Low and No-Tax Jurisdictions

Viscount Hanworth Excerpts

Thursday 30th January 2025 Lords Chamber

[Viscount Hanworth (Lab)]

My Lords, many of the large corporations that affect our lives are multinational enterprises. This circumstance is a product of the process of globalisation that has taken place over the last half century, albeit that some multinational corporations have far longer histories. Most of the multinational corporations originated in a single country to which they may continue to owe a partial allegiance, but this might be regarded as an historical circumstance that is of little relevance today.

The Ford Motor Company is an early example of a multinational corporation. The company was incorporated in 1903. The headquarters in Dearborn, Michigan no longer commands its European offshoots, but the headquarters has nevertheless been responsible for major financial decisions. This has detrimentally affected some of the former subsidiaries of the company outside the United States.

Two such former subsidiaries were Jaguar and Land Rover, acquired in 1989 and 2000 respectively. Our Government should have intervened to prevent the foreign purchase of these leading British firms; many other Governments would have done so. In 2008 the two companies were sold on to the Indian company Tata Motors when the American Ford company was in financial distress.

Tata had previously been involved in a joint venture with the Fiat motor company, which is now part of a multinational Italian, American and French conglomerate known as Stellantis, which comprises Fiat, Chrysler, Citroën and a host of other marques. This conglomerate was created in 2021 and is headquartered in the Netherlands. It is a paradigm of a modern multinational corporation. The question arises of whether there are disadvantages from this sort of globalisation that might be experienced by the subsidiary companies and by the countries in which they are located.

The history of Jaguar Land Rover demonstrates the manner in which a native enterprise can acquire a global reach. The firm is now set to penetrate the Chinese and Indian markets. It is arguable that it would not be in such a position if it had remained solely in British ownership. However, when such a company becomes part of a much larger organisation it is in a dangerously subservient position. It can be affected by circumstances within the larger organisation over which it has no control, and which can be to its detriment. The sale of Jaguar Land Rover to Tata was occasioned by the financial distress of the Ford Motor Company, which had purchased the firms in an attempt to enhance its own profitability.

The professor, my noble friend Lord Sikka, has highlighted some severe abuses arising within multinational corporations that can affect their subsidiary companies and the nations in which they reside. The profits of a firm can be used by the parent company to sustain other, less profitable parts of the enterprise, when they might have been used for the firm’s own investments. He has pointed to the ways in which multinational corporations can conduct internal trade at fictitious and exorbitant prices to enable them to evade taxes on a massive scale. They can assign the costs of their enterprise to subsidiaries in countries where there are high taxes, and they can assign their profits to subsidiaries in countries in which there are low taxes. By appearing to make losses in the high-tax domains, they can avoid being taxed, and by declaring them elsewhere, they can retain a large part of their profits. To overcome these abuses can require considerable resources and strong co-ordination between the affected nations, which may have vastly different tax regimes.

The UK has a financial services industry of a disproportionate size when measured against the size of its gross domestic product. It is inevitable that it should be in the forefront of advising and facilitating the stratagems of tax avoidance. A dramatic case of tax avoidance that has recently come to light concerns the Russian oligarch Roman Abramovich. He has been residing and trading within the UK. However, his trades and hedge fund operations have been attributed to the British Virgin Islands, a so-called tax haven. In a defence against the charges of tax evasion, the oligarch’s lawyers have declared that he has

“always obtained independent expert professional”

opinion and legal advice, and has

“acted in accordance with that advice”.

This brief assertion reveals two things. The first is that there are plenty of people at hand in the City of London to advise on how to evade the British laws of taxation. The second is that those laws are weak and easily exploited. Our financial sector has mediated many of the acquisitions and takeovers that have created large multinational corporations. In the process, we have lost the ownership of many of our premier enterprises. Our national interests have become subservient to the interests of the multinational corporations to an extent that is probably unprecedented in the developed world.

The UK has lost ownership and control of its major public utilities and of its strategic industries. Utilities in which foreign ownership dominates include electricity generation, water, seaports, airports, railways, rolling stock and much more. The majority of motor manufacturers in the UK are under foreign ownership, a large part of our aviation industry has been sold to foreign owners, we are no longer the owners of our steel industry and most of our cement manufacturing is in foreign ownership—the list could be continued almost indefinitely.

The British financial sector and British banks differ markedly in their behaviour from those in adjacent countries. They have had a long history, and they were originally involved in trade and financial intermediation. Formerly, continental banks were involved principally in agricultural credit, and then they began investing in manufacturing. This may partly explain our nation’s comparative failure to invest in manufacturing, despite the fact that we were the original industrial nation.

Our banks and financial sector invest preponderantly in property and financial assets. The profits are derived from the commissions earned in mediating mergers and takeovers among firms. A major source of income has come from selling our industrial assets to overseas owners. The sale of our assets to foreign owners has enabled us to maintain a large deficit on our current account; the value of the goods that we import far exceeds the value of those that we export. The sale of our assets has also sustained a demand for the pound in international currency markets. This has inhibited our exports by raising their prices for foreign purchasers, which has also been a factor in our industrial decline.

A nostrum to alleviate those problems, propounded by the previous Government, has been to encourage foreign direct investment, which was the theme of the Harrington report that was commissioned by the Conservatives. Such a strategy will invite multinational corporations to enter the British economy. It will add to a deadweight loss, which is the remittance overseas of dividends and interest payments. Those are an incalculable drain on our national income. The noble Lord, Lord Harrington, observes that, when the Government invest, the private sector follows, and that £1 of government investment can unlock between £7 and £10 of private sector investment. He recommends that the Government should become an active investor. The present Government are also pursuing foreign direct investment. However, they seem to be unwilling to become an investor; they would prefer to rely almost completely on foreign capital.