Finance (No. 2) Bill

Fiona O'Donnell Excerpts

Wednesday 17th April 2013 Commons Chamber

[Fiona O'Donnell (East Lothian) (Lab)]

Does my hon. Friend agree that the measure is a gift for the Chancellor to satisfy the lack of enthusiasm among many of his Back Benchers for 0.7%?

[Catherine McKinnell]

Indeed. That very thought was going through my head. We must be serious about the impact we can make as a country to support developing countries. We should do everything we can, not just giving aid and making sure that it is utilised in the best way, but enabling developing countries to support themselves as best they can. The Enough Food for Everyone IF campaign states that

“dealing with developing countries’ corporation tax alone could raise enough public revenues to save the lives of 230 children under the age of five every day.”

That is a powerful statement and a powerful tool is within our reach.

The Opposition believe that the first step to tackling the issue, and to creating a fair taxation system, is to put an end to tax secrecy. We need concrete proposals from the Government to demonstrate how they intend to put the issue at the top of the G8 agenda, starting with the requirement suggested by our amendment that HMRC should work in conjunction with other G8 countries to bring forward measures to require multinational groups to publish a simple, single figure for the amount of corporation tax they pay. That is the purpose of our amendment 4. Yet, while the issue of tax avoidance and tax transparency can clearly only be properly dealt with at an international level, we believe the UK should be leading the way, demonstrating its determination to take meaningful action on tax transparency here at home. Therefore our amendment 5 would ensure that commitment was there, regardless of progress at an international level.

Tax transparency should not be restricted to the UK and other G8 or OECD countries; it is needed now, more than ever, in the developing world. The Prime Minister and the Chancellor have frequently stated their commitment to championing tax transparency during the UK’s presidency of the G8. They are on record as being committed to ensuring that developing countries also benefit from any reforms, yet with the exception of a relatively small pot of money for capacity-building work, the measures to combat tax avoidance in the Bill before us do nothing to assist poorer countries. So although the Government are determined that Labour’s disclosure of tax avoidance scheme requirements cannot be extended to include subsidiaries of UK companies operating in developing countries, the Opposition believe that the Government should at least commit to reviewing how a requirement for UK companies to report their use of tax schemes that have an impact on developing countries could be enacted. Surely it is the least that the Government can do.

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[Fiona O'Donnell]

On that point, may I press the right hon. Gentleman to address amendment 7, which expresses the view of not only Opposition Front Benchers, but the International Development Committee, which recommended an impact assessment of the controlled foreign company rules, and that Committee is chaired by a member of his own party?

[Andrew Stunell]

Indeed, it is. There are many propositions made here that are highly desirable, and I would not be at all disappointed if the Front-Bench team agreed to accept amendment 7 and a number of others. The point I am making is that what we need across all political parties in the House, and beyond, is strong consensus in favour of not only continuing our achievement of the aid target, but ensuring that we assist developing nations by getting our tax affairs straight and helping them to do likewise.

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[Mr Iain McKenzie (Inverclyde) (Lab)]

It is abhorrent that large companies up and down the country should be avoiding paying their taxes while our constituents are squeezed by the Government at every opportunity. We call on the Government to take vigorous action on tax avoidance. To date, however, despite the Government’s rhetoric, they have consistently failed to deliver.

Quite simply, the cuts to HMRC go too far. With more than 10,000 additional job losses, they will prove to have been a false economy if the Government hamper HMRC’s ability to collect billions of pounds in avoided tax. It is not right and cannot be fair that, while families and small businesses are paying their fair share and feeling the squeeze, large enterprises are allowed to practise “if we can afford it, we can avoid it” tactics.

We believe that the best means of tackling tax avoidance is through not only principle but proper targeted measures and greater capacity in HMRC. If the Government are relying only on the general anti-avoidance rule to do the job, we fear it will not be sufficient. As my hon. Friend the Member for Newcastle upon Tyne North (Catherine McKinnell) has said, we are willing to support the Government’s introduction of GAAR, but we remain unconvinced that the current version is up to the job.

Let me give but one example of how my constituents are feeling the axe while big companies avoid the tax. A group of women attended my surgery last Friday asking, “Why have we been hit while some big businesses seem to escape?” My constituent Mrs Christine Houston of Port Glasgow was made redundant as demand fell and her company experienced economic hardship. She managed to find a part-time job but she works unsociable hours. Her benefits, which acted as a safety net to allow her to live, have now also been cut. Now she has been unfairly affected by the Government’s pension reforms; she was born in October ’53, so she will receive less pension than her two best friends, who were born in March that year. Despite having started work when she was 16 and having paid her share of taxes ever since, she cannot plan for her future as a direct result of the Government’s actions. “Why,” she and her friends ask, “are multinationals plying their trade in this country and getting off lightly on tax while we are being hit hard? Where is the fairness in that?”

