Finance Bill

Ed Davey Excerpts

Report stage & Report stage: House of Commons & Report: 1st sitting & Report: 1st sitting: House of Commons
Wednesday 1st July 2020 Commons Chamber

[Bridget Phillipson]

The right hon. Gentleman is absolutely right, and I sincerely hope that the Minister will respond to that point, because we have seen this unfairness built into our system. We recognise that this measure takes some steps towards levelling the playing field, but we need to see much more from Government in clamping down on the kind of tax avoidance that we have seen far too often in recent years, because it is not right.

[Sir Edward Davey (Kingston and Surbiton) (LD)]

Can I say how much I support the argument the hon. Lady is making? Does she agree with me that the Government’s digital services tax measure is actually a mouse of a measure compared with the huge profits made by American big tech? Does she also agree with me that the Government need to co-operate very closely with the European Union, which is devising an international tax with much greater teeth, so that these big tech companies do pay their fair share of tax?

[Bridget Phillipson]

Yes, I support the point the right hon. Gentleman makes, and I will come on to say more in my contribution both about how those companies need to contribute more and how it is essential that we see international consensus on this issue. The measure the Government have put forward today is necessarily time-limited, and we will need to see a much more sustainable, long-term solution with a broader international base.

It is not right that British bookstores and other businesses face a higher tax rate than Amazon. Unfortunately, this measure does not go far enough to address this fundamental unfairness, nor does it really get to the heart of the tax avoidance strategies some of these tech companies have used in recent years. As the Chartered Institute of Taxation points out, this measure is not aimed at stopping profits arising in the UK being shifted by multinationals out of the UK to tax havens. However, for far too long the companies that make the modern economy work have got away with complex ways of moving and hiding the money we pay them.

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[Mr Andrew Mitchell (Sutton Coldfield) (Con)]

I draw the House’s attention to interests, which are set out clearly in the Register of Members’ Financial Interests.

I rise to speak to new clause 33, which was tabled by the right hon. Member for Barking (Dame Margaret Hodge) who, alas, for the reasons set out by the hon. Member for Houghton and Sunderland South (Bridget Phillipson) from the Opposition Front Bench, cannot be here today. The House may rest assured that she will be watching every word of this debate from where she is.

The House will notice that not one but three former and current Chairs of the Public Accounts Committee—the hon. Member for Hackney South and Shoreditch (Meg Hillier) and my right hon. Friend the Member for Haltemprice and Howden (Mr Davis), as well as the right hon. Member for Barking—have signed the new clause. In addition, my hon. Friend the Member for Amber Valley (Nigel Mills), who is unavoidably locked down with his two adorable new children and who has great expertise in this policy area, has also signed it

New clause 33 makes a number of points. The first is that any company that is subject to the new digital services tax, which came into force this April, must publish transparently and publicly a country-by-country report. Although as it stands in the amendment paper the new clause does not include a starting date, that was rectified this morning and the starting date would be April 2021.

The new clause is targeted at international technology giants—that is Google, Facebook and Amazon. These huge businesses are well known for using corporate structures deliberately designed to shield them from the payment of tax. The new clause would allow Parliament, journalists, campaigners and civil society to see clearly whether these businesses are paying their fair share of taxation. If the Government accept the new clause, that would, as the hon. Member for Houghton and Sunderland South suggested, make the UK a world leader in financial transparency. It would give a major boost to country-by-country reporting for all corporations, so that everyone can see that tax is paid on profits in the locations where those profits are earned.

Let me be clear at the outset that it is not our intention to divide the House on the new clause today—subject to the Minister, who is a very clever fellow, showing due respect for advancing this agenda and for the importance of making progress on this issue in due course.

In my submission, there are three reasons why the new clause really matters. The first is that its logic sits four-square behind the priorities of the Conservative-led coalition—I thought the hon. Member for Houghton and Sunderland South could perhaps have given a little more attention and, indeed, support in this respect—who wanted to inject greater transparency and openness into the financial system, in the first instance by championing open registers of beneficial ownership, which were introduced in the UK in 2016.

