Panama Papers

Baroness Smith of Basildon Excerpts

Monday 11th April 2016 Lords Chamber

[Baroness Smith of Basildon (Lab)]

My Lords, I thank the Leader of the House for repeating the Prime Minister’s Statement. It has been a difficult week for the Government. For most people, the reports that they have heard over the past week or so about offshore investments, tax havens and corporate tax avoidance are way outside of their personal experience. Most people are still going to open bank accounts in their local high street, if they can find a branch open. So the press reports will not be fully understood by everyone, but three things emerge. Overwhelmingly, most people have said that they were very familiar with reports on the Panama papers, with just over 4% of those aged 65 and over saying that they were not—so most people have read the information and heard what is going on. There is a general attitude from most people that, even without understanding the full details, something here is not quite right. But only 8% of people said that they were surprised at the reports. For me, that indicates a cynicism about the finances of those in the public eye and highlights a necessity for public confidence in financial regulatory regimes.

George Osborne said in his Budget Statement last month that people,

“talked about social justice, but left enormous loopholes in our tax system for the very richest to exploit”.—[Official Report, Commons, 16/3/16; col. 956.]

When he said that, I do not think that he was anticipating the Panama papers. What has become clear, as news from across the world shows, is that not everyone who holds such offshore accounts or funds welcomes the transparency that this leak has brought—not because they have done anything illegal or necessarily wrong but because they never intended it to be public. Clearly, some have found it very difficult and for others it has had serious consequences.

I have a few questions for the Leader of the House on the Statement. It reports that Crown dependencies and overseas territories have agreed automatically to exchange taxpayer financial information from September. That is welcome, but it has taken some time, as my understanding is that these negotiations were initiated and made progress under the Labour Government. I ask specifically about bearer shares, when the identity of the investor or beneficiary is secret. Holding such shares is illegal for UK companies, but can she confirm that it is legal for a UK citizen to hold funds in bearer shares in other countries? If it is not, what is the penalty?

The Statement also says that there will be new legislation this year,

“to apply to corporations who fail to prevent their representatives from criminally facilitating tax evasion”.

Your Lordships’ House will appreciate that that is not a new announcement. In fact, the Government have already consulted on this, and published the consultation responses last December. The report on responses to the consultation last year, under the fourth item, “Next steps”, said that there would be further consultation early in 2016, including seeking views on,

“the merit and content of industry drafted guidance”.

Why is further consultation needed after there has already been a consultation? Is that approach of industry-drafted guidance really appropriate, and has that consultation, which was promised for early 2016, yet been published? Given that we have an extra consultation, is this an opportunity for the Government to take account of the recommendations from the Parliamentary Commission on Banking Standards in its report, Changing Banking for Good? That commission included Peers from across your Lordships’ House, including the most reverend Primate the Archbishop of Canterbury and the noble Lords, Lord Lawson and Lord McFall. Following their work, and having taken evidence, they were clear that it is not just corporate responsibility that is needed—they recommended individual responsibility. The commission received considerable evidence, including from bankers themselves, that led it to the recommendation that, without such individual responsibility, it would be impossible to crack down on banking failures and problems. Does the Leader of the House really believe that, without individual responsibility, the legislation proposed would be an adequate deterrent?

The fines and compensation paid by UK banks in the past 15 years come to more than £53 billion, which is six times the cost of the 2020 Olympics. It is an almost inconceivable amount of money. Yet no one has ever gone to prison and only one person has ever been held personally culpable and personally fined, to the tune of half a million pounds. I think that the Chancellor raised the point that it is the customers and shareholders who bear the cost of that failure, not the senior managers, who are supposed to be rewarded for being responsible. Yet there are numerous accounts of those who have wrongly claimed benefits and been sent to jail. A quick internet search finds dozens of cases where false claims of £30,000 or less have led to custodial sentences. So will the recommendations from the Parliamentary Commission on Banking Standards be considered as part of this new consultation on corporate responsibility so that the Government can consider individual responsibility as well?

Will the noble Baroness explain why the Government lobbied the EU against plans to tackle tax avoidance? Conservative MEPs have regularly voted against measures to deal with aggressive tax avoidance and press reports suggest that the Prime Minister personally intervened to block EU plans to take action on tax havens. It would be helpful for your Lordships’ House if the noble Baroness could clarify those points.

Finally, on enforcement, the commitment of a £10 million cross-agency task force is welcome. Additional funding is clearly essential, especially given the cuts that have been made to HMRC. In the last Budget, the Chancellor made a strong case for bearing down on tax avoidance and evasion, especially in relation to the impact on public finances, and I think we would agree on that. In terms of ensuring that taxes are paid, the OBR reported just last month:

“HMRC is also now less optimistic about how much of the lost yield can be recouped through additional compliance activity, on the basis that they are unlikely to be able to work the higher number of additional cases on top of existing workloads”.

To date, the Chancellor has refused requests better to resource HMRC. How will the £10 million referred to today be allocated? Will it go directly to HMRC or is it something to be found from within existing Treasury budgets?