HMRC’s most recent estimate, for the period 2010-11, of tax difference—that is, between the tax actually collected and what would have been collected if everybody had complied with the letter and spirit of the law—stands at a staggering £32 billion-plus, and some regard that estimate as low. Serious concerns exist that the Government’s proposed GAAR is too narrow and that they have failed to clarify that it will not cover most of the tax-avoidance activity undertaken by multinational corporations about which the general public are so concerned. HMRC must have the capacity and resources it requires to tackle tax avoidance properly. The Government are undermining its ability to do so with the budget cuts of over £2 billion in this Parliament, leading to 10,000 job losses. While we all agree that making genuine efficiencies is important, there has to be a limit to its capacity to do more with less. The current scale of cuts risks being a false economy if the Government reduce HMRC’s tax yield.

In these tough times, when the Government are cutting spending and raising taxes, it is even more important that everyone plays their part and pays their fair share of tax. Good British firms and millions of families are paying their fair share, but it is not right that some firms do not, and I think we all agree that that needs to change. We must put an end to the era of tax secrecy, because the reason some companies behave like this is that they believe there is little chance of their being found out. We need to reform the rules that allow companies that make profits in Britain but avoid paying tax in Britain to ensure that they do pay their tax.

Recent cases of companies that have manipulated the tax rules to reduce the tax they pay in the UK to virtually nothing have rightly outraged all those people and businesses who do pay their fair share of tax. My constituents in Inverclyde, and hard-working families and businesses, rightly ask why some seem to think that the rules do not apply to them. It is clearly unfair and further undermines companies that do pay their tax, expecting a level playing field. Over the Easter recess, I visited many small and medium-sized companies, and time and again they talked about no growth in the economy, low demand, and larger businesses avoiding paying their taxes while they were expected to pay theirs, and on time. Sometimes, yes, there will be good reasons why companies pay little tax. Some companies invest large sums in research and development, assets and infrastructure, and we should, and do, celebrate and welcome that. However, we also need to know when companies are stripping their profits out of the UK through artificial schemes.

The Government are undermining HMRC’s ability to administer and collect tax by cutting resources too far and too fast—a familiar, failing theme of this Government. HMRC now has more staff working on administering the Government’s child benefit cut than it employs, combined, to tackle tax evasion and avoidance. The people of this country are demanding reform of the current rules that allow companies to make profits in Britain but pay no tax. That also requires reform of our corporation tax system. In the 21st century, value is now often in brands and intellectual property, customer loyalty and ideas that can be traded globally between different parts of the company group. The rules need to be clearer, tighter and properly enforced.

The Government are failing to show the leadership we need to tackle tax avoidance, yet are vigorously pursuing others to help to fill the Treasury’s coffers. The Conservatives and their coalition partners are failing to convince constituents such as Mrs Houston of Port Glasgow that we are all in it together, or that, with their many references to fairness in both their manifestos, they are living up to that fairness. I ask the Minister to explain to Mrs Houston why the Government seem reluctant to tackle tax avoidance and to give her back her pension.

[Fiona O'Donnell]

It is a pleasure to speak under your chairmanship, Mr Crausby. I am particularly pleased today to support amendments 3, 6, 7 and 8 in the name of the shadow Chancellor of the Exchequer and others. I see him in the role of Robin Hood, and I will leave my hon. Friends the Members for Newcastle upon Tyne North (Catherine McKinnell) and for Kilmarnock and Loudoun (Cathy Jamieson) to fight it out as to who is Maid Marian. While the Government may be able to find a Robin Hood on the Treasury Bench, they will of course have to resort to the old public schoolboy tradition of one of them dressing up as a woman if they are to have a Maid Marian.

I do not want the Government to be too precious about what they are doing today. I have a feeling that we have been here before—with the Groceries Code Adjudicator Bill perhaps—in that we are all agreed on the general direction of travel but the Government seem resistant to transparent proposals that can be monitored, so that we can see whether they work and achieve what we want them to achieve, or whether they have any adverse impacts. Those on the Treasury Bench have heard concerns raised by Members on both sides of the Committee. They need to give the Bill the teeth to ensure that it is enforceable.

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[Andrew Stunell]

rose—

[Fiona O'Donnell]

I found the right hon. Gentleman’s reticence in that regard particularly difficult, but I hope he will now redeem himself.

