Money Transfer Accounts and Remittance Sector

John McDonnell Excerpts

Wednesday 22nd January 2014 Westminster Hall

[Kevin Brennan]

I agree with the right hon. Gentleman that it is important that we get on with it. My point is that, four months after the announcement that the action group would be set up, it has not yet met, and as far as I am aware we do not know who will chair it, unless the Minister can give us more information in his speech.

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

I want to reflect the concern on both sides of the House about the lack of urgency on the matter. We expected a great deal more progress than has been achieved so far. The sense of urgency comes from our constituents whose families are dependent on remittances. In some instances, it literally is about people’s security as a family in the long term.

[Kevin Brennan]

My hon. Friend is absolutely right. We need firmer information from the Minister about when he expects that progress will be made, so we look forward to his speech.

For example, will the Minister guarantee that the action group will meet the target date—the deadline—of April 2014 to formulate new official guidance for money services businesses and banks, especially on agreeing how to deal with money laundering and terrorism risks? Does he anticipate that that will make it easier for banks to start providing bank accounts again? Is it his intention that that should happen by April, May, June, the summer, or within the one-year deadline? What estimate has he made of how many money transfer companies have been forced out of business so far, and how many will be forced out of business in the meantime due to the lack of a bank account?

I have paid tribute to my hon. Friend the Member for Bethnal Green and Bow for her leadership on the issue, even though that has not, unfortunately, been able to save the business in my constituency. The Government must get on with finding the solution to the problem. If they do not, many decent, law-abiding small businesses, which are often located in the poorer parts of our country, will be forced out of business by the indifference of the authorities to the actions of the big banks, meaning that the livelihoods and well-being of some of the world’s poorest people in developing countries will be placed in hazard.

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[Sajid Javid]

The hon. Gentleman will know that the state-owned banks came about by accident rather than design, and the Government’s overriding purpose now is to return those banks to the private sector, with the best interests of shareholders paramount. With regard to Government involvement in the banking sector, he mentioned the Help to Buy scheme. That is a good example of a scheme that is designed to work through incentives. No bank is compelled to take part in that scheme or similar ones, such as the funding for lending scheme, which work through incentives. It is important to consider what the Government can do to make it easier for banks to stay in the MSB sector or to get more active in it. That is the right area to explore to help our constituents.

The Government cannot prevent UK banks from facing supervisory and enforcement action from other jurisdictions. Hon. Members know that this is not just about rules in the UK, because European Union rules, and especially rules in the US, affect many money transfer businesses, because most transfers typically have to be converted into US dollars and therefore touch US soil. What the US authorities think is therefore important.

We are committed to doing our utmost to ensure that remittances continue to flow through secure, legitimate channels. The market is adapting, and remittances are continuing to flow into and out of the UK. Particular concerns have been raised regarding Somalia, as we have heard today. That market, too, is adapting and remittance channels remain open. The supervisors and the Government have been monitoring the situation carefully. We know that all MSBs operating in the Somali corridor prior to the decision by Barclays continue to do so, with a number still having bank accounts. Although individual MSBs may be finding trading conditions more difficult, remitters can still service a wide range of customers in the UK and different areas in Somalia. Additionally, many MSBs across a range of corridors are becoming agents of other MSBs, and discussions have been held with various MSB communities on using cash couriers in a manner that is secure and compliant with legal requirements for the cross-border movement of cash.

We must ensure that our constituents are aware of the options available to help them to continue to make remittances. Since the previous debate on the matter in this Chamber, the Government have engaged directly with the Somali community on these options.

Since the previous time I addressed hon. Members on this issue, I have made a written ministerial statement setting out the cross-government effort to find solutions, which included an action plan to secure the continued flow of remittances. The plan includes steps to improve trust in the UK remittance market by the formal banking sector, for example, through building the capacity of money service businesses and providing guidance on the banking of such businesses. It also outlined the creation of an independent action group on cross-border remittances. Through this group, officials from across the Government are working closely with regulators and the private sector to facilitate a sustainable market-based solution. The first full meeting of the group is scheduled to take place next Friday—31 January. I am pleased to announce today that Sir Brian Pomeroy will chair the group. Sir Brian has extensive experience in this field, as the founding chairman of the Payments Council and the previous chair of the Treasury’s financial inclusion taskforce, and through his work with the Alliance for Financial Inclusion.

[John McDonnell]

Fauzia Adan, a former constituent of mine, is now Deputy Prime Minister and Foreign Affairs Minister of Somalia. I am not sure whether there has been full dialogue with the Somalia Government regarding their representation on this group. Has a representative been nominated?

