Panama Papers

Baroness Stowell of Beeston Excerpts

Monday 11th April 2016 Lords Chamber

[The Lord Privy Seal (Baroness Stowell of Beeston) (Con)]

My Lords, with the leave of the House, I will now repeat a Statement made by my right honourable friend the Prime Minister in another place. The Statement is as follows:

“With permission, I would like to make a Statement on the Panama papers.

Dealing with my own circumstances first, yesterday I published all the information in my tax returns not just for the last year, but for the last six years. I have also given additional information about money inherited and given to me by my family, so people can see the sources of income that I have: my salary, the benefit in kind of living in No. 10 Downing Street, the support my wife and I have received in my job as leader of the Conservative Party, the renting out of our home and the interest on the savings I have. Since 2010, I have not owned any shares or investments.

The publication of a Prime Minister’s tax information in this way is unprecedented, but I think it is the right thing to do. But let me be clear: I am not suggesting that this should apply to all MPs. The Chancellor has today published information on his tax return, in a similar way to the shadow Chancellor and the First Minister for Scotland. This begs the question of how far the publication of tax information should go. I think there is a strong case for the Prime Minister and the leader of the Opposition, and for the Chancellor and the shadow Chancellor, because they are people who are or who wish to be responsible for the nation’s finances.

As for MPs, we already have robust rules on Members’ interests and their declaration, and I believe that is the model that we should continue to follow. We should think carefully before abandoning completely all taxpayer confidentiality in this House, as some have suggested. If this were to come in for MPs, people would also ask for a similar approach for those who ask us questions, those who run large public services or lead local government, or indeed those who edit the news programmes or newspapers. I think this would be a very big step for our country. It certainly should not take place without a long and thoughtful debate, and it is not the approach that I would recommend.

Let me deal specifically with the shares my wife and I held in an investment fund or unit trust called Blairmore Holdings, set up by my late father. The fund was registered with the UK’s Inland Revenue from the beginning. It was properly audited, and an annual return was submitted to the Inland Revenue every year. Its share price was listed in the Financial Times. It was not a family trust; it was a commercial investment fund for any investor to buy units in. UK investors paid all the same taxes as with any other share, including income tax on the dividends every year.

There have been some deeply hurtful and profoundly untrue allegations made against my father, and I want to put the record straight. This investment fund was set up overseas in the first place because it was going to be trading predominantly in dollar securities, so like very many other commercial investment funds, it made sense to be set up inside one of the main centres of dollar trading.

There are thousands of these investment funds and many millions of people in Britain own shares, many of whom hold them through investment funds or unit trusts. Such funds, including those listed outside the UK, are included in the pension funds of local government, most of Britain’s largest companies and, indeed, even some trade unions. Even a quick look shows that the BBC, the Mirror Group, Guardian Newspapers and—to pick one council entirely at random—Islington all have these sorts of overseas investments. To give one further example, Trade Union Fund Managers Ltd, based in Congress House, has a portfolio of more than £50 million of investment in the trade union unit trust, with 3% of its net assets based in Jersey. This is not to criticise what it does; it is to make the point that this is an entirely standard practice, and it is not to avoid tax.

One of the country’s leading tax lawyers, Graham Aaronson, QC, has stated unequivocally that this was,

‘a perfectly normal type of collective investment fund’.

This is the man who led the expert study group that developed the general anti-abuse rule—so much debated and demanded in this House—which Parliament finally enacted in 2013. He also chaired the 1997 examination of tax avoidance by the Tax Law Review Committee. He has said that it would be,

‘quite wrong to describe the establishment of such funds as “tax avoidance”’.

and, further, that,

‘it would be utterly ridiculous to suggest that establishing or investing in such funds would involve abusive tax avoidance’.

That is why getting rid of unit trusts and other such investment funds that are listed overseas has not been part of any Labour policy review, any Conservative Party policy review or any sensible proposals for addressing tax evasion or aggressive tax avoidance.

Surely, it is said, investors in these funds benefit from their being set up in jurisdictions with low or no taxes. Again, this is a misunderstanding. Unit trusts exist to make profit not for themselves but for the holders of the units. Those holders pay tax, and if they are UK citizens, they pay full UK taxes.

It is right to tighten the law and change the culture around investment to further outlaw tax evasion and discourage aggressive tax avoidance, but as we do so, we should differentiate between schemes designed to artificially reduce tax and those that are encouraging investment. This is a Government—and this should be a country—who believe in aspiration and wealth creation. We should defend the right of every British citizen to make money lawfully. Aspiration and wealth creation are not somehow dirty words. They are the key engines of growth and prosperity in our country and we must always support those who want to own shares and make investments to support their families.

Some people have asked, ‘If this trust was legitimate, why did you sell your shares in January 2010?’. I sold all the shares in my portfolio that year because I did not want any issues about conflicts of interest—I did not want anyone to be able to suggest that, as Prime Minister, I had any other agendas or vested interests. Selling all my shares was the simplest and clearest way that I could do that.

