Corporate Tax Avoidance

Catherine McKinnell Excerpts

Monday 7th January 2013 Commons Chamber

[Catherine McKinnell (Newcastle upon Tyne North) (Lab)]

Let me take this opportunity to wish you, Mr Speaker, and colleagues throughout the House a happy and productive new year.

I begin by commending the hon. Member for Redcar (Ian Swales) for securing this afternoon’s debate on corporate tax avoidance, an issue that provokes increasing attention from all parties in this House and about which the public’s awareness and media interest have probably never been higher. That is thanks in no small part to his and his colleagues’ work over the past year or so on the Public Accounts Committee, which is formidably led by my right hon. Friend the Member for Barking (Margaret Hodge). The quality and range of contributions that we have heard from Members of all parties build on those made during the excellent debate in September on tax avoidance and evasion, which was secured by my right hon. Friend the Member for Oldham West and Royton (Mr Meacher), who also spoke today, passionately and thoughtfully, about his General Anti Tax-Avoidance Principle Bill, or GAntiP.

I also commend the many valuable, thoughtful and powerful contributions made by my right hon. Friend the Member for Birkenhead (Mr Field) and my hon. Friends the Members for Paisley and Renfrewshire North (Jim Sheridan), for Edinburgh East (Sheila Gilmore) and for Hayes and Harlington (John McDonnell), and to those Government Members who have spoken, including the hon. Members for South Norfolk (Mr Bacon), for Lincoln (Karl MᶜCartney), for Cities of London and Westminster (Mark Field), for Bognor Regis and Littlehampton (Mr Gibb), for Amber Valley (Nigel Mills), for North Cornwall (Dan Rogerson), for Stevenage (Stephen McPartland), for Thurrock (Jackie Doyle-Price), for Dover (Charlie Elphicke), for Bristol West (Stephen Williams), for Eastbourne (Stephen Lloyd) and for Southport (John Pugh) and the right hon. Member for Bermondsey and Old Southwark (Simon Hughes). I hope that I have not missed anybody out.

Members have touched on a wide range of issues, many of which I will pick up on in my comments. There seems to be a degree of cross-party consensus on the problem. I am less sure that there is an entire consensus on the solution, but I am sure that we are all much better informed about the issue and members of the public will know the strength of our feeling about it after today’s debate.

I join those Members who have applauded the individuals and organisations who have fought for some time to move this issue up the political agenda, whether they be Private Eye, Reuters, the Tax Justice Network or development organisations such as Christian Aid, whose tax bus I joined in Newcastle last autumn. Today’s debate has vividly illustrated the fact that the issue of tax avoidance and the strength of feeling about it will not go away any time soon.

It is clear that many ordinary people and businesses are angry about corporate tax avoidance. They are angry about the unfairness and injustice of working hard and paying their far share in taxes while a small but significant number of incredibly wealthy and powerful multinational corporations go to great and complicated lengths not to do so—and get away with it.

Let me be clear—hon. Members have referred to this—that nobody doubts the importance of multinational corporations to the British economy in terms of the jobs they create and support, the investment they bring and the goods and services they provide to UK consumers. Labour absolutely believes that we need the most competitive tax and regulatory environment possible for British businesses as part of a wider package of measures to drive the economy back to growth.

People are angry, however, at the apparent ability of multinational corporations to use extremely complex and, indeed, aggressive tax-planning arrangements, devised and promoted by highly paid tax experts, to shift profits offshore that have actually been generated from economic activity here in the UK. These profits have been generated from hard-working, UK tax-paying consumers and firms, in what appears to be yet another example of one rule for those at the top and another rule for everybody else.

People are also angry at the hugely significant amounts of money being lost to the Exchequer at a time when living standards are being squeezed, Government borrowing and debt figures are up, growth forecasts have been downgraded yet again, and the public services on which we rely are being cut up and down the country. The Government’s priorities are to give a tax cut to millionaires while striving, low and middle-income families and pensioners are struggling to make ends meet, so it is little wonder that we are seeing increasing hostility to those multinational corporations that are managing to avoid paying their fair share—and, indeed, to a system that allows them to do so—when it appears that the poorest and often the most vulnerable in society are bearing the brunt.

We all know that there are varying assessments of the tax gap—the difference between the tax owed and the tax that would be collected if everybody complied with the letter and the spirit of the law. Her Majesty’s Revenue and Customs recent estimate stands at £32.2 billion, which differs from the estimates of other organisations, such as the Tax Justice Network, which puts the figure at £120 billion. Whatever the actual figure, a hugely significant sum of money is being lost to tax avoidance. Although those involved in this practice may believe that they are simply beating the taxman, their tax planning arrangements are actually beating our schools, hospitals, Sure Start centres and all the other vital services that rely on public expenditure. This issue is becoming ever more pressing in this period of austerity and growing Government debt.

What must be done? The recent recommendations of the Public Accounts Committee following its investigation into tax avoidance point us in the right direction. However, I will turn first to the Government’s response to the problem to date. It is fair to say that tackling tax avoidance has risen up the coalition’s agenda. I have no doubt that the light being shone by the Public Accounts Committee and others on this complex and sometimes murky world has speeded up that process.