[Sajid Javid]

I cannot tell the hon. Gentleman specifically whether a representative was nominated or if there will be one in the group, but I can certainly look into that and get back to him. I can confirm that we are working with the Somalia Government, through the Foreign and Commonwealth Office, on this issue overall.

The Somalia-focused working group may be of particular interest to many hon. Members in the Chamber. The group has been tasked with developing a safer corridor pilot to ensure secure remittance channels to Somalia. The group will work with the World Bank, which will provide technical expertise, and the pilot will aim to improve the security, transparency and oversight of this existing remittance channel. The Department for International Development has held consultations to identify appropriate representatives for the working group on the safe corridor. International partners, including the World Bank, the G20 and the international strategic alliance on law enforcement, are also supporting this work.

The group working on the pilot has agreed its final terms of reference, through consultation with stakeholders, and these will be presented to the action group next week. The Somalia-focused group, working with its partners, including the World Bank and others, believes that there is a one-year implementation for the pilot project.

Before I conclude, I want to make sure that I have answered questions raised by hon. Members, if I have not answered them already. The hon. Member for Cardiff West asked about international engagement. I hope that I have given him some insight into that, regarding our working with the G20, the World Bank and other international partners. We are also working through the EU. The hon. Gentleman knows that a payment services directive exists, but a second payment services directive is being negotiated with EU partners. We have taken a strong interest in that to ensure that whatever comes out of it does not make this situation any more difficult, but helps to improve it by encouraging the development of rules to deal with money laundering and our other natural concerns that are proportionate and do not make the situation difficult for banks throughout the EU. We have to keep in mind that Britain has, I think, more money service businesses than any other European country, so that is another important aspect of our international engagement.

Several hon. Members asked how well Government co-ordination is working. We have a steering group at Government level, of which the Treasury is part, which meets every single week. As well as the Treasury, the group involves the Cabinet Office, the Foreign and Commonwealth Office, the National Crime Agency, which provides information from our intelligence agencies that we think might help, Her Majesty’s Revenue and Customs, the Financial Conduct Authority and the Department for International Development. The Treasury is a core part of that group, which has proved important in ensuring that we stay on top of the issue and treat it with the urgency that it deserves.

Pub Companies

John McDonnell Excerpts

Tuesday 21st January 2014 Commons Chamber

[Andrew Griffiths]

As a young boy, I was more or less brought up in a working men’s club. I went to it every weekend. I recognise the importance of our working men’s clubs, and I know that a situation arose whereby clubs were in hock to the brewers. What we must bear in mind is that this is intervention in the marketplace that we would see nowhere else in business.

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

The hon. Gentleman is advancing a coherent argument, but surely he does not oppose the introduction of an adjudicator. We have done that in other contexts, such as supermarkets.

[Andrew Griffiths]

I am certainly open to the idea of an adjudicator. My question is, who pays? It is estimated that the administration of an adjudicator could cost £1 million, which is a huge amount of money to take out of the beer and pub economy. Who is going to pay for what could be described as just another piece of red tape and Government regulation?

I genuinely ask the Minister why she would want to sit in judgment on rent disputes or other commercial or contractual disputes between two businesses, especially when effective mechanisms are already in place that are unique to the pub sector, independent and funded by the industry. I ask her to consider carefully the Office of Fair Trading’s report to the consultation. It clearly expressed the view that the tie is not distorting the market, and states that the proposed intervention could result in a breakdown in economies of scale, leading to an increase in rents and prices that would affect tenants and consumers. I also urge the Minister to consider the report from London Economics, which her own Department requested. It suggests that more than 2,400 pubs could close as a direct result of the proposed intervention in the market.

The reality is that many pub companies are nursing pubs because they cannot find a tenant or buyer for them. The proposed economic model would mean that those companies would have to free themselves of those pubs, which could lead to thousands of pubs closing in a very short time. I ask the Minister: why regulate? Is there a consumer issue involved? Not according to the Office of Fair Trading. Would regulation help the smaller brewers? Certainly not, according to the Society of Independent Brewers. That organisation represents the micro-breweries. We have heard people rejoicing today that those breweries have flourished and blossomed. There are now 1,000 micro-breweries operating in this country as a result of the progressive beer duty introduced by the previous Government—I commend them for that—so why would we want to interfere in the market, given that those brewers have clearly stated that to do so would prevent their access to the market?

