Bono used a company in Guernsey to hide the profits he made in Lithuania.

We need public registers of beneficial ownership in both the Crown dependencies and the overseas territories. Transparency is a key tool in tackling evasion and economic crime. Global Witness has shown a thirst for open access to company data. Since 2015, when the paywall came down on UK company data searches, there have been, on average, 2 billion searches a year, compared with just 6 million a year before the pay wall came down. It has been used by individuals, investigative journalists, campaigning organisations and the voluntary sector, and it has been used by businesses to try to ensure other businesses are treated fairly.

What support have the Government now put in place to help the overseas territories and Crown dependencies implement public registers? Will the Minister confirm the 2023 date this afternoon? Has he taken any steps to bring that date forward? That would be perfectly possible.

Research from Tax Watch shows that, between them, the big five global digital companies—Google, Cisco, Facebook, Microsoft and Apple—paid £240 million in corporation tax in 2018. They should have paid £1.3 billion according to Tax Watch’s calculation of the activity they undertook here, the profits they made here and, therefore, the corporation tax bill that was liable here.

The Government’s proposed digital services tax is the beginning of an answer, but, by 2023, it will raise only around £400 million, which is a tiny start to ensuring that these large global corporations pay a proper amount of tax on digital services. It makes me so angry, because these companies are as dependent as anybody else on the services our tax provides. They need a well-educated workforce, which is provided from taxpayers’ money; they need a healthy workforce, which is provided from taxpayers’ money; and they need infrastructure—whether roads, the internet or whatever else—which is often also provided from taxpayers’ money.

[Peter Grant]

I am sorry to interrupt the right hon. Lady because she is making a valid point that those who are the most enthusiastic in giving advice about how to dodge taxes are often people who, in a previous life, benefited from other people’s taxes. Does she believe there is a bit of inconsistency in that some Members of Parliament who get significant support from tax advisers who promote themselves on giving advice about how to legally avoid taxes are themselves paid very handsomely indeed from other people’s taxes?

[Dame Margaret Hodge]

I am unaware of that specific allegation, but I will come on to facilitators, advisers and enablers who get away with far too much.

The only way we will start ensuring that digital companies pay the right amount of tax is by implementing country-by-country reporting. I asked the Chief Secretary and he did not reply, so I hope the Financial Secretary will reply to the question in his winding-up speech. When will this Government implement the country-by-country reporting that will allow us to see what activity takes place here, what profits are made here and, therefore, what fair tax should be paid here?

I reiterate to the Financial Secretary an issue that I raised with him in an Adjournment debate a couple of weeks ago, and to which he failed to reply at the time. Netflix has so far avoided public scrutiny, but it exports its profits by ensuring that subscribers pay into a server located in Holland. We reckon Netflix earned about £1 billion last year and paid no corporation tax, but in over two years it has benefited to the tune of £1 million from the high-end television tax relief. Not only was Netflix not paying tax, but it was benefiting from what is, in effect, a grant to encourage the production of content here in the UK.

I welcome such reliefs, but it seems utterly unacceptable that companies should benefit from grants offered through tax reliefs here in the UK yet behave in such an appalling way and refuse to pay their tax here. Now that we are Brexiting from Europe, surely it is not beyond the realms of possibility to introduce legislation so that companies will be eligible for such tax reliefs only if they show responsibility in how they behave and in paying their fair share of tax.

The other thing that really gets me with many of these American-headquartered companies is that the Americans, under Donald Trump, extract tax from profits earned through activity undertaken here in the UK. They extract tax at a lower rate but, nevertheless, they are getting more tax than we are, which is unacceptable. Americans are profiting from tax on profits and intellectual property created here in the UK.

I again ask the Minister what I asked him in the Adjournment debate and to which he refused to respond: will he extend the digital services tax to include streaming services? Will he stop those who deliberately avoid tax having access to grants and tax reliefs?

The hon. Member for Glasgow Central (Alison Thewliss) talked about creating a register of beneficial ownership of property, which David Cameron first promised us five years ago. Why is it important? The last figures I could get show that getting on towards 90,000 properties across the UK are owned by companies incorporated in tax havens.

The purchase and ownership of properties has become a key way in which money is laundered into the UK. Transparency International has established that one in 10 properties in just one London borough—Westminster —is owned by a company registered in an offshore secrecy jurisdiction. Private Eye claims that one in six properties sold in Kensington and Chelsea was bought by a company located in an offshore tax haven. This is a key way in which people launder money here.

The electoral register of Kensington and Chelsea is interesting. There has been a 10% decline in the register over the past decade or so, whereas registers have increased everywhere else in London. Why? Because people buy the properties and leave them empty. They simply use the purchase as a way of laundering money, and we know lots of that money comes out of Russia—about £70 billion has flowed out of Russia into the UK in the past 10 years.

When are we going to see that legislation? When will it be put before the House? When will we see the promise made a long time ago by a Conservative Prime Minister fulfilled by this Conservative Government?

Finally, the hon. Member for Glenrothes (Peter Grant) mentioned the role of advisers. It is the advisers who create these schemes. Whether they are banks, accountants, lawyers or just advisers on their own, they found schemes that are later deemed to be unlawful. Film tax credit and, most recently, the loan charge are good examples of schemes that have caused terrible hardship to people. I feel ambivalent about it because, of course, there is never something for nothing, and people should have been much more careful before they entered into such schemes. Nevertheless, they have led to suicides—they have been terrible schemes. Advisers always get away scot-free, whoever they are, and none of them is held properly to account. The law in this policy area is just too weak. In criminal law, we have to prove dishonesty to pursue a criminal prosecution, which is very difficult. In civil law, the penalties are ridiculously low and are limited to the amount of fee that the adviser would have gained. There is also what is known as a double reasonableness test: it cannot be regarded just as an unreasonable course of action; it also has to be demonstrated that it was unreasonable to think it was reasonable—I hope that makes sense to Members.

The calling to account of advisers, enablers and promoters would be a powerful tool. At a stroke we would kill off many of the schemes that are currently exploited, which lead to such tax loss in this country. I urge the Minister to bring forward legislation to toughen up the regime and to make it easier to hold the advisers, enablers and promoters to account.

In conclusion, it is vital to battle against tax evasion—it is vital to demonstrate fairness in our system, to ensure the proper funding of our public services, and to the building of a global Britain that is respected around the world for its values and integrity and that is seen as a good place to do business. The Government will pay a heavy price if they fail to respond properly to the issues that have been raised in this debate. They must not just give us warm words; they have to give us tough action. I hope that in my short contribution I have given the Minister some good ideas that he could easily implement and that would make the world of difference. I urge him to have regard to them.

[Several hon. Members rose—]

Netflix: Tax Affairs

Baroness Hodge of Barking Excerpts

Monday 3rd February 2020 Commons Chamber

[Dame Margaret Hodge (Barking) (Lab)]

Thank you for selecting the debate, Mr Speaker, and I give my heartfelt thanks to George Turner and the investigative think-tank, Tax Watch, for providing me with so much information.