The open-registers process has been enhanced over the past two years, during which the right hon. Member for Barking and I persuaded the House that open registers should be embraced by the overseas territories and subsequently secured agreement that the Crown dependencies would also implement them. Such progress is a huge advance in tackling money laundering and financial corruption, and it bears down heavily on tax evasion as well. It also makes it more difficult for bent politicians and corrupt businesspeople to steal money from poor countries and their citizens. The new clause builds on that whole approach.

Secondly, at this dreadful time in our country, when our constituents are suffering financially so severely and our Government are rightly seeking to help every family as we combat the economic effects of this crisis, it is frankly obscene and very offensive that some major corporations who rely on UK customers and make huge profits in our country should not pay their fair share of tax. The public and the public finances cry out for fairness and equity, particularly at a time like this, when some companies have benefited from taxpayer-funded rescue packages organised by the Government while not contributing equitably to the public purse. Public expenditure is now at an all-time high. This borrowing will have to be paid for and it is simply not right or fair that while most taxpayers will have to pay more tax—85% of us pay taxation through PAYE—some multinational companies deliberately create financial structures to avoid paying tax.

I also point out to right hon. and hon. Members that those same multinationals are undermining British business by undercutting them on price. They can do that because they do not pay tax at anything like the same rate. In Sutton Coldfield, we are struggling to make a success of our town centre and high street, to renew it and reinvigorate it, but Amazon undercuts bookshops in our high streets and stores such as John Lewis in our shopping centres because it can avoid paying its fair share of tax.

Thirdly—this is of particular importance to developing countries—credible research shows that developing countries lose three times as much each year from tax avoidance as they gain from development aid. The OECD has been pressing for international reform in tax rules for decades. Those countries with the most to lose have been most resistance, so the OECD compromise was that information should be provided confidentially to the tax authorities. While that is progress of a sort, it does not really help developing countries, for obvious reasons to do with cost and with complexity. Clearly, it would be better, as with open registers, for all the data simply to be placed in the public domain so that there is a level playing field and public accountability for the tax conduct of multinational enterprises worldwide.

[Sir Edward Davey]

The right hon. Gentleman may remember that during the coalition Government, we put measures through, agreed at European level, for a directive on transparency on payments made by the extractive industries across the developing world because of concerns about corruption with respect to mining in particular. That created greater transparency. The same approach could be taken on the tax issues that he is raising.

[Mr Mitchell]

Yes, the extractive industry transparency initiative, which has been led by a former Member of this House, Clare Short, for some time, did a huge amount of good as, of course, have open registers, because open registers have continued that agenda of transparency. As I said at the outset, this agenda was championed and driven forward internationally through the British at the G8.

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[Dr Huq]

The hon. Gentleman is on the all-party parliamentary group and I know that he secretly agrees. Perhaps he is not saying so because his Whips are listening. The EU is our biggest trading partner. For many years before I came here, I used to teach and would sometimes say, “Could do better.” Yes, we support the measure, but we could do better, and this is a glaring example of an issue that is in need of urgent rectification.

The covid-19 crisis necessitating Government help for industry has, I hope, reversed the trend towards laissez-faire economics. It has been remarked by many people that we are missing a trick. We could bring some of these unscrupulous companies—we can call them companies with clever accountants, if Members prefer—to heel. It seems wrong that the Bank of England has made £1 billion of loans available to the German chemicals giant BASF, which has transferred profits to Malta, the Netherlands and Switzerland in order to avoid tax. There are countless other examples, but because these things are shrouded in secrecy, that is the example I am able to give. The easiest way to do it is by enacting what is already agreed, and we do that via the digital services tax, which the hon. Member for Thirsk and Malton (Kevin Hollinrake) hails. These companies could be given time to make adjustments, and the very fact of transparency, rather than overly punitive measures at the start, could shame them into action and make them see sense.