National Minimum Wage

John McDonnell Excerpts

Wednesday 15th January 2014 Commons Chamber

[Vince Cable]

The rise to £20,000 is a fourfold increase. However, the big difference is in applying that fine per worker rather than per company. That is a considerable escalation of the penalties. I hope that we will have the support of Opposition Members in voting that through.

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

Is not the difference between this country and the countries cited by the right hon. Gentleman that they still have vibrant trade union rights and are not condemned annually by the International Labour Organisation, as this country is, for undermining trade union rights?

[Vince Cable]

Those countries have had a variety of Governments, both left-wing and right-wing. I was simply making the point that it is possible to have a perfectly viable system without a national minimum wage. I agree with the hon. Gentleman that in practice what is needed is either a strong system of trade union rights or a national minimum wage. We have now all accepted that the national minimum wage is the best system. I think all the minority parties accept that, too.

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

Let me use the last few minutes of the debate to identify some cases, as my comrades have done. We have been asked to name and shame, so let us do that. We have been campaigning in the maritime sector for a national minimum wage for a long time. To be frank, people were disappointed at developments under the last Government, but we did secure a working party between the National Union of Rail, Maritime and Transport Workers, Nautilus and the Department, which produced a redefinition of the national minimum wage qualifications for seafarers. It was done on the basis of the individual’s connection with the country and so forth, and we felt that it was a breakthrough, but it is not being enforced.

Let me provide an example. The most notable exception that we found involved the lifeline passenger freight ferry routes from Portsmouth, Poole and Weymouth to the Channel Islands. They are operated by Condor Ferries, which employs seafarers from outside the European economic area who are paid £2.35 an hour. Despite frequent protests against the pay discrimination by the RMT, the HMRC enforcement team has taken no action, and is not enforcing the Government’s own policy. I agree with the Public and Commercial Services Union that that is because there are so few staff and they are not given enough powers or resources. That firm is a disgrace. We have raised the issue time and again, but we have been completely ignored, and enforcement action is now necessary.

In 2012, we pointed out that Streamline Shipping was operating a freight service from Aberdeen to the Shetland Islands and exploiting the Government’s lax national minimum wage and Equality Act 2010 regulations to employ Filipino workers and pay them half the minimum wage. We want all workers, whatever their nationality, to be paid a decent wage.

Another scam has been referred to by my hon. Friends. The cost of accommodation is now being deducted from seafarers’ wages. The sum deducted is currently £4.91 per day, or £34.73 per week. On most ships that sail from our ports, seamen work two weeks on, two weeks off, so that amounts to a deduction of some £70. That is extraordinary. Do the seamen clock off and go home on their own boats? Are dinghies attached to the boats? It is ridiculous, and it is yet another way of undermining pay in the sector.

Finally, let me take up what was said by my hon. Friend the Member for North Tyneside (Mrs Glindon) about apprentices’ pay. Along with the UK Chamber of Shipping, the employers and the unions—the RMT and Nautilus—we have embarked on a drive to get young people back on to British ships as ratings. They can train with a grant, and subsequently rise to officer level. We are trying to encourage people to learn the skills of British seafaring so that we can maintain the industry itself. Our efforts are not helped by some recruitment practices, but at least we have a campaign going. Paying people £2.68 an hour, even when they are apprentices, is not acceptable. In the last few years, the apprenticeship rate has gone up by 18p. That is a derisory amount, and I do not think that it can serve as an incentive for our young people.

We want the national minimum wage regulations to be reviewed again. Following a campaign by us, they were reviewed, and we were told that the minimum wage would apply in British waters, but the Government then redefined the concept of British waters, which became a narrow channel consisting basically of the Norfolk Broads. That was about it. As a result, employers were able to pay below the minimum wage, and also to avoid some elements of the Equality Act. That is unacceptable in this day and age. I urge the Government at least to consider enforcement against that company, so that we can use it as an example to make clear to other shipowners that we will not tolerate any more poverty pay on British ships.

Autumn Statement

John McDonnell Excerpts

Thursday 5th December 2013 Commons Chamber

[Mr Osborne]

I want to return the compliment that my hon. Friend has paid me. He has been an outstanding Member of Parliament. His jobs clubs have helped many young people and his offer of work experience is helping people to get on the jobs ladder. The rail measures that we have announced today will help his constituents in Watford. He is right that for Watford, a Labour Government would mean higher unemployment, higher mortgage rates, more borrowing and more debt. That would put Watford and the rest of the country back into the economic mess we are taking them out of.

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

Whatever one’s view of the past, there are worrying signs that the bonus culture is returning to the City, with large payouts, share distributions and high dividend payments disguising what were formerly bonuses. Will the Chancellor of the Exchequer make it clear that the Government stand ready to introduce further measures to control the bonus culture? I believe that they would have the support of the whole House in doing so.

