United Kingdom Corporate and Individual Tax and Financial Transparency Bill

Jacob Rees-Mogg Excerpts

Friday 6th September 2013 Commons Chamber

[Jacob Rees-Mogg (North East Somerset) (Con)]

It is a pleasure to follow the right hon. Member for Oldham West and Royton (Mr Meacher), partly because I disagree with almost everything he has said, but also because it is rather refreshing that Opposition Members are willing to say it. Most of them hide their true socialist credentials, but the right hon. Gentleman is a socialist red in tooth and claw. That is admirable, because it gives us on the Conservative Benches something to get our teeth into and oppose.

I disagreed with the right hon. Gentleman from the very outset of his speech. I disagree with the way he examined the financial crisis and the blame he places. He puts it exclusively on the bankers, but it is not as simple as that. It takes two to tango—not, I must confess, something I do very often, if ever. The crisis needed people and institutions to borrow the money that the bankers were lending. It needed the regulatory system that was set up by the last Government, which took the Bank of England out of regulating the banks.

[Sheila Gilmore (Edinburgh East) (Lab)]

In criticising the lack of regulation, is the hon. Gentleman suggesting that his party leader was wrong to say in opposition that there should be less regulation?

[Jacob Rees-Mogg]

That is a complete non-sequitur. The issue is bad regulation, not too much or too little. It is perfectly logical to argue that there was too much bad regulation prior to the financial crisis and not simply think that we need more to solve the problem. I would argue that the Governor’s eyebrow is not something that can be regulated particularly effectively. No Act of Parliament, powerful though Acts of Parliament are, can determine how the Governor should raise his eyebrows or not; on the other hand, that was an effective way of regulating banking and ensuring that banks did not become overextended. Ticking boxes to comply with regulation often ensures that people obey the detail of it, but get away from the spirit. That is certainly what happened with some of the bank capital regulations prior to the financial crisis and some of the behaviour of financial institutions, which followed the letter of the law but got into a great deal of trouble. It was not that there was too much or too little regulation; it was that there was bad regulation.

I disagree with the right hon. Member for Oldham West and Royton on his understanding of the crisis, but I disagree with him even more firmly on the Government’s approach to solving it. Getting the public finances back into good order is the essential foundation for an economic recovery. The idea that the situation could have been improved by spending more each year in deficit, when tax revenues were low and the economy was weak, than we had ever spent in peacetime, is absurd. It would have just put us into a debt spiral. The United Kingdom’s credit would have declined and we would have been unable to finance our annual deficit and our cumulative debt.

[Mr Meacher]

I was not proposing any increase in public expenditure at all. The whole point of my Bill is that raising money from the extremely wealthy individuals of this country, and possibly also some corporations, would provide the money to generate probably 1 million or 2 million jobs within a couple of years. That would lead to a far bigger reduction in the deficit than anything the Government have done or just concentrating on cutting expenditure.

[Jacob Rees-Mogg]

The Government had a fiscal tightening and a plan for increasing taxation—which has come through—that forecast taxation going up to over 38% of GDP. Taxation at 38% of GDP is about the highest level that Governments ever achieve. If we go back to Harold Wilson’s prime ministership, we still find that it is almost impossible to get taxation at much more than 38% of GDP. The issue was that spending was so high, not that taxation was too low. The ability to squeeze imaginary rich people to get a lot of money coming in was simply not there. Such fiscal tightening on the taxation side as was possible was undertaken by the Government, but had they gone as far as the right hon. Gentleman proposes, any prospect of economic recovery would have been postponed. The tightening would have been too great, which would have harmed the economy. It would have taken money out of the economy simply to put it into the Government’s coffers. That would have led to a shrinkage of the economy, not least because people would have changed their affairs so as not to pay that extra burden of taxation.

[Philip Davies]

Did not that intervention from the right hon. Member for Oldham West and Royton (Mr Meacher) go to the heart of the difference between his views and ours? His view was that the Government would create all those jobs, whereas it is our view that the private sector companies that he so hates will create those jobs for the economy.

[Jacob Rees-Mogg]

My hon. Friend is absolutely right. It is certainly my view—I accept that it is not the view of the right hon. Member for Oldham West and Royton—that it is the private sector that creates employment. Every job in the public sector has to be paid for by the taxes of the private sector. The public sector has no ability to create jobs without imposing a burden of taxation either now or in the future. I shall not go into the details of Ricardian equivalence, but the electorate understand that extra spending that is borrowed is merely taxation postponed.

[Mr Meacher]

In the depths of a recession, the private sector will not take this country or any other country out of that recession. There is £775 billion in corporate cash stockpiles in this country that is not being used. The problem is a lack of demand. The only way to insert demand into the economy is, initially, through a public sector-driven promotion of stimulatory measures. Only when the economy starts to rise will the private sector take off.

[Jacob Rees-Mogg]

Once again, I do not agree with the right hon. Gentleman’s assertion. Placing an extra tax burden on the private sector during the lowest point in a downturn will make that downturn even worse. The cash that has been built up by the private sector is waiting to encourage the recovery as it begins and as the private sector begins to recover. At that point, people become more confident because they have kept their own money, rather than it having being taken by the Government.

