Tax Avoidance and Evasion

Debate between Jim Cunningham and Catherine McKinnell

Wednesday 13th April 2016 Commons Chamber

[Catherine McKinnell (Newcastle upon Tyne North) (Lab)]

As the co-founder and chair of the all-party parliamentary group on anti-corruption, I am pleased to have the opportunity to contribute to today’s debate.

The issues under discussion are, rightly, very high on the public agenda, and a great number of my constituents have contacted me to share their concerns. They, like many others, have a strong sense of both the real and the perceived injustice in our system, whereby the vast majority of people in this country play by the same rules and have very little choice about the contribution they make to the public purse. This is not about envy or anger at wealth, whether it be earned or inherited; it is about the fact that those at the top end of the income scale seem to play by an entirely different set of rules. That, understandably, makes people angry, and the Government must take genuine steps to level the playing field and regain the public’s trust.

One of the assertions that has been made in representations to me is that the solutions to the problem are easy. Although I do not necessarily subscribe to that view, I do think that there are a few relatively simple steps that the Government could take to make a significant difference. Those steps would bring about much greater transparency about the ownership of individual and company assets and wealth, and enable a very clear view of who the beneficiaries are of investments and funds, whether they are held here in the UK or in offshore trusts and accounts. It is essential to deal properly not only with aggressive tax avoidance that Parliament never intended to be pursued, but with tax evasion and other criminal activity, such as fraud and corruption. Too often, both issues go hand in hand.

In his statement on the Panama papers on Monday, the Prime Minister acknowledged:

“Under current legislation it is difficult to prosecute a company that assists with tax evasion”.—[Official Report, 11 April 2016; Vol. 608, c. 26.]

He is absolutely correct. In fact, the challenge is understated, and I will briefly explain why. At present, under UK law, in order to hold a company criminally liable, prosecutors must identify an individual sufficiently senior within the organisation—usually at board level—as its “controlling mind” with knowledge of the offence. In an increasingly globalised world where multinational organisations, which have very complicated structures and management arrangements, are the norm, that sets an extremely high bar for prosecutors to cross. By contrast, in the US a company can be held vicariously liable in criminal law for the actions of its employees undertaken in the course of their employment.

The Government seemed to acknowledge that inadequacy in UK law and included proposals in their 2015 manifesto to introduce corporate criminal liability for economic offences. Yet by September 2015 those proposals were quietly dropped, a fact that came to light only in response to a written parliamentary answer. The grounds stated by the Minister who gave that answer were that

“there is little evidence of economic crime going unpunished.”

That was, frankly, a ridiculous assertion, and I hope that the Panama papers have finally put that notion to bed.

It is clearly unacceptable that, here in the UK, prosecutors of economic crime—tax evasion, corruption and fraud—are effectively operating with one hand tied behind their backs. Indeed, David Green, the director of the Serious Fraud Office—the law enforcement agency tasked with prosecuting the most serious and complex economic crimes—has been clear for some time about the inadequacy of our law. As he pointed out in an interview with the Evening Standard in January, the identification principle

“is difficult because inevitably the email trail tends to dry up at middle management and evidentially it is hard to prove.”

I put that point to the Prime Minister on Monday, and I was glad to hear him commit to going away and looking at the proposals. I hope that Ministers are listening carefully to this debate and that those at the Ministry of Justice in particular will report back to him as a matter of urgency. The proposal is to extend the application of the section 7 offence—which I will explain—not only to tax evasion, but to all economic crime.

This is the nub of the issue. As the Prime Minister announced on Monday—indeed, he had announced it previously, but no follow-up action has been taken as yet—the Government intend to legislate so that corporates can be held criminally liable for failing to prevent the facilitation of tax evasion. That is an acceptance that the current corporate liability framework, which applies to all economic crimes, does not work.

The Government propose to do that by creating an offence modelled on section 7 of the Bribery Act 2010, introduced by the last Labour Government, that holds a company liable if it fails to take “adequate steps” to prevent bribery by its employees. In other words, it puts the onus on companies to ensure that proper compliance procedures are in place and holds them criminally liable if they do not do so. That model, which already applies to the offence of bribery, will apply to tax evasion under the Government’s proposals.