We face a double whammy of the covid financial crisis and uncertainty outside the EU. The Chancellor said, “Whatever it takes”. Those headquartered in the UK already submit all this information to HMRC and to other relevant tax authorities. All we are asking is that we can all see it and that there is full and frank disclosure—including for investors and other stakeholders, who increasingly want to know these things—and then we can see where each company has its economic bulk or footprint. Making public what already exists would be low cost and straightforward. I see no downsides to this. The only people who oppose the proposal are those who usually abuse the rules. I understand that the tax havens of Jersey and Luxembourg are not too keen on it.

We keep being told that, post-virus, things cannot go on as before and, “We shouldn’t waste a good crisis, should we?” Ensuring that very large companies publicly reveal revenue and tax information could be something on which we lead the world, and we can still apply pressure on the OECD and G20—the two are not mutually exclusive. We cannot wait forever for action from the EU, because we are no longer a member of that organisation. Time and again, we were told by the leavers that we could be an independent nation and we were reminded of the sovereignty of Parliament. This proposal has wide cross-party support.

[Sir Edward Davey]

Does the hon. Lady not think it would be right for the Minister to say from the Dispatch Box that the UK Government will work closely with the European Union as it develops its digital services tax, and should not the Opposition parties be calling on the Government to make it very clear that European co-operation on this issue is vital?

[Dr Huq]

Yes, I think we should be working closely with the EU, but we can even beat them to it. Already on the EU Council there are countries such as France—which was called “cheese-eating surrender monkeys” on “The Simpsons”—that have agreed to it. This could be a bit of a trick for our Government if they pipped them to the post—I think we abstained when it last came up in the European Council. Yes, I completely agree that we should be in harmony with those countries, but this is an opportunity to beat them. By the way, not that I endorse “The Simpsons”, obviously—I do not want to cause a scandal—but, for those who are insistent, this presents opportunities. We have now left, after all.

The measure has cross-party support, and Oxfam, Christian Aid, CAFOD, the Churches and a list of development charities as long as your arm are all for it. They are spurred on by the fact that, as has been said, developing countries lose three times as much as they gain from development aid due to tax avoidance.

Regaining the respect of the aid sector, after the cruel surprise of the DFID merger was sprung on it the other day; delivering progressive taxation to ensure that corporations pay their fair share; rebalancing towards ordinary people; levelling up, so that our high street traders are not undercut by online giants with lax morals; levelling the playing field with multinationals, which is good for British business; bringing in billions and leading the way to be genuinely world-beating, which sadly the track and trace app was not; and beating the EU to it, when we have got Brexit done, and reinforcing the role of our sovereign Parliament—what is not to like?

The Nobel prize-winning economist Professor Joseph Stiglitz has remarked:

“It is time for countries to take both unilateral and multilateral actions to tax multinationals.”

Let the UK not drag its feet any more, but be a leader. It was David Cameron who said that sunlight was “the best disinfectant”, and the Conservative West Midlands Metro Mayor said when he was managing director of John Lewis:

“If you think of two companies making the same profit, one of them pays corporation tax at the UK rate, one does not because it claims to be headquartered somewhere else—that is not fair.”

Anyway, that is enough Conservative quotes in a Rupa speech—this is quite unusual for me. The Government should now set a date.

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[Jesse Norman]

I am afraid I just do not have any time. I will come back to the hon. Gentleman at the end if I do.

I want to respond to the hon. Member for Hornsey and Wood Green (Catherine West), who rightly highlighted the importance of local authorities for cycling, walking and tree planting. I agree with her about that. She asked about the replacement strategy for the emissions trading system. I think she is aware that we have framed two alternatives. The first is a UK ETS, and the second is a carbon emissions tax. We are open to a negotiated agreement, but we have the resources, through either of those options, to implement a scheme that addresses the issues that she is concerned about.

