UK Economy: Post-Referendum Assessment

Debate between David Gauke and Paul Farrelly

Monday 23rd May 2016 Commons Chamber

[Mr Gauke]

The remit of the Office for Budget Responsibility is set out in legislation, and it can set out forecasts only in accordance with Government policy. Today’s report, however, as I said earlier, has been signed off by Sir Charles Bean, who said that

“this comprehensive analysis by HM Treasury, which employs best-practice techniques, provides reasonable estimates of the likely size of the short-term impact of a vote to leave on the UK economy.”

We have third parties endorsing the analysis, having worked through the details.

[Paul Farrelly (Newcastle-under-Lyme) (Lab)]

Is it not the truth that this report simply echoes the concerns about the adverse impact of Brexit that have already been expressed by businesses in all our constituencies up and down the land? They include the ceramics industry in my area, representing manufacturing, and in recent days our biggest local private sector employer, Bet365, representing international services. Yesterday, The Sunday Times set out in detail the fundamental concerns of London’s vitally important financial and professional services industries. Does the Minister agree, therefore, that all the evidence not only suggests, but shows, that there is absolutely no economic rationale for the United Kingdom’s leaving the European Union?

[Mr Gauke]

The hon. Gentleman has made a good point. The analysis that we have set out in our document is consistent with what businesses up and down the country are telling us: every business survey has indicated that they are in favour of our remaining part of the European Union. It is also consistent, as we have heard, with the view of the likes of the International Monetary Fund, the OECD and the Bank of England, all of which have highlighted the risks of our leaving the EU.

Tax Avoidance

Debate between David Gauke and Paul Farrelly

Wednesday 11th February 2015 Commons Chamber

[Mr Gauke]

I am going to make a little progress. Since we came to power in 2010, we have made a huge investment in HMRC to tackle avoidance, evasion and non-compliance. That investment has clearly made a difference. HMRC has secured more than £85 billion in compliance yield since the beginning of the Parliament, £31 billion of which was from large businesses and £850 million of which was from high net worth individuals.

HMRC’s successes were recognised last week by the National Audit Office in its report “Increasing the effectiveness of tax collection: a stock-take of progress since 2010”. In that report, HMRC’s response to the recommendations to tackling marketed tax avoidance has been exemplary, particularly in terms of co-ordinating action and seeking new powers to tackle promoters and scheme users. In every year of this Parliament, my right hon. Friend the Chancellor has stood up at the Dispatch Box and closed loophole after loophole, which, I am afraid to say, had been left open by the previous Administration.

We have made more than 40 changes to tax laws since 2010. Let me trot through just a few of them as I am conscious of time. We stopped groups of companies clubbing together to reduce their overall tax bill by using loans and derivatives between themselves; we stopped businesses using trusts to pay employees in order to pay less tax; we stopped banking groups avoiding tax on profits that they were able to make by buying back their own debt cheaply; we blocked the practice by which companies could wipe out their tax bills by accessing losses made in a different group and we stopped hedge fund managers in partnerships obtaining unfair tax advantages by allocating profits to companies they controlled.

In 2013, we introduced the UK’s first general anti-abuse rule to tackle abusive tax avoidance arrangements and to deter those who might be tempted to use them. We are not stopping there. We are currently consulting on options to target serial avoiders and, on the very measure the Opposition seek in their motion, a general anti-abuse rule penalty.

In the Finance Act 2014, we introduced a set of ground-breaking measures aimed at the small minority of wealthy people in this country who involve themselves in tax avoidance schemes. If individuals and businesses are suspected of involvement in tax avoidance schemes, they have to pay HMRC the disputed amount of tax up front while the dispute is being resolved.

Accelerated payments remove the cash-flow advantage that those who deliberately try to bend the tax rules by avoiding tax previously had over the majority who paid their tax up front. We saw the problem and we dealt with it.

[Paul Farrelly]

Given that list, will the Minister explain to the House why tax avoidance schemes used by multinationals such as the double Irish and the Dutch sandwich are still in existence and what the Government are doing to tackle that sort of multinational tax avoidance, which we have debated and scrutinised here on many occasions?

[Mr Gauke]

I will happily deal with that point. Indeed, if the hon. Gentleman will forgive me, I will turn to that very point in a moment or so. He raises a very fair question.