Why stop at tax evasion? Why not extend the provision to cover failure to prevent other crimes, such as fraud or money laundering, as promised in the Conservative party’s 2015 manifesto? The director of the Serious Fraud Office has suggested that that is a workable solution. Back in 2013, he highlighted the benefits:

“Such an approach would merely add a criminal sanction to existing obligations; it would assist in the reform of poor corporate culture which contributed to the crash; it would underpin the recovery by encouraging clean and stable markets; it would increase investor confidence, assist in more rapid prosecutions and dovetail well with deferred prosecution agreements.”

[Mr Jim Cunningham (Coventry South) (Lab)]

My hon. Friend mentioned earlier the situation in America. None of the bankers in this country was held to account for the crash, but a number of those in America were. Does she agree that something should be done about that?

[Catherine McKinnell]

Absolutely. My hon. Friend raises a very important point. The banks in America have paid significant fines as a result of their behaviour ahead of the crash, but it has been significantly more difficult to ensure that justice is done here. That is the very reason why the issue needs to be addressed. The solution is very simple and workable. The Government already intend to legislate on tax evasion, so it would simply be a case of expanding the number of offences to which the legislation applies.

I strongly urge the Government to look closely at part 2 of schedule 17 to the Crime and Courts Act 2013. It sets out a useful list of offences, covering all manner of fraudulent and corrupt offences—from false accounting and forgery, to fraudulent trading, bribery and money laundering—that the Government’s proposed new offence could equally apply to. The work is all done. The ducks are lined up; the Government just need to implement the change.

The revelations in the Panama papers represent a pivotal moment that the Government must not squander. The Panama papers have not just highlighted issues relating to tax evasion and, indeed, avoidance, but raised even greater questions about illicit financial flows, laundered money and the proceeds of crime, and about how companies exploit tax havens and secretive jurisdictions to facilitate that. Ahead of next month’s anti-corruption summit the Government should send out to the rest of the world the clearest of messages that the UK is serious about tackling economic crime in all of its forms, and its facilitation. I urge the Government to take the opportunity to take this important step to arm our law enforcement agencies and courts with the ability properly to hold companies to account.

Budget Resolutions and Economic Situation

Debate between Jim Cunningham and Catherine McKinnell

Tuesday 22nd March 2016 Commons Chamber

[Catherine McKinnell]

I do not understand the hon. Gentleman’s point. He is digressing on details of capital gains tax when the point I am clearly making is about the context in which the cut has been made, where the burden of this Budget very much falls on the poorest and the most vulnerable in our society. If that is compassionate Conservatism, bring the nasty party back!

I am pleased and relieved that the Government have backed down on this issue within less than a week. However, I am angry that those people who rely on the personal independence payment, including 1,100 people in Newcastle upon Tyne North, have endured days and weeks of huge anxiety about how they would cope if this level of support was cut. It is unforgivable. I remain equally concerned about how the existing reforms to PIP are quite clearly failing disabled people. Constituents continue to get in touch with me following my recent question to the Prime Minister because they have been told that they are no longer eligible for a Motability vehicle despite its clearly being the only means by which they can leave the house, or indeed get to work. The new PIP assessment is fundamentally flawed. I strongly urge the Work and Pensions Secretary and the Chief Secretary to the Treasury to revisit this issue with fresh eyes and look at reforming the current PIP changes before they embark on any further welfare reform.

Despite the Chancellor’s so-called

“revolution in the way we govern England”,

with the pledge last May to give local areas greater control over local transport, housing, skills and healthcare, it appears that he does not place the same faith in local communities when it comes to our schools. Last week’s Budget confirmed that, far from handing control to local communities, the Government are about to embark on the greatest ever centralisation of our schools system, which will see an end to the role, now a century old, of democratically accountable local authorities as the stewards of our children’s education. My Front-Bench colleagues have already highlighted the glaring black hole in the finances of this plan—£560 million—which raises questions about the extent to which the schools budget will be raided to make up the shortfall.

