Multinational Companies and UK Corporation Tax

Baroness Clark of Kilwinning Excerpts

Thursday 27th June 2013 Commons Chamber

[Chris White (Warwick and Leamington) (Con)]

I beg to move,

That this House has considered the matter of multinational companies and UK corporation tax.

I am grateful to the Backbench Business Committee for giving the House the opportunity to debate the important issue of corporation tax and the avoidance of tax by multinational corporations. I was keen to see this debate take place, not only because of the gravity of the issue but because of the efforts that two local retailers, Frances and Keith Smith of Warwick and Kenilworth Books, have taken to raise the profile of the matter. They have launched a petition, which has gathered 170,000 signatures, calling on Amazon UK to pay UK corporation tax, and I would like to pay tribute to their public spiritedness and determination in pursuit of this cause. Individuals can make a difference in politics, as I am sure hon. Members would agree, and we should encourage more citizens to take similar action.

The issue that I would like to put at the heart of the debate is tax avoidance, rather than tax evasion, which is illegal. I think all Members would strongly condemn any kind of tax evasion. However, tax avoidance, sometimes euphemistically called “tax planning”, is also a matter of serious concern. The case that Frances and Keith have raised illustrates the problem. Amazon made £4.3 billion in sales in the UK last year, but its subsidiary Amazon UK paid only £2.4 million in corporate taxes. It does this by classifying itself as a service provider to its Luxembourg business Amazon EU Sarl in order to reduce its tax bill, yet its UK business employs over 4,200 people, compared with the 380 based in Luxembourg. Given the size of the UK market, it is laughable to believe that Amazon UK is somehow serving the Luxembourg portion of the business, but this is perfectly legal and Amazon UK is not an isolated case.

However, this avoidance is not without its victims. It is businesses such as Warwick Books in my constituency and ordinary people who pick up the bill. Through this creative tax planning, the burden of taxation is shifted on to individuals and businesses that do not have the resources to spend on reducing their tax bill and on hiring expensive accountants to find loopholes in tax law.

I understand that there are some who believe that businesses have a moral duty to pay only the absolute minimum of tax that they are legally obliged to pay, but I cannot believe that that is the case. Businesses, even multinational companies, are still members of society. They benefit from a strong education system, a functioning health care system, decent roads, a transport infrastructure, the police and our armed forces. The reason we raise taxes is in order to produce public goods. We can argue whether the Government spend that money wisely, or whether the Government should provide this or that service, but that is the basic principle behind taxation.

Businesses have a moral responsibility to play a full part in our society, and structuring their businesses in order to avoid taxation and to make it harder for tax authorities to monitor their business is not fulfilling that responsibility. Voluntarily paying tax is not a long-term solution to this issue. What is needed is for multinational companies to take responsibility for their actions and respect the fact that they need to structure their businesses to reflect the way they are operated, rather than merely to avoid that taxation.

If a company is legitimately servicing another company in another country, or needs to pay royalties as part of a franchise or needs to borrow money from its parent abroad, I believe we can all understand that this should be respected in the tax system. We do not wish to crush enterprise, nor do we wish to penalise international businesses that invest in our country, but multinational companies still need to play their part. The endless game of cat and mouse, with tax authorities having to plug gaps and investigate subsidiaries, and multinational companies developing ever more complicated legal structures to avoid paying tax, is simply unsustainable and destructive.

Many of these companies depend on individuals and businesses buying their services, but as they avoid taxation, the Government have to find this revenue from other sources, reducing the profits and incomes of others and leaving them with less to spend on other goods and services. The regulatory arms race between multinational companies and states seeking to raise revenue is also distracting. It is distracting the corporations from focusing on productivity and creativity, and one wonders what marvels or products might have been created if multi- nationals had put the effort they put into avoiding tax into developing new ideas, services and products.

Tax avoidance does not benefit our economy in the long term; that can only come through making our economy more productive and more efficient. We need to encourage businesses to focus on the real economy rather than on trying to enhance their profitability by avoiding taxation.

The sheer mechanics of the situation make it clear that action purely from the Government is unlikely to be the solution to the problem. There are hundreds of thousands of multinational companies, and only a handful of tax regimes capable of monitoring their information. It is always a game of catch-up, and while reforming tax codes and greater enforcement may help, they will not reach the nub of the problem. That is why I believe that we need to focus on the culture in international business, on the structure of these businesses and the codes of conduct they abide by. Fundamentally, businesses are staffed by people, and if we put in place the right frameworks, I believe that we can appeal to the better angels of their nature. This is the only long-term solution.

