Corporate Tax Avoidance

Caroline Lucas Excerpts

Monday 7th January 2013 Commons Chamber

[Ian Swales]

I thank the hon. Gentleman for that intervention. I totally agree with him. The idea that large companies see their tax payments as voluntary, or as some kind of contribution they feel like making, is completely out of order. I will discuss the competition aspects later.

[Caroline Lucas (Brighton, Pavilion) (Green)]

The hon. Gentleman is making a compelling argument about how tax avoidance has grown in recent years. By 2015, the number of staff employed by Her Majesty’s Revenue and Customs will have fallen by 40,000 since 2005. Does he agree that this apparent bid to save money is entirely counter-productive, given that if we had those members of staff at HMRC we would be much more likely to be able to crack down on avoidance?

[Ian Swales]

The hon. Lady makes a powerful point. I will say more about that later, but I agree with her that we need more resource in the whole area of enforcement.

I was talking about my experience and how we would never have set up legal entities in countries just to avoid tax. Now, News International has more than 150 companies in tax havens. Transfer pricing, management fees, royalties, patent, copyright and interest payments are all ways to move money. The moving of whole businesses and headquarters to new jurisdictions is also becoming much more common.

Let us remember that companies that are prepared to go to elaborate lengths to avoid corporation tax may seek to avoid other taxes, too. If the BBC was making wide use of tax-avoiding personal service contracts for staff, we can be sure that some private sector companies are doing so, too. At a recent Public Accounts Committee hearing, Amazon told me that it raises UK VAT and pays it to the taxman, but it is a Luxembourg company; it also claimed that it did not even know the value of its sales to the UK. Someone wrote to me after the hearing confirming that they could not get a VAT invoice for their new iPad, bought for business purposes. Amazon said that

“we are unable to provide a VAT number as we are registered overseas”.

--- Later in debate ---

[Ian Swales]

I thank my hon. Friend for the intervention. I am not familiar enough with how such a rule would be structured, but the idea would certainly be helpful.

[Caroline Lucas]

May I suggest that all Members look at the private Member’s Bill introduced by the right hon. Member for Oldham West and Royton (Mr Meacher)? The Bill refers to the importance of a general avoidance principle rather than rules. The problem with rules is that people can bend them and get round them. A general avoidance principle is much harder to get round and has much wider scope. That is the route the Government should be taking.

--- Later in debate ---

[Jim Sheridan (Paisley and Renfrewshire North) (Lab)]

I rise as a sponsor of early-day motion 867, which deals with the behaviour of Google and its tax avoidance statements. As the sad person I am, over the festive period I took the opportunity to catch up with the work of some of our Select Committees, particularly the excellent work of the Public Accounts Committee, chaired by my right hon. Friend the Member for Barking (Margaret Hodge). Having watching Committee members try to get reasonable answers out of some of the big corporations, I can understand their frustration. In my view, they treated the Committee with contempt, simply smirking when asked any serious question. Likewise, when Google representatives appeared before the Culture, Media and Sport Committee, of which I am a member, the public affairs spokesperson, whom I am reliably informed is a former No. 10 adviser, when asked any serious question, replied, “That’s above my pay grade.”

It seems to me that those large corporations are treating Parliament, and indeed politicians, with utter contempt. We are well aware of the statement by Google, but there is also the statement from the chief executive of WPP, who said that corporation tax paid was largely “a question of judgment” and that it paid it more out of a sense of corporate social responsibility. Experience tells me that we should not hold our breath if we are waiting for corporate social responsibility.