The position in which the Government find themselves—being forecast to borrow £212 billion more than they planned two years ago and failing the one test they set themselves of balancing the books and getting the debt down by 2015—lends ever greater urgency to the situation. Indeed, the Prime Minister, who has previously described tax avoidance as “morally repugnant” pledged last week that he was going to make “damn sure” that “really aggressive tax avoidance” by multinational corporations would be stopped. He even went on to suggest that such behaviour lacked “moral scruples”. Those are tough words, but they have been questioned today by some Members, including those on the Government Benches, notably the hon. Member for Lincoln. We are yet to see those tough words being backed up by tough action.

The coalition has been making itself look busy in tackling tax avoidance with a series of recent announcements. The Chancellor’s announcement ahead of his autumn statement of £77 million of new funding for HMRC to expand its anti-avoidance and evasion activity was certainly welcome, but it is a tiny proportion of the more than £2 billion of swingeing cuts to HMRC that he is already pushing through. If the Government were really serious about tackling tax avoidance, they would at least rethink the plan to cut a further 10,000 staff from HMRC, which risks being a false economy, as was argued powerfully by my hon. Friend the Member for Hayes and Harlington.

Last year, HMRC officials brought in £16.7 billion over and above that returned by businesses and individuals. The Association of Revenue and Customs, which represents senior staff in HMRC, published a proposal in November outlining the case for £120 million of additional investment, arguing that it could deliver £3.7 billion to the Exchequer in return. I understand that the ARC is now developing a comprehensive investment proposal for the 2013 Budget, which sets out a long-term strategic approach to challenging and reducing the tax gap. It believes that the scale of the budget deficit and the tax gap are such that modest investment is no longer enough. It would be helpful if the Minister outlined today what discussions he has had or will have with the ARC on those proposals and if he acknowledged the contribution that HMRC could make to reducing the tax gap and the deficit if it was properly resourced.

There are serious concerns at HMRC that it is being stretched to the limit. Severe pressure is being caused by problems created by the Government’s policies, including the debacle over the changes to child benefit, which come into force today; the impending chaos of the introduction of universal credit, with its dependence on real-time information; and the unacceptable delays for taxpayers and businesses when trying to contact HMRC by phone. Will the Minister clarify whether the £77 million of funding announced in the autumn statement will see entirely additional staff brought into HMRC or whether existing staff will be diverted from other HMRC activity? Given the hugely complex nature of tax avoidance schemes and arrangements, will he outline the specific steps that he is taking to ensure that staff are sufficiently skilled and experienced to take on the highly paid army of accountants and consultants who are engaged in the avoidance industry? That is a crucial part of what we are discussing today and of what has been highlighted so effectively both this year and last year by the Public Accounts Committee.

There is a niggling feeling, whether rightly or not, that HMRC does not deal with multinational corporations and complex tax avoidance schemes in the way that it deals with other tax offences by smaller firms and individuals. In its treatment of companies such as Vodafone and Goldman Sachs, which have been mentioned by a number of Members and in particular by the hon. Member for South Norfolk, there is a sense that HMRC takes the easy road and cuts easy deals, whereas it comes down hard on people paying their plumbers cash in hand. If the Minister could clarify the resources that HMRC will receive to tackle the problem, that would provide some reassurance.

Of course, the nature of multinational corporations means that Britain cannot act alone in tackling the problem. It is therefore welcome that the Prime Minister has written to G8 leaders setting out that tackling tax evasion and avoidance will be one of his priorities for the UK’s presidency of the G8 in 2013. It is absolutely right that that is at the top of the G8 agenda, alongside promoting jobs and growth. I look forward to hearing from the Minister what specific measures he hopes the G8 will agree over the coming months and what outcomes he hopes will be delivered.

I would be grateful if the Minister also clarified what progress the OECD is making in preventing artificial transfers of profits in tax havens, and told us how much funding the UK is committing to providing support for that important work. Will he also state whether changing OECD tax treaty standards on company residence and permanent establishment is on the agenda? I know that Government Members are always heartened to hear about closer European working, so I would be grateful if he also outlined the UK’s position on the European Commission’s action plan on tackling tax avoidance and evasion, which was published last month.

Perhaps one of the key planks of the Government’s approach is the proposed general anti-abuse rule, which is now expected to take effect from July. The hon. Member for Southport made a thoughtful contribution on that issue. The Minister is well aware of the various concerns that have been expressed that the Government’s proposals will do little to tackle the problems that the public feel vexed about.

Finally, I turn to the findings of the Public Accounts Committee, and particularly to the entirely curious announcement by Starbucks on the publication of the Committee’s report that it would pay a significant amount of tax in 2013 and 2014 regardless of whether the company was profitable. That seemed to miss the point somewhat, as Members have said today. I am sure that many of my constituents in Newcastle would welcome the ability to inform HMRC of how much tax they intended to pay and when, regardless of what their circumstances may be, but that is not how our taxation system should work. Taxation is not voluntary, and it requires transparency, public confidence, fairness and integrity if it is to function properly. It is now time to change the situation and ensure that HMRC has the powers and resources that it needs to ensure fairness across the board.