Finance Bill

Clive Efford Excerpts

Monday 12th July 2010 Commons Chamber

[Mr Redwood]

Let me start by saying a few words about my new hon. Friend the Member for Lincoln (Karl MᶜCartney). I am sure that the House will join me in praising him for his speech and in wishing him every success now that he has joined us here. It is good to hear someone with a radio face with a passionate voice for his constituency. If he continues that, I am sure that his constituents will be well served. It was great to be reminded of the hugely important Lincoln cathedral, which many of us have visited and admired, and of the fact that Parliaments were once more peripatetic. In those days, there was probably less security and fewer people in the baggage train, so it was probably cheaper to take Parliament around the country than it would be today. I fear that he might have quite a long wait before the next Parliament at Lincoln.

We are here to debate tax avoidance and evasion. I listened carefully to the hon. Member for Hayes and Harlington (John McDonnell), but I think that the Committee is pursuing a will-o’-the-wisp if it seriously believes that there is £120 billion of tax evasion and avoidance generally, and that there is substantial tax evasion and avoidance in particular on corporation tax, which we are debating, that we can tackle and get the money in from. Every hon. Member would like to think that there is an easy way out of the financial crisis. If there were a great pot of money representing tax dodging that we could identify and bring into the Treasury, it would have been done by now. It is not a matter of party dispute. If there are tax evaders out there whom we know about, they need to be brought to book—we all agree with that. Labour spent 13 years trying to do it, but the hon. Gentleman does not think that it did it well enough, and is now urging the coalition Government to do it. The coalition Government will pursue it in similar ways, with similar intensity, to the outgoing Labour Government. I fear that they will be no more successful than the previous Government at finding that £120 billion pot of gold because, in all honesty, I do not think that it exists in the form that hon. Members wish that it did.

Let us take evasion—the more serious case. I am sure that everyone in the House agrees that if someone is deliberately evading tax, it is a criminal offence. The House has said that it is a serious offence, and made it a criminal offence, or series of criminal offences, and we wish to see those people pursued and prosecuted. In the case of corporation tax, for example, if a company deliberately misreports its income, and says that it receives less income than it earned—one way of misleading the tax authorities over corporation tax—the book should be straightened, the record corrected, and they should be prosecuted. If the company deliberately overstates its costs to try to suppress its profits—the other way in which people could evade corporation tax, if they were seeking to do so—that, too, should be something that the authorities can identify on investigation, leading to a correction of the accounts. False accounting would be involved, as well as the criminal offence of tax evasion, and there are methods of tackling it. The state has a range of powers, introduced by Governments of all persuasions, to allow company investigation, including second-guessing the audit, and going in if it is thought that crooked directors are misrepresenting their costs or revenues, and the auditors have missed it. I wish my right hon. and hon. Friends the Ministers in the Treasury every success in trying to capture genuine crooks, because we do not need them in our community, and we need to flush them out.

There is another kind of failure to pay the amount of tax that the corporation tax authorities think is correct which, in some people’s language, could be evasion. A company may report honestly its revenues and costs, but comes to a different conclusion from the Revenue about what the taxable profit should be, given its income stream and costs. It attempts to understand the complexity of the law—it may well have its own tax advisers and auditors in support, because any medium or large company does not do this in isolation; the directors want the comfort of knowing that they have serious tax experts behind them, because of the complications of the law—and it makes its case to the Revenue, which disagrees with them. I do not think that that should be treated as a severe criminal offence leading to the imprisonment of the directors. What should usually happen—and what tends to happen—is a fierce exchange of views between the Revenue, which is trying for one view of the tax, and the company and its tax advisers with a different view. Eventually, agreement is reached. If it is thought to be a bad case, the Revenue has the power to impose financial penalties as well as to secure the tax that it thinks that it is owed.

[Clive Efford (Eltham) (Lab)]

I am interested in the right hon. Gentleman’s train of thought, but will he clarify something? Is he saying that there is no such thing as avoidance of corporation tax, or is he saying that anything that comes about is just the result of a misunderstanding?

[Mr Redwood]

Has the hon. Gentleman been in the Chamber while I have been talking? The first part of my speech was about bad cases of evasion in which a company has deliberately misrepresented its financial condition. Like him, I think that those cases should be taken seriously, and prosecution should result. I am going on to the second set of cases, in which evasion is thought to have taken place according to the Revenue, but when we look at what is going on there is a genuine disagreement between one group of tax experts, lawyers and company advisers and another lot advising the Revenue, which sometimes needs to consult counsel on these complicated matters to try to reach a conclusion. Such cases are often sorted out slightly more amicably, and rightly so, because the companies concerned were obviously not trying to do down the Revenue but to pay the minimum amount of tax to comply with the law, as most sensible people try to do, and there was a disagreement that had to be sorted out sensibly. That might result in financial penalties or in an agreement not to have financial penalties, but usually the Revenue has a certain amount of strength in having its way.