For many years, global digital companies have been avoiding tax. I have spent the last decade campaigning for more corporate transparency and arguing for stronger action at both the national and international level to stamp out this abuse. Indeed, the Minister, when he was a member of the Treasury Committee, was extremely helpful in exposing some of the unacceptable tax behaviour in one of our major banks—HSBC—and he effectively held the bank’s chief executive to account. In the light of his previous interest and commitment to ensuring that everybody acts responsibly and pays their fair share of tax, I hope that he will respond positively to the suggestions I am making tonight. These suggestions will go some way to tackling the shocking example of corporate tax avoidance that we have uncovered.

I have secured this Adjournment debate because until now one major tax avoider has remained under the radar: Netflix. Netflix demands our attention for a number of reasons. Not only does it deliberately dodge its corporation tax bills, but it, in fact, receives moneys from the public coffers through the high-end television tax relief.

[Jim Shannon (Strangford) (DUP)]

This is a very important issue and I thank the right hon. Lady for securing the Adjournment debate. Bearing in mind that last year Netflix UK subscribers paid some £700 million, does she not agree that the fact that it uses loopholes to avoid tax is simply disgraceful? Government really must close these loopholes and ensure that big business has to pay a reasonable rate of tax.

[Dame Margaret Hodge]

I entirely support the hon. Member on that.

Netflix takes out of the public purse more than it contributes in corporation tax. While Her Majesty’s Revenue and Customs fails to collect money from it in corporation tax, the US Government is extracting tax from the same profits that it earns here and then hides in unknown tax havens.

[Catherine McKinnell (Newcastle upon Tyne North) (Lab)]

I congratulate my right hon. Friend on securing the debate. While austerity has seen billions of pounds taken out of our public services, with £300 million gone from the economy in Newcastle, is it not absolutely vital that we get this tax policy right so that we have that money to fund our vital public services? Multinationals such as Netflix should make their fair contribution.

[Dame Margaret Hodge]

Not only should they be making their fair contribution, but they use the services that other people’s tax pays for.

Netflix creates its content here, supported by grants that it receives here through our tax credit system, yet it pays tax on the profit that it makes here in the USA. Frankly, I say to the Minister: you couldn’t make it up. The situation is scandalous, intolerable and unfair. It is the sort of behaviour that really winds up the British public, most of whom are law-abiding taxpayers who never try to avoid their duty to pay taxes.

Let me explain the Netflix situation in detail. Netflix is the world’s biggest video-streaming service, with 167 million subscribers. The California-based company is the online home of popular shows such as “The Crown” and “House of Cards” and films such as “Marriage Story” and “The Irishman”, but while we all binge-watch Olivia Colman’s portrayal of the Queen Netflix has deliberately constructed a devious financial structure that has no other purpose than to avoid paying its tax.

The Netflix strategy is to be the biggest player in the online video streaming market, to buy out or undercut any rivals and to release a sea of content to attract a truly global subscriber base. For many years, the service ran at a loss to secure this dominant market position, but it is now operating in the black. Netflix’s global operating profit rose by an enormous 61% last year to £2 billion. By 2019, Netflix had 11.62 million UK subscribers, who generated a £1.08 billion income for the company, but under the ruse it employs any UK citizen who subscribes to Netflix is billed not in the UK but from a subsidiary company in the Netherlands.

The most recently published Netflix accounts for 2018—the only earnings declared here—amount to a very small proportion of its billion-dollar UK revenue. Money declared by Netflix in the UK is paid by the Dutch subsidiary to a much smaller subsidiary based in Britain, which makes up just a trivial proportion of the services the company provides. Tax Watch UK estimates that the actual profit Netflix made in the UK was close to £70 million in 2018, so the company should have paid over £13 million in corporation tax.

[Ian Paisley (North Antrim) (DUP)]

I appreciate the points the right hon. Member is raising about complex financial issues, but does she accept that the traffic is not all one way? In the last year, Netflix has invested more than £400 million in the UK, creating 25,000 jobs and productions, and has recently been driving the pioneering agenda of encouraging women into television and film making.

[Dame Margaret Hodge]

I am all for encouraging Netflix’s growth here, but I am afraid that that in no way mitigates its refusal to pay its fair share of tax.

Where Netflix’s UK profits do end up is a complete mystery. It uses a shady system of subsidiaries and shell companies based in tax havens to shift its profits and avoid paying its fair share in many jurisdictions. From the publicly available data and translating that data into pounds sterling, it looks as if between £251 million and £329 million of non-US profit was shifted into tax havens from the Netherlands. Netflix did pay some tax on profits. Ironically, over 90% was paid by the Netherlands-based company and went to Brazil, where the authorities use a withholding tax to extract money. Is it not astounding that Brazil is more efficient at collecting tax from digital companies than we are? If Brazil can tax Netflix, why can’t we?

The UK makes up 14% of Netflix’s non-US market. We provide a vital consumer base for Netflix, and much of its content is created here, so the intellectual property on Netflix’s product is developed here in the UK. Google always argued in the past with me that it should not pay tax in the UK because its intellectual property was developed in California. If that argument has any credibility, given that much of Netflix’s intellectual property is created here and funded in part by the taxpayer through tax credits, the case for taxing it here in the UK is irresistible.

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

I am very impressed with the case that my right hon. Friend is making. Like her, I have had conversations with companies that claim that intellectual property means there has to be adjustments in national tax rates, but if, as she is saying, the sales in this country are registered to a company in Holland, although the intellectual property is here and the company is based in America, it makes no sense at all and simply looks like an avoidance mechanism.

[Dame Margaret Hodge]

I agree: it is nothing other than an avoidance mechanism.

It should be borne in mind that Netflix depends on services that are funded by the taxpayer, such as our physical and digital infrastructure, which is in part publicly funded, our world-class universities and our highly educated workforce, and our NHS, which keeps its staff healthy. It takes from the public purse, but fails to pay its fair share back.

There is one simple solution to this injustice, and I should appreciate the Minister’s comments on it. Video streaming services must be included in the new digital services tax. At present they are excluded. Why? Why cannot the Government simply extend the provisions to include them?

The United States Secretary of State has threatened us with tariffs on our cars if we go ahead with the digital services tax, and I welcome the Government’s resistance to that threat. Fair taxation cannot be a bargaining chip to be cashed in to secure a trade deal. We must maintain our stance, and have no truck with the bully-boy tactics of the Trump regime.

There are plenty of examples of other countries taking action to claw back some tax from the streaming giants. The French levy a 2% tax, and the Brazilians not only get their withholding tax but have a 2% tax that covers online streaming services and is paid to the local government. There is a strong case for extending the digital services tax to include streaming services. The tax is “oven-ready”, as our new Prime Minister is fond of saying, and I urge the Minister to expand its scope to cover streaming sites so that we can fund our vital public services.

What is particularly galling is that Netflix actually makes a net profit from the UK taxpayer. In the last two years it has received nearly £1 million from the Government in tax credits, and that is just the start. According to its US accounts, it is ready to enjoy £218 million in tax credits worldwide. We do not know how much of that will be paid by the UK taxpayer, but we do know that Netflix has massively expanded its production network here, and has taken out a lease for at least 10 years on virtually the whole of the Shepperton Studios site. That implies that a huge chunk of our money—taxpayers' money—will be gifted straight into the coffers of Netflix in tax credits. It is nothing less than superhighway robbery. The UK taxpayer is being taken for a ride. We are actually handing over cash while Netflix stashes money offshore.