Finally, the hon. Member for Cardiff North (Anna McMorrin) called for leadership not rhetoric. I wonder whether she was referring to the Welsh Government, whose tree planting plans have been disastrous. They seem to be way behind, according to their own tree planting estimates.

The hon. Lady specifically picked out the Swansea Bay tidal lagoon. As my right hon. Friend the Member for South Northamptonshire said, that project would not provide value for money. It would be a terrible waste of public money. That money could be spent much better.

[Sir Edward Davey]

Absolute nonsense.

[Jesse Norman]

I spent a lot of time looking at it when I was a Minister at the Department for Business, Energy and Industrial Strategy, and the right hon. Gentleman, who is chuntering from a sedentary position, is quite wrong about that. It would provide terrible value for money.

It is also fascinating that the project is not an environmentally wise idea. The hon. Member for Cardiff North may not be aware that the Wildlife Trust of South and West Wales specifically highlighted the major impact on biodiversity, the loss of intertidal habitat and the impact on local ecology, and National Resources Wales talked of a “major adverse impact”. I agree with the hon. Lady that actions matter, not words, and that leadership matters, not rhetoric, and we are seeing that by turning down this very bad project.

The Government are committed to tackling climate change and to being the first generation to leave the environment in a better condition than we inherited it. These measures go towards making that happen.

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[Wes Streeting]

The Minister would be far more persuasive if the Government made any announcements about how they are investing more. In fact, what we got from the Prime Minister this week was a damp squib. I genuinely hoped and expected that the Prime Minister would announce major programmes. For example, retrofitting homes across the country would deliver environmental benefits and job creation, including jobs that would compensate those who will imminently find themselves out of work.

[Sir Edward Davey]

Will the hon. Gentleman give way?

[Wes Streeting]

I probably do not have time, I am afraid.

Those are the sorts of initiatives that we expect the Government to come forward with. I am disappointed by the lack of ambition, which only underpins why our new clause is so important, so I wish to press it to a Division.

Question put, That the clause be read a Second time.

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[Mr McFadden]

It is a pleasure to be facing my old sparring partner from the Treasury Committee of some years ago across the Dispatch Box. In this debate we will cover a number of amendments dealing with IR35 or off-payroll working, through to the loan charge and the impact of this Finance Bill on the crucial issue of jobs.

On IR35, we have always said that we need an approach that brings together the consideration of tax and employment law and that levels up protections for the self-employed, as well as dealing with the current implications of the tax system, which sometimes boosts bogus self-employment. The Chancellor has already hinted at changes to the tax regime for self-employed people as a consequence of the help given to them through the current crisis. Some contractors have raised concerns about being treated like an employee for tax purposes but not for employment rights purposes. Given the huge ongoing labour market difficulties caused by the current crisis, I would like to ask the Minister what consideration the Government have given to the timetable for their proposed changes and, in particular, what their attitude is to the amendments before us tonight calling for a delay in the roll-out of the IR35 changes to the private sector, so that we can get the balance between tax and employment rights correct.

Many Members have also received representations about changes to the loan charge. We have supported attempts to deal with tax avoidance, but also expressed concern for those advised into such arrangements, by either employers or the promoters of such schemes. We will continue to press the Government to review how the promoters of disguised remuneration schemes have been tackled—or not tackled, as the case may be—by HMRC and ensure that those who promote such schemes are held to account.

[Sir Edward Davey]

I agree with what the right hon. Gentleman has been saying. Would he support the option of the House having a vote tonight on new clause 31, which relates to the loan charge? There are many people watching our deliberations who hope that this House will express a view on the loan charge, and I am told that at the moment that is not likely to happen. Will he confirm from the Front Bench that the Labour party would like a Division on new clause 31?

[Mr McFadden]

The matter of what is voted on is of course, a consideration for the Speaker. I do not always get to decide what is voted on in this House.