That is evasion, and then there is avoidance, which is much more problematic. I am sure that billions-worth of avoidance is going on all the time, because it is a perfectly legal approach; one man’s avoidance is another man’s sensible tax planning. That is why I asked the hon. Member for Hayes and Harlington for an example relating to personal income tax, which is easier for people listening in to this debate to understand. Many small savers switch from tax-paying savings to tax-free savings, which is avoidance of tax, is it not? They realise that they can do better by having a tax-exempt savings product; surely we should not condemn that, because it is about someone trying to get the most for their money. Indeed, that is something that the Government positively encourage. They encourage tax avoidance because they say, “We have the unique power to provide tax-exempt products for savings, and we want you to buy ours rather than the taxed private sector product.”

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[Clive Efford]

I pay tribute to the hon. Member for Lincoln (Karl MᶜCartney), who made his maiden speech. Many of us remember his predecessor with great fondness, and we certainly notice the difference in appearance to which he referred. She was a popular Member here, as I suspect that she was in her constituency. I am sure that the hon. Gentleman will do an able job in his time as Member of Parliament for Lincoln.

The thrust of the argument of my hon. Friend the Member for Hayes and Harlington (John McDonnell) is that the House should be able to scrutinise the Government’s actions on enforcement of corporation tax to avert some of the severe and harsh cuts elsewhere in public expenditure. The Red Book refers to the need to reduce all sorts of evasion. Indeed, paragraph 1.96 mentions the Government’s measures on corporation tax, which a later group of amendments tackles, and states the need to alter the rate of corporation tax to reduce the avoidance of payment. A practice has been created of people avoiding other forms of tax and paying capital gains tax at a lower rate to minimise the amount that they pay in tax. I therefore agree with the thrust of the point that the right hon. Member for Wokingham (Mr Redwood) made that there are times when we need to tweak the tax system to close down loopholes. In that sense, the tax system has historically been like turning a thermostat up and down. We introduce one set of regulations, that area overheats, the thermostat is turned down, another section of the tax system responds and people move in that direction to avoid paying tax.

With amendment 11, my hon. Friend is trying to ensure that the House can hold the Government to account for what they do to fulfil what they say in the Red Book, and thereby ensure that the Government maximise the amount of corporation tax that is paid.

[Kwasi Kwarteng (Spelthorne) (Con)]

Will the hon. Gentleman clarify his basic position? Does he believe that in principle corporations ought to pay more tax than they are paying already?

[Clive Efford]

The point, on which I believe we are all in agreement, is that everyone should pay the tax that they are due to pay. Amendment 11 proposes not that corporation tax should be raised or reduced, but that it should be paid, that the Government ought to take action to ensure that companies that are liable to pay it do so, and that the House should have the role of providing a check and balance to ensure that the Government are carrying out that function.

[Mr Love]

Does my hon. Friend believe that there is a tax gap, as I think all Opposition Members do? Whether the gap is £40 billion, £60 billion or £100 billion, it is very significant, and we ought to turn our minds in this Budget to doing something about it.

[Clive Efford]

I could not agree more. If I were to start listing some of the harsher items in the Budget, such as the £1.9 billion that the Government are trying to take out of housing benefit or the overall £11 billion from the welfare budget, I would risk incurring your wrath, Mr Amess. I would also risk that if I were to point out some of the actions of the previous Government in relation to the medical tests that disability living allowance claimants were forced to go through. The coalition Government, supported by the Liberal Democrats, tell us that things will become even harsher for DLA claimants, so our discussion of minimising avoidance of corporation tax is absolutely relevant.

[Stewart Hosie]

May I ask the hon. Gentleman to put a number on that? What is his estimate of the value of lost revenue yield as a consequence of the 12,000 Revenue staff lost under the previous Labour Government?

[Clive Efford]

The hon. Gentleman makes a point that I could repeat. Cutbacks in Her Majesty’s Revenue and Customs staff make more distant the target of maximising the amount of tax taken. He may have joined me on the odd occasion when I voted against the previous Government, so we have been on the same side of such arguments from time to time. Some of us are sinners turned saints, and even as a loyal Labour Back Bencher, I might agree with elements of the criticisms of the previous Government.

