Oral Answers to Questions

David Gauke Excerpts

Tuesday 12th March 2013 Commons Chamber

[Jane Ellison (Battersea) (Con)]

15. What steps he is taking to improve international co-operation to tackle tax avoidance. [R]

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

The Government are determined to ensure that multinational companies pay their fair share of tax. The UK is committed to taking multilateral action through the G20 and the OECD to tackle the issues of profit-shifting by multinationals and erosion of the corporate tax base. The OECD presented its initial report on addressing these issues at the G20 meeting in Moscow last month and will present a comprehensive action plan to tackle them at the G20 in July this year.

[Fiona Mactaggart]

Even if the OECD produces a decent action plan, nothing will happen before September, yet Britain is responsible for some of the biggest tax havens in the world: Barbados, Bermuda and the British Virgin Islands received more foreign direct investment than Germany and Japan in 2010. When did the Minister last talk to the Foreign Secretary about what he could do about these tax havens?

[Mr Gauke]

It is worth pointing out that these places are not simply colonies in which we can direct orders; they have a degree of independence. We are working with other countries at the G20 and the G8 and through the OECD to ensure that we have a modernised tax system, which includes addressing jurisdictions where there is a lack of transparency.

[Tim Loughton]

Does the Minister agree with me on this very simple principle: companies should expect to be liable for appropriate tax in the UK on goods and services paid for and used by people and organisations based in the UK?

[Mr Gauke]

The point I would make is that we want to have an international tax system under which economic activity is taxed where that economic activity takes place. The fact is that the international rules have not moved with the times, but they need to do so, and I am delighted that the Chancellor of the Exchequer is leading the way in this debate.

[Jane Ellison]

Many of my constituents—particularly younger constituents and Church groups—are very interested in this agenda and are closely following what the Government are hoping to achieve this year. Is the Minister optimistic that our international partners will respond positively to this agenda and we can make progress on it?

[Mr Gauke]

It is fair to say that we are making progress so far. My right hon. Friend the Chancellor has worked very closely with his German and French counterparts in pushing forward this agenda, and I hope we will make significant progress over the months ahead.

[Mr Andrew Love (Edmonton) (Lab/Co-op)]

Although I wish the Minister success in achieving the international objectives, does he agree that dismantling the ability of the UK tax authorities to deliver on that international agenda is not the way to go about it, and with 2,000 staff at Her Majesty’s Revenue and Customs already having been sacked, does he not worry that we will be unable to deliver on it?

[Mr Gauke]

In areas of enforcement and compliance, we are investing more money in HMRC. Staff numbers will increase, and that contrasts favourably with the record of the previous Government. The fact is that HMRC’s ability to get in more money is increasing year after year.

[Duncan Hames (Chippenham) (LD)]

9. What recent assessment he has made of the effect of alcohol duty and fuel duty on the cost of living and household budgets.

--- Later in debate ---

[Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab)]

12. What estimate he has made of what the annual value of his planned reduction in the additional rate of income tax to 45% would be to a person earning £1 million a year.

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

Owing to the significant behavioural responses to changes in marginal tax rates at high levels of income, the annual value of changing the additional rate of tax would not reflect the actual Exchequer impacts of the change. HMRC’s report “The Exchequer effects of the 50 per cent additional rate of income tax”, which was published alongside the 2012 Budget, set out that behavioural response in detail.

[Gregg McClymont]

Well, that was very clear, Mr Speaker. The answer, of course, is £40,000 a year. Why is a £40,000 a year tax cut for millionaires this Government’s priority?

[Mr Gauke]

The purpose of income tax is to raise money to fund public services. The 50p rate of income tax did not raise money to fund public services, so we have got rid of it.

[Gavin Barwell (Croydon Central) (Con)]

On the subject of priorities, how much does the Exchequer believe that cutting the higher rate of tax will cost compared with the cost of raising the personal allowance, which has benefited thousands of my constituents and millions of people across the country?