[Mr Gauke]

The CFC regime is part of corporation tax. The hon. Gentleman makes my point for me. As a consequence of our changes to the controlled foreign companies regime, we are seeing businesses move operations back to the United Kingdom. It was not that long ago—2007 and 2008—when business after business was looking to move its head office out of the UK. That flow has not only been staunched but reversed. We are seeing businesses choosing to locate in the United Kingdom, which is good for business, a successful achievement for this country and something of which we should be proud.

The changes in accelerated payments will bring forward billions in tax revenue in the coming years to help us afford the public services on which the country depends. I am pleased to say that, since the introduction of accelerated payments only a few months ago, avoiders have already agreed to pay more than £185 million to the Exchequer’s coffers, and millions more is being collected from those who, having received their up-front bill, have conceded their tax position and settled.

As well as tackling the end users of tax avoidance, we have also introduced structural changes targeted at the small but persistent minority of promoters who peddle schemes that typically use concealment or misdescription. If those promoters do not change their behaviour voluntarily, HMRC now has powers to monitor, fine and publicly name them. All this has contributed to the fall in the use of tax avoidance schemes over this Parliament. The Opposition motion suggests several areas for further action—this Government will always give a fair hearing to measures that increase compliance and tackle evasion—but they have to be properly thought through and I am afraid that some of their suggestions simply do not pass that test.

Therefore, we will not be abolishing the intermediary relief in contract for difference trading. There is no way to raise sums of the kind mentioned by the Opposition without causing serious damage to London’s position as a global centre for listing companies, as was recognised back in 1997, when the measure was introduced, and again in 2007, when it was expanded. Yes, it is relevant that the Labour party was in government at the time.

Nor will we introduce a deeming test for self-employment in the construction industry. We considered that, but it was not practicable. Indeed, to be categorised as self-employed, a bricklayer would have had to supply their own bricks. Instead, we have addressed false self-employment in construction and other industries through the Finance Act 2014 measures on onshore intermediaries, raising £2.1 billion in the process.

The Opposition motion urges us to close the quoted eurobonds exemption loophole, but it is not a loophole. I have explained repeatedly to the hon. Member for Birmingham, Ladywood that that measure would create an administrative burden, but not raise money. I have even offered a meeting with officials to discuss that, which, once again, she has declined. She set out a new proposal, but it has been looked at and it is simply not practicable.

The Opposition might be trying to recover lost ground, given their failure to get on top of avoidance and evasion, but they have to do better than this. We have led the way not only domestically, but internationally. Let me deal with the point about multinational companies. We originated the base erosion and profit shifting, or BEPS, process and have set out our commitments to multilateral action through the G20 and the OECD. In last year’s autumn statement, my right hon. Friend the Chancellor announced UK action on two of the internationally agreed outputs of the BEPS project. We are introducing legislation to implement the G20-OECD agreed model for country-by-country reporting, which will require multinational companies to provide tax authorities with high-level information on profit, corporation tax paid and certain indicators of economic activity for risk assessment.

We are consulting on implementing the G20-OECD agreed rules for neutralising hybrid mismatch arrangements. We have gone further still to strengthen our defences against the erosion of the UK tax base. As a complement to the BEPS process, we have introduced the new diverted profits tax to counter the use of aggressive tax planning by large multinationals that seek to avoid paying tax in the UK on profits generated from economic activity here.

[Paul Farrelly]

I am aware of the international dimension, but HMRC has been criticised frequently for its timidity in challenging some of those arrangements. The hon. Gentleman will be familiar with the important concept of permanent establishment. For example, has HMRC challenged Amazon’s tax arrangements, whereby everything is billed through Luxembourg and it claims, for tax reasons, not to have a permanent establishment in the UK, despite having huge warehouse operations?

[Mr Gauke]

The first point to make is that it is a matter for HMRC to challenge in accordance with the law, and taxpayer confidentiality applies. As a Minister, I do not get involved in individual cases.

Furthermore, if we want to address broader matters—I am not talking about any individual company here—and if the hon. Gentleman wants to address the issue of businesses carrying on activities here but not paying taxes here because they do not have a permanent establishment, the diverted profits tax is just the measure he should want. It is designed to address that issue.

I say again that I am not talking about the specific case, but in general the measure deals with circumstances in which contrived and artificial arrangements are made so that a business manages to misuse, if you like, the permanent establishment rules. The hon. Gentleman raises an interesting point, but the Government are already dealing with it.