We have been given instruction in tautology on the question of avoidance and evasion, but we are quite clear that we are talking about people whose actions are not within the rules. We need to ensure that action is taken so that they pay their fair share, because clearly, the increase in taxation—the VAT increase and other measures—and the cuts will hit the poorest in our communities first. That is why it is absolutely essential that we have discussions such as the one instigated by my hon. Friend the Member for Hayes and Harlington.

[Mr George Mudie (Leeds East) (Lab)]

Does my hon. Friend agree that it would be a shame to let this debate go by without mentioning the activities of Barclays bank, and particularly its capital section? The head reputedly earned £90 million a year. We should consider that amount of money, because that group was set up to find ways for companies to avoid paying corporation tax, or indeed any tax.

[Clive Efford]

My hon. Friend’s intervention needs no comment from me, other than to say that it is an excellent example of the sort of practices that we need to bear down on. We pay a plethora of accountants and financial advisers to advise on how to invest our money wisely, and that is a legitimate area of activity. It is right that people may order their finances within the rules to maximise their income, but if that becomes exploitation or unfair in terms of what people are contributing, we have to act. That is where the amendments that we have tabled on capital gains tax, which we will discuss later, come in.

The hon. Member for Dundee East (Stewart Hosie) mentioned the cut in tax staff, and if we are going to see substantial cuts in staff, it will make it even more difficult for HMRC staff to perform their task on whatever tax they are pursuing, be it corporation tax or any other.

The right hon. Member for Wokingham seemed to dismiss the issue of tax evasion, suggesting that we could pursue evaders until the cows came home, but they would never pay the tax so we would not be able to close the deficit by pursuing them. He then went on to talk about the difference between evasion and avoidance, rather than focusing on what we can do—as the people who scrutinise legislation—to ensure that the Government are delivering on their words in the Budget.

[Mr Redwood]

I wish to correct the record. I made it very clear that if a company were evading tax, we should throw the book at them and get the money back.

[Clive Efford]

My point is that that was the sum total of the right hon. Gentleman’s contribution on that subject. He then elaborated on other issues. The point is that the thrust of the amendment is evasion—people working the system in a way that breaches the rules and means that they do not make the contributions that they should make. Those are the people we should bear down on. In my intervention in his speech, he accepted that there was such avoidance, and that those people should be dealt with. It is how we scrutinise that that we are discussing now. It is the function of this House to hold the Government to account, and the amendment asks for a report to Parliament on what exactly the Government are doing.

I congratulate my hon. Friend the Member for Hayes and Harlington on his amendment, and I look forward to hearing what the Government have to say in response.

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[Chris Leslie]

Quite, and this is important. We could send a signal from this House that we, as politicians and representatives of the general public, believe that that particular industry has to pay back the cost it is has left upon the shoulders of the general public. Is it not always the case that the general public—the ordinary working people—have to dig us out of the hole created by those affluent and comfortable individuals who work in the banking system?

[Clive Efford]

I am grateful to my hon. Friend, because his probing is uncovering who is winning the arguments on the Government Benches. The Liberal Democrats went into the election calling for a 10% levy on banks, but the outcome is that what has been raised in the levy has more than been compensated for by the corporation tax cuts. We are seeing who is winning the arguments on the Government Benches on making the banks pay their fair share.

[Chris Leslie]

That is the case, and we have seen the glee with which the banking industry reacted after the Budget to this puny banking levy of less than 0.1% on the banks’ profit and asset base.

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[Andrew George]

I want to speak in support of amendment 50, which is tabled in my name and those of my colleagues. I congratulate the hon. Member for Nottingham East (Chris Leslie) on the manner in which he proposed his amendment. The broad thrust of the case that he seeks to probe and possibly to press to a vote later on—we do not know—is, I think, worthy of being probed. The House should obtain a great deal more information on the issue before we make a decision.

I have asked a large number of parliamentary questions on the subject and, more particularly, on the banking levy and the basis on which assessments have been made to set that proposed levy at the level at which it will be set. It is rather frustrating for many of us who wish to engage in the debate on corporation tax and to cross-reference it with the banking levy that both measures are not contained in the Bill. I understand, of course, that there will be a consultation on the banking levy before its implementation in January, and I am sure that the Minister will say that they could not both be contained in the Bill because it was proposed that the arrangements would be undertaken in such a manner. However, leaving aside the politics of the issue, the broad thrust of the argument, on which I understood that all parties were agreed, is that when we came to set the first Budget after the general election, those who dropped this country in it and caused the public finances to be in such a serious state would do most to help us to get out of it and to help to restore our public finances. We should be looking to those sectors that are most culpable to make the greatest contribution.