[Mr Gauke]

The costing for the cutting of the additional rate, according to Her Majesty’s Revenue and Customs and signed off by the Office for Budget Responsibility, was £100 million. The cost of raising the personal allowance is about £9 billion, and that is where our priorities lie.

[Diana Johnson (Kingston upon Hull North) (Lab)]

17. Instead of spending £3 billion on cutting the 50p rate for the richest, why not put the money towards 100,000 social rented homes of one and two bedrooms to make the coalition Government’s bedroom tax work?

[Mr Gauke]

This figure of £3 billion that is repeated time and again is simply inaccurate. It makes no assumption for behavioural effects whatsoever, and this was never the position of the Labour party. The fact is that the cost is £100 million, recouped several times over by other measures contained in the last Budget that are getting more money out of the wealthy.

[Stephen Phillips (Sleaford and North Hykeham) (Con)]

14. What progress his Department has made on ending the abuse of tax avoidance schemes.

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

The Government are fully committed to tackling tax avoidance, taking all necessary steps to protect the Exchequer. Since 2010, the Government have introduced 26 changes to the law to close loopholes and tighten our legislation against tax avoidance. We are introducing a general anti-abuse rule in this year’s Finance Bill to tackle abusive avoidance schemes, and we will be consulting on measures to address high-risk promoters of avoidance schemes.

[Stephen Phillips]

I am grateful to my hon. Friend for that answer. One of the drivers of these aggressive tax avoidance schemes has been the cottage industry that has grown up among those who seek, for their own financial gain, to persuade those who want to pay their taxes to enter such schemes. What steps are the Government taking to deal with the promoters of these aggressive tax avoidance schemes?

[Mr Gauke]

My hon. and learned Friend is absolutely right to raise this issue, which the Government have focused on extensively in recent months. We have consulted on what we can do in this area, and I hope that we will be able to report back on that shortly. We have also strengthened the disclosure of tax avoidance schemes regime, making it increasingly difficult for people to peddle these artificial, contrived schemes that involve people not paying their fair share. We do not think that that is right and we are doing something about it.

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

Two years ago Christine Lagarde gave the Treasury 6,000 names of UK nationals using Swiss bank HSBC to avoid paying tax. Two years later, one of them has been convicted. Is the case closed on the other 5,999, and if so, why?

[Mr Gauke]

I am not going to get drawn into individual cases, but I will say that under this Government the number of prosecutions will increase fivefold. We are giving additional resources to HMRC to help to deal with prosecutions, and we have strengthened its offshore team. Our record on dealing with tax evasion—dealing with those who have cheated the system—is one of which we are proud, and it compares very favourably with the record that we inherited.

[Mr Nick Gibb (Bognor Regis and Littlehampton) (Con)]

Private equity is an important source of investment for expanding businesses, but when they over-leverage it can lead to disasters such as that with Castlebeck. It can also lead to protracted negotiations with the Revenue over the deductability of interest and an erosion of the tax base. Will my hon. Friend consider the German approach of limiting the level of interest that can be deductible in any tax year as a proportion of a company’s profit—the so-called bright line?

[Mr Gauke]

We did look at interest deductibility when we first came into office. However, in the corporate tax road map that we set out in 2010, we took the view that we were not going to change the rules fundamentally with regard to interest deductibility. What we have done, of course, is favour equity more by cutting corporation tax. My hon. Friend also raises wider issues about private equity and leverage that the Banking Commission is considering.

[Nick Smith (Blaenau Gwent) (Lab)]

18. What recent progress has been made on implementing the national infrastructure plan.

--- Later in debate ---

[George Freeman (Mid Norfolk) (Con)]

19. What assessment he has made of the effect of measures he announced in the 2010 and 2011 Budgets.

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

I am delighted to answer Question 19.

