Corporate Tax Base

Chris Philp Excerpts

Tuesday 20th December 2016 General Committees

[Jane Ellison]

I thank the hon. Lady for her questions; they were good, as I would expect. As I said, the UK will not give up member state sovereignty over our tax base without very good reason, and we are not convinced that there are such reasons in the directive. On some measures, such as the ATAD measure to which I referred, we have come together and been able to agree something.

Having direct control over our tax base enables us to respond to events in our own jurisdiction. We have debated tax a lot over recent years, and it has become apparent to all of us in this House that the challenges we face are global. Leaving aside the timeline issue, it is quite hard to envisage a situation in which there would be a sufficiently compelling reason—the hon. Lady set out a hypothetical situation—to give up direct control over our tax base, given the global challenge we face with some of these tax issues.

We are working very well domestically, with almost 30 measures passed since 2015—some of them are yet to come into effect, and others are already working—and have co-operated through the OECD. For those reasons, we do not see this proposal as compelling enough to cause us to give up something as important as direct control over our tax base.

[Chris Philp (Croydon South) (Con)]

It is a pleasure to serve under your chairmanship for the second time, Mr Hanson. I sympathise with the points made by my hon. Friend the Member for Mid Dorset and North Poole and the Minister, but I have two questions.

On the question of sovereignty over taxation, does the Minister agree that the UK being a signatory to the OECD BEPS arrangements she referred to entails an implicit loss of sovereignty, because we are making an international agreement? Does the sovereignty argument not apply equally there?

My second question is on European taxation. The Minister made some powerful points about the global nature of taxation and said that acting at a European level alone may not be fully effective. Does she think that European Union member states adopting these proposals would prevent some multinationals—I am thinking particularly of companies such as Amazon and Google—from effectively running their European sales via Dublin and Luxembourg in order to benefit from very low rates of taxation and avoid paying tax in member states where sales and staff are located? I fully accept the reasons the Minister gave, but what assurance can she give the Committee that we will successfully clamp down on those tax-planning—I will not say evasion—measures if we cannot do so via this instrument? What other channels could we use to avoid that happening?

--- Later in debate ---

[Helen Goodman]

I want to take hon. Members back two or three years to debates in the main Chamber when the UK was asked to contribute to the Irish bail-out. I had an extremely interesting conversation at that time with colleagues from the Ulster Unionist party. They pointed out that the Irish had made cuts in their corporation tax in an attempt to attract inward investment. They were extremely irritated by this, because some firms had relocated from Northern Ireland to the Republic; Northern Ireland had lost jobs, output and economic activity. However, the Republic’s tax take, which should have supported it, was not going into its coffers, so there was a double whammy, and we in Great Britain and Northern Ireland were asked to contribute to the Irish bail-out. Understandably, Northern Ireland Members were extremely unimpressed by this sequence of episodes.

That made me think we need to get a handle on competitive corporate tax-cutting around the world. Ministers are trumpeting the possibility of having the lowest corporation tax in the western world, but I am not sure how clever it is for countries to undercut one another constantly. There is a serious risk that we so distort our tax arrangements that we will not raise enough money to run the public services that we need for a modern economy. Yesterday in the Chamber, we discussed the importance of supporting science and R and D, for example. We so undermine our capacity to raise money to do things that we undermine our economic activity.

[Chris Philp]

I thank my Treasury Committee colleague for giving way. How does she respond to the fact that even though we have cut corporation tax, the total pound amount of corporation tax paid has gone up?

[Helen Goodman]

I am not sure what time period the hon. Gentleman is talking about, but we have had a recovery since the great crash; if we have more economic activity, we will get more corporation tax receipts, irrespective of corporation tax rates. I do not subscribe to extreme Lafferism; I am not convinced that going down the path of competitive tax cutting is a good idea. A common consolidated corporate tax base is an aspect of that. I see that the impact assessment states that a CCCTB would increase growth by up to 1.3%. That is an astonishing amount of money—more than twice the benefits that the Government estimate would come from signing the Transatlantic Trade and Investment Partnership. Compliance costs would be expected to decrease significantly as well, which is an extremely business-friendly approach.

I have not looked in infinite detail at every aspect of the proposals, so I can believe that they are not satisfactory, but we need to be careful about saying that we will not co-operate with other countries on this. The Minister knows that the OECD process is extremely slow. If the European Union was united on what it proposed in the OECD, we might be able to speed up and improve the international settlement. She is absolutely right to say that we need agreement with the Americans.

On the interrelationship with Brexit and the point made by my hon. Friend the Member for Bootle, I asked the Minister whether she had considered the read-across to the Brexit negotiations, and she did not respond, so I take it that she has not considered that. The Treasury Committee visited Berlin and Rome in September—unfortunately, the hon. Member for Croydon South was not able to be there—and we had interesting conversations. One that comes back to me is the conversation we had with the Bank of Italy about the negotiations with respect to banking.

One issue on the table is banking regulation. We have had a constant stream, if not a barrage, of lobbying from the City—we can see the City if we look out of the window—about its concerns to maintain passporting, common regulations and so on, so that we do not lose activity to Frankfurt, Dublin or even Paris. When the people on the other side of the table, our European partners, consider what concessions and agreements they will make on banking regulation, they will have in their minds the risks for their banks once the UK has left the European Union. One of the really big risks for them is our cutting our taxes on banks. If we cut those taxes significantly, that would make London even more attractive. By resisting these measures, the Minister makes it look more likely that we will reduce our taxes on the banks; that increases the resistance on the other side of the table in Brussels to the kind of regulatory settlement that we would all like to see, for the benefit of the people in the City of London who bring in so much tax revenue to this country.

I am not sure whether the detail of the measures are absolutely right, but I do think that we run a risk of appearing to be sceptical. The Minister does not have a history as a Eurosceptic, but let her not run scared from those in her party who were hard Brexiteers.