Low and No-Tax Jurisdictions
Viscount Hanworth Excerpts(3 weeks, 5 days ago)
Lords ChamberRead Full debate Read Hansard Text Watch Debate Read Debate Ministerial Extracts
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.
Long-duration Energy Storage (Science and Technology Committee Report)
Viscount Hanworth Excerpts(1 month, 2 weeks ago)
Lords ChamberRead Full debate Read Hansard Text Watch Debate Read Debate Ministerial Extracts
Viscount Hanworth (Lab)
My Lords, at this late stage of the debate, I am bound to be repeating much of what has already been said. I beg your Lordships’ indulgence for this. My speech may therefore be regarded as a summary as much as a commentary.
Today, we depend largely on renewable sources of energy for generating our electricity. Wind power is the largest component in the mixture of renewable power, and its highest share was achieved on 19 November 2023—between, I believe, 4.30 am and 5 am—when it reached 69%. Such widely proclaimed facts tend to divert our attention from the unreliability and intermittency of renewable sources of power. They are in short supply in periods when the wind does not blow and the sun does not shine.
In such circumstances, our present recourse is to rely on gas-fired power stations to fill the gap in the supply of electricity. These stations are a legacy of a previous era of electricity supply, when North Sea gas was plentiful and cheap. The gas-fired power stations rapidly replaced the coal-fired power stations. However, gas is not cheap and, moreover, burning it releases carbon dioxide, which is the principal agent of global warming. If we are to continue to rely on these power stations, the carbon dioxide that they release must be captured and sequestered underground.
In the absence of gas-powered electricity generation, additional sources of power must be found. Also, a means of storing energy must be found that is available for generating electricity at times when the renewable energy is in short supply. Two leading questions arise. The first concerns the urgency with which these recourses should be pursued, and the second concerns the proportions in which the storage and the additional power should be provided.
The report of the Science and Technology Committee that is the subject of today’s debate emphasises the urgency with which long-term energy storage must be provided, and makes it abundantly clear that the necessary actions to avert an energy crisis are not being taken in good time. To substantiate this aspersion, one needs only to read the recent documents published by NESO—the National Energy System Operator—which is the agency responsible for advising the Government. A simple way of assessing its outlook is to search for “storage” throughout its documents. One will discover that it is to be found mainly within the phrases “carbon capture and storage” and “storage heaters”. There are few instances of the phrase “long-term energy storage”, nor is there any assessment of the available capacity for such storage.
A truth that is revealed by the report of the Science and Technology Committee is that there is only a limited capacity in the UK for storing gas. The current capacity is devoted to storing natural gas. We are told that the UK stores 10 terawatt hours of natural gas, compared with 217 terawatt hours in Germany, 122 in France and 162 in Italy. This startling disparity is explained by our tendency in the past to treat natural gas from the North Sea as if it were on tap. It is no longer readily available to us in this manner.
We must envisage a greatly enlarged future demand for gas storage in underground locations. It will have three aspects. In the short term, there will be a continued and, indeed, increased demand for the storage of natural gas. An enlarged store should partly protect the UK from the volatility of gas prices. There would also be a requirement for the underground storage of captured carbon dioxide, which would permanently pre-empt some of the storage capacity. There should also be a requirement for storing the hydrogen that would be required to alleviate the intermittent scarcity of renewable energy.
The committee report tells of a lack of concern on the part of officials in the face of these circumstances. They are unable accurately to assess what the future requirements for gas storage might be. In the absence of certainty, they are disinclined to take action. The report suggests that action must be taken immediately despite this uncertainty.
The report also suggests that long-duration storage facilities can take seven to 10 years to build and require considerable upfront investment. The problem in providing this gas storage is due in part to the difficulty in devising appropriate incentives to encourage the private sector to undertake the task. A so-called strategic reserve of gas, to be called upon in the rare event of a prolonged dearth of renewable energy, does not offer an attractive investment prospect for private enterprise. This has been demonstrated by the partial closure by Centrica of the Rough offshore gas storage facility on the grounds that it was uneconomic to maintain it. I would suggest that the appropriate word here should be “unprofitable” rather than “uneconomic”.
Neoclassical economic doctrines have come to dominate the thinking of politicians and civil servants, which has made it difficult for them to accept that there is no viable market solution to this conundrum. They hesitate to accept that such a strategic reserve should be in public ownership.
The next matter concerns the sources of our energy. A report from the Royal Society proposes that we should rely almost exclusively on renewable sources of energy—on the wind and the sun. It is proposed that surpluses of electricity from these sources should be used to generate hydrogen by the electrolysis of water. Then, in times of a dearth of renewable energy, the hydrogen should power turbines and reciprocating engines, driving electricity generators. The proposal would involve a major investment in energy infrastructure. Facilities for generating hydrogen and using it to generate electricity are also required. Additionally, a network for piped hydrogen would be required. The electricity network would need to be updated to transfer the power from the remote places where it is generated to places where it might be used. Alternative recommendations involve various amounts of electricity generated by nuclear power.