Public Service Pensions Bill

John McDonnell Excerpts

Monday 22nd April 2013 Commons Chamber

[Sajid Javid]

I am very comfortable that the Government are doing the right thing by resisting the amendments. As the debate progresses, I hope that more hon. Members will be persuaded that we have taken the right approach to this complex issue. I shall explain further as the debate progresses.

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

Will the Minister explain the nature of the offer? I just want to know what the process will involve, following consultation. Will it require primary legislation, or will it be dealt with through delegated legislation? How will it be implemented? What sort of time scale is he considering?

[Sajid Javid]

The hon. Gentleman is asking those questions for all the right reasons. I still have a few more minutes in which to set out the Government’s case, and I hope that I shall answer them in the process. If anything remains unclear, however, I hope that he will come back to me. I will be happy to add to the information that I am giving the House.

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[Sir Bob Russell]

I am extremely grateful to my right hon. Friend. When I referred to the unintended consequences, I was not expecting a detailed exposé of what one of them would be.

With some reluctance, I am taking the Minister at his word about the unintended consequences, and I urge the House to do the same. I take on board everything that Lord Hutton has said subsequently about his not being aware of the issue. Trusting the Minister, I think that our MOD firefighters and police officers could conceivably end up better off. I repeat my basic point, however, because the MOD needs to move quickly to reassure the nation about our military depots and nuclear installations. I have seen Faslane at first hand, and we do not want a Dad’s Army—people my age—defending our nuclear installations or trying to put out fires in military establishments.

[John McDonnell]

I welcome the new enthusiasm on both sides of the House for negotiating with trade unions. We have seen 18 months of industrial action followed by the imposition of a pensions settlement on a large number of civil service workers. I therefore welcome this enthusiasm for negotiating the issue out.

The Government’s policy on pensions was twofold: they wanted to bring together a consistent retirement age across the services, while, as part of public service reform, ensuring a process of modernisation, with retirement schemes reflecting the requirements of service delivery. From what we have received today, I think we are reintroducing an element of chaos into the retirement age. Far from ensuring consistency, we seem to be building anomaly upon anomaly. Far from pragmatically reflecting the reality of delivering a service, we are about to undermine another service.

On delivery, we should learn the lessons of 2007. I did not support the increase in the retirement age for firefighters in 2007, just as I have not supported this legislation. The lesson that the Fire Brigades Union taught us was that once we increase the retirement age in such a physically demanding job, apart from having a physical effect on those workers and their lives—and on their families, too—we do not save money, because people take ill-health retirement, as others have said. At the end of the day, this is not part of a modernisation process; it is a step backwards.

The other issue raised was consistency—this argument that there will be consistency across the uniformed services. However, that was never the case anyway, because we argued for the Prison Service and uniformed services in the health service to be included, but they were excluded. The issue of consistency is drawn even more sharply by the exclusion of the group of staff we are discussing in this debate, who are clearly part of a uniformed service. They are being discriminated against purely on the basis of who employs them. Firefighters who are employed by local government via a fire authority are within the scheme at age 60, whereas those employed by these other bodies are not. That is not just policy making on the hoof; to be frank, it is incompetent policy making.

As for the disbenefits, when a general agreement is taken into legislation in this way there is always the facility for the employer and others to adjust contribution rates, albeit as part of a negotiated settlement, but we usually legislate and then iron out the detail of the contribution rates, with the matter usually being resolved through an adjustment of the employer’s contribution.

Let me turn finally to the process. The Minister helpfully tried to respond, but there was insufficient detail. If there is to be negotiation on this issue, we need at least a commitment about the time scale. There has to be a limited time scale, over the next three months, in which we can resolve these anomalies and give this group of workers some security, because the current insecurity is causing concern.

[Chris Leslie]

My hon. Friend is spot on. We need that time frame, but do we not also need a commitment from the Minister today that the age of 60—this is the equality issue—is, at the very least, a possibility that is on the table? So far we have not had that.

[John McDonnell]

Today we have at least set out the parameters of what the negotiations will be. The age of 60 has to be No. 1 on the agenda, followed by ironing out other anomalies. The second issue is the point I raised in an intervention on the Minister. We have to have a clear definition of the legislative process by which the negotiated settlement will be speedily agreed through the House. Will it be tacked on to other primary legislation or might there be a speedy regulation change that enables us to implement the process?