New clause 26, standing in my name and those of my hon. Friends, focuses on the issue of jobs and does so for the very good reason that that is the principal economic challenge facing us right now. If there was any doubt about that, we need only look at the news over the past 24 hours—1,700 jobs lost at Airbus, up to 5,000 job losses announced by the owners of Upper Crust, 4,500 at easyJet a couple of days ago, another 4,500 at Swissport, and many more around the country that do not make the front page of the national news. These are not just numbers. Every one of them is a human story of a livelihood taken away and a family wondering how they will pay the bills and what the future will hold for them.

Across the country, the claimant count measure of unemployment is up by 1.5 million since the start of the year. In addition to those out of work and the estimated 9 million on furlough schemes, it is estimated that up to 8 million employees are working fewer hours than usual. These stark figures show us that we are facing the jobs challenge of a generation. It is decades since young people leaving school, college or university graduated into a labour market such as this.

Giving my age away, I remember, as a young teenager growing up in Glasgow, attending the people’s march for jobs. Unemployment back then was around 3 million. The vocabulary of it infused the times—“signing on”; “the Girocheque”. It even gave birth to the great band UB40, named after the unemployment card that people got for signing on. The damage caused by that mass unemployment affected not just the city where I grew up, but the Black Country that I now represent, and many similar communities across the country. Long-term social and economic pain was caused by far too many people facing a life on the dole, and we must never go back to those days. If we have learned anything from that experience of the 1980s, it is that the cost of not acting is greater than the cost of acting, and we must do everything we can now to prevent mass unemployment. That is the challenge facing us.

At the start of this crisis we called for wage support to help people through. The furlough scheme and the self-employed furlough scheme were the right and necessary things to do, but as lockdown is eased, and support from those schemes starts to be withdrawn from next month, we can see the danger facing the economy. The danger is that businesses that have been just about hanging on start to let people go, caught between having no income and facing rising employment costs. This is the moment that the Government need to act to preserve jobs, jobs, jobs.

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[Mr McFadden]

There is no MP from the west midlands who does not care about our manufacturing base. It is a vital part of our economy. It may be true that we make less than we used to, but it is also true that we make more than we think, and we should never be dismissive of the activity and the creativity of making things in this country.

The Government announced their back-to-work plan yesterday, praying in aid President Roosevelt and the new deal. First, the Prime Minister wanted to compare himself to Churchill. Now it is Roosevelt. We have to wonder why he seems so uncomfortable with just being himself. Let us look at the comparison. F. D. R.’s new deal did indeed rescue the United States from the great depression. Millions of workers were hired, 255,000 miles of roads were built, as were 40,000 schools and almost 1,000 airports—major infrastructure projects that modernised the United States and stood the test of time, all at a cost of around 40% of pre-depression United States GDP. By contrast, what the Prime Minister announced yesterday was around 1% of the cost of the new deal—one cent on the dollar, if you will. He has taken the old political maxim, “Under-promise and over-deliver”, and turned it on its head.

I know that the Minister likes a good book. One of the shorter, but nevertheless hugely illuminating, studies of Roosevelt’s approach comes in Doris Kearns Goodwin’s book on leadership. In it, she sets out Roosevelt’s watchwords behind the new deal. I will leave the House to make its own judgment on the comparison between this and the Prime Minister. First, “Strike the right balance of realism and optimism”—not everything has to be claimed to be the biggest or the best in the world. After the events of recent months, systems that just worked would be an improvement. We then have, “Infuse a sense of shared purpose and direction”, “Lead by example”, “Forge a team aligned with action and change”, “Bring all stakeholders aboard”, “Set a deadline and drive full-bore to meet it”, “Address systemic problems. Launch lasting reforms”, “Be open to experiment”, “Adapt and be ready to change course where necessary”, and “Tell the story directly to the people”. That was Roosevelt’s approach, and I will leave it to others to judge whether the Prime Minister’s approach falls short not only in scale but also in spirit.

[Sir Edward Davey]

Like the right hon. Gentleman, I have read books about F. D. R. I have studied F. D. R. The Prime Minister is no F. D. R.

[Mr McFadden]

Quite.