[Andrew Stunell]

I am happy to agree with the hon. Lady: it is true that the previous Government took the issue seriously and I was happy to serve on the International Development Committee during that time. I say to her, however, that we have taken the issue further.

[Fiona O'Donnell]

Exactly. We have passed on the torch of 0.7% and I pay credit to the Government. It must be a lot harder for them to take that direction of travel than it was for us, because our Back Benchers were supportive of it. It is not enough, however, for Lib Dems to be warmly supportive of the Government and hope that they will not be disappointed. They have to start voting for what they believe in, what they put in their manifesto and what their conference told them it wants them to do. That is why I intervened earlier on the right hon. Gentleman on the subject of the CFC and its effect. I hope that the Minister will say that he is listening not only to the Opposition but to the Select Committee and its report. The Committee has asked for an impact assessment, and we need to be clear about that. Much as I often disagree with coalition Members, I cannot believe that they intended the CFC to have that effect. An impact assessment would show whether it will damage developing countries.

The right hon. Gentleman also spoke about the IF campaign. It is clear that an essential part of tackling poverty and hunger is having a fair and transparent tax system. It is not surprising that people in this democracy should be outraged by large corporations not paying their fair dues, but we sometimes seem to think that it is all right for developing countries. Do they have to expect their natural resources to be plundered?

[The Parliamentary Under-Secretary of State for International Development (Lynne Featherstone)]

indicated dissent.

[Fiona O’Donnell]

I am glad that the Minister shakes her head and I give her credit for much of the good work that she has done in office. However, it is time for action. I repeatedly asked the Secretary of State, when she appeared before the Select Committee, whether she would act and whether she was pressing the Treasury for more transparency. She said that it really was not a matter for her; it was a matter for the Treasury—but it absolutely is for the Department for International Development and for the Secretary of State and her Ministers to address this issue. The people in those developing countries have as much right as people in this country to be outraged, but unless they have access to the information about whether tax has been paid, they will not be able to feel that sense of outrage. I hope that we will see some movement on that issue.

If we are ever to see a situation in which aid does not have to be stuck at 0.7%, as I am sure developing countries and many of us want, it will be by ensuring that tax is paid. We have had estimates from the OECD, as my hon. Friend the Member for Newcastle upon Tyne North said in her opening remarks, that developing countries lose three times as much money as they receive in aid. We have a chance now to do something not just for developing countries, but for our own country, by easing that burden.

I give credit to the right hon. Member for Gordon (Sir Malcolm Bruce), the Chair of the International Development Committee for the work he has done and I thank recently joined members of the Committee for their support. The Chairman does not put his party or the coalition first: he genuinely works in the interests of developing countries and the UK in ensuring that tax is spent well. I just wish that we could see Committees in the Scottish Parliament following that good example.

I believe that I may have the honour of serving on the Bill Committee, and I hope that we will not have the same experience as I have had all too often in Committee, with the Government continually refusing to accept amendments, followed by a climbdown. The amendments make genuinely helpful suggestions without asking the Government to alter direction. They would strengthen the measures on which we agree about the direction of travel to ensure that we carefully assess the impact of the policies and that they achieve what we want them to achieve. People have marched in support of the Robin Hood tax and want to see a fairer, more progressive form of capitalism in this country, so the Minister needs to step up to the mark—as well as to the Dispatch Box—and accept the amendments.

[Steve McCabe]

The Government repeatedly promise to crack down on tax avoidance. Of course, I welcome any efforts in that direction, but as my hon. Friend the Member for Newcastle upon Tyne North (Catherine McKinnell) pointed out, the prospect of between £60 million and £85 million projected extra revenue against a tax gap of £32.2 billion is hardly the stuff of ground-breaking flagship policies. I am curious to know just who will be pursued under the Government’s plans. As we heard, GAAR will be targeted at abusive avoidance that has abnormal features, and on those involved in highly contrived tax avoidance. Does that mean that normal, low-key, run-of-the-mill, common or garden tax avoidance is going to carry on as normal, with very little activity directed at it at all? Like others, it is not clear to me that GAAR is focused on the tax avoidance of the multinational corporations we have heard so much about lately.

I am pleased that the Government are planning to put tax avoidance on the agenda at the G8 summit, but it would be better if we had a clear indication tonight on what they intend to achieve. For example, I want to know whether the Prime Minister plans to follow up Chancellor Merkel’s concerns about the lack of monitoring of British sovereign territories, which are increasingly used as tax havens. I would love to know how a place such as Jersey became the world’s largest exporter of bananas. Will the G8 be considering guideline prices to help countries in the developing world? Will there be any discussion on an international tax inspector operation to help the countries that are being sucked dry by international lawyers, accountants and financiers?

