National Insurance Contributions Bill

Ian Swales Excerpts

Monday 4th November 2013 Commons Chamber

[Shabana Mahmood]

The hon. Gentleman makes a fair point, but there were many other problems with the national insurance holiday, which I shall return to later.

[Ian Swales (Redcar) (LD)]

As we are having a national insurance history lesson, what does the hon. Lady think the impact would have been of a 1% increase for employers and employees in April 2011?

[Shabana Mahmood]

I thank the hon. Gentleman for that intervention, but I prefer to look at the record. When the Government came to power, they inherited a growing economy. They choked off the recovery, resulting in three years of flatlining and stagnation, and the current cost-of-living crisis that affects businesses and people up and down the country.

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[Ian Swales (Redcar) (LD)]

I warmly welcome the proposals in the Bill. We have already heard the statistics on its impact, including that 90% of the money involved will go to companies with fewer than 50 employees. That represents real help for small businesses up and down the country. I also welcome the fact that it will be much simpler to apply for the allowance, and that businesses will no longer have the kind of issues they are experiencing with the present scheme.

It is certainly true that people and businesses respond to financial incentives, and it is no wonder that national insurance is sometimes called a jobs tax, because it can be a disincentive to employing people. It raises the bar to employing people and, given the importance of creating jobs in our economy, it is great to see that bar coming down. The Federation of Small Businesses has stated that the Bill will affect not only jobs; investment will also increase, as will the pay of the staff. I warmly welcome the FSB’s conclusion. Let us contrast these measures with the previous Government’s proposed 1% increase for employers and employees in April 2011. The independent Centre for Economics and Business Research said that that measure would have taken 57,000 jobs out of our economy—proving the point that national insurance can indeed be a big incentive either to employ people or fire them.

I welcome the proposals relating to offshore oil and gas employees. Quite a number of them live in my constituency, and many have had great difficulty with the intermediary companies that employ them. The confused nature of the national insurance arrangements can cause them personal issues when they start to claim pensions, for example, so I welcome the simplifying measures and look forward to the remaining measures required to give offshore oil and gas workers the right status in our economy.

The tax avoidance measures are also welcome. They are part of an ongoing campaign by the Government, who have already increased by 2,500 the number of staff employed to deal with tax avoidance and evasion. There is a lot more to be done, but we should all warmly welcome clauses 9 and 10, which will apply the general anti-abuse rule. This will prevent offshore payroll companies from avoiding national insurance.

[Jonathan Edwards]

How much of the annual tax gap does the hon. Gentleman think this measure will tackle?

[Ian Swales]

Very little. We heard from the hon. Member for Birmingham, Ladywood (Shabana Mahmood) that the measure will not bring in an enormous amount. It will, however, remove the loophole that has been used by many companies, including some of our merchant banks, to pay their staff offshore as a technique for avoiding national insurance. We have to welcome any measures that will improve that situation.

I want to ask the Minister for clarification following the 2011 Budget announcement that tax and national insurance would be simplified and that work would be done to bring them together. We have long since lost the hypothecation of national insurance, and I wonder whether we could simplify the arrangements a lot more than we are doing at the moment. I hope he will respond to that point.

The Bill is part of a big package aimed at supporting small and medium-sized businesses. Corporation tax is down from 28% to 23%, and it is heading for a rate of 20% by 2015. A new business bank has been proposed, along with other lending schemes. There has been a response to the Lib Dem campaign to increase capital allowances, which went up tenfold in the last Budget. That is particularly helping small manufacturing companies to increase their investment in equipment. The one in, two out policy on regulation is also a great help, as is the setting of small business rate relief at 100% for two and a half years. Those measures and more are driving the economy forward, and have now created 1.4 million jobs.

Last week, a shadow Minister described his party as the party of small businesses. The laughter that greeted his statement almost brought the house down. If we look at what could have been done in 13 years and what this Government have done in three short years, it is quite clear to see who is out there supporting small businesses.

The Opposition propose a business rate freeze, which would give small businesses about £450 over two years. These measures give businesses £4,000 over two years—almost 10 times as much. They are certainly a great help to small businesses. We have heard about the FSB supporting them, and about the Small Charities Coalition doing the same, while the CBI has also welcomed them. If there is a coalition of those organisations, we know we are doing something right.

This Government are continuing to sort out the mess left by the Opposition, and the Bill will help to create jobs in our economy, will strengthen it and will make the national insurance system fairer.

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[Sheila Gilmore]

I thank the hon. Lady for her intervention, but I am certainly not going to say that many of my constituents did not benefit from the record of the last Government, and I am not going to accept her characterisation of that Government as not having helped the majority of people in this country. Yes, I have spoken to local businesses, and many of them have been struggling, particularly over the last three and a half years, to get loan finance to get their businesses functioning. Many have found it extremely difficult to operate in an economy that has been sent into decline by many of the measures that the incoming Government imposed. The picture presented by the hon. Lady is wrong.

As I was saying, the concentration on what happened during the last Labour Government is a reflection of the fact that this Government know that their previous proposals on national insurance contributions simply did not work. We have heard a lot about predictions, and some people have suggested that the Opposition’s predictions about the economy were wrong, so the Government’s predictions, presumably by extension, must be right.

However, what the Government told us in 2010 and 2011 was that they were going to eliminate, not just reduce, the deficit over the course of one Parliament. What we now hear over and over again is that the deficit has been reduced by one third, but it seems to have reached a plateau. That figure of one third has been invoked for a very long time now, which suggests that the Government’s original intentions and purposes have not been achieved. They have clearly accepted not only that they will not eliminate the deficit by 2015, but that everything has stalled and that deficit reduction has, as I say, reached a plateau. In 2010-11, it was predicted that we would see economic growth in 2010-12, not that we would be still waiting for it in 2013. Even now, the amount of growth we are seeing is very limited.

[Ian Swales]

Is the hon. Lady happy about the fact that she stood on a manifesto which included a national insurance policy that independent observers said would take 57,000 jobs out of our economy?

[Sheila Gilmore]

We do not know that that policy would have taken jobs out of the economy, because we did not have the opportunity to implement it.

Another issue that is subject to repeated predictions is jobs. The number of new private sector jobs is constantly being put at about 1.4 million, but, interestingly, in January 2011 the Government were already saying that 500,000 jobs had been created. It is clear to anyone that even if those figures are accurate, and even if factors such as the re-categorisation of jobs into different sectors are taken into account, the pace of job creation is not quite as dramatic or as effective as we might think.

We were told that the earlier proposal for a national insurance holiday was intended to create jobs. The fascinating aspect of that was the very low take-up. If all those new employers had set up new companies and provided new jobs, why did they not want to take advantage of it? Why did so few come forward? That surely casts doubt on the notion that numerous people were desperate to start up new businesses and to take on employees. In December 2012, there were only 20,365 applicants for the scheme. The Minister has told us that eventually there were 26,000, but the initial prediction was 400,000. There is a considerable difference between those figures.

It is not surprising that the Minister was reluctant to respond to interventions from his own Back Benchers and to say what he thought might be the outcome of his current proposals, because he knows how poor earlier predictions have been. It is not just in respect of the national insurance holiday that predictions have been wildly at odds with the reality. For example, the Youth Contract, which involved offering money to employers to take on people aged between 18 and 25, was apparently going to be one of the major answers to youth unemployment. It was designed, we were told, to help 53,000 young people per year. However, in the first year of its operation it helped only 4,690. That was another not very successful policy that we had been asked to believe would help people in an important way. In that context, I think it significant that only last week the Work and Pensions Committee heard from the CBI that it would have liked to see extra money for training, rather than cash incentives for employers to take on young people. Perhaps the Government should listen to what people think would help create jobs.

The Institute for Fiscal Studies has pointed out that the current proposals do not guarantee any additional jobs and that this is simply a tax cut. A tax cut may be beneficial and may bring about more jobs, but in itself it will not necessarily do so. Again, I would point to the previous record. The IFS says we do not know whether this proposal will have any effect on job creation as it will not be piloted and will be almost impossible to evaluate, and that we will therefore be unlikely to know whether it will be money well spent. We must bear in mind the previous history, which I have mentioned, of two schemes that both failed to help create employment, and we must ask the Government to monitor and evaluate this new proposal as much as they can if they are going to introduce it.

The Government must realise that the creation of jobs is extremely important for many parts of this country. Many Government members and Back Benchers have expressed pleasure at the reductions in unemployment in their own constituencies, which is all very well, but unemployment levels in many parts of the country are still extremely high. What is even more important for many people is the lack of quality jobs and the fact that they often cannot work the number of hours they want to. We currently have the highest recorded level of people working part time who want to work more hours. That means people have low incomes and are often dependent on top-ups from Government benefits.

The Government sometimes wonder why things like housing benefit keep going up rather than down, despite the reforms they put in place. The main reason is that people in part-time, low-income jobs on zero-hours contracts have no choice but to apply for such benefits, so even the jobs that are out there are often ones that leave people with a cost-of-living crisis. That causes real suffering, and there is no point in pretending otherwise.

I ask the Government to indicate the likely take-up of this scheme—reluctant though they are to do—and to accept that their previous measures in this field have not been successful. Three years on, their initiatives have simply not been successful, and we see the results in the state of our economy today. Of course it is good that growth is beginning to return, but such low-level growth after such a long time can hardly be hailed as a success. If we want to argue about whose predictions were right, perhaps, at best, we have to say that nobody’s were. The Government’s predictions on coming to power in 2010 were certainly not borne out, and people have been suffering the results of that in the past three years.

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[Margot James]

I thank my hon. Friend for his kind contribution and for his wholehearted support of that work on trade—both are much appreciated.

[Ian Swales]

May I add my tribute to my hon. Friend for playing a role in this exercise? My constituency office is in a business centre and it was fantastic to see UKTI officials advising small businesses recently on exporting to China—I never expected to see that.

[Margot James]

I thank my hon. Friend for that intervention. Indeed, what he has observed might explain why British exports to China have risen at a record rate in the past 12 months.

Another aspect of Government support for the small businesses that are crucial to employment and many of the new jobs that have been created has been the reduction in the small companies tax rate to 20%. The small business rate relief scheme was doubled until 14 April and we have also had the start-up loans scheme and the new enterprise allowance, which I have already mentioned. All those measures were designed to have, and have had, a positive effect on the livelihood of our small businesses.

Of course, not just employers have benefited from such measures. Employees have benefited too. In my constituency, 3,794 people have been removed from income tax altogether. A vast number of people in my constituency—33,000—are now paying less tax and that is an important development, freeing people to spend more money on the high street, which is where the economy is starting to grow again.

It is instructive to recall the Opposition’s record. The shadow Business Secretary makes the laughable claim that Labour is now the party of small business, but I think that small business people judge Governments, Oppositions and former Governments on their actions, not their words. The Opposition have a long way to go before they can put themselves up as people who understand the needs of businesses. As I said earlier, I think that it was indicative of their deeply flawed management of our economy that they felt in 2011 that they needed to put up taxes by putting up national insurance, rather than cutting public spending, which, of course, is what—only the other day—Tony Blair said they should have done. We all know how the economy ended up.

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[Nicky Morgan]

Of course the Government recognise that living standards are under pressure and that household budgets are being squeezed, but it is interesting that the Labour party’s calculations on household income and wages and earnings never factor in tax cuts. We are factoring in tax cuts and ensuring that people keep more of their own money.

My hon. Friend the Member for Gosport (Caroline Dinenage) made a characteristically excellent speech. She talked about the support the Bill will give by extending the employment allowance to small businesses and charities, and mentioned that she had been a small business owner herself. It is noticeable that many Government Members have run their own businesses. She rightly said that we want to make Britain business-friendly.

My hon. Friend the Member for Skipton and Ripon (Julian Smith), who also ran his own business before entering this House, did a sterling job in delivering his speech despite having lost a contact lens—none of us noticed. He made an important point about communicating with small businesses via Her Majesty’s Revenue and Customs, something I am sure Ministers will bear in mind. He also talked about making the employment allowance simple to administer. As my hon. Friend the Exchequer Secretary said in his opening remarks, the employment allowance will be delivered through employers’ standard payroll software and HMRC’s real-time information system. There will be no need for a separate application form or an annual return to report deductions. There will, I hope, be no extra forms, which is good news for small businesses.