However, Netflix is far from the only culprit. Tax credit abuse is rife in other industries, including film and video games. Rockstar Games, the maker of the controversial Grand Theft Auto series, is one example. In the UK we have a thriving creative industry with large amounts of production happening here, and that is to be encouraged and celebrated, but the present rules are clearly absurd. Large, profitable companies like Netflix and Rockstar Games claim that no profit is made here, and, as a result, are simply making money on the back of the UK taxpayer. It is the worst kind of corporate welfare. Why, I ask the Minister, can we not adjust the eligibility criteria, and insist that any company that is enjoying tax credits must declare the revenue earned from its products created with those tax credits here in the UK? Why can we not make that a condition of the tax credits, so that we collect the tax?

Finally, if the Minister will indulge me, I want to talk very briefly about the role of the United States. These digital corporations are spurred on by the US Government, who, I believe, encourage such shady tax practices. As long as some taxes are paid in the US, the US Government do not care if American corporations use shell companies, offshore tax havens or other instruments. They are happy for them to avoid taxes in the UK and other jurisdictions around the world. In recent years, US-based multinationals have built up cash piles of more than £1 trillion in tax havens such as Bermuda. Since Donald Trump’s 2017 tax reforms, the US has claimed all that profit for itself for American headquartered companies. If the companies repatriate their income from the tax havens, the income that the companies receive from outside the US is charged at a much lower rate of corporation tax—just 13.12%. So the US has become a tax haven for the overseas operations of its multinational companies. That explains why, in December last year, Google decided that it was moving its intellectual property from Bermuda back to the USA. Why stash your cash offshore when the US itself has become the world’s largest tax haven? If companies choose not to repatriate their income, they are still charged a flat rate of tax of just over 13% on the revenue they hold and accumulate in tax havens.

An obvious way through this web is to lift the shroud of secrecy that surrounds the revenue and profits of multinational digital giants. That is why this Government supported a measure that would require companies to report their activities, their revenues and their profits on a country-by-country basis. We passed the law enabling country-by-country reporting in 2016. I ask the Minister: when will the Government bring that provision into force? Only with greater transparency will we know how much profit these digital companies make and where they should be paying their taxes. Only then can we ensure that every country gets a fair ride.

I accept that we need a new international consensus on the corporate tax regime. However, news from the OECD suggests that the United States itself is blocking progress on international tax reform. It is outrageous that the US is holding up international reform, threatening individual countries with new tariffs when those countries try to tax global companies, and then charging those global companies tax—albeit at a very low rate—on the business they secure and the profits they make outside the US.

The case of Netflix is a scandal. If we want to stop this abuse, we can. The Government can be assured that such action would command the support of the whole House, but failure to act represents a betrayal of every law-abiding taxpayer. If the Government fail to take the practical actions that I have suggested, I know that I and others will not remain silent.

Tax Avoidance, Evasion and Compliance

Baroness Hodge of Barking Excerpts

Monday 4th March 2019 Commons Chamber

[Dame Margaret Hodge (Barking) (Lab)]

I know that this Government find it difficult to listen to anybody and to accept the will of Parliament and legislation if they do not like what it says—they have form—but I want to ask the Minister two questions, one relating to the overseas territories and one relating to the Crown dependencies. On the overseas territories, it is utterly shameful for this Government to ignore legislation that was enacted only last year and to invent their own date for the implementation of public registers of beneficial ownership. If the Government are serious about wanting to tackle tax avoidance, tax evasion, financial crime and money laundering, they ought to be acting with greater speed, not delaying the implementation of legislation and ignoring the will of Parliament. Will the Minister explain to us what on earth the Government are doing?

On the Crown dependencies, I cannot for the life of me understand how the Minister can pray in aid the constitutional implications of this House legislating on a matter that was perfectly in scope in relation to the Bill that the House is considering and perfectly in order on the matters it was attempting to address. Such praying in aid of inadequate and ill-thought-through reasons simply will not do. Indeed, I cannot understand why the Minister does not recognise the consensus across this House on the issue. Transparency is a vital tool in fighting tax avoidance, evasion and financial crime, and all we want is that transparency to exist across the family. Would it not be better for the Minister to concede gracefully to the will of Parliament, rather than battling limply to a defeat in the future?

[Mel Stride]

I assure the right hon. Lady that I always listen extremely carefully to what she has to say, as I have done in the context of her current two questions. She asked why we are delaying—as she terms it—the implementation of public registers of beneficial interest for overseas territories. The short answer is that it is important that we allow time to ensure that we get these things right, not least because our Parliament is legislating on behalf of another jurisdiction—albeit one that is closely related to ourselves. It is important that we are considered and measured in that way.

The right hon. Lady’s second question relates to the Crown dependencies. She made the quite legitimate point that the amendment to the legislation that was due to go through this afternoon was indeed in scope and in order. However, that is not the same as saying that that contradicts my earlier point that that particular amendment would have considerable and significant constitutional ramifications for our Crown dependencies. For that reason, as I stated earlier, the Government feel that it is important to reflect carefully upon that before we come back with the legislation in due course

Finance (No. 2) Bill

Baroness Hodge of Barking Excerpts

2nd reading: House of Commons
Monday 11th December 2017 Commons Chamber

[Mel Stride]

As my hon. Friend will know, we brought in a variety of measures in 2015 that changed the basis of taxation for banks. Over the period of the coming forecast, we will be receiving some £4.5 billion in additional income from banks by way of taxation as a consequence of those changes.

From April 2018, new diesel cars will go up one vehicle excise duty band in their first-year rate, and the existing company car tax diesel supplement will increase by one percentage point. However, drivers of petrol and ultra low emissions vehicles—cars, vans and heavy goods vehicles—will not be affected, and nor will those who have already bought a diesel car. As the Chancellor said at the Budget, white van man and white van woman can rest easy.

[Dame Margaret Hodge (Barking) (Lab)]

White van man and white van woman will rest easier if the Government successfully bring in all moneys due. Will the Minister explain why he has limited the scope of the Finance Bill in such a way that amendments cannot be tabled to ensure that we have a date by which measures such as country-by-country reporting, which is crucial to bringing in tax that is otherwise avoided, should be introduced?

[Mel Stride]

I think that the right hon. Lady is referring to an amendment of the law resolution. The previous Finance Bill was introduced under exactly the same Ways and Means procedure. There is nothing in the resolutions that prohibits full, open and proper discussion and scrutiny of the Bill. It will go through all its usual stages, including two full days in Committee of the whole House, and eight sittings—if it takes that amount of time—upstairs in Committee, before coming back to the Chamber for Third Reading.

Since the financial crisis, UK productivity growth has slowed. It now stands at just 0.1%. The Government know that restoring strong productivity growth is the only sustainable way to increase wages and improve living standards in the long term. Consequently, a quarter of a trillion pounds of public and private investment has been funnelled into major infrastructure projects since 2010, including the biggest rail modernisation programme since Victorian times, the Mersey Gateway bridge and, more recently, Crossrail. Many others are detailed in the Infrastructure and Projects Authority’s national infrastructure pipeline. The Government have also cut taxes to support business investment and improved access to finance through the British Business Bank. However, we can and will go further.

