Finance (No. 2) Bill

James Murray Excerpts

Committee stage & Committee of the Whole House (Day 2)
Tuesday 20th April 2021 Commons Chamber

I therefore recommend that amendments 17 to 42 are made to clause 36, and that clauses 30, 36, 41, 115 and 117 to 121, as well as schedules 6, 7, 27 and 29 to 32, stand part of the Bill.

[James Murray (Ealing North) (Lab/Co-op)]

I will speak to new clause 29, tabled in my name and the names of the Leader of the Opposition and other right hon. and hon. Friends. It is timely to consider what the Government are doing to tackle tax avoidance and tax evasion today, with this month marking five years since the publication of the Panama papers. Those papers revealed the true global scale of tax avoidance and tax evasion and the need for comprehensive and effective action to tackle them. Of course, the clauses we are considering are far more limited in scope.

The Minister set out that clause 30 relates to the abuse of the construction industry scheme rules, clause 36 makes amendments to the corporation tax rules for hybrids and other mismatches and clause 41 amends the anti-avoidance rule when claiming relief for gifts of business assets. More widely, clauses 115 and 117 to 121 relate to other measures, including penalties for the promoters of tax avoidance and giving HMRC new powers to obtain information. We will not oppose those measures today.

However, our concern about the Government’s approach is centred not so much on what those clauses cover but what the Bill, and the Government’s approach more widely, fail to do. Our concern is that, faced with the challenges of tax avoidance and tax evasion, and with the public clearly wanting to see definitive action from the Government, Ministers have presented a Bill of measures that are relatively minor and technical. Indeed, as the House of Commons Library analysis of the Bill concluded, it would seem that the Exchequer impact of these changes will be minimal as they are not included in the Budget report costings.

The truth is that three Conservative Prime Ministers and five Conservative Chancellors have failed to tackle tax evasion and aggressive tax avoidance. The Government have repeatedly promised to act, but their proposals in the Bill fall far short of the change we need. That is why our new clause would require the Government to review the impact of provisions in the Bill relating to the levels of tax avoidance and tax evasion and the size of the tax gap, and to publish regular reports setting out their findings. The Government must not be allowed to hide behind warm words on this matter. They need to be transparent about the impact, or lack thereof, that their proposals will have.

We also welcome the amendment in the name of my right hon. Friend the Member for Barking (Dame Margaret Hodge), which seeks to treat promoters of tax avoidance schemes which are abusive as acting dishonestly for the purposes of criminal prosecution of tax offences. This kind of change is crucial if we are to shift towards more criminal prosecutions for the promoters of tax avoidance schemes, and to shift the gear of the Government’s approach.

At the moment, where tax avoidance has occurred, the system lands liabilities on the tax payers, who are usually not tax experts and may have been falsely told that a tax avoidance scheme is lawful. In contrast, the promoters of tax avoidance schemes are allowed far too often to get away with it. We therefore welcome any efforts to strengthen penalties for the promoters of failed tax avoidance schemes. But we have seen nothing from the Government today to raise the stakes and to make greater use of the powers HMRC already has to bring criminal prosecutions against the promoters of fraudulent tax schemes.

We know that HMRC recognises its power to use criminal investigation approaches to tackle the promotion and enabling of tax avoidance schemes, but in a letter the Financial Secretary sent me in January this year, he admitted that, since the formation of HMRC’s fraud investigation service in 2016, only 20 individuals have been convicted for offences relating to arrangements that have been promoted as tax avoidance. An average of around four people a year does not feel like a concerted effort.

[Catherine West (Hornsey and Wood Green) (Lab)]

My hon. Friend is making a great speech. Does he agree that it seems disproportionate that more people, in an adjusted sense, tackle benefit fraud than tackle big business or dodgy individuals who are taking money from the public purse?

[James Murray]

I very much agree. My hon. Friend makes an important point about the Government’s priorities, and about the lack of priority they give to going after the promoters of tax avoidance schemes and those who evade paying tax, in comparison to other actions in Government. We are seeking to put pressure on them today to address that imbalance.

HMRC’s criminal investigation policy states:

“Criminal investigation will be reserved for cases where HMRC needs to send a strong deterrent message”.

However, we know that fraud through the promotion of tax avoidance continues at scale, involving at least an estimated £20 billion in 2018-19, so it is hard to imagine why Ministers would not support a stronger deterrent message being sent by the greater use of criminal prosecutions.

Part of the answer may be the understaffing of HMRC. In a response on 11 January this year to a parliamentary question, the Financial Secretary admitted that the number of full-time equivalent employees at HMRC had fallen since 2010 from 67,553 to 58,467. That is a reduction of more than one in seven. The question of capacity in HMRC and the impact that that may have on its ability to tackle tax abuse must not be ignored. The Tax Justice Network refers to the fact that a member of staff in the compliance business stream at HMRC brings in on average over £900,000 a year on a £30,000 salary. It has pointed out that the Chancellor’s additional investment in HMRC staffing is directed towards tackling fraud related to covid spending, while previous funding increases have supported HMRC’s Brexit capacity. Its view is that the Chancellor must invest further in HMRC’s core compliance capacity.