Infrastructure expenditure is, of course, welcome, and we support it. It makes sense to do this when interest rates are historically low.

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[Mr David Davis (Haltemprice and Howden) (Con)]

I rise to speak to the amendments and new clauses tabled in my name and the names of other Members of this House. They include new clause 31 and the consequential amendments relating to the loan charge legislation, and amendment 20 and the consequential amendments relating to the application of the so-called IR35 regulations, which deal with off-payroll taxation arrangements.

It is a pleasure to follow the right hon. Member for Wolverhampton South East (Mr McFadden). I am even older than him: I can remember discussions across the table in my household about the means test when I was too young to understand it.

When I first spoke in this House about the loan charge arrangements, I quoted the Chief Justice of the US Supreme Court who once said that the power to tax is the power to destroy. That description could be used of both the policies that I wish to talk about today. The loan charge destroys lives. To date, at least seven people have taken their own lives as a result of this unfair and retrospective policy—and I will use that word “retrospective” over and over again, even though HMRC fails to recognise it. For many ordinary, decent people, including locum nurses, teachers and contractors—ordinary folk, not big City bankers—who were misled by their employers in many cases, the loan charge has robbed them of their peace of mind, their self-respect and, in some cases, their lives. Some 39% of them have considered suicide, 49% could lose their homes and 71% could face bankruptcy.

New clause 31 would simply stop the Government pursuing any employees who were innocent parties who did not know that what they were doing was illegal and who believed they were acting correctly and in good faith. Yesterday, when I spoke on immigration, I had to deal with a briefing from the Government supposedly rebutting the lines in my proposed amendment, and I have the same again today. A disgraceful and frankly wrong briefing has been handed out by the Government describing what they thought we were saying. I will not go into details, but I hope that others will have time to do so. I will simply say that HMRC seems to have forgotten that in English law you are innocent until proven guilty. It is about time we followed that principle with respect to the loan charge.

[Sir Edward Davey]

As the right hon. Gentleman knows, I am the second name on new clause 31, and he will note from the amendment paper that 54 hon. and right hon. Members have signed it. That is more than any other amendment before the House today, and the only one that comes close to it is another amendment on the loan charge. Does he not think that that is a signal that the House wants to divide on new clause 31, and that whatever the Front Benchers think, the Back Benchers who have signed new clause 31 want a vote?

[Mr Davis]

The right hon. Gentleman makes a good point, but he should make it to the Speaker rather than me, as he well knows. He has been a Member nearly as long as I have.

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[Mr David Davis]

If my hon. Friend thinks that this is the precedent, he should go back to the Finance Act 2008, which gives HMRC a 20-year assessment period in which it can assess whether the taxpayer participated in a transaction knowing that it was part of an arrangement attempting to bring about loss of tax. That is precisely what it says.

[Sir Edward Davey]

It is on the statute book.

[Mr Davis]

Yes, it is on the statute book. The precedent is there.

[Stephen Hammond]

The precedent that I am looking at is very clear that there seems to be an issue with the whole tax system.

[Sir Edward Davey]

The hon. Gentleman has heard from the right hon. Member for Haltemprice and Howden (Mr Davis) that the way that new clause 31 has been designed has used words already on the statute book, so he cannot make that argument. Moreover, the real precedent that he ought to be worrying about is the loan charge itself and its retrospective nature. I know he is concerned about that, so should he not therefore be voting for new clause 31, which is based on existing tax vocabulary, and opposing the real precedent, which is the appalling way that taxpayers have been treated?

[Stephen Hammond]

I have already made the point about retroactive behaviour and retrospectivity. I have said that there is much that the Government can do. I want the Minister to set out exactly how a person who has no assets, is on benefits or is on earnings less than the national average could get forgiveness. I have explained what I am concerned about. I hear what my right hon. Friend the Member for Haltemprice and Howden has said, and perhaps the Minister will want to address the point I am raising. I may be wrong, but it seems to me that this is quite a dangerous precedent to embark on.