Viscount Hanworth (Lab)
I shall be fairly brief. One recommendation, which I strongly support, proposes that small advanced modular reactors should be deployed to provide heat and power for both domestic and industrial users. The inherent safety of fourth-generation nuclear technologies will allow the reactors to be located near the industrial users, thereby reducing demands.
Viscount Hanworth (Lab)
Please let me encapsulate this final point. The time is advisory, not mandatory. I have a major point to make.
The small size of the reactors would be an advantage in this connection in comparison to the so-called small modular reactors which typically have a power output of 300 megawatts, which is more than an industrial user might require. Batteries of advanced modular reactors could be used to create large electricity-generating power stations. A sad fact to which I must testify is that Britain is losing its projects for developing such reactors—they are closing though lack of funds or finding sponsors in other countries.
Autumn Budget 2024
Viscount Hanworth Excerpts(3 months, 2 weeks ago)
Lords ChamberRead Full debate Read Hansard Text Watch Debate Read Debate Ministerial Extracts
Viscount Hanworth (Lab)
My Lords, the economic nostrums of the Thatcher era still dominate the minds of many politicians and civil servants. The Conservative ideology of the time proposed that public enterprise was everywhere economically inefficient, and it was remarked that it was primarily devoted to protecting lame-duck industries and protecting the interests of the workers at the expense of the industries.
Private enterprise was expected to respond to incentives offered by the markets, and it was believed that it could be relied on to maintain the economic infrastructure of the nation. This was the rationale for the privatisation of public enterprises. The public utilities of power and transport were privatised, and inroads were eventually made into the health service and public education. The present Government are devoting their attention to the restoration of the health service and public education, but, for the present, they have set aside the task of reviving the nation’s industries, which also suffered grievously under the previous Government.
It ought to be more widely acknowledged that, when private enterprise fails to generate sufficient investment, the Government must undertake to do so, either directly or by some other means. A litany of examples can be provided to show how Conservative Governments failed to sustain our industrial enterprises, but only the most prominent examples need to be offered. Their greatest failure affects the electricity generating industry, which once operated under the Central Electricity Generating Board. The privatisation of the industry plays into the hands of large foreign multinational corporations, and it was expected that these could be relied on to maintain the electricity generating capacity. In consequence of the plentiful and cheap supplies of North Sea gas, they reacted with alacrity by investing in combined-cycle gas turbine generating plant, which rapidly replaced the previous coal-fired power stations that they had inherited. On the basis of this experience, it was expected that they could be relied on to invest in nuclear power stations—but they failed to do so, and we are left with a dearth of generating capacity.
If the nation is to achieve its targets for reducing the emissions of carbon dioxide, gas-fired power stations must be replaced. But the privatised industry lacks the means to do so, or is unwilling to find the means. The Government persist in believing that nuclear power can be provided by drawing on private investors. It is expected that this can be achieved under a regime of a regulated asset base, which will allow the costs to be imposed on consumers during the time it takes to construct the power stations. However, it appears that the investors are not responding sufficiently to this inducement, and a final investment decision for the Sizewell C power station has had to be postponed. The Government must emulate the Governments of the early post-war years by using public funds to re-establish the nuclear power industry, and they must also use public funds to sustain the necessary research and development into nuclear technology, as happened in those early years.
The second example concerns the failure of the previous Government to provide sufficient support for the nascent industry for manufacturing the lithium-ion batteries that power electric vehicles. They allowed the collapse of the Britishvolt enterprise, which aimed at establishing a so-called gigafactory for producing the batteries. The fact that the enterprise failed to raise sufficient capital from private investors was seen by the Conservative Government as proof of the non-viability of the project. The absence of the proposed gigafactory, and of others to accompany it, almost certainly spells the demise of our native automobile industry.
I conclude by addressing the notion that the lack of investment in our industries can be redressed by encouraging inward financial investment. A report by the noble Lord, Lord Harrington, which was commissioned by the previous Government, strongly advocated inward investment as a cure for our ills. Our present Government, who recently hosted an international investment summit, appear to have adopted this nostrum. Inward investment entails the sale of our industrial and other assets to foreign owners. The dividends and interest payments that are remitted abroad are an almost incalculable drain on our economy. Our lax system of corporate government facilitates the acquisition by foreign parties of many of our small high-tech industries which offer the prospect of our economic revival. It allows foreign enterprises to purchase and control British companies that would otherwise be their economic competitors. The depredations of foreign financial conglomerates that have ownership of British assets have been amply illustrated in recent weeks during our consideration of the water companies and rolling stock leasing companies that have paid vast dividends to their foreign owners.