There are strict rules in this House for the registration of shareholdings. I have followed them in full. The Labour Party has said it will refer me to the Parliamentary Commissioner for Standards. I have already given her the relevant information, and if there is more she believes I should say, I am very happy to say it.

I accept all of the criticisms for not responding more quickly to these issues last week, but, as I have said, I was angry about the way my father’s memory was being traduced. I know he was a hard-working man and a wonderful dad, and I am proud of everything he did to build a business and provide for his family.

On the issue of inheritance tax, there is an established system in this country. I believe that, far from people being embarrassed about passing things to their children—for example, wanting to keep a family home within the family—it is a natural human instinct and something that should be encouraged. As for parents passing money to their children while they are still alive, that is something that the tax rules fully recognise. Many parents want to help their children when they buy their first car, get a deposit for their first home or face the costs of starting a family. It is entirely natural that parents should want to do those things, and, again, something that we should not just defend but proudly support.

Let me turn to the Panama papers and the actions that this Government are taking to deal with tax evasion, aggressive tax avoidance and international corruption more broadly. When we came into office, there were foreigners not paying capital gains tax when selling their UK homes, private equity managers paying a lower rate of tax than the people who cleaned their offices, and rich homebuyers getting away without paying stamp duty because houses were enveloped within companies. We have put an end to all those things. In the last Parliament alone, we made an unprecedented 40 tax changes to close loopholes, raising £12 billion. In this Parliament, we will legislate for more than 25 further measures, forecast to raise £16 billion by 2021. No British Government, Labour or Conservative, have ever taken so much robust action in this area.

Through my chairmanship of the G8 at the summit at Lough Erne in 2013, I put tax, trade and transparency on the global agenda, and sought agreement on a global standard for the automatic exchange of information over who pays taxes and where. Many said it would never happen, but today 129 jurisdictions have committed to implementing the international standard for exchange of tax information on request, and more than 95 jurisdictions have committed to implementing the new global common reporting standard on tax transparency. Under that new standard, we will receive information on accounts of UK taxpayers in all those jurisdictions. In June this year, Britain will become the first country in the G20 to have a public register of beneficial ownership, so everyone can see who really owns and controls each company. This Government are also consulting on requiring foreign companies that own property or bid on public contracts to also provide their beneficial ownership information, and we are happy to offer technical support and assistance to any of the devolved Administrations also considering these measures.

However, as the revelations in the Panama papers have made clear, we need to go even further. We are taking three additional measures to make it harder for people to hide the proceeds of corruption offshore; to make sure that those who smooth the way can no longer get away with it; and to investigate wrongdoing. First, let me deal with our Crown dependencies and our overseas territories that function as financial centres. They have already agreed to exchange taxpayer financial account information automatically, and will begin doing so from this September. That never happened before I became Prime Minister and got them round the Cabinet table and said to them that this must happen. But we need to go further. Today I can tell the House that we have now agreed that they will provide UK law enforcement and tax agencies with full access to information on the beneficial ownership of companies. We have finalised arrangements with all of them, except Anguilla and Guernsey, both of which we believe will follow in the coming days and months. For the first time, UK police and law enforcement will be able to see exactly who really owns and controls every company incorporated in these territories—the Cayman Islands, British Virgin Islands, Bermuda, the Isle of Man, Jersey, the lot. This is the result of a sustained campaign, building on the progress we made at the G8, and I welcome the commitment of the Governments of those territories to work with us and to implement these arrangements. The House should note that this will place our overseas territories and Crown dependencies well ahead of many other similar jurisdictions but also, crucially, ahead of many of our major international partners, including some states in the United States of America. Next month we will seek to go further still, using our anti-corruption summit to encourage consensus not just on exchanging information but on publishing it and putting it in the public domain, as we are doing here in the UK. We want everyone with a stake in fighting corruption, from law enforcement to civil society and the media, to be able use these data and help us root out and deter wrongdoing.

Next, we will take another major step forward in dealing with those who facilitate corruption. Under current legislation, it is difficult to prosecute a company that assists with tax evasion, but we are going to change that. We will legislate this year for a new criminal offence to apply to corporations that fail to prevent their representatives from criminally facilitating tax evasion. Finally, we are providing initial new funding of up to £10 million for a new cross-agency task force to swiftly analyse all the information that has been made available from Panama and take rapid action. The task force will include analysts, compliance specialists and investigators from across HMRC, the National Crime Agency, the Serious Fraud Office and the Financial Conduct Authority.

This Government will continue to lead the international agenda to crack down on tax evasion and aggressive tax avoidance. This battle is important and it needs to be combined with the approach that we take in this country. Having low tax rates but taxes that people and businesses pay is how we will tackle these issues and build a strong economy that can fund the public services we need. It is that strong economy, creating jobs and rewarding aspiration, that is the true focus of this Government, and something that would never be safe under the party opposite. I commend this Statement to the House”.

My Lords, that concludes the Statement.

--- Later in debate ---

[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.