To boost productivity and create sustainable economic growth, the Government are making further provisions to support the UK’s dynamic, risk-taking businesses. The UK continues to be a world-leading place to start a business, with 650,000 start-ups in 2016 alone. However, some of the UK’s most innovative new businesses with the greatest potential are struggling to scale up due to lack of finance. Specifically, 10 of the UK’s largest 100 listed firms were created after 1975, compared with 19 in the United States of America. In order properly to understand these barriers to finance, the Treasury commissioned the patient capital review, led by Sir Damon Buffini. Supported by Sir Damon’s industry panel, the review concluded that knowledge-intensive companies, which are particularly research and development-intensive, often require considerable up-front capital to fund growth. It may be many years before their products can be brought to market and, despite their growth potential, such companies often face acute funding gaps.

In response to the review’s findings, the Government are acting. We are setting out a £20 billion action plan, combining investment with tax incentives. As part of the plan, the Bill will make more investment available to high-risk, innovative businesses. It does so by doubling the annual limits for how much investment knowledge-intensive companies can receive through the enterprise investment scheme and venture capital trusts schemes to £10 million, and doubling the limit on how much investors can invest through the EIS to £2 million, providing that anything above £1 million is invested in knowledge-intensive companies. In 2016-17, 62% of investment by EIS funds was aimed at capital preservation, rather than higher-risk, higher-potential, long-term growth companies. The Bill therefore reforms the schemes, redirecting low-risk investment into growing entrepreneurial companies, while changing venture capital trust rules to encourage higher-growth investments. In all, we expect these changes to result in over £7 billion of new and redirected investment in growing companies over the next 10 years.

Additional efforts to boost productivity also focus on increasing funding for research and development. At the 2016 autumn statement, £4.7 billion was allocated to R and D, and this Budget extended the national productivity investment fund to £31 billion and increased R and D investment by a further £2.3 billion. This means that the Government will be investing an additional £7 billion in R and D over the next four years—the largest increase in four decades.

We have already announced initial plans for this investment, including £170 million to help the construction industry to build cheaper and better homes; £210 million to develop new technologies that enable the early diagnosis of chronic diseases; a commitment to supporting the development of immersive technologies and artificial intelligence; and more than £300 million to develop and attract the skills and talent necessary to deliver our scientific ambitions. These efforts are complemented by our decision to increase the rate of R and D expenditure credit from 11% to 12%, as set out in the Bill.

The Bill will ensure that the tax system is fair, balanced and sustainable. To that end, it freezes the indexation allowance that currently allows companies but not individuals to reduce their taxable gains in line with inflation. It allows Scottish police and fire services to recover future VAT payments, which would otherwise be lost following the Scottish Government’s decision to restructure those services. I should pay tribute to my Scottish colleagues on the Government side of the House who lobbied so effectively in that respect.

The Bill narrows the scope of the bank levy so that, from 2021, all banks—UK and foreign-headquartered—will be taxed only on their UK operations.

Public Country-by-country Reporting

Baroness Hodge of Barking Excerpts

Wednesday 22nd November 2017 Westminster Hall

[Dame Margaret Hodge (Barking) (Lab)]

It is a pleasure to speak before you this afternoon, Mrs Main. I join others in congratulating the hon. Member for Amber Valley (Nigel Mills) on securing this debate. I also congratulate my right hon. Friend the Member for Don Valley (Caroline Flint) on actually getting this practice on to the statute book in 2016.

I will just add, very briefly, to what has been said so far. It is great that there is consensus this afternoon across the parties, and that kind of consensus is what I have encountered in many of the discussions that I have had on these issues. I hope that the Government will listen and act on that consensus in a way that would win support among the vast majority of Members of this House and outside this House. My only quarrel with the hon. Member for Amber Valley is that I do not think that would be taking unilateral action; I think we would be showing bold leadership if we were the first to act in this area.

I want to make three brief points. First, one issue arising from the Paradise papers that has not been raised, and for which country-by-country reporting would be an important part of the answer, is that corporations and companies were revealed to be seeking locations for their business in a way that would create artificial financial structures that existed simply for the purpose of avoiding tax. Apple received some coverage in the papers, but it is utterly awful that all Apple’s activity outside the USA is now housed, I think, in Jersey and is worth, according to what we can uncover, £252 billion. It is very difficult to find what Apple’s rate of tax is, but one of its companies—according to the European Union, I think; no doubt my hon. Friend the Member for Oxford East (Anneliese Dodds) will make this clear from the Front Bench—ended up paying a rate of tax of 0.005% on its earnings here.

It is clear from the Paradise papers that Apple sought to find a financial structure that would allow it to avoid paying tax in those jurisdictions outside America where it carried out its economic activity and secured its profits. One of the purposes of transparency in country-by-country reporting would be to see where Apple was undertaking its economic activity and therefore where it should be taxed. Over half of Apple’s business is outside the USA; it is simply not getting taxed in the places that it should be.

The other company is Nike. Anyone who buys a pair of Nike trainers in any UK shop would think that the tax was paid here, but it is not. It used to go to Holland and it then ended up, in a complicated way, in Bermuda. Since then, a new structure has been invented: Nike Innovate C.V. It is a virtual entity; it does not have a location. It is not based anywhere. That structure enables Nike to avoid paying the tax that it should in the jurisdictions where it carries out its business and makes its profits. The big corporations would not be able to carry out their business in the way they currently do, as revealed most recently through the Paradise papers, if we had transparent, open, public country-by-country reporting.

The second thing I want to talk about is collecting money from tax avoidance. I hope the Minister will give us a bit of information in his response, as I am rather tired of hearing from the Prime Minister, the Chancellor and the Minister about how brilliantly this Government are doing at collecting that money.

[The Financial Secretary to the Treasury (Mel Stride)]

indicated assent.

[Dame Margaret Hodge]

The Minister is nodding his head, but the Government should be honest with us. The figure of £160 billion that is currently used—I have heard it used time and time again—is simply an HMRC estimate of the money due from tax avoidance that it has uncovered. It does not tell us how much has been collected or how much has been added to the coffers.

Since the Minister used the figure in a debate last week, I have tried to identify how much we have actually got in. I have asked everybody. I have asked the National Audit Office and the Library. I have tabled questions to the Minister, to which he has yet to reply—perhaps he will reply this afternoon. No one actually tells one how much has been collected in tax avoidance. My guess is that it is a tiny, minute amount of that £160 billion that the Government claim they have got in. Please be honest with us. A little bit of honesty will enable us to have a proper debate.

The final point I want to make, adding to what others have said, is that if the Minister showed the bold leadership we want him to show by having public registers of beneficial ownership, he would be incredibly popular. I would have thought that there could not be a better time than now for Conservative Members to try to gain some popularity. I will give three examples of what has happened recently. After the release of the Paradise papers, the Tax Justice Network launched a petition that gained more than 200,000 signatures. It has now presented that petition to Downing Street. Oxfam did some polling that showed that eight out of 10 members of the public think that multinationals with UK headquarters should publish information publicly about the size of their profits, where they are made, what taxes are paid and the countries in which they operate. Some 70% of Conservative voters believe that the Government should be more active in tackling tax avoidance by companies. Some 80% of Conservative voters are in favour of tougher transparency rules for companies.

