Budget Resolutions and Economic Situation

John McDonnell Excerpts

Friday 20th March 2015 Commons Chamber

[John McDonnell (Hayes and Harlington) (Lab)]

I wanted to focus on the issue raised by the right hon. Member for Somerton and Frome (Mr Heath) with regard to tax avoidance, but today’s theme is local government, and the right hon. Member for Uxbridge and South Ruislip (Sir John Randall) referred to the London borough of Hillingdon, and that prompts me to make a passing reference to that local authority, which I share with him. I do not recognise his depiction of its Conservative administration. In my constituency, Conservative control of that borough has created, through callousness and incompetence, the worst housing crisis since the second world war, with families living in overcrowded squalor, and hundreds now in bed and breakfasts, shunted around the country just to find a roof over their heads. The cuts in the planning department and the lack of enforcement on beds in sheds and so forth mean that some areas of my constituency are now beginning to look like a shanty town. The council is building on the green belt despite owning brownfield sites. That is because it is selling off those brownfield sites in my constituency in order to subsidise the development of facilities in the right hon. Gentleman’s constituency, and in Ruislip and Northwood as well.

I also live in a local authority where social services and care services are perilously close to collapse and where staff are working in an environment of bullying and fear. The Conservative councillors who lead the council seem more interested in increasing their allowances than the interests of my constituents. I just make passing reference to the London borough of Hillingdon.

I shall turn now to the issue I wish to raise: tax evasion and avoidance. The Budget sets the target of raising £3.1 billion through tackling tax evasion and avoidance. The Government have identified a tax gap of £35 billion, which has remained almost static for the past few years, but one of the World Bank auditors has said it is nearer £100 billion, and the tax justice campaign and the Public and Commercial Services union, which represents the tax collectors themselves, has put it at £120 billion. So on the Government’s own figures, at best we are simply going to tackle, if successful, less than 10% of the tax gap, but more realistically less than 3%. That is a dismally low target.

In yesterday’s HMRC and Treasury document on tax avoidance and evasion, I welcome the statements around strict liability, naming and shaming, the toughening up of penalties and the tackling of serial avoiders, but it has taken five years of lobbying by the Tax Justice Network and others—and I pay tribute to Richard Murphy, Prem Sikka and John Christensen. It has also taken direct action by UK Uncut, media campaigns and public pressure to get the Government to act—in their last week. But it is not action—it is not deeds; it is further consultations. This is an appalling missed opportunity.

The right hon. Member for Somerton and Frome—who is not in his place, which I understand as it has been a long debate—referred to issues to do with accountancy firms, and I agree with him. The Government’s document of yesterday places heavy reliance on those agencies at paragraph 3.19:

“Today, the government also announced it is asking the regulatory bodies who police professional standards to take on a greater lead and responsibility in setting and enforcing clear professional standards around the facilitation and promotion of avoidance to protect the reputation of the tax and accountancy profession and to act for the greater public good.”

There is a level of either complicity or naivety here. I think this demonstrates corporate capture of this Government and the Treasury by the accountancy firms, finance houses of the City and corporate law firms.

The Government are now relying on these agencies once again to police themselves. On the corporate lawyers, the Law Society tax committee is populated by corporate lawyers representing firms promoting the tax avoidance schemes. On the accountancy professional bodies, the standards and policy committees comprise the representatives of the firms making billions of pounds from designing, promoting, selling and implementing tax avoidance schemes on an industrial scale, as the Public Accounts Committee said. I refer Members to Prem Sikka’s latest article. He points out that

“the Institute of Chartered Accountants in England and Wales was formed in 1880. Here we are in 2015, and not a single accountant or accountancy firm has ever been disciplined by the ICAEW even when the schemes marked by the Big Four firms have been declared to be unlawful by tax tribunal and courts.”

Then there is the question of who is going to prosecute these firms now that we are going to introduce more criminal legislation against them. Will it be the Serious Fraud Office? Its budget has fallen from £52 million in 2008 to £35 million now. It is hardly equipped to take on these mega-corporations. In fact it is now facing lawsuits for damages from botched investigations—from the Tchenguiz brothers—and is “utterly unfit” to investigate or enforce the legislation the Government are bringing forward.

The Crown Prosecution Service is “hardly visible” with regard to prosecution of big corporations, and HMRC staffing cuts have denied it the professional expertise needed. I will come back to the staffing cuts.

[Emily Thornberry]

Does my hon. Friend agree that it would be an improvement in the law if there was corporate liability for the criminal acts of individuals within companies? In other words, if someone behaves dishonestly on behalf of a company, the company itself should be liable. If that law were in place, as it is in the United States, it would help with prosecutions in this country for fraud and dishonesty.

[John McDonnell]

Exactly, and there is some movement on that in this document, but only yet another consultation that does not define whether individuals as well as corporations will be completely liable.

The Government sometimes have good intentions. We all supported on a cross-party basis the idea that if a company is prosecuted for tax avoidance, it should not then get a public contract. We all supported that in this House, but now, two years since it was introduced, not a single tax dodging entity, despite judgments by tax tribunals, has been barred from securing public contracts. What frustrates most of us in all parts of the House is precisely this non-implementation of legislation which we think could be effective and which we have all supported.