[Mr Nuttall]

Does my hon. Friend agree that, contrary to what has been said, it is the private sector that is leading the way in this recovery? The fact is that the private sector has created 1.3 million new jobs since the last election.

[Jacob Rees-Mogg]

I am very glad that my hon. Friend has put it in that way. Sometimes, the Government claim that they have created 1.3 million private sector jobs, and that is a turn of phrase that I particularly dislike. It is not the Government who have done it; it is the private sector.

I am particularly enjoying discussing the right hon. Gentleman’s Bill. It is sometimes alleged that politics has all become too similar and that all the parties agree. That might be true of those on our Front Benches, but there are still some of us on the Back Benches who are willing to put forward in a more forthright way the views that we hold according to our respective political traditions. That certainly makes the debate in the Chamber more interesting.

Having set out my broad-brush objection in principle to what the right hon. Gentleman has proposed, I want to move on to the details of the Bill. And here it gets worse. The Bill is an astonishing, fundamental attack on some of the basic principles that we ought to enjoy. As a taxpayer—I am sad to say that I am not in the top 250, although I would not mind if I were—I have a right to privacy. The Government do not have a right to publish my financial information; that is my private, confidential affair. I am not advocating tax evasion, which is a criminal activity. It is quite right that it should be criminal, and the Government should enforce those laws. However, the prevention of that crime does not require the Government to deny people their fundamental right to privacy.

People’s most personal and intimate financial details, as set out in their tax return, should not be made available to all and sundry, and it is quite right that the tax authorities should maintain vigorous rules of confidentiality, even when appearing before Select Committees of the House of Commons. It is a right that we all enjoy as British subjects that our financial affairs are a private matter. Yes, we have to pay a degree of taxation and, yes, we have to make declarations to the Revenue, but we do so on the understanding that they will be kept confidential. Once this begins with the top 250, the next stage will be the top 1,000 and it will develop further so that nobody has the right to maintain privacy of their own financial affairs. I thus oppose this provision very strongly.

I oppose less strongly the requirements for disclosure by public companies because they have exchanged a right to privacy in return for limited liability, so they are expected to make disclosure and are obliged to do so to their shareholders. Clause 1 deals with “Disclosure of financial information by large companies” and from the perspective of a shareholder as an investor, I believe that I am entitled to such information anyway; and with large public companies, the shareholder list is so extensive that, once that information is given to shareholders, it is effectively in the public domain.

I add at this point that my background and career have been in investment management, so I know that the more information we get from listed companies, the easier it is to do the job of an investment manager and the better the investments it is possible to make. Perhaps inadvertently, then, the right hon. Gentleman will help the investment community in that, if clause 1 were introduced, financial analysts in the City of London would practically be dancing with joy at their ability to find out every single financial statement of large private companies. It might be quite helpful in stopping them from hiding unwelcome, loss-making subsidiaries somewhere at the bottom of the balance sheet, tucking them away under a contingent liability. Because this is essentially dealing with already public companies, I would make no objection to the clause, but I would maintain the privacy of individuals—and of trusts.

I do not think that trusts should be attacked in this way. Trusts are, in fact, one of the glories of the British legal system. They are much less understood on the continent, but they allow many protections to be built into ownership. Trusts allow the protection of minors in how they are structured and they allow continuity in the holding of assets, including allowing some of this country’s great historic treasures to be kept within the country through the trust structure of ownership. Putting unduly onerous charges on them and requirements to report would, I think, be unreasonable.

Looking at the detail, the idea is that, if trusts do not meet the requirements, their income should go to the Crown. That is what happened in the Court of Wards in the 17th century. It was one of the things that caused such trouble between Parliament and the King because the Crown was able to take the estates of minors and effectively ruin them during the minority of the beneficiary. We moved away from that type of arbitrary rule of giving power to the Crown—in this context, it is not a personal Crown; the Crown is the Executive—to do things such as take funds from private property, not in the form of tax, but in a regulatory way, squeezing income for a certain period until onerous requirements are met.

I think that would be an extraordinarily unsatisfactory way of proceeding. It would undermine the right of property—again a fundamental right that we ought to enjoy. Going back to the Magna Carta, the Crown cannot take property away from people unless there is a judgment—a judgment in a court—against them; it cannot be done on the basis of some failure to meet some bureaucratic standard. This seems to me to illustrate where the Conservative, a believer in the rights of property and a believer in the individual, stands up against the socialist, a believer in the collective and the rights of the collective to override the rights of property. I stand four-square in favour of the rights of property and four-square, too, in favour of the rights of the Crown dependencies, by and large, to regulate their own affairs.

The Bill is again onerous in what it requires to be done, by Order in Council, for territories that, by and large, are no longer treated as mere colonies. The Crown dependencies are allowed to develop and run their own affairs and have their own elective councils to take charge of those affairs. The Bill is a throwback to how this country behaved in the 19th century when we felt we had a greater right to order about the non-dominions—with dominions starting, first with Canada, in the latter part of the 19th century. We seem to be taking the Crown dependencies back to a period before dominion status started to be granted. I consider that to be undemocratic, and unfair on them. It attacks their fundamental livelihoods, namely, their ability to provide financial services and a degree of confidentiality at the same time.