The final survey I wanted to refer to was of the FTSE 100. Four out of every five of the top 100 FTSE companies would not oppose the introduction of a legal requirement to make their country-by-country reports public. In fact, a large number would support it. The hon. Member for Amber Valley eloquently made the point that the reporting requirements in other legislation to date are pretty open. Why not put this requirement into the mix? It is supported by the analysis.

This is the fourth debate on these issues in the past month that I have participated in, and I will carry on holding such debates time and time again. I am sorry if the Minister feels it is not the best use of his time, but we will carry on doing this. This is a campaign we are absolutely determined to win, and part of that campaign is public country-by-country reporting.

[Mrs Anne Main (in the Chair)]

I remind Members that I will call the Front-Bench spokesman for the Scottish National party at 5.10 pm.

--- Later in debate ---

[The Financial Secretary to the Treasury (Mel Stride)]

It is a pleasure to serve under your chairmanship, Mrs Main, and I thank my hon. Friend the Member for Amber Valley (Nigel Mills) for having secured what I think we all accept is an extremely important debate. I also thank him for the advice he has been able to give me over the months and years on matters as exciting as corporate taxation.

I also welcome my hon. Friend’s support for some of the measures in today’s Budget—this is not an area of Government policy that we are going to be neglecting anytime soon; we are going to be all over this space in a very significant manner. He specifically raised measures relating to VAT and the collection of VAT from those who use digital platforms. We are indeed introducing joint and several liability to make sure that we step up the clampdown on, in that instance, VAT fraud.

The right hon. Member for Barking (Dame Margaret Hodge) suggested that our figures were not durable and questioned the veracity of our numbers. We have secured £160 billion through clamping down on tax evasion and non-compliance, and that figure appears in HMRC’s annual report and accounts, which are of course audited by the National Audit Office.

[Dame Margaret Hodge]

That is not secured money; it is money to which HMRC feels it is entitled but has yet to secure. My experience from the Falciani Swiss leak suggests that intentions do not become reality.

[Mel Stride]

I do not think the right hon. Lady and I are going to agree on that particular point. One point we might agree on is the tax gap, which is 6%—the lowest in our history. That is the difference between that which we should be collecting and that which we are collecting. It is a world-beating figure, also audited by the NAO. According to the International Monetary Fund, it sets a world standard in terms of robustness.

As you will know, Mrs Main, we have done a great deal over the years in clamping down on tax avoidance and evasion. In the Finance (No. 2) Act 2017, which has just gone through Parliament, we introduced corporate interest restrictions to stop companies shifting profits around by the ingenious use of intra-company loans. We had the diverted profits tax in 2015, which addresses a number of the examples we heard in the debate today. We have been in the vanguard of the base erosion and profit shifting project at the OECD. We are benefiting now from the common reporting standards across 50 countries—rising to 100—so account information is available to HMRC in real time. We are engaged with the EU on mandatory disclosure rules to make sure that we can clamp down on schemes, through those who are party to them.

The right hon. Member for Don Valley (Caroline Flint) raised the issue of the information required from the extraction sector and the financial sector in comparison with the ask on country-by-country reporting. Those are of course different sets of information. In the case of the extraction sector and the financial sector, the information required is significantly less exhaustive than would be the case in country-by-country reporting.

The right hon. Lady also asked a very important and pertinent question about how many countries would need to say yes for us to feel that we could go ahead on a multilateral basis. I suppose that gives rise to other questions, such as which countries and what mix of countries. She can rest assured that as and when, as we hope, we reach the point when sufficient countries say they will sign up, we will be pleased to do so. I add my congratulations to her for the hard work that she did, particularly on the Finance Act 2016, to ensure that her amendment reached the statute book.

My hon. Friend the Member for Ochil and South Perthshire (Luke Graham) spoke about the importance of international standards. He also raised the issue of intangible assets, which is one of the common threads running through the issues of companies shifting profits around. If there is clearly economic activity in a particular place, it is much easier to pin the profits to where that activity is occurring than if there are, for example, digital companies that are selling substantially into the United Kingdom but basing their operations elsewhere. That can be through royalty payments on intellectual property charges between companies; it is quite possible to avoid tax as a consequence. That is why we announced in the Budget today that we will be looking at introducing the withholding of taxes in respect of royalty payments for IP, where they relate to movements of income between ourselves and very low-tax jurisdictions. We will be looking into that whole area by way of consultation.

I was tickled by the suggestion from the right hon. Member for Barking that she could feed me ideas that would make me more popular within my own party. I look forward to hearing as many of those as she cares to pass my way, because I am very interested in being so popular.

The hon. Member for Ealing Central and Acton (Dr Huq) raised the issue of registers of beneficial ownership across, particularly, Crown dependencies and overseas territories. We have those; they are not public, but they are accessible in real time by HMRC and we have a good record in tracking down people who try to stash money away in, for example, overseas trusts. We have raised £2.8 billion in that respect since 2010. I was pleased that the hon. Lady welcomed the measures in today’s Budget that extend to 12 years the time period in which we can go after individuals who have been involved in just that kind of activity.

In my final couple of minutes, I want to focus on the principal arguments. We are not against country-by-country reporting. We welcome the opportunity to move to exactly that situation, but to do so unilaterally will not work, for at least three reasons. It would certainly make the UK less competitive than other tax jurisdictions. I see no reason why any particular business should want to go to a country with that in place as strongly as they would want to go where it is not in place. If it were just us alone, we would also be in the position of not being able to get public disclosure if a UK company had associated non-UK companies in other jurisdictions and not under that company’s control. The big advantage of going multilaterally is the standardisation of the standards that we set and the rules and regulations around each particular step.

The Government will continue to work towards bringing in not just country-by-country reporting as we have at the moment, but public country-by-country reporting. I am grateful to my hon. Friend the Member for Amber Valley and all those who have contributed to the debate for helping to inform that discussion.

Tax Avoidance and Evasion

Baroness Hodge of Barking Excerpts

Tuesday 14th November 2017 Commons Chamber

[Dame Margaret Hodge (Barking) (Lab)]

I beg to move,

That this House has considered the systemic issues enabling tax avoidance and evasion uncovered by the Paradise Papers.

The actions and the culture of powerful large corporations and of the wealthiest in our society, as revealed in the Paradise papers, constitute a national and international disgrace. What we have learned is that tax avoidance is not just a trivial irritant practised by a small number of greedy individuals and global corporations; it is the widely accepted behaviour of too many of those who are rich and influential. It is clearly taking place on an industrial scale and it has become a scourge on our society. The Paradise papers reveal the enormity and scale of the problem and that is what makes this emergency debate on the issue so important.

Our debate is also urgent and timely because the Chancellor, who sadly is not in his place to hear the debate, is putting the finishing touches to his Budget. I hope that he will read very carefully the views expressed today by Members and reflect them in the proposals he brings to us next week.

[Jack Dromey (Birmingham, Erdington) (Lab)]

There is no such thing as a magic money tree: that is what the Prime Minister told a nurse who had not had an increase in eight years. Does my right hon. Friend agree that there is, and that they grow on the Cayman Islands, in Bermuda and Jersey; and that were the ill-gotten gains salted away by tax dodging to be picked and put into our public services, police officers and teachers would not be facing the sack and we would not be facing a crisis in the health service?