Another issue also came up. We supported the Government’s introduction of the general anti-abuse rule. We had been campaigning for years on it, and it came into effect on 1 July 2013. The Chancellor has referred to it on several occasions in various debates. The concept is good, but HMRC cannot go after offenders on its own because the Government have, in effect, put the tax avoiders in charge. HMRC needs permission from a panel, populated by the corporate tax avoiders, before it can implement the GAAR. The panel includes, for example, a partner from Baker Tilly, a firm of accountants associated with a tax-avoidance scheme used by Aberdeen Asset Management to dodge taxes on bonuses to employees, and so far the panel has not looked at a single case. It renders debates and legislative measures in this House totally irrelevant to the real world. The real issue is that no matter how many policy statements, reports and legislation we have, it is all rendered pointless if HMRC does not have the staff and resources to implement them.

I was critical of my own Government; I opposed the staffing cuts at HMRC then. In 2005, there were 92,000 staff at HMRC. By 2015, there were 62,000 and by next year there will be a planned 52,000. That is a 43% cut in the very tax collectors we rely on to chase the evaders and avoiders. For every pound spent on a member of staff at HMRC, £25 is brought back. That is not my figure, but the independent assessment. The Government have now closed all 281 local tax inquiry offices. They have brought in a centralised call system, which is struggling on every measure. HMRC’s management have gained a reputation across the civil service for belligerent incompetence, and that was displayed when the Public Accounts Committee attempted to hold them to account. Morale in HMRC is at an all-time low, which is testified to by the Government’s staff survey showing that it had the lowest level of employee engagement across all Government departments.

We have also seen, as a result of the leaked memos of four weeks ago, the HMRC management’s union-busting strategy. They have not only targeted and victimised PCS reps, but are trying to set up an alternative staff association to break the PCS. In my view, HMRC is not only not fit for purpose, but sinking. It is in need of basic reform if it is to live up to the expectations placed on it even by the report that the Treasury published yesterday. If we are really going to tackle tax avoidance and evasion and have any hope of closing the tax gap, we need a more effective, better staffed and better resourced HMRC. We need greater parliamentary accountability, which means: a specific Minister responsible for HMRC; and a separately established Select Committee to which it is accountable. We also need resources for organisations outside Government that can monitor it and respond to the detailed, complex Government consultations. Above all else, HMRC needs staff resourcing and the reversal of the staffing cuts on this scale that have neutered its operations. If we really want to tackle the tax gap, we need to ensure that it is properly staffed, that Parliament is in control and that there is proper accountability and monitoring throughout. In that way, we can tackle the tax gap, and we can start talking about the fairness of the wealth tax, the financial transaction tax and corporate tax reform. We need not so much a long-term economic plan as a long-term fair tax plan.

--- Later in debate ---

[Luciana Berger (Liverpool, Wavertree) (Lab/Co-op)]

I want to put on the record my acknowledgment for all their years of service to their constituents of the right hon. Member for Bexhill and Battle (Gregory Barker), the hon. Member for South Suffolk (Mr Yeo), the right hon. Members for Havant (Mr Willetts), for Somerton and Frome (Mr Heath) and for Uxbridge and South Ruislip (Sir John Randall), the hon. Member for Bury St Edmunds (Mr Ruffley), the right hon. Members for Banbury (Sir Tony Baldry), for South East Cambridgeshire (Sir James Paice) and for Hazel Grove (Sir Andrew Stunell), and the hon. Member for South Thanet (Laura Sandys).

[John McDonnell]

I apologise for intervening, but in my enthusiasm to attack the Government I failed to refer to the retirement of the right hon. Member for Uxbridge and South Ruislip (Sir John Randall), who has been an absolutely sterling colleague for me in Hillingdon and has served his constituents so well.

[Luciana Berger]

I thank my hon. Friend for his intervention. We have heard some wonderful valedictory speeches, and I wish all those right hon. and hon. Members well in their future endeavours.

We also heard some very impassioned speeches from my hon. Friends. My right hon. Friend the Member for Newcastle upon Tyne East (Mr Brown) told us about unemployment in the north-east, and said that there was more of a northern outhouse than a northern powerhouse. My hon. Friend the Member for Croydon North (Mr Reed) spoke about his local hospital having to declare a major incident, and about how the Budget has done nothing for the NHS. My hon. Friend the Member for Luton South (Gavin Shuker) helpfully shared with the House excerpts from the 2010 Red Book. We should all remember his point that the Chancellor’s actions during the past five years have been worse than doing nothing at all.

My hon. Friend the Member for Blaenau Gwent (Nick Smith) talked about the proliferation of food banks and charity shops, which have increased in number in his constituency since this Tory-led Government came to power. My hon. Friend the Member for Newcastle upon Tyne Central (Chi Onwurah) talked about the north-east, rising inequality and the deep and growing divide between the north and the south. My hon. Friend the Member for Poplar and Limehouse (Jim Fitzpatrick) raised serious concerns about funding for health, which I will come on to, and the devastating cut of 24% in further education announced this week.