[Ian Swales]

I warmly welcome that simplicity. Does the Minister regret, as I do, the previous Government’s practice of announcing measures that were so complicated that they then asked the Treasury to calculate the savings that would accrue from non-take-up?

[Nicky Morgan]

My hon. Friend’s intervention says it all. Government Members have run small businesses and know that we need to keep paperwork, in all its forms, as simple as possible. People who run businesses do not want to spend their evenings and weekends filling in forms. They want to spend that time growing their businesses and taking on their next employee.

Interest Rate Swap Derivatives

Ian Swales Excerpts

Thursday 24th October 2013 Commons Chamber

[Ian Swales (Redcar) (LD)]

It is a great pleasure to speak for the first time with you in the Chair, Madam Deputy Speaker.

I, too, congratulate the hon. Member for Aberconwy (Guto Bebb), not only on securing the debate but on his fantastic leadership of the campaign and the comprehensive speech that he has made today. These debates show Parliament at its best, although it is a little worrying that the banking industry seems to move tortoise-like between them, and to take on the characteristics of the hare only during the few days before and after they take place. Perhaps we just need to have more of them.

As I spoke in our last debate on this subject, I shall not repeat everything that I said then, but I do want to say something about the question of advice. Small businesses typically have an accountant and a bank, and in the past have typically relied on both to be on their side. However, it is clear from the mis-selling scandal that they should have been given independent financial advice, because the banks were no longer on their side, and were now treating them as potential consumers of sophisticated products.

If the banks insist on not being on the side of small businesses and on treating them primarily as sales prospects, we should be thinking about the regulations. We should be thinking about what sort of advice the banks should be telling their clients to seek, about what disclosures of commission they should be making, and about other matters that would be the norm if the banks were selling to private individuals. After all, many of the businesses that we are discussing are not much bigger than the affairs of a private individual. I hope that the Minister will respond to that point.

Some of my constituents, like those of other Members, are following today’s debate closely. Theirs is a very familiar story. Stephen Lilley wanted a loan, and stated explicitly that he wanted to pay it down as quickly as possible. However, he found himself locked into a long-term fixed deal involving a fixed amount of money. Roy Myers turned up to sign the papers for a fairly large loan, only to find that clauses were being inserted at the point of signing. He had no time to consider what was happening.

A point that I do not think has emerged clearly today is that the businesses that are involved in such arrangements are effectively locked into their existing banks, and cannot get out. There has been some predatory behaviour on the part of banks in those circumstances. A business in my constituency which, partly because of the banking arrangements, was in heavy weather financially, found itself having to pay an extra £500 a month for a “special relationship manager” who did not actually do anything. That was merely a way of extracting yet more money from the business. In another case—we heard of a similar example earlier—a life insurance policy was forced on a constituent who did not need it. People have very little room for manoeuvre when they are locked into their existing banks.

I welcomed last year’s decision by the FCA, but progress has been painfully slow. I was present when Barclays turned up at the all-party parliamentary group, many months ago, and convinced us that it was organising a great big operation and that things would move very swiftly from that point onwards—which, of course, they did not. Meanwhile, the lives of more and more businesses and individuals are moving on, and things are happening to them. A couple of months ago, one of my constituents who is a member of a support group was speaking to a woman who was ill at the time, and who has subsequently died. That is another person to whom the banks are no longer having to talk.

A great many businesses have gone bankrupt. The hon. Member for Harrogate and Knaresborough (Andrew Jones) raised a point that had not occurred to me before. If it is true that the banks will not have to compensate those behind bankrupt businesses, they have a financial incentive to bankrupt businesses. I have been around long enough to know that whatever banks have a financial incentive to do, we can pretty much count on their doing.

[Andrew Bridgen]

Does my hon. Friend agree that not only is this situation awful for the SMEs that have been caught up in the mis-selling scandal, but it sends a strong negative message to anyone who is thinking of going into business in this country? Does it not send them the message that the banks cannot be trusted, and provide them with a big incentive not to go into business at all?

[Ian Swales]

Absolutely. Earlier, the hon. Member for South West Devon (Mr Streeter) referred to the reputation of the banks. I think that they will have an enormous job to do to recover their reputation, and to rebuild the trust that new business people should expect.

I hope that the Minister will say something about the question of what happens when businesses have gone bankrupt, or their proprietors are deceased. Do they simply drop off the banks’ lists? If that is the case, I think that we should be very concerned about what the banks are doing and what they are incentivised to do.

There has been good news this week about the separation of compensation from consequential loss. Both the constituents of mine who are following this debate particularly closely have received money in the last few weeks. Why, Members may ask, should they be at the front of the queue? The two of them have been prepared to go very public—they have even appeared on television—and, amazingly, the banks appear to have moved them to the front. Cynic I may be, but I would guess this was part of a process of dealing with the most vocal people first, and of course it should not be like that.

The question has been raised of whether criminal activity has taken place. I think that there is a whole spectrum ranging from relatively innocent bank employees, selling something that they have been told to sell, to clear misrepresentation, lies and so forth. I think that Bully-Banks is finding that the same names recur in some cases, and I think that when what is clearly criminal activity has taken place, those involved should be prosecuted.

We have all talked about the need for extra pace. I hope that the Minister will put maximum pressure on the banks and the FCA to speed up the process, and will show that the Government are on the side of small businesses and our constituents.

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[Sajid Javid]

The FCA has set out a clear process and is publishing more and more information on it. It is important that the FCA and the banks should stick to that. Equally, however, Martin Wheatley, the head of the FCA, has not ruled out any further action, including taking enforcement action if he deems that the redress process has not worked as intended.

A number of Members have mentioned redress payments. Of course we need to be confident that the scheme provides the correct level of redress for affected businesses. I understand why concerns have been raised about the FCA’s decision to allow the banks to settle with customers for a single redress offer, covering both basic redress and consequential losses.

It is right that the FCA, as an independent regulator, should decide such details. However, I agree that it is sensible for the initial payment for basic redress to be made to provide much-needed relief to the businesses. That is why I welcome the announcement this week, from HSBC and RBS so far, that they will now make an initial redress payment to businesses and then discuss consequential losses separately. Back Benchers should take credit for that move. Under the leadership of my hon. Friend the Member for Aberconwy (Guto Bebb), they have put pressure on the banks and we have seen the results already.

However, I want things to go further—I would like all the other banks to join the move announced by HSBC and RBS, and I shall be watching closely to see whether they do. That should help prevent any further undue distress for the businesses and give them much-needed cash-flow relief.

[Ian Swales]

I well understand that consequential loss calculations are probably unique to each business. However, the redress payments surely form a pattern, given that they are all based on similar products. Does the Minister believe that the banks should be able to move very quickly with the redress part of the compensation?

[Sajid Javid]

I agree. The banks should move much faster. Today’s announcement from the two banks is welcome, but other banks should take a serious attitude to not only the amounts but the timing of redress payments.

Hon. Members have also voiced concerns about the large number of businesses that have been assessed as sophisticated and so fall outside the scheme. My understanding is that the FCA used as a starting point the criteria for non-sophisticated customers set out in the Companies Act 2006. As such, the test reflects the fact that larger businesses would have greater resources to seek advice on the products in question, both at the time of sale and subsequently. Moreover, I understand that the FCA then amended the sophistication test in January to ensure that certain companies, which were classified as sophisticated under the Companies Act test but which might reasonably be considered to be non-sophisticated, were also brought into the scope of the review.

Throughout this debate, the Government have been clear that when a business lacked the necessary skills and knowledge to understand fully the risks of the products, it should receive the appropriate redress. We do not agree that all businesses should have access to the FCA review; there needs to be a defined cut-off point beyond which more sophisticated businesses take responsibility for understanding the products that they entered into. I am confident that the FCA has found the right balance to ensure that all non-sophisticated businesses fall inside the scheme.

I will not be able in the time available to address all the questions raised, but I might be able to help with a couple in particular. Some Members asked whether insolvency could be a reason for banks to try to delay the redress process. I assure the House that that could not be a reason. No one wants businesses to go insolvent, but if, sadly, they do, they will still be part of the review process. If mis-selling is found to have happened, banks will still be liable and on the hook—they will gain no advantage from the insolvency of a company.

Hon. Members, including the shadow Minister, asked whether the FCA could consider setting a deadline. There is a good case for the FCA to consider that, but it would have to be its independent decision. Due regard must be taken of the fact that it might take longer to sort out the most complex products, but it would be good for the FCA to consider whether setting a deadline would help to speed up the process.

Multinational Companies and UK Corporation Tax

Ian Swales Excerpts

Thursday 27th June 2013 Commons Chamber

[Ian Swales (Redcar) (LD)]

I welcome the moves the Government have been making, but there is still a lot more to do. For example, Vodafone declares a profit of £2.5 billion in Luxembourg, where it has no business. It is incredibly easy for companies to export UK profits to their country of choice. Luxembourg is often the country of choice. It is used by Vodafone, Tesco, Pearson, the Daily Express group and many others.

In fact, it is becoming almost compulsory to do this. Low-risk, profitable businesses, such as utilities, have to do it, otherwise they will be taken over, as most of them have been. That applies to trade takeovers too, such as those involving Boots and Cadbury. Under the system here in the UK, it is almost impossible to be a long-term profitable company without doing this kind of activity.

UK profits are exported. That is a key item in the business case for takeovers, and now we have also got the internet making all this even simpler. As many companies have shown, companies can build up a huge business in a country, apparently without being there. A little quoted part of HMRC’s own rules—I have not got time to read it out now—says it should be going after these companies. It does not apply its own rules, so I urge it to start getting tough and the OECD to start driving home the simple principle that if a company sells in a country, it must account for that there and owe taxes there. Until then everyone will be climbing on the bandwagon—or should I say the Trainline, which now apparently routes its ticket sales through Luxembourg?

I firmly believe the key reason for flat UK growth is that so much of our UK economic activity is no longer counted here. Has productivity really fallen so much that 1 million extra people are producing no extra output, or is that because, for example, Amazon, one of our fastest-growing businesses, is not actually here, and is therefore saving vast amounts of tax?

It is time for Brussels to deal with the cuckoos in the EU nest. Ireland, Luxembourg and the Netherlands have arrangements that routinely enable tax avoidance. I am sure the free movement of capital was never meant to mean the free removal of taxes. International work is vital. For example, are the Government dealing with scams used by banks? They can create instruments that are traded between countries with different tax regimes, and with a bit of fancy footwork create a net tax reduction manufactured out of thin air.

I welcome the moves to greater transparency, but there is a long way to go. I recommend the recent Private Eye article, “Where there’s muck, there’s brass plates”, which has highlighted that over 11,000 UK limited liability partnerships have been set up since that was enabled by the last Government and they are now one of the corporate vehicles of choice for the world’s money launderers and tax avoiders. They provide a magic mix of UK respectability and absolutely no transparency or scrutiny. Action is needed.

The Government obviously work regularly with advisers on tax matters, but who are they? They are top finance directors, who will almost certainly be engaged in tax avoidance, and big four tax partners who make a very juicy living from advising on how to avoid tax. I recommend that the Government add people who are involved in tax campaigning, as well as campaigning journalists, global poverty campaigners and other experts who do not have a vested interest in tax avoidance and who can see how toxic the current system is.

In a speech in January I went into more detail about the solutions. Today, I will just make one recommendation. It is time to cap the allowable offshore royalty and interest payments, possibly by only allowing a double taxation relief—in other words people only get tax relief on interest if they have paid tax on it somewhere else. Secondly, we should set up new systems to police our national borders—

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. Time is up. I call Nick Smith.

Economic Growth

Ian Swales Excerpts

Wednesday 15th May 2013 Commons Chamber

[Ian Swales (Redcar) (LD)]

I was pleased to see that the Gracious Speech mentioned tackling tax evasion, and that the Chancellor later added tax avoidance in a G8 conference interview. He often says he is proud of a corporation tax rate that is the most competitive in the G20. Unfortunately, large companies can easily move their profits and operations outside the G20. I want to speak about the effect that this is having on the UK economy and growth.

There is widespread bafflement about how we can have an extra 1.2 million private sector jobs and so little growth. Part of the answer is tax avoidance, because many of those workers are employed by offshore companies. For example, Amazon is growing in this country at more than 20% a year. It employs thousands of people, but its sales of £4 billion do not appear in our economy. They appear in Luxembourg. Microsoft, eBay, Google and others have large businesses in the UK but their figures do not show up either, and the Google chief executive proudly talked about avoiding $2 billion in tax last year.