I am grateful to the noble Baroness for repeating the Statement and I look forward to her response in answer to those questions.

[Lord Wallace of Tankerness (LD)]

My Lords, I, too, thank the noble Baroness the Leader of the House for repeating the Prime Minister’s Statement. As I observed to my noble friend Lady Kramer, if when we went into recess on 23 March we had thought that on the first day back there would be a Statement entitled “Panama Papers”, we would wonder what in the world had been going on. However, they relate to a very important issue because it is at the core of our politics.

It is, I think, agreed on all sides of your Lordships’ House that people in this country should have full confidence in our leaders and that when decisions are made and Budgets are written there is not even the slightest hint of a conflict of interest or personal gain. Regrettably, we are now in a position where not only do people no longer have complete faith in this Government’s decisions but, more fundamentally, trust in politics and in our ability to get things done has been damaged by the events of the past week. It is a poor indictment of our political system that there is now such a great demand to see politicians’ tax affairs and that trust in politics is now so low that there is almost an assumption that a politician is doing wrong, playing the system or is “at it”, and there is the cynicism referred to by the noble Baroness, Lady Smith of Basildon. In the nearly 33 years since I was first elected to the House of Commons, I have known politicians from right across the political spectrum. With very few exceptions, I can say that whatever our differences in political outlook—and some of the differences have been quite fundamental—my experience has been of men and women united in the common purpose of public service. Sadly, that is not always the common perception, so there must be change.

There has been some discussion about the Prime Minister’s personal affairs. Frankly, they are beside the point. Indeed, if this issue triggers an avalanche of published tax returns, and consequent personalisation as they are pored over and individuals are identified, there is a danger that the fundamental point of the weaknesses in the current system will be missed. For, miles removed from the Prime Minister’s personal tax affairs, these Panama papers have shown up dictators stealing from their people from Sudan to Syria, from the family of Mubarak to the friends of Putin, aiding warlords and leaders ripping off developing countries which need the most help. The epicentre of much of this activity would appear to be in a number of British Overseas Territories. At its peak in 2005, it was claimed that there were more than 7,000 somewhat dodgy deals in the British Virgin Islands alone. We have some responsibilities there, so can the Leader of the House guarantee that the Prime Minister will use the options available to him to ensure that those under the UK’s watch can no longer be complicit in helping dictators and other unsavoury characters?

When, not so long ago, the Prime Minister asked British Overseas Territories to reform their activities, particularly in relation to disclosure of beneficial interests in companies registered there, they said no, and he backed down, but today we are told that they will provide UK law enforcement and tax agencies with full access to information on the beneficial ownership of companies. That turnaround is very welcome, but can the noble Baroness tell us whether at the anti-corruption summit this May it is intended to press overseas territories to make available to tax authorities in other countries with a legitimate interest in the information a central list of beneficial ownership in each fund created?

In coalition government, the coalition parties, including the Liberal Democrats, took unprecedented action to clamp down on tax avoidance and evasion, very much at the prompting of my colleague Danny Alexander. I am sure the noble Baroness will like to confirm that we made 42 changes to tax law, closing down loopholes and making strategic changes to deter and prevent tax avoidance. We invested nearly £1 billion in HMRC to make sure that everyone pays their fair share of tax and increased the number of staff working to tackle tax avoidance by 2,500. Will she confirm that we strengthened the disclosure of tax avoidance schemes—DOTAS—regime and introduced a tougher monitoring regime and penalties for high-risk promoters of tax avoidance schemes?

Will she also agree that there is more that can and should be done? Indeed, in March my party leader, Tim Farron, asked my colleague Vince Cable to lead a major review on tax to ensure that people can have faith in the system and to make sure it works in a truly globalised world. I hope that, in a spirit of non-partisanship, when that work is done the Government will be willing to look at it closely. We will of course want to examine closely criminalising those who assist in evasion, which has been announced by the Prime Minister, but can the noble Baroness confirm that that is the same policy that Mr Danny Alexander announced on 19 March 2015, when he unveiled plans to,

“make it a criminal offence for corporates to fail to prevent tax evasion or the facilitation of tax evasion on their watch”?

The noble Baroness the Leader of the Opposition foreshadowed that question. I am quoting from a press release by Her Majesty’s Treasury. Is this a reannouncement or is there is really something new?

In a similar view, will the noble Baroness the Leader of the House look again at some of the other proposals trying to tackle tax evasion that my right honourable friends put forward during the coalition, which were blocked by her party? Does she also recognise that the current anti-abuse rules, while an excellent start, can and should go further? Will the Government strengthen the penalties for participating in repeated avoidance schemes? Does she recognise that the changes the Government are bringing in will not even allow someone to be named unless they have been involved in three separate avoidance schemes, and that this is does not go far enough?

At the weekend, the secretary of the Church of Scotland’s Church and Society Council, the Reverend Martin Johnstone, tweeted:

“I hear #DavidCameron is being discriminated against for being rich. It's tough but easier than being discriminated against for being poor”.