I am realistic, however, and I appreciate that there will always be corporations that are unwilling to contribute to the public good and wish to shirk their responsibilities. That is why I am pleased that Her Majesty’s Revenue and Customs has been given additional resources in order to clamp down on tax evasion, but HMRC also needs to be more robust in the way it holds these companies to account.

[Katy Clark (North Ayrshire and Arran) (Lab)]

Will the hon. Gentleman give way?

[Chris White]

I would like to, but if the hon. Lady does not mind, we are very short of time.

These companies need to be held to account and we need to feel free to investigate fully the accounts of any company that we suspect might be seeking to avoid paying taxation. This highlights another issue, one that is close to my heart and to that of many colleagues— the future of our independent retailers. Warwick and Leamington is full of many excellent independent businesses, which give our community its distinctive character, and not only provide incomes for the owners, but hire local residents and often give young people the chance to get their first experience of work.

Times change, and I do not think any of us would support or even want a situation where multinational companies were prevented from entering the workplace, but I think we all recognise the need for a mixed economy. We need independent, smaller businesses and large multinational companies working together. We need to recognise that in the 21st century, the idea of the capitalist as some profit-making machine, uncaring or unthinking about the effects of its business on wider society is completely outdated. For the most part, I believe that businesses recognise that.

International progress is essential, and the Prime Minister should be applauded for his efforts at the G8 last week and the agreement that he secured. Britain cannot take unilateral action without significantly damaging our economic position, and while changes such as the general anti-abuse rule are welcome, real progress will only come from companies themselves.

A model that we need to look at more closely is that of social enterprises, but a successful 21st century global economy needs to be one that combines equity with entrepreneurship; principles with profit; responsibility with reward. We are taking the first steps forwards by talking about this issue, but I hope that we can move towards action in the years to come.

--- Later in debate ---

[Katy Clark (North Ayrshire and Arran) (Lab)]

I strongly welcome the cross-party will among Back Benchers to bring this incredibly important issue to the House.

The estimates of how much is lost to the British economy through tax avoidance in its many forms go up to in the region of £120 billion. Lots of people have different figures, but there is no doubt that if we could get on top of the issue—not of tax evasion, when people illegally do not pay their taxes, but of tax avoidance—many of our other debates in this House about the deficit and so on would be skewered. We face a major challenge, as over decades we have reached a situation in which we do not collect the taxes we need to pay for the services we want to provide in the communities we represent. We need to reach some sort of solution so that we can collect those taxes.

It is interesting that in this Back-Bench debate we have heard people from different political parties speaking with one voice. One of the problems in the debate is that for a long time the leaderships of the parties have not had the political courage to take on the multinationals. If we reflect on the speeches we have heard today and read Hansard tomorrow, we will see that it is notable that these companies are household names. They are not the kinds of companies that would move out of Britain. To suggest that Starbucks, Amazon, Vodafone, npower, Google or HSBC will pack up their bags, move away and stop making profits out of our constituents is ludicrous. The reality is not that progress will be made only by the companies themselves. Yes, we need to change the culture in companies. Yes, we need to name and shame. But as politicians we have to change the rules of the debate. That means changes in law so that we are far tougher on those who avoid taxes but also tackle those who evade taxes.

[Paul Farrelly]

Does my hon. Friend agree that we should use our influence within the European Union to, as the hon. Member for Redcar (Ian Swales) said, sort out the cuckoos in the nest who provide effective tax havens? Will she join me in congratulating Senator Philippe Marini, president of the French Senate finance committee, who has been in the vanguard in Europe of pressing for concerted European action?

[Katy Clark]

I congratulate all those who are working to get international agreements to tackle this problem, including the British Government.

The reality is that we also have to look at what we are doing here and now. Since 2005, we have lost 37,000 jobs in HMRC. We expect to lose another 10,000 tax inspectors by 2015. No doubt the Government will come back and say that there are slight increases in the numbers of staff in specialist and criminal investigations, but they are only one part of the team that looks at all these issues. We have to highlight clearly the use of tax havens by FTSE companies—98 out of the top 100 use them. We have to say that roughly one in five of the world’s tax havens are the responsibility of the UK and that the use of those tax havens is estimated to cost the UK £18.5 billion a year. These issues need to be tackled internationally, but we have a lot to do at home.

We need to build a consensus in all political parties that we need tax laws which ensure that multinationals pay their due in this country. Unless we do that, a lot of the other debates in this place, whether on legal aid or how we fund hospitals or education, are nonsense. We need the money to go forward. Perhaps one of the things that comes out of this financial crisis will be a recognition that all parts of society must make their contribution. Some of the companies that we have been talking about today should be at the top of the list for ensuring that we all pay our way.