Now let us turn to the companies that are based here. The tax system encourages them to move manufacturing and other parts of their supply chain overseas. The Government’s change in controlled foreign company legislation makes this even more likely. Companies that do declare large profits here will find that they get a knock on the door from a well-paid tax partner of a large accountancy firm, who will put forward schemes whereby corporation tax can be avoided, the simplest of which is to export the profits to Luxembourg via interest payments. This is a route followed by well-known companies such as Vodafone and Pearson, owner of the Financial Times. In fact, it is done by most of our national newspapers, which might explain why media reporting of this issue is patchy at best.

If a profit-making company fails to succumb to the charm offensive of the tax partner, something more sinister is likely to happen. The next knock on the door could be from the vulture capitalists—representatives targeting an aggressive takeover of the company. Let us take a current example. The outstanding business success and growth of Betfair has led it recently to declare £247 million in profits. Its prospective suitors are CVC Capital. What will it bring to Betfair—better management; outstanding new internet technology? The clue is probably in the description of CVC as a London and Luxembourg-based venture capitalist. I am guessing that it will bring a shameless approach to exporting Betfair’s profits to avoid paying UK corporation tax. Boots and Thames Water are just two of the many companies that have been taken over and had their UK profits stripped out of the country and placed in tax havens.

The Government have themselves facilitated tax avoidance, not just through the tax framework but through their procurement and private finance initiative activity. The Green Book on PFI assessment still contains an assumption that 10% of total PFI payments, not profits, will come back to the Government in tax. This is risible when one examines the facts. The vast bulk of PFI deals now have an offshore element. HMRC’s own offices are owned in Bermuda, the Home Office HQ is owned in Guernsey, PFI schools in my constituency are 50% owned in Jersey, and, most bizarrely of all, junction 1A to junction 3 of the M40 is 50% owned in Guernsey. This is the story throughout the country. It is high time the Green Book was changed.

The leakage of money from our tax system and the incentives for companies to operate in certain ways are bad for the economy, bad for growth and bad for individual taxpayers. I welcome the moves that the Government have already made. Let us remember that nearly all the framework was put in place or left in place by the last Government, and they compounded the problem by sucking up to their friends in the City, stripping high-level resource out of HMRC and telling it to go easy on big companies.

I hope that the Government will consider limiting offshore interest payments and closing the loopholes in Luxembourg and Holland, via our membership of the EU. They should prosecute tax evaders and expose and, where appropriate, prosecute their advisers. They should add advisers to their team who are not from big business or big accountancy firms and can speak up for ordinary taxpayers and small business, and they should increase specialist HMRC resources. Tax evasion and avoidance is a cancer in our society and I hope that the Government will keep on acting aggressively to cut it out.

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[Richard Drax]

After I left the BBC I think it certainly lurched to the left.

We have seen what happens when we peddle the line of fruitcakes and loonies: the electorate, who are disaffected enough with us as it is, vote for the party accused of having fruitcakes and loonies. The votes for UKIP two weeks ago only showed what thousands and millions of voters believe. They do not believe that the amendment is graffiti; they believe that we have a major problem and that we—this is why I was sent to this House—have to deal with our relationship with the EU.

The amendment is not, and we are not, attacking the Prime Minister at all. In fact, if hon. Members listen to what the Prime Minister has said, they will hear that he agrees with the amendment. We have been sent here—all of us—to look after our country’s interests and those of our constituents. It is my view, and that of many learned Members, that a renegotiation with the EU is vital. I suspect that it will not be successful, which will lead, I hope, to a referendum and the inevitable vote of “out”.

How often have I heard—I have heard it again in today’s debate—those who are opposed to leaving the EU say that we should focus instead on the economy and jobs? But that is what the EU debate is all about—it is about the economy and jobs. The hon. Member for Huddersfield turns his eyes to the ground as if to say, “Oh dear, here’s another xenophobic Euro-nutter banging on,” but that is not what I am doing; I am speaking for our country and acknowledging what the vote for UKIP showed. We have to wake up in this place.

[Ian Swales]

Will the hon. Gentleman give way?

[Richard Drax]

I will carry on, if I may.

If we do not wake up, we will lose the respect of the people of this country. I would suggest that repatriating the competences that still go to the EU, despite the treaties that have been agreed and the promises that have been made, would do more than anything else to generate jobs in this country. This is a golden opportunity that we must take if we want to restore the trust in this House and this country that was thrown away as a result of the failed promises over Maastricht and Lisbon.

What more evidence do we need that the EU is dead? It is finished. Look around! Wake up! Greece is a disaster and Spain is potentially on the brink of civil war—53% of youths are unemployed. [Interruption.] Hon. Members say, “Oh, my God!”, but there are riots in the streets and their own police are bashing youngsters over the head. This is the Europe that we now face.

--- Later in debate ---

[Danny Alexander]

I want to make some progress, as I have a few further things to say.

We will not succeed in the 21st century if our businesses are slowed down by an outdated infrastructure. That is why we are increasing capital investment plans by £3 billion a year from 2015-16, meaning public investment will be higher on average over this Parliament than it was under our predecessors. That investment will help to improve our digital networks and our road and rail networks. We want to connect our biggest cities in a manner fit for modern business needs, and our investment in High Speed 2 will be a crucial investment for British jobs and prosperity. The hon. Member for North East Derbyshire (Natascha Engel) spoke against HS2 partly on the basis that there had been a decline in wedding bookings at an important venue in her constituency. I hope very much the progress of the equal marriage Bill will help raise demand at that venue.

In a debate focused on jobs and growth, a lot of Members have talked about the subject of Europe, and I have to say that I do not think contemplating British exit from the EU is helpful in supporting jobs and growth in this country. So I would like to remind the House of some of the economic opportunities that we gain from our membership of the European Union. Our EU membership supports UK jobs, prosperity and growth through increased trade, both inside the single market and outside, through free trade agreements. One in 10 jobs in this country—3.5 million jobs—are linked to that trade with the European Union. If we want to win the global race, we need to be part of a strong team.

[Ian Swales]

Is the Minister aware that the number of jobs in the UK has gone up every single year since we joined the EU, except 2009, and went down in eight of the previous 20 years?

[Danny Alexander]

I was not aware of that fact, but the House will remember what happened in 2009 and who was responsible.

The single market helps the UK to attract inward investment. As part of the largest single market in the world—it has 500 million people and is worth £11 trillion —the UK hosts more headquarters of non-EU businesses than France, Germany and the Netherlands combined. UK consumers benefit from EU regulatory standards, and the collective voice of EU member states helps to advance UK interests and influence throughout the world, as the US President said only this week.

Finance (No. 2) Bill

Ian Swales Excerpts

Monday 15th April 2013 Commons Chamber

[Mr Gauke]

I am grateful to my hon. Friend for putting that point on the record. He will be aware of the efforts made by the Government to strengthen our capacity in that respect, and I am sure his remarks will be noted carefully by my ministerial colleagues in the Department for Business, Innovation and Skills.

I turn to tax avoidance and evasion. Although we believe in a competitive tax landscape, we are not by any means a soft touch on tax. As a Government, we have made very clear our expectations of businesses. We expect businesses to pay tax in accordance with the law, but we also want to ensure that aggressive, artificial tax avoidance is dealt with, which brings me to the second key theme of the Bill.

The vast majority of individuals and businesses pay their fair share of tax, but the Bill takes determined action against those who choose not to do so, by introducing a further package of measures to tackle tax avoidance.

[Ian Swales (Redcar) (LD)]

When people engage in practices where assets are bought and sold for different prices—for example, film rights were headlined in a recent case—it is actually tax evasion, and prosecution should follow. Does the Minister agree with that analysis?

[Mr Gauke]

Where there is an element of dishonesty, it is clearly tax evasion, and Her Majesty’s Revenue and Customs has indeed been successful in bringing prosecutions in a number of high-profile cases. Under this Government we have seen the number of prosecutions by HMRC increase fivefold, which is a reflection of how seriously we consider tax evasion and of our determination to assist HMRC in addressing it as much as possible.

--- Later in debate ---

[Ian Swales (Redcar) (LD)]

I welcome most measures in this Bill, particularly the rise in the personal tax threshold to £9,440 this year. That is already cutting in half the tax bill of people on the minimum wage, and next year the threshold will rise to £10,000 and 24 million people will receive a tax cut. That is the No. 1 Liberal Democrat priority, and I am delighted to see that it is being delivered by this Government.

We hear a lot about millionaire tax cuts, but I think that when the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) decided to raise taxes in the last month of his failing Government, he knew that it would be the gift that kept on giving in terms of headlines. Unfortunately, however, it was not the gift that kept on giving to Her Majesty’s Revenue and Customs, as figures have shown. Millionaires will pay £381,000 more in income tax and national insurance in five years of this Government than they paid in the last five years of the previous Government.

[Julie Hilling (Bolton West) (Lab)]

What does the hon. Gentleman think about HMRC saying that the tax would actually have brought in £1 billion? The problem is that we had it only for the first year when people prepaid it, and this year when people will postpone it, but we did not bother to watch what happened in that middle year.

[Ian Swales]

HMRC is well aware that people with those sorts of income levels have many choices about what they do with their money, and we have seen the effects of that. Once tax gets to 50%, people do other things, and that is what we have seen.

I wish to mention one or two relevant changes to pensions. I welcome the cut in allowances for pension savings. It is incredible that under the previous Government someone was allowed to save £255,000 a year for their pension and receive full tax relief worth £127,000. This Government have cut tax relief to £50,000, which will fall to £40,000, so the taxpayer cost of £127,000 will be £18,000 by next year—a huge change that will bring in, I believe, £4 billion. I also welcome the steps for 1992 Equitable Life annuitants. I have a number of constituents who felt very unfairly treated, and although the £5,000 they will receive does not go all the way to meeting their needs, it at least recognises the trauma they have experienced. I welcome the increase in the allowance for draw-down pensioners. That was also painful for some who took a big cut in their income when the Government Actuary changed the figures.

The Minister mentioned tax avoidance. I will not replay the debate in this Chamber from last January, but it had lots of content and I am pleased to see the Government acting on some of that. However, there is still a lot more to do on the internet and international businesses, and I look forward to seeing further measures. I also feel that the lines between avoidance and evasion are getting more blurred. Cases such as that of the bogus charity that was headlined in The Times only a couple of months ago are not just about avoidance and when HMRC should take people to court to get the tax—people need to end up in jail as a result of such schemes. It is high time that we were clear about schemes that are entirely fictitious, and things such as assets changing hands at different prices at the same time need to be viewed as criminal activity.

The Labour party has spoken a lot about the growth measures—or lack of them—in the Budget, and both I and the hon. Member for Cities of London and Westminster (Mark Field), who is no longer in his place, would like to see an export-boom recovery. One problem is that under the previous Government manufacturing went from 22% to 11% of our economy. That amazing fall means there are a lot fewer makers in the march—we all want to see the march of the makers. I welcome the steps the Government are taking to do something about that, including the regional growth fund, which has given out large amounts, mostly to manufacturing industry; the fact that the Government will act on the Heseltine review, which made many of the same points, such as the need to support regions such as mine in the Tees valley; and the tenfold increase in capital allowances from £25,000 to £250,000, which will encourage manufacturers to invest, which we badly need. The new employment allowance of £2,000 will help the smallest businesses to make a bit more money and encourage them to take on more people.

There are measures on infrastructure investment. The Budget plans contain a map of the country featuring the different infrastructure projects, so it is wrong to say that infrastructure investment is not happening. I welcome the Government’s targeting of strategic sectors that they have identified for success, such as automobiles and life sciences. A lot of work is being done on that, and along with the investment in supply chains, which seeks to get our supply chains back onshore after so many disappeared, it is already paying dividends—car parts manufacturers are coming back to the UK and so on. I believe that many of those steps are in the right direction.

On carbon taxes, all hon. Members understand the need to take care of climate change, but we must also ensure that our energy-intensive industries remain competitive. The Government are taking steps in that direction, but there is a lot more to do. We have increases in the climate change levy and the carbon price floor, both of which perhaps send the message to our heavier industry that it is not welcome here. We need to take steps to ensure that that is not the case.