[Mr Jim Cunningham (Coventry South) (Lab)]

My hon. Friend mentions the schools budget. I do not know whether she is aware that in Coventry one or two academies are already in serious trouble because of falling numbers as a result of certain changes in the education budgets.

[Catherine McKinnell]

I appreciate my hon. Friend’s point. It is not just local academies that are in trouble—there are some much bigger and more serious questions that we need to raise. First, why are the Government doing this? There is no proof whatsoever that academies per se raise educational standards. It is a distraction that schools now need to focus on this rather than on their educational attainment. Secondly, how will the Government enable the local political leadership to drive up standards and work together, as happened so effectively with the London Challenge, if the power and decision making is so centralised in Whitehall?

Is the Department for Education even fit for purpose to deal with over 20,000 schools across the country—about 3,400 secondaries and almost 17,000 primaries? There are signs that it is already struggling with its current workload of 4,000 schools. As the Education Committee, of which I am a member, recently uncovered, the Department could not even deliver its annual accounts to Parliament in time and required a statutory extension, and there remains doubt as to when it will ever be able to present them. This mass rush to conversion will only add to the current mess. We need only look at the fiasco of the free schools application process, where there is no clear rhyme or reason to the Department’s decisions to authorise new schools.

We see a Department in disarray. Of particular concern for my constituents is how the forced academisation process will fit alongside the large-scale programme of house building that is planned for our area. As a result of the coalition’s national planning policy framework, some 21,000 new homes are expected to be built in Newcastle by 2030, a large proportion of which will be in my constituency. That will require new school capacity, but who will be the guiding mind that will match and create that new school capacity in an area that will be controlled by Whitehall? Newcastle City Council already finds itself in the impossible position of being unable to establish new community schools to cope with existing demand. How on earth will it be able to deliver the right school places across Newcastle upon Tyne North when every school is accountable to the Secretary of State?

Finally, in addition to the fact that apprenticeships were not mentioned in the Chancellor’s Budget even though we were promised that they would be, another glaring omission was the lack of any announcement about how the Government intend to protect our regional airports from the impact of devolving air passenger duty to Scotland. That is crucial to Newcastle airport, which supports 12,000 jobs in the region, and through which £300 million of goods are exported every year. All talk of a northern powerhouse will be completely undermined if the Chancellor fails to deal with the issue urgently.

Childcare Payments Bill

Debate between Jim Cunningham and Catherine McKinnell

Monday 17th November 2014 Commons Chamber

[Catherine McKinnell]

My hon. Friend makes a very valuable point and I was just about to come to that. We are the party of Sure Start and the thousands of Sure Start centres that existed in 2010. It is not specifically relevant to this debate, but we could not allow it to pass without mentioning the very deep concern up and down the country about the future of our Sure Start centres.

There are concerns, which were made abundantly clear by a number of witnesses in Committee last month, that the Bill does not go anywhere near far enough to provide the support that thousands of parents and families desperately need right now. They need that support now, not in 12 months’ time, which is why we tabled new clause 1. Based on the Family and Childcare Trust’s annual survey, we know that child care costs have risen five times faster than wages since 2010, at a time when wages have lagged behind prices, leaving people £1,600 a year worse off on average. This support is even more vital when we see how much parents have lost out as a result of the Government’s choices: the decisions to cut tax credits, child benefit and maternity pay, and to close thousands of Sure Start centres.

As we saw and read in the news yesterday, research from the London School of Economics and the Institute for Social and Economic Research at the university of Essex shows clearly how the burden of austerity under this Government has fallen most heavily on those with lower incomes. The research found that the Government’s tax and benefit changes have seen the poorest lose about 3% of their incomes, while the richest half of the country have actually seen their incomes increase by 1% to 2%. That blows away the Government’s claims from the start that we are somehow all in this together. The research highlighted the fact that families with children have fared worst of all, which confirms our worst fears. Single parent families, in particular, have lost far more through cuts to tax credits and other support than they may have gained through any tax changes, proving that the Government have given with one hand but taken away far more with the other—so much for being the most family-friendly country. Families have lost out on up to £1,500 a year due to changes to tax credits alone. Tax credits are a vital part of income for many working parents, especially those on the most modest incomes.

