Tax Avoidance and Evasion

Debate between Baroness Hodge of Barking and John Pugh

Thursday 13th September 2012 Commons Chamber

[Margaret Hodge]

The Committee tries to look at international comparators, but it does not do enough such work. The right hon. Gentleman’s second point was to be one of my suggestions to the Government, and I agree with him entirely. My final point on transparency is that there is a belief in the country at large that bigger companies are not treated in the same way as small and medium-sized enterprises, which are struggling and often pursued relentlessly by Her Majesty’s Revenue and Customs. That belief will be shattered or broken only if we have full transparency and people can see that there are no sweetheart deals.

My second point concerns the proper resourcing of HMRC to tackle avoidance and evasion. Of course we want more efficiency from everyone employed at HMRC. The Labour Government cut 3,000 jobs, but I think that was wrong because evidence shows that for every £1 invested in pursuing tax avoidance, £10 is raised from the money collected. We should, therefore, be sensible about how we cut the deficit and we should invest in those areas where we will get money back.

I say to the Minister that it is worrying to see the threshold at which HMRC intends to pursue fraud actions raised because it does not have enough legal resources. It is also worrying that the extra money released by the Government in the spending review is not currently being used because HMRC cannot work out the training programmes that are required to get individuals up to speed for work on tax avoidance and evasion.

[John Pugh (Southport) (LD)]

One of the reports considered by the right hon. Lady’s Committee contained an acknowledgment by the Treasury that £1.1 billion was lost as a result of premature staff reductions. A report by the National Audit Office gives the figure of £1.1 billion losses to HMRC as a result of accelerating the cuts.

[Margaret Hodge]

I accept that entirely and it was not a sensible way of proceeding. I also want to mention the quality of staff in HMRC. When we carried out the Goldman Sachs review, it was worrying to find that so few people at the heart of HMRC who were engaged in those negotiations had what was called a “deep knowledge” of tax. They were up against highly skilled, knowledgeable and experienced—and highly paid—people, who were advising companies and high-wealth individuals. We must look at both quality and quantity of staff.

My third point is about the outrage caused by people whose income comes out of our taxes, but who fail to make their rightful contribution. I applaud the way the Government responded to the disclosure that some civil servants have personal services companies, and I hope that their work, and the work done by the Committee to support the report on that, will ensure that such practices no longer exist within the civil service. Evidence from the BBC, however, was shocking. Some 25,000 people working for the BBC are on off-payroll contracts, including 13,000 so-called “talent individuals” who appear on our television screens or on the radio. That is not an acceptable practice—goodness knows how it evolved—and I urge the Minister to take action on that and in local government where personal service companies still exist. I should tell the Minister that, in 2010-11, HMRC investigated only 23 cases of potential abuse of the use of the personal service company vehicle, which was down from 1,000 such cases in 2003-04. There is a resources and priorities issue within HMRC. Those people should set an example and show leadership in the fight against tax avoidance, and we should be able to see that they are doing so.

Equally—this point was raised by the right hon. Member for Bermondsey and Old Southwark (Simon Hughes)—companies that benefit from public expenditure and provide infrastructural services from the taxpayers’ pound should pay their proper tax to the Exchequer. That should be written into the contracts. The problem that the Committee has uncovered most is in relation to private finance initiative projects. An assumption is made by the Treasury in the cost-benefit analysis of whether to go ahead with a PFI project that income will come back to the Treasury through corporation tax, yet all too often the companies that take the PFI contracts or buy them subsequently take their interest offshore. A recent survey by the European Services Strategy Unit found 90 firms in PFI contracts funded by the taxpayer that were based offshore for tax purposes. HSBC infrastructure unit, which has a lot of PFI deals, paid only £100,000 in tax on £38 million in profit—a tax rate of less than 0.03%.

Finally, I agree entirely on simplification. Complexity breeds avoidance and evasion. All Governments are to blame. They might introduce complexities with the best of intentions, but they end up as wheezes for avoidance and evasion. Labour’s film tax credit was a classic example of that.

I urge the Government to stop talking—we all talk the same talk. We must now deliver on simplification and on those simple ways to ensure that tax avoidance is not used as an excuse for cutting public services.