The hon. Member for Cities of London and Westminster said that we do not want retrospective changes. One specific example is the climate change levy for combined heat and power organisations such as Sembcorp in my constituency, which invested millions in new equipment on the expectation that the regime would remain until 2027. The regime changed retrospectively and, all of a sudden, its investment case was gone. I have written to the Minister on that, and it needs considering specifically. It is no good expecting people to invest in green technology if we do not make the ground rules clear. If people start to believe that the ground rules will move, they will not invest.

I welcome the announcement in the Budget on the two areas that will benefit from carbon capture and storage. I would liked to have seen Teesside on the list, but I recognise that the decision was based on energy. I welcome the Government’s recent heat strategy, which specifically mentions the need for carbon capture and storage for industry. I hope that future Budgets cater for a project on Teesside to do exactly that. Teesside has an excellent business case for the Government if they take into account enhanced oil recovery and the revenue that will flow from petroleum revenue taxes as a result of the CCS projects. I hope the Treasury considers that carefully in future.

Generally, the Government are taking many steps towards encouraging green investment. I hope only that they can take the one extra step, which is to ensure that a lot of the investment that goes into new energy projects results in UK manufacturing and supply. Too much of the manufacturing has so far been offshore, including for a wind farm going up right outside my house in Redcar.

I have listened carefully to the speeches today, including those from Opposition Members. I understand some of their points but am confused by others. The hon. Member for Islwyn (Chris Evans), in one of his characteristically passionate speeches, mentioned VAT. I believe that this is the wrong time to introduce a measure that gives the most to those who spend the most—the richest get the most out of cuts in VAT. Most people at the lower end of the scale do not spend much on standard rate VAT items, so the measure he proposed would involve borrowing £12 billion to, for example, cut the price of a Ferrari by £4,000. This is the wrong time to do that. There are much better ways to spend £12 billion if that is what he wants to borrow.

Under the previous Government, three gaps widened: the gap between rich and poor, the gap between north and south, and the gap between the north and the south of the region where I live. That is a shameful record. I and the Liberal Democrats want a stronger economy and a fairer society, and I support the Budget.

[Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)]

I should like to address the comments of the hon. Member for Redcar (Ian Swales) about capital allowances. I, too, welcome the Government’s capital allowance proposals, but they are a U-turn—the Government reduced pre-2010 Labour levels of capital allowances to 25% of what they were, but have since returned them to pre-2010 levels.

The north-east leads the way on exports. Government Members have said that the export recovery has not occurred, but the north-east already had very good exports from industry. Compared with other regions in the country, the north-east leads the way. For example, Cleveland Potash at Boulby in my constituency today announced a £300 million investment, which will create 120 new jobs and secure more than 1,000 existing jobs in the potash pit. That occurs on the one-year anniversary of the recommencement of iron and steel production at the Redcar blast furnace at the Teesside Cast Products site, which is under the joint operation of Sahaviriya Steel Industries and Tata. That is a victory for the campaign of local people on Teesside, of which I was proud to be a part, as was the hon. Member for Redcar. Success is now synonymous with Teesside, and people in Teesside are proud to say that they are a success. We look forward to a future built upon the industrial development and manufacturing legacy of the 13 years under Labour.

Organisations such as the North East of England Process Industry Cluster were created in conjunction with the Labour Government and One North East. NEPIC centred on the north-east’s assets, particularly in the chemical and steel industries, and the heritage of shipbuilding—TAG Energy uses the Haverton Hill site, formerly a shipyard and dock, to produce monopile construction units for the offshore wind turbine market.

By contrast, the words “double dip”, “double debt” and “credit rating downgrade” are synonymous with the Prime Minister, the Chancellor and the Government. Since the autumn statement, growth, which was estimated to be poor, has halved in just over three months from 1.2% to 0.6%. The accrual of debt by this downgraded Chancellor from 2010 to 2015 is more than the total debt accrued by the previous Labour Government in their entire 13 years. Despite that and the overwhelming evidence, the Chancellor affirmed in his Budget that borrowing is falling. Public borrowing shows that the Government books were in the red to the tune of £121 billion last year. They are forecast to improve only marginally to £120.9 billion in 2012-13.

Tax revenues have fallen £5.1 billion short of the predictions in the autumn statement, despite the hailed employment figures. That is largely owing to the fact that, despite increases in nominal employment, productivity has fallen massively. That is matched by a huge fall in tax take. The irony is that we have always been told that the private sector is more efficient. Supposedly, we have 1 million more private sector workers, and gross domestic product is falling, so more people are doing less. That is a re-unbalancing of the economy if I ever saw one.

Similarly, the increase in the number of employed women is largely due to the fact that fewer women between the ages of 60 and 64 have retired. Women are working to a later age because state old age pensions have changed. That has undoubtedly helped employment figures. The Chancellor was able to massage his borrowing down only by persuading the OBR that Government Departments would spend £3.4 billion less than their allocated budgets this year. Only three months after the previous forecast, the budget deficit is expected to be an average £11 billion worse throughout the five-year forecast period. In cash terms, the problem lies with poor tax receipts, which have been hit by disappointing revenues this year, and vastly reduced forecasts for nominal gross domestic product, which is now at one seventh of the original growth expectations set in June 2010.

On the other hand, Robert Chote and the OBR assume the economy has the scope for rapid catch-up growth of 2.3% of national income even after April 2018. But with so much slack in the economy to be assumed for the rest of this decade, it is strange that the OBR does not show inflation falling below its target level of 2% at any time. Are Ministers concerned by that? If the OBR admitted this to be the case, it could no longer live within the Chancellor’s demands and would probably have to admit not £9 billion, but something more in the region of £17 billion a year of tax rises or spending cuts, as a result of earlier Government inaction.

The nation’s debt and the Government’s borrowing are completely dependent upon the Chancellor’s “monetary activism”. However, minutes of the Bank of England’s latest meeting show that the new Governor, Mark Carney, failed to win any support for his case for further quantitative easing. Most of the MPC look worried about the potential damage of a run on sterling, and the effectiveness in any case of further asset purchases as banks and households look to clear debts. However, without further QE, the Chancellor cannot keep his borrowing rates down, as the borrowing at low rates to buy gilts in order to borrow at low rates is the true reason for low interest rates, not the heavily front-ended, growth-strangling cuts we have witnessed to date.

Furthermore, big businesses continual deleveraging will not be turned into sudden investment with further corporation tax cuts. Corporation tax cuts will just aid business to further deleverage debt. It has never been so cheap for the state to borrow, and the Chancellor is neither using this cheap accessible capital to pump-prime the economy nor persuading banks and big business to free up their substantial reserves and corporate funds. The Chancellor’s language and tone set the mood music for the economy, and his constant message of national deleveraging has sent everyone into a deleveraging frenzy. Banks are hoarding excess capital and large corporate companies are simultaneously paying out large dividends to shareholders while sitting on excess capital, with the explicit purpose of holding it in case they need to make future debt clearances rather than investments.

[Ian Swales]

The hon. Gentleman is making a powerful case. Does he not welcome the Infrastructure (Financial Assistance) Act 2012, which uses low Government interest rates to underwrite £50 billion of infrastructure spending?

[Tom Blenkinsop]

As the hon. Gentleman knows, certain programmes, such as the Government’s rebuilding schools programme—which has been delayed for a year in one school in Guisborough in my constituency—are dependent on PFI arrangements, which raise capital from the bond market. We had a slightly different arrangement for the Building Schools for the Future project. We now have the sudden realisation that the cancellation of such capital projects, in the first two years of this Government, has sent the economy into a spiral.

The real issue for me, especially in the north-east, is connectivity. We want to develop our economic base, but rail electrification will go only as far as York. What we want is access to capital funds to get electrification done as soon as possible. I hope that that will yield some results, but it is already too late. We have already had nigh on three years with little investment, and now the situation is desperate. Capital is still very slow in coming from Whitehall, exacerbated by the lack of agencies in the region to assist businesses, even given the regional growth fund. How we solve that, given that those agencies have been dismantled, I do not know, but we need to do more.

Added to the Chancellor’s mood music and the deleveraging frenzy, we have a Government delaying the payment of bills to hide borrowing. The delaying of these payments—largely to big businesses—leads to deleveraging big businesses, with vast sums under the corporate mattress, using smaller businesses as an extra line of credit. Current unpaid bills to small and medium-sized enterprises total £36.4 billion, with some small businesses writing off bills to the tune of £10,000. An illustration of this is the 7% year-on-year contraction in construction, which has its lowest growth rate since 1987.

The Chancellor is aware of this issue. In the north-east, according to the regional Federation of Small Businesses, banks cannot apparently give a regional figure for the take-up of the funding for lending scheme for business. We need to hold banks to account for that. The north-east has 134,000 businesses—I mentioned two of the larger ones earlier. A thousand employ more than 50 people, while 96,000 are sole traders, who by and large do not pay corporation tax. This April, real-time information will be introduced, but apparently only 25% of FSB members know what RTI is. I suggest to Ministers that small businesses should be given a proper period of slack on the introduction of RTI. The Government have allowed six months, but extending this to 12 months might be necessary so that businesses can adapt properly. However, the closure of local HMRC tax inquiry offices in the north-east—a region with a large sole trader community—means that we will be far more exposed to transitional difficulties.

The sole traders, market town traders and small businesses on our high streets will not only have RTI to contend with. The national minimum wage is lower now, in real terms, than it was in 2004. It was raised by 1.9% today, but the consumer prices index is at 2.8%, so it is a real-terms cut. Small businesses and their customers in the north-east will see working tax credit freezes from this April, meaning those working under 30 hours will lose between £303 and £428. That is £303 to £428 less to spend. Benefits being capped at 1% rather than CPI will mean that small businesses’ customers lose up to £150. That is £150 less to spend. The bedroom tax—a housing benefit cut of between 14% and 24%—will mean they lose between £624 and £1,144. That is £624 to £1,144 less to spend. The benefit cap, to be rolled out nationally from September, will mean small businesses’ customers will lose on average £4,836, which is an average of £93 a week. That is £93 less per week for their customers to spend. The council tax benefit cut—the Tories’ new poll tax—will mean that 700,000 people in employment will lose between £250 to £600 each, meaning small businesses’ regular customers will have between £250 and £600 less to spend. This will no doubt compound an already obvious demand crisis.

After the mummy tax and the granny tax, the end of the pregnancy grant, and VAT being increased again by a Tory Government, there will be obvious consequences for sole traders and small business in general. How do the Government think these reductions in the disposable income of small businesses’ most frequent and dependable customers will resolve this country’s economic growth problems? In the autumn statement, private consumption was expected to be a crucial driver of Britain’s growth in the years ahead. The OBR expected growth in 2012 to come from private consumption. Indeed, it revised it up to 37.5% of all growth after last year’s omnishambles Budget. Of course, it did not happen. The promised—albeit simultaneously derided—consumer growth was not delivered. Page 100 of the Red Book assumes a jump of 0.7%, from 0.5% this year to 1.2% next year, in household consumption, even though it simultaneously predicts unemployment increasing in 2013-14 and the claimant count increasing from 1.58 million to 1.63 million in the same period. The Chancellor also failed to inform the nation that 400,000 disabled people on severe or enhanced disabled benefits will now have to pay council tax for the first time ever.

In conjunction with what I illustrated earlier, these are demand-sapping policies on a monumental scale. Are they being taken because the Government fear that their other policies will bring about inflation? Are they attacking demand deliberately in order to control inflation? We know that Mark Carney, the new Governor of the Bank of England, will be constrained by a 2% inflation target. However, we also know that inflation crept up to between 2.5% and 3%—around the 2.8% mark between January and February—this year. That inflation rise, at the same time as pay freezes, local real-terms pay cuts and benefits reductions, has seen families subject to an unprecedented cost of living crisis. According to uSwitch, Britons collectively owe £637 million to energy firms— £159 million more than last year’s projections. Some 20% of all energy customers surveyed are in debt, a figure that has risen by 14% since last year.

In conclusion, with falling disposal income levels and increasing household outgoings, the temporary retail or consumer growth we are currently seeing is very small. As well as being derided in the first place by Government Members as the wrong type of growth, given the Government’s other policies, it is unsustainable in the medium and long term. The Budget is fundamentally unfair: it does not address growth, it doubles the debt and it does not deal with the deficit—it actually makes it worse. It fails on all the original criteria set out by the Chancellor in June 2010.