My hon. Friend the Member for Bethnal Green and Bow (Rushanara Ali) talked about the impact of stagnant wages and particularly about the poverty that affects her constituency more than any other part of the country. That was echoed by my hon. Friend the Member for Islington South and Finsbury (Emily Thornberry) in relation to the challenges faced by her constituents in making ends meet, and with her very moving stories about overcrowding and the effects of the bedroom tax and escalating rents. My hon. Friend the Member for Hayes and Harlington (John McDonnell) rightly talked about HMRC’s lack of action in tackling tax avoidance and evasion properly, and the 43% cut in the number of people working for it. My hon. Friend the Member for Blaydon (Mr Anderson) spoke about the cuts to social care, and particularly the cuts to prison staff that have led to a very serious increase in the number of assaults.

I have to say that I found the Chancellor’s Budget speech curious. There were parts I could agree with, such as the devolution of business rates, although it is not clear why he stopped at Cambridge and Greater Manchester; there were parts that were audacious in the extreme, such as his recollection of his deficit reduction plan in 2010; and there were parts that made me wonder whether he and I inhabit the same country.

I was struck by the Chancellor’s assertion that households will be on average £900 better off compared with 2010, and that they will be more secure. It is almost as though he thinks that the very fact that he has decreed it means that it will be so. Should that fail to become the reality, he had a very handy new measure of living standards to fall back on. It is a flawed measure, because it includes income to universities and charities, but it is a measure all the same. Sadly for him—more sadly for families struggling to keep their heads above water—even his new cunningly crafted measure shows that living standards in the first quarter of 2015 have gone down, not up, compared with the first quarter of 2010.

That Budget measure and other more sensible ones demonstrate what we know to be true: it is harder now to make ends meet. Household incomes are down compared with 2010, as the IFS confirmed two weeks ago, and wages after inflation are down by more than £1,600 a year since 2010. I know that to be true because people tell me it all the time in my advice surgeries, in their e-mails and on the doorstep. The Chancellor may have decreed it, but, sadly, he has not made it so.

The welcome growth that we are finally witnessing in the UK economy has been a long time coming. With our economy still vulnerable, we warned in 2010 that the Chancellor’s decision to accelerate tax rises and spending cuts would hit confidence and choke off our economic recovery, and so it has proved. We have had the slowest recovery for 100 years. Growth is still lower than was forecast in 2010, and it is set to be slower this year and next year than it was last year. Productivity is down—UK output per hour has fallen to 17% below the rest of the G7, the largest gap since 1991—but the Chancellor did not once mention the word “productivity” during his speech. For working people, we have an economy in which too many workers suffer low pay or, worse, are on contracts with no guarantee of being paid at all.

Our economy may be growing, but it remains too unproductive, unbalanced and insecure. We needed a Budget that addressed those issues, and that established a proper British investment bank for small and medium-sized businesses and an independent national infrastructure commission, which would lead to a properly co-ordinated industrial strategy. The uplift on business rates awarded to Greater Manchester and Cambridge is welcome—it was Labour’s policy, after all—but why has the Chancellor stopped there? Why has he not gone further? Our plan is for more extensive devolution—£30 billion-worth—and for it to be countrywide, whether people choose to have an elected mayor or not. Every part of the country will benefit from Labour’s plans. For prosperity to be shared, it must be felt by the many, not the few.

The Tories seem hellbent on decimating the services relied on by the many. The NHS, also conspicuously absent from the Chancellor’s speech and already under real strain, will be an inevitable victim of his colossal programme of cuts. Be under no illusion: page 130 of the Office for Budget Responsibility’s “Economic and fiscal outlook” makes it clear that the Chancellor’s proposed spending cuts for the next three years will be deeper than those that have been made in the past five years. Massive cuts will be made to policing, local government and defence budgets. In the end, those Departments will not be able to deliver the scale of cuts required, and the axe will inevitably fall on the health service.

Our NHS is in no fit state for a white-knuckle ride. Already, more than half of nurses say that their ward is dangerously understaffed. Waiting lists are at their highest for six years, and one in four people are waiting a week or more to see their GP. In the past 12 months, more than 1 million people have waited more than four hours in A and E. The Tory care cuts of more than £3 billion have been the root cause of the A and E crisis during this Parliament. If they are allowed to do the same in the next Parliament, it will entrench the crisis, not only in A and E, but across the whole NHS.

A Labour plan and Budget would look different. Our plan will deliver a rise in living standards for the many and the stronger growth that we need. It is a fairer plan. We will reverse the tax cut for millionaires, introduce a mansion tax to fund the NHS and abolish the bedroom tax. We will build a truly national recovery, stop exploitative zero-hours contracts, raise the minimum wage and cut tuition fees to £6,000. Labour has a plan to build at least 200,000 homes a year by 2020, creating up to 230,000 construction jobs. Our plan will restore the link between the prosperity of the nation and the prosperity of the individual, protect the NHS and get the deficit down. In our plan, when the country succeeds and grows, its people will too.