[Dame Margaret Hodge]

I completely agree with my hon. Friend’s remarks, which are very pertinent to what we will be discussing in the debate.

Paying tax is an essential part of the social contract into which we all enter as members of a community. As members of society, we agree to abide by a set of rules and regulations that make all our lives better. One of those rules is that we agree to contribute through taxation into the common pot for the common good.

[David Morris (Morecambe and Lunesdale) (Con)]

I would like to ask the right hon. Lady why her family firm, Stemcor, is famous for paying virtually no tax.

[Dame Margaret Hodge]

I am really pleased the hon. Gentleman has given me the opportunity to explain the circumstances to the House. My father and his cousins were refugees from Germany. My father was then a refugee from Egypt, so he was a double refugee. I remember as a child that he often said to me, “You will never feel safe in this country. Always have your suitcase ready.” He did keep money abroad. When we discovered that after he died, we closed those funds and put them into a charity.

The level of taxation and who pays is decided by us here in Parliament through our democratic processes. That is how we create a system that is democratic and trusted by all. When a minority choose to ignore and deliberately bypass our rules and regulations and get away with it, they undermine confidence in the fairness of the system. Some people and some Members claim that tax avoidance is okay because it is lawful. Indeed, one of the Government’s Ministers from the other place, the noble Lord Bates, said on Monday that tax avoidance

“continues to be part of the international system and we recognise and value it.”—[Official Report, House of Lords, 13 November 2017; Vol. 785, c. 1611.]

He and others are simply wrong, and they misunderstand the issues. Her Majesty’s Revenue and Customs’ own definition of tax avoidance is clear:

“Tax avoidance involves bending the rules of the tax system to gain a tax advantage that Parliament never intended. It often involves operating within the letter, but not the spirit of the law.”

Those are the words of HMRC. Even it says that tax avoidance is wrong.

[Hannah Bardell (Livingston) (SNP)]

Does the right hon. Lady agree that a feature of a strong tax system is having a proper network of HMRC offices, and that centralisation and the closure of offices such as the one in my constituency is a disgrace that will do nothing to help the situation?

[Dame Margaret Hodge]

I agree with the hon. Lady that resourcing HMRC is absolutely central to the fight against tax avoidance and evasion.

Tax avoidance is completely different from tax planning, whereby, for example, Parliament intended to encourage people to save for their pension by introducing ISAs with tax breaks. Tax avoiders, on the other hand, thwart the intention of Parliament. Their action means our collective will is ignored. We should not tolerate it and we must act urgently to eradicate it.

[Ms Angela Eagle (Wallasey) (Lab)]

Does my right hon. Friend agree that one of the best ways of trying to deal with this increasingly serious issue is to have openness and transparency in all funds held offshore, so that those who are doing this have to face the legitimate scrutiny of taxpayers in this country?

[Dame Margaret Hodge]

My hon. Friend makes an absolutely central point to what we will be asking for today.

Not only does the behaviour of a few damage trust in the system as a whole, but it damages the public services our taxes are used to fund. At a time when the NHS is under such pressure, when public sector workers have had their wages held down for years and our schools are struggling to deliver the best start for all our children, for the super-rich and the powerful to think that they can opt out of their duty to contribute fairly through paying taxes is completely and utterly and totally immoral and wrong, and it is our responsibility to put an end to it.

[Anna Soubry (Broxtowe) (Con)]

I have been very helpfully provided with some facts that I think should be put to the House. I am told that since 2010 the Government have secured £160 billion from tackling avoidance, evasion and non-compliance and £2.8 billion from offshore tax evaders, and invested £1.8 billion in Her Majesty’s Revenue and Customs to tackle avoidance and evasion. I am very proud of this record. Does the right hon. Lady agree that it is an excellent record from a Conservative Government? How does it compare with the record of the Labour Government that she has always been so keen to support?

--- Later in debate ---

[Dame Margaret Hodge]

I hope that the right hon. Lady will listen to the whole of my speech. I think she will acknowledge, as we move forward, that a little progress has been made but not enough. I agree that the previous Labour Government’s record on tackling tax avoidance was not as good as I would have wanted, but the record and actions of this Government are inadequate and somewhat hypocritical. Their rhetoric is mostly fine, but the reality is badly wanting.

[Steve McCabe (Birmingham, Selly Oak) (Lab)]

When ordinary people hear the Budget next week and have to think about their taxes against the background of inflation in food prices, will they not wonder why the Members opposite are hellbent on avoiding any inquiry into aggressive tax avoidance?

[Dame Margaret Hodge]

I agree entirely with my hon. Friend. Indeed, I was about to say that those who pay their taxes are completely fed up. By 8 o’clock this morning, nearly 156,000 people had signed a petition going to the Prime Minister. This is an issue that angers people across the country, men and women, supporters of all political parties, people of all ages and people in every income group.

[Rebecca Pow (Taunton Deane) (Con)]

Obviously the right hon. Lady is making a very good point—everybody wants tax evasion clamped down on—but I, too, have some statistics. The Government have invested £1.8 billion in HMRC to tackle tax avoidance and reduced the tax gap by 2% more than Labour did. We are on the right track.

[Dame Margaret Hodge]

If the hon. Lady looks at the HMRC figure on the tax gap, which is about £34 billion to £36 billion, and then at the figure that tax campaigners talk about, which is a gap of £120 billion, I think she will share my determination to see much more action to deal with this ill in our society.

[Catherine McKinnell (Newcastle upon Tyne North) (Lab)]

I congratulate my right hon. Friend on securing this debate. Does she share my concern about the complacency being shown today? Cutting down on global tax abuse clearly requires international co-operation. As we exit the EU, does she share my concern that this ambition not be damaged by our exit but be strengthened by our actions domestically and internationally?

[Dame Margaret Hodge]

I completely concur with my hon. Friend’s important remarks.

It is our job, as the elected representatives of those who are angry, to do what we can to put a stop to tax injustice. Tax avoidance should be not an issue that divides us, but one on which we work together in the interests of all taxpayers and in order to protect our public services. The Paradise papers are the latest in a series of leaks unmasked by the international press. I salute the professional investigatory journalists involved in making sense of the millions of documents passed to them, especially those at The Guardian and on “Panorama”, who have been working on the papers for a year, and I salute the public-spirited courage of the whistleblower who first passed the papers to the German newspaper, the Süddeutsche Zeitung. The Paradise papers contain 13.4 million files from just two offshore providers of tax advice and the company registries of 19 tax havens. The scale of the data is what makes the leaks so important.

We have had the Panama papers, the Luxembourg leaks, the Falciani leaks, the so-called Russian and Azerbaijani laundromat revelations on money laundering, and now we have the Paradise papers. We will continue to see new leaks splashed over our papers and filling our television screens until the Government act firmly to clamp down on the avoidance that is so blatant and yet so wrong.

[Helen Whately (Faversham and Mid Kent) (Con)]

The right hon. Lady has said several things I agree with—for instance, that everybody should pay their fair share into the tax system, which helps fund our vital public services, and that everyone should work together on tax avoidance—but, given that, does she not feel ashamed at her party’s actions to block steps, before the election, that would have reduced tax avoidance?