--- Later in debate ---

[Stewart Hosie]

The problem with that question is that it comes straight from the Labour party central office briefing note. The Scottish Government quite rightly re-profiled revenue spending into capital to make up for the capital cuts from the UK Government. We did that because we recognised that—I think there is unanimity on this—direct capital investment had a 1:1 impact multiplier in terms of GDP growth. That is extremely important, because the problem is that we do not have enough economic growth, so the Scottish Government were right to re-profile revenue into capital spending.

As I said earlier, the 4:1 ratio of cuts to tax rises under this Government, plus their smoke-and-mirrors approach to direct capital investment, shows just where their priorities lie, and it is not with people, jobs or growth. We can all probably agree that plan A has failed, and with the UK still teetering on the brink of a triple-dip recession the Chancellor seems to want to continue to do the impossible, which is to cut his way to growth. It has not worked and it will not work; and this Finance Bill will not help.

The Bill does, however, make provision for personal tax changes, and the increase in the basic rate threshold to £9,440 is welcome. The Government are right to try to take as many people as possible on low and modest incomes out of tax, and the savings from that increase, added to the £326 of savings from basic rate taxpayers, whose personal allowance has risen from £6,475 in 2010 to £8,105 last year, makes sense, but that is only part of the personal tax story. As I have said, the Government are also foolishly ploughing on with a tax cut for millionaires, which at their own conservative estimate will cost £500 million.

It is those in the middle who are really being squeezed. The tax relief in terms of the 40% band used to be £37,400, but that was decreased to £34,300 last year, so for every £326 changed up in the Budget, at 20p in the pound, people have had to shell out an extra £560 at the 40p rate, before this year’s changes. So although the change in this year’s basic threshold is welcome, we must recognise that the Chancellor pulled the same trick in the middle again by pre-announcing another cut to the 40% threshold down to £32,010 last year. That means that in three years the Government have taken the proportion of taxpayers paying the 40% rate from 10% to 13% of the total taxpaying public—up 670,000 in three years. Over 25 years, the proportion has doubled to 2.1 million extra people now paying a tax rate that was previously only for the rich. With hundreds of thousands of people now paying a 40p tax rate that was never designed for low and middle incomes, it is safe to say that the middle is not so much being squeezed by the Government as garrotted.

[Ian Swales]

Does the hon. Gentleman recognise that the first two changes in the 40p band were to ensure that 40% taxpayers only got the same amount out of the threshold increase as a basic rate taxpayer? In other words, it was a measure of fairness across the spectrum.

[Stewart Hosie]

I recognise that an increase in the basic threshold from £6,400 to £9,400, which is a £3,000 rise, implies a saving of about £600, but a fall in the 40% threshold from £37,400 to £32,100, which is £5,000, implies a cost of £2,000. If one was paying 40% before, they still will be, while many hundreds of thousands more who were not, and who ought not to be, now will be. I do not see the fairness that the hon. Gentleman speaks of. I suspect that when we get to the next election, that might be part of the Liberal party’s campaign against their current Tory friends.

I want to turn to one of the most damaging small parts of the Finance Bill, which is the planned increase in air passenger duty. APD has become increasingly unpopular in the aviation industry and is now the most expensive in Europe. We know that standard rates vary from £13 for a short-haul flight to £94 for a long-haul flight. The rates were increased by RPI on 1 April this year, as announced in the 2012 Budget, and will be subject to a further increase by RPI next April, as announced in this Budget. We have consistently made the case for devolution as a means to improve connectivity and to give the aviation sector a competitive edge.

As the Minister will know, the Scottish Government Deputy First Minister wrote to the main airports in 2012 reaffirming our intention to press the UK Government to devolve APD as soon as possible. We do so because it makes economic sense. The study “The economic impact of Air Passenger Duty”, published only this February, confirmed that. It suggested that abolishing APD entirely could boost GDP by 0.46% in the first year, with benefits continuing to 2020, and that the GDP boost to the UK economy would amount to at least £16 billion in the first three years and result in almost 60,000 extra jobs over the longer term. We would argue, therefore, that the time for continually increasing APD has gone and that the time to devolve it is now.

We also welcome the support of Scotland’s four main airports for the devolution of APD. It is safe to say, however, that we have become increasingly frustrated with the UK Government’s continuing prevarication and the impact on Scotland and Wales of the further increases in rates from April this year and April 2014. To be fair, the Government have recognised, in devolving APD to Northern Ireland, that a one-size-fits-all policy might not be appropriate, but increasing APD throughout the rest of the UK and not devolving it demonstrates that the Government do not understand the differences in the UK aviation sector, the connectivity challenges faced by Scotland or the needs of passengers. This is a matter that we hope to return to in the Committee of the whole House.

The Finance Bill is utterly inadequate and ignores the pressing need for investment and growth. I am happy to say that the Scottish National party and Plaid Cymru will oppose it tonight.

[Frank Dobson (Holborn and St Pancras) (Lab)]

Whatever else can be said, it is quite clear that this Finance Bill will not sort out the public finances. As a result, we have got all sorts of efforts to distract people’s attention.

We have got the Work and Pensions Secretary going on about new punishments for people involved in benefit fraud. I am against benefit fraud, but I am against all fraud. Let us try to get things into perspective. In the last year for which figures are available, benefit fraud cost £1.2 billion. A recent study by Oxfam says that in the last year for which it has figures, tax fraud cost the taxpayer £5 billion. Needless to say, the Treasury said it did not recognise that figure, which is officialese for: “I can’t think what to say; I’ll have to find out what the boss says.” However, the Treasury has to acknowledge—because it produced this figure itself—that in the last year for which official figures are available, £4 billion was lost to tax fraud. It also produced figures for that year showing that tax avoidance—not tax evasion—cost the taxpayer £5 billion. There was a further loss of £4 billion for what is called “non-payment”—in other words, businesses making sure that when something went wrong, it was not the taxpayer who got any of the money. That makes a total of £13 billion lost in one year, mainly as a result of the desire and effective efforts by the rich and big businesses not to pay tax. That means that the taxpayer was swindled out of £13 billion in one year alone.

To be fair, that is partly because this House is notoriously bad at producing tax laws that actually work. That might be partly an effect of the fact that for years the Treasury has been advised on such matters by the very banks and accountancy firms that are doing the swindling in the first place. However, there is little real conviction in the idea that Her Majesty’s Revenue and Customs will do a good job of getting the money that we have voted should be taken. In fairness to HMRC, tax avoidance has become a major British industry. It is not a sideline of the big four banks or the big four firms of accountants; it is a major part of their industrial activity. They are not exactly big taxpayers themselves: in one year, Barclays paid just 1% of its profits in tax.

Then there is the massive and disgraceful involvement of the British financial sector in tax havens round the world, usually in British dependencies. When the British empire was at its zenith, the slogan was “Trade follows the flag”, and it still does, because the British dependencies, flying the British flag, are the major tax havens all over the world. The mighty British empire has been reduced to a scatter of sordid tax havens, where most of the fiddling is done by British banks and British firms of accountants. They are there helping the tax avoiders and helping the rich freeloaders to avoid the tax they should be paying here and in other countries. Let me give one or two examples. Barclays has just over 1,000 subsidiaries, 36% of which are located in tax havens. HSBC has 1,500 subsidiaries and, again, 36% are in tax havens. The Royal Bank of Scotland is slightly better—only 31% of its 1,300 subsidiaries are located in tax havens—while just 21% of Lloyds’s subsidiaries are located in tax havens.

[Ian Swales]

The right hon. Gentleman is making a powerful speech, but I am sure he is not suggesting that all this has arisen in the last three years. Can he remind the House of any steps that his Government took in this regard and does he welcome the steps that this Government are taking? They have resulted in, for example, Barclays closing down its structured capital markets department, which was basically about tax avoidance.

[Frank Dobson]

I never said for a minute that it started recently. It has been going on for donkey’s years. I am not sure about the Lib Dems, but I cannot remember an organisation when Labour was in government called Tories in Favour of Stopping Tax Avoidance. Perhaps the minutes will be produced by someone, but it seems extremely unlikely, because everything the Tories ever said when they were in opposition was about Labour being too nasty to the finance industry and proposing things that might damage it. So we trundled on, until the finance industry damaged the rest of us. It is worth remembering that the banks’ wrongdoing has cost us £700 billion in lost production since the crash. That is what we have all lost.

These British banks and firms of accountants are not just organising tax avoidance in the tax havens for all the swindlers. We now know—from prosecutions and from agreements that they have come to with the American authorities—that they have been organising money laundering from massive drug dealing, gun running, people trafficking and busting sanctions on places such as Burma.

I think the British banks should be doing something a bit different. I think they might possibly have done a bit of investing in this country. In the past, small businesses all over the country could go and see their local bank managers at one of the big banks and talk to them about their problems. They knew one another and knew what their prospects were. People could borrow money that way, and it worked. Then the banks started centralising all the funds, so nothing is left with the local bank manager and local firms now have to be interrogated by an algorithm—that is what it boils down to—in the banks’ headquarters. They have not been investing in this country. We have to ask ourselves why a large proportion of the industries that were privatised are now owned by foreign owners, such as Électricité de France or the Australian outfit that owns Thames Water. Could the British banks not have invested in British businesses? Was there not enough profit for them? Does that mean that the profits in the tax havens and from all sorts of derivatives activities were going to raise them more money? That may be so, but what has happened demonstrates just how awful the performance of the British banks and finance industry has been.

I do not think this Finance Bill, any of the proposals the Government have put forward or even the one or two they have started implementing reflect the scale of wrongdoing that needs to be put right—the swindling that involved British companies and the damage that does to us as a trading nation with, until recently, a reputation for honesty and fair dealing. At its core—I say this with some care—this is a corrupt set-up. We have a banking industry and an accountancy industry that are involved in criminal and semi-criminal activity all over the world, yet we say to countries such as Bangladesh, “There’s too much corruption in your country.” If we are going to start trying to sort out corruption in other places, it is about time we did it here and where British companies are operating. We need transparency, and we certainly do not need tax havens, especially those that fly the British flag. Their objective is not transparency but the complete opposite: it is to be as obscure as is humanly possible in order to keep the tax authorities out.

Another point that is constantly made is that, if we were to change the rules on banking and accountancy, the very clever people in the City would simply get round them. That is unacceptable. Why should such behaviour be acceptable in the finance industry? We would regard it as totally unacceptable if the building industry said, “You can rely on us to get round the building regulations,” if the aviation industry said, “We can get round the safety rules,” or if the pharmaceutical industry said, “We won’t carry out the proper checks that are required. We can get round those rules.” We ought to regard it as totally unacceptable when people representing the finance industry say, “Whatever you do in the House of Commons, we’ll get round your rules.”

Tax Fairness

Ian Swales Excerpts

Tuesday 12th March 2013 Commons Chamber

[Chris Leslie]

I agree. It is instructive to observe the different choices that the different parties are making on this issue. The Conservatives choose to cut taxes for the richest—the millionaires in society—and to increase everyone else’s taxes. The Liberal Democrats have said that they believe in a mansion tax. Indeed, a fortnight ago the Liberal Democrat leader, the Deputy Prime Minister, said:

“Victor Hugo observed that it is near impossible to resist an idea once its time has come. Last week, he was again proved right as calls for a mansion tax, first proposed by the Liberal Democrats in 2009, gathered new momentum…I offer certainty: the mansion tax, or a version of it, will happen…The Conservatives and opponents of fairer taxes have a choice. They can dig their heels in and remain stuck in the past. Or they can join with the Liberal Democrats and the chorus of voices seeking to make our tax system fair.”

Well, here we are today. What more can we do? The issue is on the table, ready for that momentum to make it happen, so how can the Liberal Democrats resist that idea whose time has come?

[Ian Swales (Redcar) (LD)]

Is the shadow Minister going to acknowledge measures such as the raising of the tax threshold, the huge cut in pension tax relief and the huge rise in capital gains tax which have taken place under this Government? In a debate entitled “Tax Fairness” is his proposal really the only measure that his party could come up with?

HM Revenue and Customs

Ian Swales Excerpts

Tuesday 5th February 2013 Westminster Hall

[Ian Swales (Redcar) (LD)]

I congratulate the hon. Member for Hayes and Harlington (John McDonnell) on securing the debate and his knowledge of, and campaigning on, the issue. I hope that he was not referring to me when he talked of “failed accountants”.