When we look at all the tax and benefit changes since 2010, including the Government’s much-lauded and touted personal allowance increases, we see that families have clearly been hit hardest of all, and that will remain the case right up to the general election. A family with both parents in work will be about £2,073 a year worse off and a family with a single parent in work will be about £1,300 a year worse off. Despite the Conservatives’ claim of creating the most family-friendly country and the Liberal Democrats’ supposed belief that families should get the support they need to thrive, the Government have not been family-friendly and they have not stepped in to provide families with the help they so desperately need to get to grips with the soaring costs of child care. Far from stepping in, they have pulled the rug from under the feet of many families. Any extra help for parents struggling with the cost of child care is clearly to be welcomed. However, not only is the Bill too little too late for hundreds of thousands of families, we are disappointed that the Government have so far refused to consider that additional support could be offered to families right now. That is why we have tabled new clause 1.

[Mr Jim Cunningham (Coventry South) (Lab)]

Does my hon. Friend agree that we can see the Government’s attitude to child care with their closure of more than 400 Sure Start centres?

[Catherine McKinnell]

Up and down the country, there is deep concern about the disappearing Sure Start services. We know that the worst is yet to come when we look at the dire straits in which many local authorities find themselves and the difficult decisions that many are having to make about their Sure Start services. My hon. Friend makes a very good point: that does sum up the Government’s attitude to support for children and families. They simply wash their hands of the issue whenever it is raised in this House.

We tabled new clause 1 because we want to compel the Government to explore the effectiveness of extending the free entitlement for three and four-year-olds when both parents are in work. The first part of new clause 1 seeks to understand what support the current proposals will provide to the parents who need it most. The free entitlement introduced under the Labour Government, which happily has been continued under this Government, makes a real difference to hard-pressed families. The simple truth is that, months after the Bill was first published and introduced, we are still none the wiser about exactly how many parents will be better off as a result of the top-up payments, or, crucially, by how much.

That stands in marked contrast to our plans to extend the free entitlement for three and four-year-olds, which will be worth £40 a week, or £1,500 a year, to about half a million children. We know from the Government’s impact assessment that of those families who will be newly eligible for support under the Bill—those who are self-employed, or those whose employers do not currently offer employer supported child care vouchers—the average benefit will be about £600 a year. Clearly, that is far lower than the £2,000 per child that the Government have been touting ever since they announced the policy for top-up payments in March.

It is worth remembering that some 520,000 families currently benefit from ESC vouchers. The Government’s impact assessment sets out a number of case studies where families might be better off or, indeed, worse off under the new top-up payments. The impact assessment suggests that families can retain their ESC vouchers if they wish, but goes on to list a whole range of caveats relating to whether parents will be able to continue to qualify, whether they would be better off remaining under the current voucher scheme, or whether the new top-up scheme might be better for them.

Clauses 62 and 63 seek to wind down the ESC scheme over the next few years, closing it to new entrants. Presumably, ESC vouchers will eventually vanish completely. If a parent changes jobs or if their employer stops offering vouchers—this could well happen, as voucher providers are set to see the majority of their business disappear—they will have no choice but to switch to top-up payments, leaving many worse off.

We heard evidence from a wide range of witnesses in Committee last month who cited the Resolution Foundation’s work. It is worrying that the Resolution Foundation had to undertake that work because the Government have not done sufficient work to look at the true impact on parents. The Resolution Foundation suggests that 80% of the families who will benefit from top-up payments are in the top 40% of income distribution. The remaining 20% will go to those in the middle of the distribution scale. If the key aims of the Bill are to support parents with the cost of child care and to help more parents back into work by making work an economically viable option, those figures raise questions about whether its aims are achievable through this Government scheme alone. In contrast, many child care experts agree that Labour’s child care plans, as outlined in new clause 1, meet these twin aims.