[Lord Howarth of Newport (Lab)]

My Lords, on the question of international corruption, will the Government now abolish the tier 1 visa system, established in its present form by the coalition? It is effectively an arrangement for selling passports to wealthy foreigners with such due diligence as is performed carried out by banks, which the National Crime Agency tells us are laundering billions of dollars every year. For a loan to the Government of as little as £2 million invested in gilts, a so-called international investor can acquire the right to reside in Britain. Is the noble Baroness aware that this is a charter for money laundering while, in the words of the Migration Advisory Committee, bringing “absolutely no gain” to Britain in terms of the kind of international investment that we ought to be seeking? The largest number of tier 1 visas have been granted to wealthy individuals from Russia and China, many of whom have used their money to force up the price of homes in London, with the cascade of misery that follows from that. Will Russia and China be attending the anti-corruption summit in May?

[Baroness Stowell of Beeston]

I am not able to provide a full guest list of those who are going to be at the anti-corruption summit in May. On the noble Lord’s question about tier 1 visas, that is a matter that I will have to follow up with him in writing: it is not one that I have information on right now. I can say to him that part of the action that this Government have been taking over the past few years and will continue to take is about tackling money laundering. What we are trying to do here is tackle crimes. We want to eradicate corruption. We want to go after the criminals and do everything that we can. If there are avenues open to us that we have not yet pursued, we will be pursuing them with great vigour because that is what we want to achieve. All I can do is reassure the noble Lord that a lot has been done, but clearly there is more. If there is more that we can do, we will not be shy in coming forward with further steps.

[Lord Davies of Stamford (Lab)]

My Lords, the noble Baroness said that the gap in this country between tax due and tax paid is narrower than it has ever been. How does she know? How does she, or anyone, calculate the amount of tax that is due but undeclared and unpaid?

[Baroness Stowell of Beeston]

That is something that is an established way of recording. The noble Lord has challenged me, and I feel that I am entering into a zone where I am going to be asked about lots of technical financial matters that I am afraid I am probably not the best person to be able to respond on in detail. If I can provide the noble Lord with further information in writing, I will, but I assure him that this is a statement of fact and, I say to him, one that surely it should be pleasing to hear. We want to ensure that we collect as much tax as we possibly can. If we are collecting more than we have ever done before, that is a good thing.

[The Lord Bishop of Coventry]

My Lords, I am mindful that the OECD has estimated that tax havens may be costing developing countries up to three times the global aid budget. I am also mindful of the role of UK overseas territories and Crown dependencies in the international movement of finance. I very much welcome the Prime Minister’s Statement about transparency and making the exchange of information available to particular agencies, and I also welcome the clarifications that the noble Baroness the Leader of the House gave. Perhaps I may ask for a little clarification on the Prime Minister’s point about taking that further and putting the information in the public domain. Am I right in thinking that, as well as encouraging other countries to do that, there will be a particular focus on the UK overseas territories and Crown dependencies, bearing in mind our responsibilities towards them and with them?

[Baroness Stowell of Beeston]

My Lords, I can tell the right reverend Prelate that the register of beneficial ownership, which will be established in the United Kingdom, will, from June, be available publicly to anybody who wants to access it.

The overseas territories and Crown dependencies have committed to collate the relevant information on beneficial ownership so that our law enforcement agencies are able to access it. That is a step forward and a significant improvement on the current situation. They have not committed to preparing a public register but nor has any other country around the world, so I think we should acknowledge the positive steps that the Crown dependencies and overseas territories are taking. Clearly, we will continue to work with them so that they always look at taking further steps. We will make sure that they are in a strong position by adopting the standards that we would expect of any overseas territory, any Crown dependency or any place associated with the United Kingdom, so that they are chosen as places where those who are respected can invest in a respectful way and so that they, as nations, can prosper from those investments.

[Lord Harris of Haringey (Lab)]

My Lords, the Prime Minister has set a precedent by publishing his tax arrangements. I gather that others have followed suit, including the Chancellor of the Exchequer and my right honourable friend the leader of the Opposition. Does the noble Baroness the Leader of this House think that this is a precedent that should extend to Members of your Lordships’ House, as it is clearly going to be an inexorable precedent in the other place?

[Baroness Stowell of Beeston]

My Lords, the Prime Minister made clear in his Statement why he thinks it is appropriate for him and the Chancellor, as those responsible for the nation’s finances, to publish their tax returns. He also explained why he does not believe that that should be extended to other public figures. Your Lordships’ House has very clear rules about us all being UK residents and UK domiciled for tax purposes, and those were brought in just before the 2010 election. There is a very clear and robust requirement in terms of the register of interests. I remind noble Lords that a failure to make a declaration or entry in the register is a very serious matter, and any claims of any of us not doing so properly are pursued rigorously. I would always urge anybody who has any information on any of us that they want to see pursued to submit their complaint to the commissioner. We have that strong regime in place but clearly we must always keep under review how our code of conduct works, how we apply it and how it is administered, and that is a matter of course and of routine. However, the Prime Minister has made clear his views on extending the declaration that he has made today and the publication of income tax returns, and at the moment I do not see us going beyond that.