I am a member of the Public Accounts Committee, so I deal with such matters a lot, and something that strikes us is that, despite the need to cut the deficit, HMRC is not a normal cost centre. It is a cost centre that brings in 100 times what it actually costs. Even if we take HMRC’s own estimate of the tax gap of £40 billion, it is worth remembering that the entire cost of HMRC is only £4 billion—a tenth of the tax gap.

HMRC faces not only its existing challenges, but major new challenges: the European Union, globalisation, the internet, rising customer service expectations and, as we have heard, tax avoidance on an industrial scale. On the very day of one of the PAC’s hearings on tax last week, the headlines in The Times were about a charity that hon. Members would never had heard of, although it got more money in the past two years than the British Heart Foundation, the Royal Society for the Protection of Birds and Cancer Research UK put together. Why had we never heard of it? Because it was a gigantic tax scam that brought in £176 million and paid only £55,000 to charity. It was a gift aid rip-off, and that is yet another area in which HMRC staff are needed.

The hon. Member for Hayes and Harlington mentioned customer service. HMRC officials told the PAC that they were proud that they were getting close to their target of answering 80% of calls in five minutes, but the industry standard is 20 seconds. We also need knowledgeable staff on the end of those calls, as is the case for banks such as First Direct, who can answer people’s queries and help them to do whatever they want done in one call. Face-to-face service seems to be disappearing, and knowledgeable face-to-face service certainly does not happen in my local tax office.

We need a new effort on globalisation and the EU. Last week, the big accountants said that they would like to see more people in HMRC’s transfer pricing department. The big four have nearly three times as many staff working on transfer pricing as HMRC. We also need a lot more people on investigation and enforcement to deal with the growing tax avoidance scandals.

There must be many opportunities for what I call “invest to collect” in HMRC. It has stated that whenever it looks at the business case for more staff, it typically gets returns of 17:1 or 11:1. Frankly, as a taxpayer, I would be happy with even 2:1, because investing £1 to get £2 sounds like a good deal. We need to invest to collect, and there are many ways of doing that.

It interesting that journalists and TV programmes seem to have no trouble getting right to the heart of tax avoidance. They do so on “Panorama” and in newspapers, so how come HMRC is not employing more investigators to go to the places such as the West Indies, where some people might have 12,000 directorships and there is a forest of brass plates on the door, to find out what is happening? If independent journalists can do that, it would not be difficult to have a much bigger unit in HMRC to do so. The gap is large, and we should invest in people to close it.

Finally, I have a special plea. Other Members have mentioned their areas, and I have been to the tax office at Thornaby, near Stockton. I am told that I am one of only two MPs to have visited a tax office over 12 months, so I urge all Members to get out and talk to the staff. People were disturbed that I wanted to talk to the staff as well as to the management, and it was interesting to find out what the staff were saying.

The Thornaby office is excellent but, as in all tax offices, morale has been damaged. My plea is to keep that office going. It is a good, low-cost place to be and, given the paucity of white-collar jobs on Teesside, it would be easy to get new people there to replace the 400 jobs that were lost in Middlesbrough when the tax office closed a few years ago. Middlesbrough has the second highest unemployment rate in the country, so the loss of those jobs was hugely damaging. We need more resource, and let us have some on Teesside.

--- Later in debate ---

[Mr Gauke]

I will indeed. I understand that the NAO will publish a report tomorrow on cost savings in HMRC and the way in which HMRC has proceeded. Time prevents me from running through in detail all the areas in which there have been savings, but it is worth pointing out that there have been significant savings of £74 million in the price paid for IT equipment and services, and savings in estate costs through vacating buildings. It is important that HMRC seeks savings, but it is also important that we raise the revenue. A number of hon. Members mentioned the tax gap.

[Ian Swales]

Will the Minister give way?

[Mr Gauke]

I will give way, but I have a lot of material and a very short time.

[Ian Swales]

It is a very important point. The Minister said that HMRC was required to lose 25% of staff. Was an assessment made of the tax that would be lost as a result, or was taking 25% of people out deemed to be tax neutral?

[Mr Gauke]

We ought to be clear about this and look at outputs rather than inputs. As it happens, the number of staff working in compliance and enforcement is going up under this Government—a reversal of what happened under the previous Government. Although we think that it is right to seek savings and efficiencies—if we can spend less on IT and less on estates, that is surely sensible—we also want to do more to raise revenue.

The reinvestment of efficiencies involves £917 million over the spending review period, and, in return, HMRC has agreed to bring in an extra £7 billion of tax every year to 2015. That means that, cumulatively, over the spending review period, HMRC will bring in about £20 billion of additional revenues, and an additional £7 billion every year thereafter. Additional revenues will come from a range of initiatives, including: increasing the number of criminal prosecutions fivefold; cracking down further on offshore evasion; and extending HMRC’s coverage of businesses, focused on providing resources to tackle high-risk areas.

HMRC results have shown that it can deliver the additional yield. As the hon. Member for Newcastle upon Tyne North (Catherine McKinnell) noted, in 2011-12, it delivered £16.6 billion against its targeted increased yield of £15 billion, and is on course to deliver an additional £17 billion this year. In the light of that record of success, it was decided that we would exempt HMRC from cuts imposed on other Departments in the 2012 autumn statement. Instead, we made the decision to invest in HMRC in two separate ways.

First, we made a further, new £77 million of investment in HMRC to increase its efforts to tackle tax avoidance and evasion, through improving HMRC’s computerised risking systems; further strengthening the risk assessment capability across the large business sector; increasing the attention given to offshore evasion and avoidance, and—probably of most interest to hon. Members here—increasing the staff employed to target avoidance and evasion by the wealthy.

Secondly, in the autumn statement, we invested a further amount, totalling £77 million, to accelerate HMRC’s debt collection activities and bring in about £1 billion in tax over the period; to reduce tax credit error and fraud and reduce losses by about £0.5 billion; and to expand HMRC’s digital service to its customers, which will include help to small businesses as part of our initiatives to introduce growth into the small and medium-sized enterprise sector. My hon. Friend the Member for Cities of London and Westminster (Mark Field) is right when he says that we want to do everything we can to ensure that the burden on small businesses can be reduced and that it is easier to deal with HMRC.

Taken as a whole, the investment package will mean that HMRC will collect an additional £2 billion in 2014-15. That is over and above the £7 billion in additional revenue that HMRC will collect in that year as a result of the spending review settlement in 2010. On top of that, our investment in digital will allow HMRC to offer a modernised service to customers, while working more efficiently.

The Government have recognised the crucial role that HMRC has played, and will continue to play, in helping to manage the deficit we inherited. It is bringing in more additional revenues than ever before, and that is not the only area where HMRC is delivering well. The latest performance figures, from December 2012, show that post handling in local offices is the best it has been since HMRC was formed, with about 90% cleared within 15 days of receipt in recent months. The hon. Member for Newcastle upon Tyne North highlighted press reports saying that 100,000 items of post have not been dealt with, but that must be put in the context of HMRC’s receiving 200,000 items of post every week. We are talking about post that has by and large arrived in the past two or three days.

HMRC’s self-assessment filing system is a clear success: 92.9% of self-assessment tax returns for 2011-12 were filed on time this year—the best result since HMRC was created—and 82.5% of those returns were filed online, which is a new record. We are all aware of the difficulties that HMRC faced a few years ago in handling the fallout from the new computer system, but such difficulties are now behind it and it is on track to bring PAYE up to date by March 2013. We are also taking steps to improve automation.

I would like to say more, but it is sadly not possible to do so today in the time available. I apologise to hon. Members for not being able to address every question that has been asked. We appreciate what the taxpayer wants from HMRC. We want to raise revenue and reduce the tax gap. We are giving HMRC the resources to do precisely that. I will continue to work with HMRC to ensure that it continues to provide the best possible value for money for the taxpaying public.

Corporate Tax Avoidance

Ian Swales Excerpts

Monday 7th January 2013 Commons Chamber

[Ian Swales (Redcar) (LD)]

I beg to move,

That this House has considered the matter of corporate tax avoidance.

First, I thank the hon. Members from all parts of the House who supported my bid for a debate, and the Backbench Business Committee for scheduling it so quickly.

In October, the Government borrowed more than predicted, and the main reason given was lower than expected corporation tax receipts. In November, former City Minister Lord Myners said:

“Corporation tax for an MNC”—

a multinational company—

“operating in the UK is close to being a voluntary payment.”

In December, Eric Schmidt, chief executive officer of Google, said that he was proud that his company had avoided $2 billion of corporate income taxes worldwide in the last year. We have a crisis—a growing crisis of our national tax system operating in an international business environment. Lurid stories of tax avoidance appear almost every week, and Private Eye magazine deserves special mention for its exposure work. Vodafone, the Ritz hotel, bookmakers, water companies, care homes, professional services companies such as Accenture and CSC, and of course American behemoths including Apple, Google, Amazon, Microsoft, Facebook and Starbucks, are just a few of the examples. ActionAid says that 98 of the FTSE 100 companies have a subsidiary in a tax haven. The Government have fuelled the frenzy by doing private finance initiative and outsourcing deals with tax avoiders. We must also consider whether we can trust our media to report all this fairly, given that most of our national newspapers and their owners are themselves engaged in some form of tax avoidance.

Of course tax avoidance is not illegal, but that is why the Government must act. We are a long way from having fiscal union in Europe. Our tax systems are a cornerstone of sovereignty; they are resolutely national and I think they will remain so for as long as any of us are MPs. So when Amazon sat in front of the Public Accounts Committee recently and fielded many questions with the response that it ran a pan-European business from Luxembourg, it was not excusing itself, but vividly illustrating the problem. The French Government are already looking to levy huge extra tax payments from the company. It is totally unacceptable for EU legislation to be used to support national tax avoidance. Arguably some of that already contravenes the abuse concept in EU law, which deals with situations where a consequence was not intended when a law was made.

I was finance director of a billion-dollar global business in the mid-’90s. What has changed since then is the scale, complexity and aggression of the avoidance schemes. For example, we would never have set up legal entities in countries where we did not trade, solely to avoid tax.

[Nick Smith (Blaenau Gwent) (Lab)]

Sir Martin Sorrell has claimed that the tax that some companies pay is a matter “of judgment”. Avoidance such as that by Amazon, which the hon. Gentleman and I heard about at the Public Accounts Committee, has disadvantaged domestic businesses, which cannot relocate to lower tax regimes and shift their profits abroad. Does he agree that British businesses deserve a level playing field?

[Ian Swales]

I thank the hon. Gentleman for that intervention. I totally agree with him. The idea that large companies see their tax payments as voluntary, or as some kind of contribution they feel like making, is completely out of order. I will discuss the competition aspects later.

[Caroline Lucas (Brighton, Pavilion) (Green)]

The hon. Gentleman is making a compelling argument about how tax avoidance has grown in recent years. By 2015, the number of staff employed by Her Majesty’s Revenue and Customs will have fallen by 40,000 since 2005. Does he agree that this apparent bid to save money is entirely counter-productive, given that if we had those members of staff at HMRC we would be much more likely to be able to crack down on avoidance?

[Ian Swales]

The hon. Lady makes a powerful point. I will say more about that later, but I agree with her that we need more resource in the whole area of enforcement.

I was talking about my experience and how we would never have set up legal entities in countries just to avoid tax. Now, News International has more than 150 companies in tax havens. Transfer pricing, management fees, royalties, patent, copyright and interest payments are all ways to move money. The moving of whole businesses and headquarters to new jurisdictions is also becoming much more common.

Let us remember that companies that are prepared to go to elaborate lengths to avoid corporation tax may seek to avoid other taxes, too. If the BBC was making wide use of tax-avoiding personal service contracts for staff, we can be sure that some private sector companies are doing so, too. At a recent Public Accounts Committee hearing, Amazon told me that it raises UK VAT and pays it to the taxman, but it is a Luxembourg company; it also claimed that it did not even know the value of its sales to the UK. Someone wrote to me after the hearing confirming that they could not get a VAT invoice for their new iPad, bought for business purposes. Amazon said that

“we are unable to provide a VAT number as we are registered overseas”.

[Bob Stewart (Beckenham) (Con)]

I thank the hon. Gentleman for giving way and appreciate the opportunity to speak on something about which I know little. If a company does not know the value of its sales in the country, I think that HMRC should estimate them, charge corporation tax on that amount, and let the company argue against it to prove that HMRC was wrong. We would then get better corporate tax returns, would we not?