[Dame Margaret Hodge]

I am trying not to make this overly partisan, but I feel more ashamed, as a Member of Parliament, at the hon. Lady’s party’s reluctance to adopt the clear and simple measures that could really tackle tax avoidance.

[Several hon. Members rose—]

[Dame Margaret Hodge]

I want to make some progress, because a lot of people want to speak in what is a two-hour debate.

Last week, our papers were filled with scams and scandals concerning celebrities, from the self-appointed philanthropist Bono to the popular actors in “Mrs Brown’s Boys”: stories that tainted the reputation of our much-loved royal family; revelations about establishment figures in politics, such as Lord Ashcroft and Lord Sassoon; and further evidence that corporations such as Apple deliberately establish artificial financial structures that have no other purpose than to avoid tax. I want to focus, however, on the systemic issues that these stories illustrate. It is the systemic issues that we need to consider if we are to make progress.

I will start with two comments arising from what we have learnt from the Paradise papers—observations that help us to understand what is wrong with our system. Appleby, the firm of lawyers at the heart of the Paradise papers, is one of the few offshore law practices that belong to the “offshore magic circle” of service providers. Indeed, Appleby was named offshore firm of the year by “The Legal 500” in 2015. Yet the Paradise papers reveal that the firm was criticised no less than 12 times over a 10-year period in reports issued by regulators in UK tax havens: the British Virgin Islands, the Isle of Man, the Cayman Islands and Bermuda.

Appleby was criticised for its failure to comply with regulations designed to stop the funding of terrorism and prevent money laundering. The reports talked of “persistent failures and deficiencies”, “severe shortcomings” and

“a highly significant weakness in the adequacy of the organisation’s systems and controls and a deficiency in meeting its regulatory requirements.”

Further documents reveal that Appleby simply ignored these critical reports and failed to change its procedures, despite strong words from the regulatory bodies. Even the authorities on the British Virgin Islands found, after an inspection of Appleby, that the firm had

“contravened financial services legislation…the anti-money-laundering code of practice 2008 and the anti-money-laundering regulations 2008”

and had

“severe shortcomings with a majority of the legislation, with prudential standards and good practice requirements not being met.”

Our regulatory frameworks are so weak that law firms can ignore or break the law with complete impunity. It is hopeless having self-regulation, national and international codes of practice and regulatory bodies with legal powers, if in practice they fail to secure compliance and good behaviour. The lawyers clearly just did not give a damn, and nobody held them to account.

[James Duddridge (Rochford and Southend East) (Con)]

The title of this debate is “Tax Avoidance and Evasion”. I thought I understood the distinction between the two, but I feel the line is being blurred. How does the right hon. Lady understand the distinction between avoidance and evasion?

[Dame Margaret Hodge]

I agree that the line is extremely blurred. Schemes put forward as legitimate tax avoidance are frequently found to be unlawful when HMRC finally catches up with them. It is difficult to make distinctions.

Worse than that, Appleby helped to co-ordinate a well-funded and comprehensive lobby by the International Financial Centres Forum before a G8 summit that David Cameron chaired in 2013. The then Prime Minister had intended to insist that the UK’s tax havens publish public registers of beneficial ownership in their jurisdiction. Had David Cameron had his way, we might not be here today, but the IFCF lobbied fiercely to maintain secrecy. It lobbied the right hon. Member for South West Hertfordshire (Mr Gauke), the then Exchequer Secretary, it lobbied the permanent secretary at the Department for Business, Innovation and Skills, it lobbied the senior official who was then director of the UK’s G8 presidency unit, and it succeeded in weakening David Cameron’s commitment to transparency.

[Mike Gapes (Ilford South) (Lab/Co-op)]

I thank my right hon. Friend and neighbour for giving way. Is not the fact that the vast majority of these tax havens are British overseas territories the key question, and is it not time that this Government—or any other Government in the country—took seriously the fact that those places are not doing what is in the interests of British people all over the world?

[Dame Margaret Hodge]

It is also not in the interests of the many developing countries that lose more tax through tax avoidance than we do in proportion to their budgets.

[Robert Jenrick (Newark) (Con)]

The right hon. Lady’s central contention is that those territories should publish open registers of beneficial ownership. First, does she acknowledge that the United Kingdom is now one of the only countries in the world to do so, as a result of action by this Government? That was a huge achievement on the UK’s part. Secondly, in an international context, virtually no other major developed country in the world has done it. The state of Delaware, in which 90% of US corporations are registered—

[Mr Speaker]

Order! When I say “order”, the hon. Gentleman must resume his seat. I do not wish to be unkind to him. He is always very fluent, but he usually takes too long, and that was not just too long; it was far too long.

[Dame Margaret Hodge]

I simply observe that the UK also has responsibility for the overseas territories and Crown dependencies, and I wish that its own tax code did not contain so many harmful elements that encourage tax avoidance.

Appleby’s lobbying illustrates another continuing problem. The Treasury, and other Ministers and Departments, listen only to a very small and exclusive group of tax professionals when making decisions on tax policy. It is one thing for the Government to consult stakeholders on issues, but it is quite another for the Government to be captured by the tax industry at the expense of the wider public interest. Tough and active regulation of the industry to ensure compliance with existing rules is therefore vital. Curtailing the influence of tax professionals on tax policy is essential, and making the advisers accountable for the schemes that they invent and market is central to the campaign to destroy tax avoidance.

The measures in the Finance Act 2017 represent one small step in the right direction of holding advisers to account, but the small print suggests that very few, if any, will be caught by the legislation. The definitions are too narrow, and the penalties too weak. Those measures have been introduced so that the Government can claim that they are acting, but until advisers are really called to account and properly punished for inventing schemes that are purely aimed at avoiding tax, the army of lawyers, accountants and bankers will continue to prosper. If the Government are serious about tackling tax avoidance, they must act strongly to deal with the illegitimate practices of those who make a huge living from peddling tax avoidance advice.

[Ian C. Lucas (Wrexham) (Lab)]

My right hon. Friend is making a powerful case. Does she agree that the approach of the prosecuting authorities in this country must also be improved? It is striking how seldom they proceed with the legislation that we introduce.

[Dame Margaret Hodge]

I entirely agree. I must now make progress, because otherwise I shall take up too much time.

More than half of the Appleby offices are located in British tax havens. More than half of the entities that were exposed in the Panama papers were incorporated in just one UK tax haven, the British Virgin Islands. Estimates of the wealth held in tax havens are by their nature difficult to verify, but they vary from $7.6 trillion to $32 trillion.

[Rushanara Ali (Bethnal Green and Bow) (Lab)]

Will my hon. Friend give way?

[Dame Margaret Hodge]

I will, for the last time.

[Rushanara Ali]

Does my right hon. Friend agree, in the light of what she has said, that Britain has a unique leadership role? Developing countries lose income amounting to between $100 billion and $160 billion a year. Imagine what we could do to tackle poverty if that money were available.

[Dame Margaret Hodge]

I completely agree with my hon. Friend’s very powerful point.