The Budget of June 2010 set out the Government’s plans to reduce the deficit and rebuild the economy. The Government’s strategy since then has provided the foundations for recovery. Market interest rates have fallen to near-record lows. The deficit has been reduced by a quarter over two years. Employment is at record highs and exports of goods to China, India and Brazil have increased by about a third.

[George Freeman]

The Government set out in 2010-11 some key initiatives in the all-important life science sector: the biomedical catalyst fund, the patent box and tax breaks for start-up companies. This week sees the publication of the catalyst fund’s first annual report, showing that more than £1 billion has been raised in five new early stage funds in the UK, with more than 50 innovative medical projects coming to the NHS. Does that not suggest that we are laying the foundations for a sustainable recovery?

[Mr Gauke]

My hon. Friend makes an excellent point and I am sure that the House is delighted to have heard him do so. I know that he has done some superb work with the biotech industry. I met representatives of the BioIndustry Association a few weeks ago and they recognised that the steps we have taken on the patent box and research and development tax credits have put in place a very favourable environment for that industry.

[Mr Speaker]

Unfortunately, we certainly do not have time for Question 20 from the hon. Member for North East Somerset (Jacob Rees-Mogg) on article 153(5) of the treaty on the functioning of the European Union, but you never know what topical questions might bring.

--- Later in debate ---

[Nia Griffith (Llanelli) (Lab)]

T4. Companies are telling me that with demand at rock bottom and infrastructure projects failing to get away from the starting blocks, they see little incentive for investment in UK industry. When drawing up the Budget, will the Chancellor consider expanding the scope of enhanced capital allowances to cover a broader range of investment, and therefore encourage companies to invest in the UK rather than take their money elsewhere?

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

I shall take that as a Budget representation, but it is worth pointing out that at the last autumn statement the annual investment allowance was increased tenfold.

[Stephen Mosley (City of Chester) (Con)]

Has my right hon. Friend seen the recent report from Barnardo’s that highlights the reduction in child poverty in some inner-city areas such as inner London? That is because there are significantly more families in work than there were this time last year.

--- Later in debate ---

[Teresa Pearce (Erith and Thamesmead) (Lab)]

T6. Owing to the changes to child benefit for families with a higher-rate earner, as from 7 March, 370,000 parents have opted not to receive child benefit. Will the Chancellor say how many of those 370,000 parents are stay-at-home mums who will lose their national insurance credit to their state pension, which is linked to the receipt of child benefit? Were they advised before they made that decision?

[Mr Gauke]

As far as contributions to the state pension are concerned, the change will have no effect whatsoever on any of those who opt out. The system will not be affected by the change and the hon. Lady can be assured that that is not an issue. I also point out that all households affected by the high income charge on child benefit are in the top 15% to 20% in terms of earnings. It is right for the Government to take some difficult decisions to reduce the deficit.

[Mark Reckless (Rochester and Strood) (Con)]

House building approvals are up by two thirds. Does that reflect the success of the Government’s funding for lending schemes, the Financial Secretary’s successful planning reforms, or the sustained period of record low interest rates?

[Mr Michael McCann (East Kilbride, Strathaven and Lesmahagow) (Lab)]

T7. My weekend surgeries were dominated by constituents facing backdated payment demands from Her Majesty’s Revenue and Customs, despite the fact that they had discharged their responsibilities and had been assured that their tax affairs were in order. Does the Minister think it is right to put people through financial stress and misery because of HMRC mistakes and staff cuts?

[Mr Gauke]

There was an issue regarding end-of-year reconciliation, which is an errant part of the pay-as-you-earn system. When we came into office, 17 million cases needed to be dealt with. I think that backlog is about to be cleared—we have made great progress. We are reforming the PAYE system so that tax will be collected at the right rate at the right time, and much more accurately than in the past.

[James Morris (Halesowen and Rowley Regis) (Con)]

Does the Chancellor agree that increasing the personal allowance again will mean that a basic rate taxpayer in my constituency will pay £600 less in tax as a result of the measures taken by the Government?