The Chancellor of the Exchequer was absolutely right to conclude that what we should seek to achieve in the Budget is that those who can afford it most should contribute most, with the vulnerable protected. Although I do not want to return to a Second Reading-type debate and to relate this measure to all the other measures and to the public spending re-profiling or cuts that are due in the autumn, on which we are to get more detail, that is the context in which this issue has to be considered.

Amendment 50 is remarkably similar to amendment 34, tabled by the right hon. Member for East Ham (Stephen Timms). I tabled amendment 50 because we need to probe and fully understand the likely impact of the banking levy and the corporation tax cut on the banking sector. We need a better assessment of that. It was interesting that the hon. Member for Nottingham East, in response to proper and reasonable questions about the relationship between the impact of the bank levy, as opposed to that of the corporation tax cut, on the banking sector was unable to give a quantifiable answer. That is because the Treasury do not provide one. In the responses to the questions that I have asked on the issue, that relationship has not been clear. That is why it would be better for us to say honestly that if we are properly going to come to a measured conclusion, it would be far better to have the best possible estimates of the likely impact of both measures beforehand, so that we can measure one against the other and make a proper, balanced and reasonable assessment of the impact at the end of the process.

I do not wish to delve into the party politics of what people said and did not say prior to the election, although that adds to the excitement and interest in this Chamber, but the Business Secretary, my right hon. Friend the Member for Twickenham (Vince Cable), was right in predicting a lot of what needed to happen and in encouraging the then Government to take the action that they ultimately took on Northern Rock and in relation to other interventions. The hon. Gentleman was wrong to place the Conservatives and Liberal Democrats together in the previous Parliament as taking the same line on the issue. As a candidate in the last general election, I was particularly keen that we went into it seeking to ensure that the banking sector made a significant contribution to restoring the public finances. I was looking forward to that, and I was very pleased to see the banking levy in the Budget, along with a large number of other measures, such as raising personal allowance and the pension guarantee; the Liberal Democrats were pleased to see those. The hon. Gentleman is right, however, that one thing that came out the day after the Budget was the sense that the banking sector was breathing a sigh of relief.

[Clive Efford]

I apologise to the hon. Gentleman in advance for going back to what was said during the general election, but it is important in this context. The Liberal Democrats said that they were in favour of a banking levy, as he has just said, but they went further and said that it would be in addition to corporation tax. What we are debating is corporation tax that compensates the banks for the levy, cancelling it out. How can he possibly defend that position?

[Andrew George]

I am a free-ranging Liberal Democrat Back Bencher and I am quite clear that I want to probe this issue. I tabled my amendment because I want to ensure that we have the facts before we make what I hope will be a balanced decision on this important issue. If the hon. Gentleman does not mind, I will sidestep the tribal arguments.

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[Mr Jones]

No, I am sorry, we do not admit that. I am not sure what point the hon. Gentleman is trying to make or whether when he went into the general election in May, he had on his election leaflets, “Yes, we will be tough on banks for the rhetoric in the lead-up to the election, but if we get into power we will do a con trick where we take the money with one hand and gave it back with the other.” If, as the hon. Member for St Ives said, we do not know what the figures are, that makes it worse. We are asking the public to take severe cuts in public services and higher taxation, while at the same time the people who are still being paid high bonuses will get money back. That was reflected in a comment made earlier about the increase in bank share prices that took place once the Budget had been announced.

[Clive Efford]

To correct the hon. Member for West Suffolk (Matthew Hancock), it is just not true to say that the banks are going to pay more. Deutsche Bank has said:

“Taking 2% off the 2012 tax rate for the five banks listed in the UK would increase profit by £1.16bn, that is it should almost offset all of the banks tax. Overall a good outcome for the banks.”

Similarly, HSBC said:

“We’d expect most domestically-orientated banks, for example Lloyds, to be better off after four years than they were pre-budget”.

[Mr Jones]

I am grateful for my hon. Friend’s intervention, which completely blows a hole in the myth that this coalition Government are somehow being tough with the banking sector. Not for the first time, we are seeing rhetoric overtaking reality. The spin and presentation that is the hallmark of the Prime Minister is clearly catching up with him now he is in power and able to help his friends in the financial sector.

This policy also has an effect in terms of the banking sector itself, because the banks that are being rewarded are the ones that got us into the mess in the first place. Most people will rightly be horrified by that prospect.