At the very least, the Government could announce that they are ending tax secrecy by accepting amendment 3 and insisting that multinational groups publish a simple, single figure for the amount of corporation tax they pay in this country, instead of the current arrangements where they parcel the tax paid in a variety of ways that permits avoidance. The Government might also say that they intend to take some action against law firms in this country who all too readily set up shell companies, no questions asked, in the full knowledge that they are aiding and abetting tax avoidance and other corrupt practices.

The Prime Minster might also follow up on his promise that members of his Government publish details of their own tax affairs. Why not lead by example? This is not France. We have nothing to fear here—I think—unlike in France, where the man charged with fighting tax evasion turns out to be a tax fraud himself. At least the French President is now going to force his Ministers to publish details of their tax affairs. Why does our Prime Minister not do the same? He said that he would.

I welcome measures to tighten the rules on companies that arrange loans for their directors or shareholders, in place of taxable salaries or dividends. That particular activity sounds remarkably close to the tax arrangements that brought down Glasgow Rangers football club, and may be widespread in football. I therefore welcome what the Minister is doing on that.

Finally, why has the Chancellor backtracked on retrospective legislation restricting the right of companies to bid for Government work where they have lost disputes with Her Majesty’s Revenue and Customs over tax avoidance? The Government are not frightened of retrospective legislation, as we saw in the case of the jobseeker’s allowance claimants who won their appeal over dodgy back-to-work schemes. Why is it okay to protect tax avoiders, but punish the unemployed?

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[Kelvin Hopkins]

It is a pleasure to follow my hon. Friend the Member for Bolton West (Julie Hilling), who made a superb speech and hit lots of buttons.

I am speaking briefly at the end of this debate basically to support my right hon. Friend the Member for Oldham West and Royton (Mr Meacher) and his comprehensive, substantial proposals for an alternative scheme. I have also signed his new clauses. I am not a tax lawyer—I am not a lawyer—or a tax expert, but I am angry about the fact that for decades we have failed to collect taxes that should go into the Exchequer and help those in our community and our society who need proper support, allowing the corporate world and the millionaires to get away with vast amounts of money that should rightfully be given to the Treasury.

The hon. Member for Amber Valley (Nigel Mills) said that HMRC would in effect be making its own laws. What about getting rid of a lot of the tax allowances, which are nonsense in any case, and making some of the things that are currently regarded as tax avoidance illegal by calling them tax evasion? Some of the things that are done should be regarded not just as neat ways of avoiding tax, but as crimes that should rightfully be prosecuted through HMRC and the courts. I take a much fiercer view. It is pathetic that successive Governments —and I mean successive Governments—have failed to grasp what needs to be done.

I will tell you some anecdotes, Mr Crausby. When I first entered the House, I went along to my local VAT office. The VAT officials there told me that they needed more staff and every extra member of staff collected five times more than their own salary, and that was just for VAT. I therefore wrote to the Chancellor of the Exchequer and said, “We just need more staff in our VAT offices. There would be a net benefit to the Treasury because all the new members of staff would collect more than their salaries.” I got a letter back from an official—not from the Chancellor—that said, “We are trying to cut costs by reducing staffing,” which is utterly illogical. Reducing staffing means a net loss to the Treasury, not a net gain, and we have been going down that route ever since.

The savage staffing cuts in HMRC are quite appalling. Those in the tax offices that deal with the corporates—the big money—collect hundreds and possibly thousands of times more than their own salaries, if they are allowed to do the job and if they are properly supported and paid. I know from my connections with their union that they are constantly under stress and pressure, and in many cases they are not adequately remunerated. We want to give our tax offices enough staff to do the job, pay them properly and ensure that they have morale, so that they do the job on behalf of us all.

[Fiona O'Donnell]

Does my hon. Friend agree that that also goes for working tax credits? When a family notify HMRC of a change in circumstances, their benefits—their working tax credits—are stopped and can be suspended for several weeks while they are reassessed, causing incredible hardship for families that are doing the right thing.

[Kelvin Hopkins]

My hon. Friend is absolutely right. Of course, people are now losing their jobs in all areas of the public services. The public services are suffering great stress and the people working in them are being demoralised, and I think that goes even for the senior civil service—I know that certain people at the end of the Chamber would possibly agree with me in that respect.

I must say that the Treasury’s attitude over some decades has been so lax that one has to suspect that it really believes that allowing all the corporates and millionaires to have their money will somehow trickle down and help the economy. That is the sort of economic nonsense that has got us into the mess we are in at the moment. What we should be doing is collecting the taxes and spending in the areas where it is needed.