There is a serious problem, and in order to solve a problem we must first look at its size. General corporation tax receipts from big businesses have dropped from £26 billion in 2000-01 to £21 billion in 2011-12, a 20% decline but a 65% increase in profits. In October 2012 companies paid £7.8 billion, down from £8.7 billion in October 2011. The Office for Budget Responsibility predicted that corporate tax receipts would grow by 4% this financial year, but they are actually down by 10%. HMRC estimates that the tax gap—the difference between what should be received and what is received—is £4.1 billion. That would pay the salaries of 153,000 nurses or 164,000 police officers, or for 430,000 nursery places. Indeed, if the Treasury closed the tax gap, it would cover almost a third of the expected deficit for 2012-13. As has already been alluded to, 98% of FTSE 100 firms have at least one subsidiary in a tax haven. The cost of tax havens is estimated at £160 billion annually. That is in excess of all the aid flowing now.

There is hope, hopefully. The Chancellor has pledged more resources for the Organisation for Economic Co-operation and Development to create a levy catching earnings of multinational firms. Indeed, he has announced an extra £77 million a year for two years to fund more HMRC staff to pursue companies that are not paying their taxes. However, his close friend the Chief Secretary to the Treasury, the right hon. Member for Inverness, Nairn, Badenoch and Strathspey (Danny Alexander), said that we should not name and shame firms that avoid tax as that would breach taxpayers’ confidentiality. To return to a point made earlier, I think that we should be looking at fair tax in the same way we looked at fair trade.

The well-respected organisation Christian Aid has put out a briefing highlighting the headlines of tax avoidance and some statistics to go with it. A recent study has shown that in excess of £13 trillion might be hidden in tax havens beyond the reach of tax authorities. The cost to developing countries is estimated to be £160 billion annually, which is far in excess of the global aid flowing at the moment. A recent UK survey showed that 56% of adults polled believed that tax avoidance was morally wrong and 74% felt that the Prime Minister should be demanding international action to tackle tax evasion and avoidance. We look forward to the G8 summit in Ireland, where the Prime Minister and the Chancellor have promised to take the whole question of tax extremely seriously.

[Caroline Lucas]

I am grateful to the hon. Gentleman for giving way and for his words on fair taxation. Does he agree that transparency is an absolutely fundamental principle at the heart of fair taxation and, in that respect, does he agree that the Government should be supporting country-by-country reporting, as set out in my private Member’s Bill, the Tax and Financial Transparency Bill, in the previous Session? Is that the kind of measure he would support?

[Jim Sheridan]

We need transparency in the system, because if we do not have transparency we will not be able to find out where the problem is, so I would fully support such a private Member’s Bill.

I will move on to what is commonly known as the people’s game: football. The Independent on Sunday has conducted an investigation into “Football’s tax shame”. It states:

“Britain’s Premier League football clubs are awash with money. They pay star players £250,000 a week, and turn over £2.2bn a year. Yet records show they paid only £3m in corporation tax last year… according to analysis of their most recent accounts.”

That money comes from the spectators, the hard-working men and women who buy the products and go to the games. The article continues:

“This is an effective tax rate of 2 per cent. Equally startling is that a profit of £150m made by eight clubs is all that the Premier League has to show for a turnover of about £2.2bn a year. Five clubs, including Manchester United, Newcastle United and Tottenham Hotspur, paid no tax at all, despite a combined surplus of more than £70m. Blackpool, relegated from the Premier League last year, paid just over £100,000 on profits of £21m—a rate of 0.5 per cent. The club was able to pay minimal tax on its substantial profits because of the effects of a £6.7m loss the year before. The club also donated just over £5,000 to charities. Of the other profitable elite clubs, Arsenal had the biggest potential tax bill—£7m on group profits of £36.6m—but paid less than half a million pounds while deferring more than £6m. West Bromwich Albion topped the company tax table, paying £1.8m on £18.9m profits. The club accounts of those that made a profit cover the financial year 2010-11, with the exception of Manchester United and Arsenal, which have both recently published their 2011-12 accounts. None of the clubs has acted illegally and all of them pay big sums in PAYE and other taxes.”

We should not buy the argument about the complexities of the tax system being the reason people do not pay their taxes. There is nothing complicated about saying to big corporations, “If you make and sell your products in this country, you pay the appropriate tax.” That is not too complex, and that is the road we should be going down.