[Ian Swales]

That is an interesting idea and I thank the hon. Gentleman for the suggestion. HMRC needs to look much more closely at companies that have that type of business model. I agree that we need to start making some presumptions.

[Charlie Elphicke (Dover) (Con)]

Is it not the case that for physical goods, Amazon would have to account for VAT in the UK? The issue is that for electronic goods, it accounts for VAT in Luxembourg, so Luxembourg is eating our VAT lunch.

[Ian Swales]

That could well be the case, and I shall speak about that later, too.

The person who wrote to me saying that they could not get a VAT number for the iPad they bought for business purposes was told that Amazon was unable to provide one. Had that been made clear to the buyer, they would have gone elsewhere to get a lower net price. Who knows, they might even have gone to Comet.

Amazon’s turnover in Europe is €7 billion. The gross VAT on that, even at Luxembourg’s lower rate of 15%, would be more than €1 billion. Where is it paid? That would be €2,000 a head for every man, woman and child in Luxembourg, but I would guess that is not paid at such a rate. I would also guess that Amazon’s UK order fulfilment subsidiary pays little or no VAT. I ask the Minister urgently to investigate how the business model operates.

[Stephen Williams (Bristol West) (LD)]

I happen to be reading Deloitte’s tax guide to Luxembourg in 2012, which states that the standard rate of VAT in Luxembourg is 15%, but that for printed materials and e-books it is 3%.

[Ian Swales]

My hon. Friend makes a good point. Amazon has already been found out for charging 20% when it should have been charging 3% on e-books.

Should we care about all that? Yes, we should. There is the obvious point about the loss of billions in Government revenue, leading to higher taxes on other parts of the economy or cuts in services, including the very infrastructure and services on which a tax-avoiding company and its employees might depend. Then there is the question of competition. My previous experience was in the global chemicals industry, but in the internet and franchising age, the unfair effects can hit anyone. Our high streets are now subject to global competition in burger restaurants, bookshops and coffee bars. Local bookmakers have largely disappeared rather than trying to compete with rivals operating from Gibraltar—on paper. Most retailers are competing not only with the unstoppable rise of the internet but with offshore-based giants such as Amazon and eBay. The list of national and local UK businesses that cannot compete will get longer and longer: Comet was the latest to go broke, just before Christmas, probably costing the UK taxpayer £50 million.

Companies that pile up untaxed revenue in tax havens also have enormous financial muscle to reinvest cheaply or take out any other business they want to. It was recently estimated that the world’s tax havens hold $13 trillion of cash, which is the total GDP of the USA plus Japan, or enough to buy the entire London stock market four times over. That highlights the compound effect of tax avoidance, as those companies benefit from not paying the tax to begin with and can then use that money to compete ever more aggressively.

The big accountancy firms have led the charge in devising schemes from which companies benefit. What world do they envisage? If more and more companies routinely avoid taxes, the Government will get revenue only from people stuck as employees on pay-as-you-earn, and from property taxes, business rates and ever-increasing VAT and duty from the companies that cannot find ways to avoid them. There will be a net move from tax on companies to tax on individuals, and if that trend continues, only companies with offshore tax havens will be able to compete. A nation of shopkeepers will be run out of business. There is also a threat to our political system, because we cannot expect all those who pay their taxes fully and fairly to keep on tolerating such abuses indefinitely. UK Uncut might be just the start of the protests.

I have been talking about the problem; now I want to explore ideas for action. First, having a national tax system operating in an international business world means that we need to police our financial borders just as rigorously as we police our physical borders for illegal movements of people, counterfeit goods, drugs or any other activity that we want to control. We must say that if a sale or business activity takes place in the UK it should be accounted for in the UK. The idea that an item can be manufactured in the UK, stored in the UK and shipped to a UK customer, but invoiced from Luxembourg, must be challenged.

We should then force transparency into the system. UK companies doing the right thing report their profits and taxes paid to Companies House in some detail, so the blanket taxpayer confidentiality regime in HMRC, which prevents the disclosure of tax affairs not only to Parliament and the Public Accounts Committee but to HMRC’s own non-executive directors, mainly helps the international tax avoiders. It is time for the publication of simple statistics that are mostly available anyway in Companies House, as that would force companies to justify their behaviour. Transparency and honesty with consumers are important. If companies have nothing to hide, they will have nothing to fear.

[Nigel Mills (Amber Valley) (Con)]

Does the hon. Gentleman agree that one thing we could do is require large companies to file their corporation tax returns with their accounts at Companies House? Then, from their accounts, we could all see their taxable profits and how they got them.

[Ian Swales]

I appreciate that intervention, because I know that the hon. Gentleman has great experience in this area. He goes further than I was proposing, but it is certainly a good idea.

Transparency and honesty are important. As we have seen recently with Starbucks, transparency can lead to consumer power influencing company behaviour. I hope that we will see more of that. Retail, business or government consumers who do not like the ethics or practices of a company do not have to deal with them, except perhaps in cases involving utilities.

HMRC must also be more transparent. Although it steadfastly claims that it does not do deals, Vodafone’s finance director told the City that its deal was worth £500 million a year. One lesson from that and other cases is that no high-level discussions with companies should take place without being minuted, and those minutes must be freely available to tax commissioners and the National Audit Office. The transparency must work both ways; we cannot go on operating through tinted windows.

[Mr Richard Bacon (South Norfolk) (Con)]

Does my hon. Friend not regard it as extraordinary that in the negotiations between HMRC and Goldman Sachs about some back payments that were due, no legal advisers were present and no minutes were taken?

[Ian Swales]

I thank the hon. Gentleman for that invention. As fellow members of the Public Accounts Committee, he and I have looked in detail at that case. He is right that such arrangements should not be made.

The UK should take a look at its own role and its relationship with tax havens such as the Isle of Man, the Channel Islands, the Cayman Islands, Gibraltar and so on, which the Secretary of State for Business, Innovation and Skills has described as sunny places for shady people. UK citizens deserve a full explanation from the Government of why they support those places as tax havens and what net benefit they bring to the UK.

It is also urgent that work takes place at EU level to ensure that companies cannot exploit sweetheart tax deals in countries such as the Netherlands and Luxembourg, aided by the free movement of goods, people and capital. It is time properly to enforce the 1997 EU code of conduct on business taxation. I am especially pleased to see you in the Chair, Madam Deputy Speaker, as that code was ratified under your chairmanship. It specifically highlights issues such as doing deals to give lower rates and tax incentives for activities that are isolated from the domestic economy of a given country. The OECD set up a forum on harmful tax practices at about the same time. Both initiatives highlighted the need for transparency. A race to the bottom helps nobody.

Next, the Government should consider disallowing some foreign interest payments for tax purposes. It is depressingly easy to move a chunk of capital to a low tax regime, then export all one’s profits via interest payments. Foreign interest should have to be specifically justified. When the loans were taken out, what was the purpose? Were they proportional to business need and are they now? Who is the lender? A related company deal needs particular scrutiny, especially as the capital may originally have been exported from the UK with no equivalent taxable interest coming back.

The Government should look at setting maximum royalty and management fees, and disallowing them as a deduction if they are disproportionate to profits. There should be an ability-to-pay test; such payments should not be allowed to wipe out UK profits, as we saw with Starbucks. The Government should work with international partners to disallow management fees and royalty, patent and copyright fees unless they go direct to the country where the relevant value was generated. Payments to tax havens could be automatically disallowed. When a company claims that rights have been sold to other countries, it needs to show that a full and fair price was paid. Of course, that would crystallise a big tax liability in the selling country. The United States would be especially enthusiastic about such a move, as it is one of the big losers from payments going to tax havens.

Because our tax systems are national, all movements of value across borders, including business transfers, need a price attached to them for tax purposes. The Government must also find a way to ensure that VAT is charged on all qualifying sales in the UK, whatever the country of origin. To go back to the point made by the hon. Member for Brighton, Pavilion (Caroline Lucas), we need much more specialist resource in HMRC. A department that brings in 100 times what it costs should not be treated like a normal cost centre; there must be many more invest-to-collect business cases to be made. Maximising our tax revenue is as much about enforcing the rules as about the rules themselves. In particular, a special unit is needed to look at everyone running an internet-based business selling to UK customers, starting with the biggest. It should look at where they are based, their business model and whether they abide by UK VAT and corporation tax rules. We need our rules and enforcement to be up to date with technological changes.

The tax system is way too complex; a whole industry has grown up to find creative ways to avoid tax. When will we see significant output and action from the Office of Tax Simplification? Surely we need radical ideas for cutting through the jungle of our tax system, not just the deletion of obscure, rarely used reliefs. Simplification is badly needed, yet we see even more complexity.

I talked earlier about consumer power. The UK Government are by far the biggest purchaser and grant-awarding body in this country. Is it right that Amazon can get more than £10 million of Government money for a new warehouse in Dunfermline when it is a Luxembourg-based retailer paying little corporation tax in this country, and apparently does not pay VAT on all its sales either? Is it right that Accenture, Capgemini and others win Government contracts when they are named as aggressive tax avoiders? Should HMRC itself have sold its buildings for leaseback to Mapeley, a Bermuda-based company? Is it not time that we recognised in financial assessments that most of the profits from private finance initiative and outsourcing contracts are now disappearing offshore?

[John Pugh (Southport) (LD)]

My hon. Friend is giving a list of remedies for tax avoidance schemes. Would not most of them have been caught by a general anti-avoidance rule?

[Ian Swales]

I thank my hon. Friend for the intervention. I am not familiar enough with how such a rule would be structured, but the idea would certainly be helpful.

[Caroline Lucas]

May I suggest that all Members look at the private Member’s Bill introduced by the right hon. Member for Oldham West and Royton (Mr Meacher)? The Bill refers to the importance of a general avoidance principle rather than rules. The problem with rules is that people can bend them and get round them. A general avoidance principle is much harder to get round and has much wider scope. That is the route the Government should be taking.

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[Ian Swales]

I certainly have something to learn. I hope that the right hon. Member for Oldham West and Royton (Mr Meacher) will speak about his Bill later.

We should play the tax avoiders at their own game. If their UK accounts show virtually no profit, are they robust enough to deal with for the long term, and do they have the right ethics to work in our public sector? There is a big drive in manufacturing at the moment—the desire for “Made in Britain.” Perhaps it is time for Government procurement to work on a “Paid in Britain” basis. Small and medium-sized UK companies who are doing the right thing have a clear disadvantage when bidding against the tax-avoiding giants. I am convinced that doing public sector business with tax avoiders does net damage to our economy. Government action could mean that companies quickly change their behaviour. When I suggested such a step to Google at the PAC hearing, the signal was quickly picked up, with an article in the trade press.

The Government have enormous power to require those seeking grants or contracts to reveal the tax structure of their UK entities. When making their choice, decision makers could then include the bidder’s tax arrangements. The National Outsourcing Association supports such a move, which is surely part of getting the best value for UK taxpayers when spending their money. To those who cry “EU bidding rules,” I say that it is right to look at both costs and potential tax income. Who can stop countries demonstrably making the best value choice in the national interest from an open process?

The issue is not party political. MPs on both sides of the House want action. The problem is urgent, huge and growing. The more companies and their advisers see what others are doing, the more the leakage becomes a flood. Only a select few will be able to keep their heads above water, and it will be the smaller, independent companies who are overwhelmed. We cannot rely on pleas for morality or altruism. Companies play by the rules set in this House and the enforcement we put in place to back them up. Just last week the Prime Minister said that the issue is a top priority. Tinkering will not do. Now is the time for radical action.

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[Mark Field (Cities of London and Westminster) (Con)]

I congratulate the hon. Member for Redcar (Ian Swales) on initiating this very important debate, although I must confess that I did not agree with everything he said. I am rather concerned by the strongly anti-business approach to this issue shown by certain Members.

I have a great deal of sympathy for the leaders of all the political parties in formulating what would be regarded as an adequate response to the hot potato of corporate tax avoidance. In today’s 24/7 media world, there is a constant demand on political figures to provide a running commentary on populist media campaigns following the high-profile cases to which the hon. Gentleman referred, including global businesses such as Google, Amazon and Starbucks.