Furthermore, beyond the questions around tackling the promoters of tax avoidance, the Bill is also silent on other important areas that need to be pursued, such as efforts to set up a register of overseas entities. Legislation is needed to establish a register that would show exactly who owns the foreign companies buying up British property. This would serve as a key part of any clampdown on money laundering.

The then Prime Minister, David Cameron, first announced plans for this in 2015, yet more than five years later, the legislation is nowhere to be seen. I bet he has not been in touch with Ministers for action over that. I would welcome the Minister using his speech at the end of this debate as an opportunity to explain whether the promised deadline of introducing legislation to set up a register of overseas entities by 2021 will be missed. If he is silent on this matter, we will take that as a yes.

I would like to use the opportunity of a discussion on tax avoidance to ask the Treasury ministerial team again to confirm whether the Chancellor backs plans for a global minimum corporate tax rate, as proposed by the US President. When I asked the Minister’s colleague, the Exchequer Secretary, to address this point during the Bill’s Second Reading last Tuesday, she did not respond, which I am sure was an oversight. I would therefore welcome the Financial Secretary addressing this question directly in his closing speech, to avoid any misperception that he and his colleagues are deliberately avoiding the question.

Our criticism of the Government in relation to tax avoidance and evasion centres not so much on what the measures in the Bill would achieve but rather on the ways in which the Bill and the Government’s wider approach fall short. The Government lack a tough and comprehensive approach to prosecuting the promoters of tax avoidance, to going after international money launderers and to pursuing those who seek to evade tax. We know that the impact of the measures in the Bill will be relatively minor and technical. The public deserve to have the Government present clearly and transparently what effect the measures in the Bill will have, and our new clause simply requires that their impact on tax avoidance, tax evasion and the size of the tax gap should be reviewed and laid in public before this House.

Throughout the Minister’s statements and comments, there is a clear pattern that the Government favour minor technical amendments to legislation on this matter, rather than upping their game and truly calling time on the practices that the public clearly want to see ended. Today they have an opportunity, by supporting our new clause, to show that they understand the need to be clear with the public, to recognise the need to strengthen their approach on this matter, and to commit to coming back with the resources and legislation that are needed to truly make a difference.

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

I want to make a few points, principally on amendment 77. Perhaps I can start by saying that I do not agree with the Opposition spokesman, who has just addressed the House so eloquently, that the Government have been slow to tackle tax abuse and tax fraud. I should, at the outset, draw the House’s attention to my entry in the Register of Members’ Financial Interests. I think the Government have been very good at tackling tax fraud, starting in 2010 when this Conservative Government first came into office. The reforms that were introduced by George Osborne, the Chancellor of the Exchequer, deliberately targeted tax abuse and set up a number of measures to try to ensure that we clamp down on it, as it is common cause on both sides of the House for us to do.

Where I do agree with the Opposition spokesman is in his reference to the Panama and paradise papers. That excellent work by journalists from, I think, The Guardian and the BBC exposed the fact that money laundering, dirty money and abuse in that sector were far more rampant than we realised. That is one of the reasons why the right hon. Member for Barking (Dame Margaret Hodge) and I have made so much of an effort in this House, along with colleagues on both sides of the House, to try to clamp down on money laundering and dirty money and ensure that we have sunlight as the best disinfectant on all of this. That is why we introduced the open public registers of beneficial ownership for the British overseas territories, and why we strove so hard to persuade the Crown dependencies—successfully, now—to introduce those same open registers. That is the way in which we stop kleptocrats, bent politicians, warlords and corrupt businesspeople from stealing from the Exchequer but also, of course, from Africa and Africans. That was the great benefit of the paradise and Panama papers: they showed so clearly the extent of what was going on.

I thought that the Financial Secretary made some very good points about amendment 77. In general, I do think that the Revenue has enough power over the private citizen in the laws of the land as they stand at the moment. However, the point I would make to the Financial Secretary—he has been most receptive in listening to the right hon. Member for Barking and me about this—is that eternal vigilance is required. As we have seen, and as amendment 77 draws attention to, there is an inequality of arms in this matter. Advisers who set up these schemes often have an aura of authority, because they are lawyers, accountants and professional people, which those whom they advise may not be.

I want more to be done to ensure that, where these bad schemes of tax evasion are put together by professional advisers, they do not get off scot-free while the people they put into these devices, or talk into going into them, take the rap. It is not right that they should just lose the fees that they earn, which I think is currently the position: we should toughen the financial penalties. The Minister handles these matters very well, and I know that he wants this to be more than a senior common room debate. I know that he is conscious of the balance between the rights of the individual and making sure that people are not able to evade tax. I know that he does think seriously about that, so I would just urge him to always keep an open mind on this issue.

This is a familiar theme. In this year of Britain’s presidency of the G7, we should remember the work that was done by George Osborne for the last G8, at which he championed the open registers that were introduced in Britain in 2016. It is a proud achievement of this Conservative Government that, at the last G8, they moved the world towards focusing on these illicit flows of money, and this year with the G7, I hope that the Minister will consider it important as well. I completely accept that we are not going to divide the Committee on amendment 77. What the Minister said about the amendment was extremely constructive and I hope he will feel it right for the House to return to this matter on very regular occasions, in pursuit of what unites us all: that people should pay their fair levels of tax.