Unbelievably huge sums of money are hidden in these jurisdictions. It is impossible to measure accurately how much tax is lost through the presence of tax havens, but it runs into hundreds of millions of pounds every year. We do know that developing countries lose three times as much in tax avoidance as they gain from the global investment in international aid. Our tax havens, acting as secret, low or no-tax jurisdictions, are utterly central to much of the tax avoidance. We cannot continue to pretend that we are leading the international fight against tax avoidance and evasion when, by what we do and what we fail to do, we allow avoidance to prosper; and not just tax avoidance, but money-laundering, corruption, bribery and other financial crimes, which prosper through the secrecy that we allow to prevail. Our failure to tackle our tax havens, our weak regulatory regime and some of our tax rules means that we are now seen as the country of choice for kleptocrats and criminals as well as tax avoiders and evaders, as they seek to hide their money and minimise their tax bills.

We need our Government to hold to the commitments made by the Prime Minister and the Chancellor in 2013 and 2014. They understood that transparency was the key ask. We need public registers of beneficial ownership, showing who owns what and where. That, at a stroke, would undermine so much. Would Bono have invested in tax havens if he had thought that we would all know? Would Lewis Hamilton have created a complex structure of companies to avoid VAT? Would the actors in “Mrs Brown’s Boys” have hidden their earnings in artificial financial structures if they had thought that we would find out? The answer is no.

David Cameron understood that when he told the UK tax havens to rip aside “the cloak of secrecy” in 2013, when he urged them in 2014 to consult on a public register that was

“vital to meeting the urgent challenges of illicit finance and tax evasion”,

and when he proclaimed in 2015 that

“if we want to break the business model of stealing money and hiding it in places where it can’t be seen: transparency is the answer.”

However, in the last two years the Government have fundamentally watered down that commitment to public registers in British tax havens, and now we hear Ministers say that we must wait for other countries to go first. The proper call for international action on transparency has become the lame excuse for inaction in our own territories.

We should lead by example. We should demonstrate that transparency can and does change behaviour. We should compel our overseas territories and Crown dependencies to publish public registers. In the past, a Conservative Government used their powers to outlaw capital punishment in our Crown dependencies and overseas territories, and a Labour Government used the same powers to outlaw discrimination against gay people. Today we should work together to outlaw the secrecy of those jurisdictions, which leads to such massive tax injustices.

The Paradise papers show us that the problems created by secrecy are much bigger and more complex than we ever thought possible, and that is why we need to legislate for transparency in our tax havens. We should help them to transform their economies, so that they stop depending on hidden wealth, unsavoury people, and questionable financial practices. I cannot think of one good reason for us not to do that, and to do it now. Indeed, there is more that we can do, right now: it simply requires the Government to have the necessary political will. They will certainly have the support of the whole House, and the whole country, if they demonstrate by their actions, not their words, that they will work to stamp out tax avoidance.

We can and should now implement the legislation requiring multinational companies to report their activity and profits on a country-by-country basis—legislation successfully steered through Parliament by my right hon. Friend the Member for Don Valley (Caroline Flint). We can and should also introduce immediately the public register of property ownership that was enacted before the general election, promoted by Transparency International and Global Witness and supported by members of the all-party group on anti-corruption. Nobody knows why this legislation has not been implemented; it is a key element in the fight against corruption, avoidance and evasion. We can and should properly resource HMRC now so that it has the capability to pursue all who seek to avoid paying tax, not just the small businesses who form an easy target that can be hounded with little effort. Every £1 invested in HMRC enforcement yields £97 in additional tax revenues. It is a complete no-brainer that we should be strengthening HMRC and reversing some of the cuts.

The Paradise papers have helped place tax avoidance back at the heart of the political agenda and back at the top of the list of public concerns. The Government need to grasp this moment to act. They have an opportunity to do so in next week’s Budget. Britain will never get rich on dirty money, and our public services cannot function if the wealthiest individuals and the most powerful companies deliberately avoid paying their fair share towards the cost of those services. And this Government will not be forgiven if they fail to heed the lessons we can all learn from the Paradise papers. Proper transparency will come. The Government can choose whether they lead the changes needed or whether they want to be dragged kicking and screaming into implementing essential reforms. I hope they will listen, learn and act.

--- Later in debate ---

[Mel Stride]

I will now make some progress. I am aware that this is just a two-hour debate and that many Members wish to speak.

We have covered the various measures that we have taken, and we have covered the huge investment that we have made in HMRC. Perhaps I can now turn to the international aspects. We all agree that we need to look closely at what is happening in the international sphere. On that, this Government have a record of which we can be proud. Through the OECD, we have been in the vanguard of the base erosion and profit shifting project. We have worked closely with the Crown dependencies and overseas territories.

We have brought in a diverted profits tax, which will raise £1.3 billion by 2019, and common reporting standards to ensure that information is exchanged in relation to around 100 countries. We have introduced a directory of beneficial ownership that is accessible by HMRC, the authority that needs to have that information. All this has happened in the last couple of years, and it is a game changer. Many of the issues arising from the Paradise papers go back very many years, but these measures are in place right now.

I also want to make an important point on transparency. In last week’s debate, I asked the right hon. Member for Barking, in relation to the 13 million files held by the International Consortium of Investigative Journalists, whether she would join me in calling on the ICIJ to release that information to HMRC so that we could go after anyone who, as a consequence of that data release, was thought to be abusing our tax system. Will she support us in that endeavour?

[Dame Margaret Hodge]

The Minister did raise that point last week, and the House should know that it is not in the gift of either The Guardian or “Panorama” to release those papers. They are not able to do that.

[Mel Stride]

What I actually asked was whether the right hon. Lady would join me in calling for the ICIJ to release that information. [Interruption.] That is a slightly different question, and I am happy to give way again if she will tell us, yes or no, whether she will do that. [Interruption.]

[Mr Speaker]

Order. Stop the clock. There is far too much noise in this Chamber. I say gently to the Parliamentary Private Secretary, the hon. Member for Croydon South (Chris Philp): don’t do it! You may think you are being clever, but it does not enhance your reputation as a parliamentarian in the end. Please don’t do it. It is juvenile, the public despise it and I have no patience for it.

[Dame Margaret Hodge]

I will certainly join the Minister in seeking any documentation that HMRC requires to pursue those who are guilty of avoidance or evasion. I would say to him, however, that when I have given papers to HMRC in the past—whether relating to Google or from other whistleblowers—they have just disappeared and no action ever appears to have been taken.

[Mel Stride]

I am grateful to the right hon. Lady. I will take that as a yes—we can work together to try to ensure that that information is provided to HMRC. I see no reason why that should not happen.

--- Later in debate ---

[Dame Margaret Hodge]

I am grateful to you, Mr Speaker, for allowing this debate, and to all Members who have participated, particularly those who looked beyond narrow political party interest and more at the public interest.

We cannot allow the serious issues raised by the Paradise papers today simply to become the fish and chips wrappers of tomorrow. It is our responsibility as lawmakers to do all that we can, in the UK and with our international partners, to stamp out an injustice that is both unfair and offensive. The Government can take action that will make a difference, and it simply needs a strong political will to make that happen. I urge the Government to act in next week’s Budget.

Question put and agreed to.

Resolved,

That this House has considered the systemic issues enabling tax avoidance and evasion uncovered by the Paradise Papers.

[James Duddridge (Rochford and Southend East) (Con)]

On a point of order, Mr Speaker. Have you heard from the Foreign Office of an intention for a Minister to come to the House to make a statement on what appears to be an ongoing coup in Zimbabwe?