Low and No-Tax Jurisdictions

Baroness Neville-Rolfe Excerpts

Thursday 30th January 2025 Lords Chamber

[Baroness Neville-Rolfe (Con)]

My Lords, I begin by congratulating my noble friend Lady Coffey on her excellent speech. I eagerly look forward to working with her and taking advantage of both her ministerial and business experience. It is not every day that one speaks after a former Deputy Prime Minister, and I share her love of culture, racing and music. I was pleased to hear her refer to our own noble friend Lady Stedman-Scott and to her time at the DWP, where I undertook a review of the state pension age, which, at the time, was quite widely welcomed. I always wondered who was behind that amusing judgment on Jaffa cakes—now we all know.

I also agree with my noble friend that where companies are headquartered is very important. In my own experience, there are pluses, such as R&D centres and community outreach, which are usually lost when companies move abroad. We need a Government who promote investor confidence and certainty, as my noble friend explained, in order to keep our innovative companies in the UK and attract new ones.

As the noble Baroness, Lady Kramer, did, I thank the noble Lord, Lord Sikka, for initiating this debate. He and I sometimes agree on what the Government are doing wrong, although our philosophies are different. He has set out a coherent set of principles from a left-wing perspective. I think differently, not least because I believe in the importance of the private sector and innovative companies in driving growth, but that does not detract from his consistency and persistence.

For decades, some multinational corporations have funnelled billions of pounds in profits to minimise tax, especially to lower their exposure to corporation tax. This is achieved by various methods. For example, a company may sell intellectual property to a subsidiary in a low-tax country and pay the subsidiary for the use of that intellectual property, or goods and services may be traded between subsidiaries at manipulated prices to allocate profits to the tax haven entity. We have heard examples from the noble Viscount, Lord Hanworth, including the reports this week about the arrangements for the Abramovich yachts. What is the Government’s attitude to that arrangement? That said, it is imperative that businesses and their capital should be able to move freely so that there is international investment and the benefits of comparative advantage are realised.

The previous Government made significant progress in tackling the transfer of businesses’ profits to low-tax and no-tax locations. We constantly stressed our commitment to combating tax avoidance and pledged to raise an additional £6 billion annually. In 2018, we announced a digital services tax to ensure that digital businesses paid tax that reflected the value they derived from UK users, as an interim measure, pending an international agreement to reform the corporate tax framework. I supported it in this House, drawing on my own experience in the retail sector, where the tech giants held an unfair advantage because they did not pay much VAT and had much lower business rates. That reality has not changed. The noble Baroness, Lady Kramer, said that it was the sector of most concern to her.

Then, in 2022, as we have already heard, we confirmed that we would implement the OECD pillar 2 rules for a global minimum corporate tax rate, for accounting periods beginning after 2023. Pillar 2 applies a “global minimum tax” of 15% to the profits of multinational groups whose revenue exceeds €750 million per year. Provision to this effect was included in the Finance Act 2023 and further provisions were included in the Finance Bill 2023-24. As a result, the OBR estimated that the implementation of these reforms could raise £2.8 billion in 2028-29.

Due largely to measures taken by the previous Government, as my noble friend Lord Leigh of Hurley said, the UK has one of the most robust anti-base erosion and profit shifting regimes in the world.

That was the position until very recently. But the US has always been unenthusiastic about this whole process and this attitude is most marked in the Republican Party. The US has very recently withdrawn from the OECD deal in full. This is explosive stuff. US firms are some of the most prominent among those whose activities have caused the problems to which I have referred. The US announcement upends all plans and expectations. There are strong hints that UK interests might be adversely affected as a consequence. For example, our digital services tax and the undertaxed profits rule might be in the present Administration’s sights. The Minister may be able to confirm the sums involved. As I understand it, DST was forecast by the NAO in 2022 to raise £862 million by 2024-25. UTPR is only just beginning to take effect but is due to raise £550 million by 2029-30, according to the HMRC policy paper of last October on multinational top-up tax.

In short, the path along which we were proceeding now looks to be full of problems. An alternative to sticking to these taxes is the risk of costly tariffs if an accommodation cannot be found with the Trump Administration; in other words, the world has changed and we need to reflect how best to respond to this change. What is the Government’s assessment of all this—including my noble friend Lord Leigh’s question about the impact of the future lack of information sharing? How will they respond and, most importantly, how will they protect UK interests? I look forward to hearing the Minister’s thoughts on this extremely important issue.

The disadvantages of corporations shifting profits to low-tax or non-tax jurisdictions are well known; there is no need for me to go on about them, except to say that they represent a serious problem for UK economic interests. These disadvantages apply whatever the US Administration might do, but we now need a fundamental rethink about how we can best deal with these disadvantages in the world as it now is and tackle the problems that we jointly see.

My noble friend Lord Leigh of Hurley has come forward with various alternative proposals on VAT and its enforcement. In 2021, the Conservative Government introduced changes to limit profit shifting, from which the OBR then scored substantial revenue. If there is good reason to believe that these have not been as effective as they should have been, as my noble friend suggested, I would encourage Ministers to look at them again. I believe that his points merit serious consideration.

I had intended to end by outlining how the Government’s recent actions have damaged the economy. It remains true that, by talking the economy down, making large increases in employment taxes and crushing companies under new employment regulations, the Government are making fundamentally wrong and anti-growth choices. The consequence is a flat economy killed stone dead by the Budget—even Tesco followed Sainsbury’s with job cuts this week—and a potentially chilling effect on investment from overseas.

Yet these actions—foolish as they were—are only marginally relevant to today’s subject. It is well-run businesses in a thriving public sector that create jobs and wealth. They rely on the Government of the day to deal with the complexities of international tax and negotiate arrangements that are effective and fair to UK plc. The Trump challenge on tax is serious and I look forward to hearing how the Government plan to address it.