In all this, we must not lose sight of what is really at stake: the need to rebuild faith in our politics by doing what matters, by reaching out and helping people, and by having a politics that works for people and their communities when it is their interests that are at the heart of how things are done. We must not lose this opportunity to change the system, so will the noble Baroness assure the House that the Prime Minister’s announcement today will be the start of a process to strengthen our anti-abuse rules and to rebuild trust in our politics?

[Baroness Stowell of Beeston]

My Lords, as always, I am grateful to the noble Baroness and the noble and learned Lord for their remarks. Before I respond to some of the specific questions that they put to me, I want to re-emphasise a couple of points in the Prime Minister’s Statement. While David Cameron has been Prime Minister of this country, we have done more to tackle tax evasion and aggressive tax avoidance than any Government before we came to power. Some of the evidence to illustrate the impact of our action has already been highlighted. We made 40 tax changes to close off loopholes which have brought in £12 billion. We have brought in £2 billion from offshore tax evaders since 2010. One of the points which is worth me highlighting, which has not been fully recognised, is that all this action, whether on tax avoidance or on closing tax loopholes generally, means that the gap between tax owed and tax paid is now at its narrowest point ever. That illustrates how much we believe in making sure that people pay the taxes they owe and that the actions we have taken have had a positive effect.

We have been leading efforts worldwide; it is not just about the things that we have done in this country. Thanks to the work of the UK, more than 90 countries have signed up to the automatic exchange of information. That means that agencies such as HMRC can now pursue avoiders and evaders in ways that they have never been able to before. Our determination to tackle corporate secrecy by shining a light on beneficial owners is going to be game-changing. I get civil servants briefing me on some of these technical matters, and when you start asking questions, you realise just how different things will be when all these measures are in place. I do not think that that has been properly understood and recognised. It is the right thing for us to do.

The anti-corruption summit that the Prime Minister will be hosting next month is the first one ever, and it follows from him taking the lead at the G8 in 2013. The noble and learned Lord is right that while we did a lot when we were in coalition with the Lib Dems, there is more to do and we will continue to pursue this while we are in government because it is absolutely the right thing for us to do.

I turn to the specific questions asked by the noble Baroness and the noble and learned Lord. I was asked about the new criminal offence. I would not want to say that the Lib Dems in coalition or indeed Danny Alexander should take credit in quite the same universal way that the noble and learned Lord was trying to claim in his remarks, but it is true to say that this is a new criminal offence, previously announced, and a lot of work has been undertaken in consultation to prepare for this legislation. That is a good thing. It is good that it has taken time for this to come through and that it has been widely consulted upon. It is not a knee-jerk reaction to any of the events of the past week; it will be properly thought-through new legislation. It will be part of the Queen’s Speech, and we will hear more about that when we introduce the legislation later this year.

The noble Baroness asked me why further consultation on the legislation was necessary. I do not think we are trying to pursue further consultation. The consultation has happened and we have produced a written response to it. As she would expect, as we finalise legislation—

[Baroness Smith of Basildon]

My Lords—

[Baroness Stowell of Beeston]

This is a Statement and I am responding to questions. If there is more information on this that I can provide afterwards then I will write to the noble Baroness if there is something specific.

The noble Baroness asked about the European Commission and what was described as the Prime Minister blocking something that the European Commission wanted to pursue by way of disclosure of the beneficiaries of trusts. At the time that the Prime Minister wrote his letter, the Government were concerned that what was proposed by the commission, which included all trusts, would distract from action against those areas of most concern, such as shell companies, and in practice these further changes were not achievable. In the subsequent negotiations we were able to secure a sensible way forward that ensures that trusts that generate tax consequences have to report their ownership to HMRC. In layman’s terms, I would say that that means the automatic exchange of information will very much provide the data and the information that are needed for the relevant agencies to pursue tax avoidance and evasion.

The noble Baroness asked about bearer shares. In the same letter to the noble Baroness I will provide further detail on the new legislation if I can, but it is fair to say that there are very few countries now that permit the issuance of bearer shares as a result of the work of the global forum on tax transparency, which we were very much in the lead on.

The noble and learned Lord, Lord Wallace, asked about some specific issues, most of which I think I have covered. He asked about the collection by Crown dependencies and overseas territories of data that will be available to our law enforcement agencies in this country. We are going to publish our own public register of beneficial ownership. The Crown dependencies and overseas territories will for the first time be collecting the data and making them available to the United Kingdom. I am not able to answer the noble and learned Lord’s specific question except to say to him, as the Prime Minister made clear in his Statement, that what these Crown dependencies and overseas territories are now committed to doing on the collection of data for us on their beneficial ownership—and, I should add, doing it with regard to the automatic exchange of information a year earlier than any of the other countries that have signed up to doing this—is something that many of our partner countries, such as states in the United States of America, do not even collate. The overseas territories and Crown dependencies are going to be collating it. That is a very big step forward, and we will continue to make all the progress that we can to ensure that in this country we go after aggressive tax avoidance. We will pursue every avenue that we possibly can.