I can fully understand the temptation to brand this as a moral issue, appealing to corporates’ consciences when the legislative framework has failed, but it is a temptation that we in politics should try to avoid. In sparking a debate on morality in relation to the payment of tax, I fear that elite politicians open up a dangerous flank, because it suggests that the Government are either impotent or are being disingenuous in their outrage. That applies to Governments of all colours. After all, Parliament must ultimately set the rules within which companies operate. As my hon. Friend the Member for South Norfolk (Mr Bacon) said, the precedent that has now been set, with Starbucks paying an amount of tax that it alone has determined sufficient publicly to salve its conscience, is a very odd one.

I am very concerned about the whole idea of mob rule. I am sorry that the right hon. Member for Birkenhead (Mr Field) is not in his place. He speaks eloquently about issues such as immigration, and he would be unwise to think that mob rule is a way of dealing with immigration problems, for example. We must recognise that we are a democracy and that this is the forum within which the rules should be made. We should not try to inspire mob rule, whether on the payment of tax or for any other purposes within our society.

I have lost count of the number of times that media commentators have remarked that they would be delighted to apply the same approach to their own tax affairs by paying what they feel like rather than what the Government demand of them. However, I have a much wider concern—that investors will begin to sense that UK policy on tax and regulation is becoming ever more arbitrary, governed more by sentiment and the news cycle than by the strict rules that should be enforced by HMRC and ultimately by the courts. The UK should be proud of its traditional place as a bastion of commercial certainty attracting investment from every corner of the globe, and, as my hon. Friend the Member for Lincoln (Karl MᶜCartney) pointed out, that will be undermined by high-profile rows such as this.

That is not to say that all is well. As we saw in my own constituency with the protest outside St Paul’s cathedral only a year or so ago, there is deep-seated concern that the rules of capitalism are being skewed. None of us should take this issue lightly, not least—dare I say it?—Conservative Members, as middle-class Tory voters often feel most strongly about it. To focus on arbitrary media campaigns or to invoke mob rule, as several Members have, is entirely the wrong way forward.

Too often, as my hon. Friend the Member for South Norfolk said, coalition Ministers have conflated the concepts of avoidance and evasion in debating taxation policy. The ideal solution is for aggressive tax avoidance schemes to be stopped in their tracks before they are marketed. That requires constant dialogue and the re-establishment of trust between HMRC and tax intermediaries. As a matter of urgency, therefore, the Treasury needs to promote a much better and more extensive pre-clearance regime to allow companies, individuals and tax advisers to road-test their proposed schemes. HMRC must start investing more time in developing and managing relationships with accountants and tax lawyers.

Meanwhile, the Treasury is committed at the time of the next Finance Bill to introducing general tax anti-avoidance provisions. It is clear that any such general power of anti-avoidance will feature some retrospective taxation. That is wrong in a free society, and it will risk further damaging our nation’s reputation as a free, open and transparent place to set up, develop and run businesses.

[Ian Swales]

I hope that the hon. Gentleman did not interpret my remarks as being anti-business. Does he not worry about the competitive situation if certain companies get away with these practices and are then competing with other companies that do not have the ability to do so?

[Mark Field]

I do. Andy Street, the managing director of John Lewis, has made that point, but it obviously applies to many of the smaller independent companies. I represent a central London seat where a lot of big businesses are based and operate. Nothing is more important than encouraging independents, whether they are restaurants, wine bars or book shops, rather than just relying on big multinationals. No one wants to see all our high streets entirely dominated by large international corporations, many of which may involve themselves in what is currently regarded as aggressive tax avoidance.

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[Charlie Elphicke (Dover) (Con)]

It is a pleasure to speak in this debate, and I congratulate my hon. Friend the Member for Redcar (Ian Swales) on securing it. I wish to discuss an area that has not been so deeply explored this evening, although it is the area where we are not as powerless as we are in so many areas of this debate because of international obligations. I wish to focus on companies in receipt of money from taxpayers under Government contracts.

I have undertaken a study of technology companies that benefit from taxpayers’ money under Government contracts and have found that Oracle, Xerox, Dell, CSC and Symantec paid no corporation tax whatsoever last year, despite earning more than £474 million from Government contracts and having a UK turnover of £7 billion. Overall, my study of 10 technology companies in receipt of more than £1.8 billion of taxpayers’ money found that they paid just £78 million in taxes on UK earnings of just over £17.5 billion of turnover. On the basis of group profitability—we are looking at the consolidated international group here—the 10 technology companies would have made more than £3.3 billion in profits in the UK, resulting in a tax liability of £879 million. The UK tax actually paid was just £78 million, so, according to my research, the tax gap was £801 million.

We are seeing big business tax avoidance on an industrial scale. To me, it is unacceptable, unethical and irresponsible. Hard-pressed families are struggling to get by and to pay their taxes—and they do pay their taxes—so it is quite wrong that highly profitable businesses abuse our tax system. We urgently need reform. No Government contracts should be awarded to businesses that are fleecing our tax system, and the Government should examine how much UK tax companies pay when deciding who gets plum Government contracts. If taxpayers’ money and a Government contract are being awarded, we should look at the taxpayers’ money we are paying out and the tax money that we get back when we assess the value for the nation of awarding a particular contract. If, for example, a Government contract for £500 million is awarded to a computer company, it should be asked what tax it pays. If it pays zero tax in the UK, and another company is paying £40 million in tax in the UK and says that it will do the work for £520 million, the balance of best value shifts. We should consider the question holistically, rather than simply thinking about how much the contract should be let for.

[Ian Swales]

The hon. Gentleman refers to a point that I made. Does he agree that if we are asked to give a Government contract to a company that makes no profit, we should take a view about that company’s long-term future? We should play it at its own game and ask whether, if it does not make any money, it will be around for the long term.

[Charlie Elphicke]

My hon. Friend makes a powerful point, but we all know the reality. We all know that companies are using Luxembourg sandwiches and parking profits in Bermuda while claiming that they are sending them back to the States, as the IP suddenly is not in any intellectual property territories outside the United States. I find that unacceptable.

Let us take Oracle as an example. The company had a turnover of about £1.4 billion and a global operating margin of 32%, so its UK projected profits should have been about £446 million. Its declared profits in the UK, however, were basically nothing and it did not pay any tax whatsoever. I regard that with concern, because its Government contract earnings were about £42 million.

Even more concerning was the fact that a small amount of tax was paid by Microsoft, which is interesting as it has about £700 million from Government contracts and paid £19 million in the UK on a turnover of £2.35 billion. It has a global operating margin of 40%, so if we apply the consolidated operating margin to the UK we can see that its projected profits in the UK would be about £945 million. Its projected tax would have been about £246 million. I am not saying that Microsoft should not have some wriggle room for the fact that its IP was generated outside the UK, but when we award Government contracts we should take into account how much tax will be paid in the UK by the person to whom it is awarded. There are difficulties with that under European procurement rules, but we could have a box on the procurement form asking how much corporation tax and how much in PAYE the company anticipated paying in the UK in relation to that contract. That would enable us to assess best value in awarding Government contracts. We could and should consider that.

I am particularly concerned about IBM, which turns over about £4 billion in the UK but has a global operating margin of 16%, which means that its UK projected profits should have been about £642 million. Its declared profits in the UK, however, were about £327 million. Again, the tax gap is substantial and rather than the projected UK tax take of £167 million, only £41 million of tax was paid. We have a shifting and sliding in that the amount of tax we are getting is rather less than one might expect, even if we take into account the question of IP being based elsewhere and not being generated in the UK. We need to consider that more deeply and should consider the whole question of royalties paid for IP as well as licensing fees.

We should see how we can make the corporation tax system in this country flatter and much simpler by getting rid of a lot of the deductions that enable our tax system to be flouted. That would bring the rate down and give the UK a system with even lower tax than we already have.

I pay tribute to the work that the Government have done; I am merely trying to advance the argument, the discussion and the debate. We have a Chancellor who has started to take real and positive action in the OECD to start the discussion on how to change the international rules. We have a Prime Minister who is leading an international summit in Northern Ireland and making tax, including international tax, a key priority. The Government have taken tax very seriously, and rightly so. Over the past 15 years, the amount of income tax paid by the working nation has gone up by about 80% whereas the amount of tax paid by business has gone up by just 6%.

The previous Government were very keen on the whole prawn cocktail circuit; they were keen to be close to big business and to let it off the hook. It is well known that the former Prime Minister and his adviser, now the shadow Chancellor, were keen that the Revenue took a softly, softly approach to big business. I think we all feel that it has gone too far, and it is time to take international as well as domestic action and to be much firmer on big businesses that do not pay their fair share.

We have a deficit to clear. We need the revenue, so we need to be firmer, but we also need a system that has a level playing field, where there is a lower, more globally competitive rate that makes it more attractive for businesses to set up and trade in Britain whether they are domestic or foreign. The way forward is to start an honest and open debate about bringing in a flatter tax system in the UK and taking the rate of corporation tax right down, so that hopefully it will be even lower than in Ireland.

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[Ian Swales]

In calling for the debate, I wondered what level of interest the House would show in this subject. Then, when I agreed to accept a slot on the first day back after Christmas, I feared that I might find myself sitting here alone except for the Minister and the shadow Minister. Imagine my delight, therefore, at the quality of the debate today. Great expertise has been shown by Members, who have made great speeches and interventions. The overall emotion expressed right across the House was one of concern tinged with anger. The only words of dissent involved a suggestion that the debate was in some way anti-business, but I believe that everyone will recognise that we are talking about the need for a level playing field, nationally and internationally. That is all we are asking for; we are not targeting any business or practice.

Our tax system might once have been simple and smooth, but it is now showing all the signs of having had pieces nailed on, decade after decade, until it has become unrecognisable. I hope that the Minister will have heard the pleas for simplification that echoed all around the House. Today’s debate has shown me that we have a confident and capable group of Back Benchers who are ready to scrutinise this issue and support the Government’s efforts. I welcome the efforts that the Minister summarised in his speech, and the further work that is going on. The whole House will wish him and his colleagues well, but we will be watching the speed of his progress very closely.

Question put and agreed to.

Resolved,

That this House has considered the matter of corporate tax avoidance.

Fuel Duty

Ian Swales Excerpts

Monday 12th November 2012 Commons Chamber

[Sajid Javid]

If the hon. Lady is referring to the previous Budget, the changes we made to the top tax rate were covered more than six times by other changes that we announced. This Government want to create a tax system that is both efficient and helps to create jobs.

[Ian Swales (Redcar) (LD)]

Does the Minister share my surprise that the previous Government thought it was fine to give tax relief of £250,000 a year on pensions contributions, and may I confirm that not one of my constituents has complained about the cut to £50,000?

[Sajid Javid]

My hon. Friend makes a good point and shows again where this Government are taking action to balance the nation’s finances.

We are doing a lot more to try to help those in need. We are investing more than £4.5 billion over this Parliament in affordable housing, delivering 170,000 new homes. We have replaced Labour's ineffective stamp duty relief with schemes that work, such as Firstbuy and NewBuy, helping more than 25,000 first-time buyers to find their way on to the first rung of the housing ladder.

Let us look at Labour's claims on tax avoidance. It wants us to clamp down on a scheme that uses a specific tax relief around travel expenses—a relief about which in 2008 the Labour Government, when presented with the facts, chose to do nothing.

Oral Answers to Questions

Ian Swales Excerpts

Tuesday 6th November 2012 Commons Chamber

[Danny Alexander]

Labour Members had 13 years to introduce a living wage; if they believed in it so much they could have done something about it when they were in office. This Government are increasing the income tax personal allowance towards the goal of £10,000 set in the Liberal Democrat election manifesto. As of next April, the amount of income tax paid by someone working full time on the minimum wage will have been halved under this Government. I would have thought that the hon. Gentleman would want to welcome that.

[Ian Swales (Redcar) (LD)]

T7. The regional growth fund is a great help in sorting out the economic devastation left by the previous Government in areas such as Redcar and Middlesbrough. Does the Minister agree with Michael Heseltine that areas such as the Tees valley can become economic powerhouses again, and will he support a further round of the regional growth fund?

[Danny Alexander]

I welcome what my hon. Friend has said about the regional growth fund. With him, I have visited recipients of that fund in his constituency, and seen at first hand the benefits on Teesside. He will also welcome the fact that Teesside is a candidate in the next wave of city deals, which will provide an opportunity further to enhance the economy of that area. I hear his representation for a fourth round of the regional growth fund, and I will consider that alongside other policies in the normal way.