There is a fundamental disagreement—and I am not entirely of the Government’s view either—about the attempt to elide tax avoidance and tax evasion. It is very important to be clear about the difference between the two. Tax evasion is criminal, illegal deliberate breaking of the tax law; tax avoidance is following the law as it is written. It seems to me that, when people are being accused of avoiding tax, it is the job of Parliament to pass good laws that make that avoidance difficult, and to make the tax collectible by Act of Parliament, rather than turning the position the other way round and saying “We are not very good at writing tax law, and therefore we will make you disclose absolutely everything so that, ex post facto, we can determine how much tax we think you ought to have paid.” That strikes me as fundamentally unjust.

It has been a solid principle of British law for decades formally, but for centuries effectively, that the individual taxpayer does not have to arrange his affairs so as to increase the amount of tax that the Revenue is entitled to take. It is an important part of justice that the law should be clear, and should be enforced fairly.

[Philip Davies (Shipley) (Con)]

I entirely agree with my hon. Friend. It seems bizarre that people should be criticised for following the law of the land.

The Government have introduced a new concept, that of “aggressive tax avoidance”. Given my hon. Friend’s expertise, I wonder whether he can explain to us the difference between tax avoidance and aggressive tax avoidance.

[Jacob Rees-Mogg]

My understanding of aggressive tax avoidance is that it is, in fact, tax evasion when the Revenue has not yet got around to taking action. One of the schemes reported in the newspapers involved some comedian whose name escapes me: he is modern, and apparently very funny if you like that sort of thing. What he was doing struck me as evasion, not avoidance, although that was not directly his fault. It seemed to me that the scheme was so far removed from any sensible understanding of the tax law that “aggressive tax avoidance” was essentially a euphemism for “We will try to scrape things back rather than charging people.” I should prefer to see Her Majesty’s Revenue and Customs using the law as it is, and testing the law in the courts to establish whether such activity really is evasion. If it proves to be evasion, people should be punished accordingly, and if it proves to be avoidance, it should be considered legitimate.

I do not think it is possible to say that there is the law, there is the non-law, and somewhere in between there is something that the Government would quite like us to do. There are an awful lot of things that the Government would quite like us to do. At one point, they wanted us all to eat five vegetables a day. Indeed, they probably still want us to eat five vegetables a day, but that cannot be law. It is wrong to try to say that good behaviour, generosity and charity should be a matter of law. That is a different concept. The law, with all the might and power and sanction behind it, is a more absolute thing than that.

[Mr Nuttall]

Does my hon. Friend accept that there might be such a person as a diligent tax avoider—someone who reads the legislation, spots a loophole, and decides to take advantage of it?

[Jacob Rees-Mogg]

Sometimes the Government want people to avoid tax. Sometimes they allow people to do that because, although they do not much like it, they cannot stop it. Let us take, for example, people who bring cigarettes into this country from abroad. There is an agreement with the European Union that, if people have bought cigarettes in another member state, they are entitled to bring them in. In that way they collectively avoid, probably, billions of pounds’ worth of tax. Duty free is tax avoidance, a form of tax avoidance that some of us rather enjoy when we have been a bit further afield than the European Union. Pension funds are tax avoidance. Individual savings accounts are tax avoidance. All those elements of tax avoidance are elements of which the Government approve. It is, I think, unreasonable to say that people should arrange their affairs so as not to take advantage of legitimate tax avoidance that is in the legislation—and who is then to decide whether the tax avoidance provided by pension contributions is legitimate or the tax avoidance provided by some business start-up scheme has suddenly become illegitimate? It is the law that should be deciding these things, and the best way to solve the problem is not by denying people the right to privacy, not by confiscating their property, not by excessive and onerous burdens on the taxpayer, but by having a much simpler and clearer tax system without the Government giving all sorts of incentives to do one thing rather than the other.

We need a more Ronald Reagan-style approach to taxation where deductions are removed and rates come down. That leads, by and large, to more people paying their tax. If we go down the other route and have an incredibly onerous reporting system and put ever more burdens on individuals and on trusts, all that will happen is that those on The Sunday Times rich list—a vast number of whom are foreign nationals who have come to live in this country, and who are very mobile and who bring wealth, prosperity and employment into this country—will take up their wealth and leave.

What sort of a nation do we want to be? Do we want to be a nation that encourages enterprise, that believes in freedom, that respects the right of property and, crucially, the rule of law, or do we want to be a nation of arbitrary Government? The choice is very clear, and I am very grateful to the right hon. Member for Oldham West and Royton for bringing before this House the question of whether we want the fundamental arbitrariness of socialism: the belief that the state—the collective—comes first, and individual rights and privacy are trampled upon to ensure that the state can get what it feels like. That is not the nation I want to see us become. I want one, as we have historically been, based on strong and enterprising individuals who obey the law because they feel that the law is part of them and part of the nation they belong to. Therefore, I hope this Bill will be utterly rejected.