[Simon Hughes]

I, too, pay tribute to the hon. Gentleman for the work he has done. I share his view that it would be helpful if the Minister indicated in the winding-up speech that there will be a fixed timetable for concluding the process and that the age change from 65 to 60 would be on the agenda. If he can do that, I think that realistically, given that we are at the beginning of this financial year, that would be acceptable. I have not cleared that with the unions, but we need something that gives some parameters and the Minister would carry us with him if he set them.

[John McDonnell]

To go back a bit, I would also like some clarity about the legislative process. The time scale for negotiations can be set and the agenda for those negotiations clarified; my anxiety is that if we do not have a commitment on the time scale for legislation, the issue could be kicked into the long grass or even further. That would be seen by the workers as an act of bad faith unless a clear timetable was also given for the legislative process.

[Simon Hughes]

I have one quick thought—I am trying to be helpful. In every year there is inevitably a Finance Bill. This is a Treasury matter and could therefore be covered in the new Session by the Finance Bill.

[John McDonnell]

That is all I am asking for: clarity of process and time scale. It would be extremely helpful, as an act of good will and good faith, for the Minister to take back a reference to this matter in the Queen’s Speech. That would indicate to those involved that the Government attach a priority to ironing out what has been accepted as an anomaly. It is one that might affect only a relatively small number, but it does so critically and in a critical service, as others have said.

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[Mr Anderson]

rose—

[John McDonnell]

rose—

[Sajid Javid]

I give way first to the hon. Member for Blaydon.

[Sajid Javid]

I shall now give way to the hon. Member for Hayes and Harlington.

[John McDonnell]

I did not make a mistake: I opposed the lot.

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The MOD has already fired the starting gun for those discussions, and has written to the members of the forces the legislation might affect. I am glad that process has started.

[John McDonnell]

When the legislation leaves this House and goes back to the other place, could the Minister write to us explicitly about the generality of the Bill—about its being a framework Bill? It seems curious that a framework Bill lists a number of categories of worker whose retirement age will be at 60. That is why many people felt they needed to be included in that list if they were to be protected. It seems odd that the Minister is now saying, “Don’t worry because it is a general framework Bill.”

[Sajid Javid]

The Government have been very clear that one of the purposes of the Bill is to deal with increasing life expectancy and longevity. That is why retirement ages are increasing for almost all public sector workers, and there is a link to the state pension age. The Government must address the issue; it was something the previous Government ducked, but it is vital for making the public finances more secure. That situation has not changed. What I am outlining today, with regard to the issue relating to MOD firefighters and police officers, is that there is flexibility within the MOD scheme for it to come up with a different arrangement. The MOD has agreed to look into that. It has not made any decisions, but I am sure that it will look very carefully indeed at the issue.

Finance (No. 2) Bill

John McDonnell Excerpts

Wednesday 17th April 2013 Commons Chamber

[Mr Gauke]

The “double reasonableness” test was the one we came to after the lengthy process following the Aaronson review. We believe that it focuses attention on aggressive, abusive tax avoidance. Let me be clear: this is an additional tool that HMRC can use; it does not necessarily mean that for those outside the GAAR, everything is fine. I want to make it explicitly clear that that is not what we are saying. There is avoidance that will not fall within the GAAR, but which HMRC would none the less take action against.

The panel will be broad-based, but I see nothing wrong whatsoever in its having commercial expertise to provide reassurance and ensure that the GAAR will not be abused in the way that some Members have expressed concern about this evening, with too much power being placed in the hands of a part of the Executive. It will be broad-based, in just the way the interim panel has been.

The GAAR does not override UK tax treaties. Given the lack of time, I will not go into further detail, but it acts in much the same way as GAARs do for other countries that respect OECD and UN model tax treaties.

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

Will the Minister give way?

[Mr Gauke]

I will, because the hon. Gentleman has been here for much of the debate.

[John McDonnell]

The Minister said that there will be a review of the penalties. When, and will it look at criminal activity as well?

[Mr Gauke]

Let me deal with that in the context of amendment 8, which looks at the general issue of post-implementation evaluation and seeks to establish a review within two years of Royal Assent. We and HMRC have made it clear that we will manage and monitor the GAAR’s operation centrally, so that all cases and potential cases will be scrutinised and recorded. The deterrent effect, which we will see immediately, will be important, but we must also remember the issues of getting the tax returns in and being able to make a full assessment of the implications. We believe that a two-year period would not be practical for a general evaluation. It will take longer properly to evaluate how the GAAR is working, just because of how our tax system operates, so I will not accept amendment 8.

Amendments 3, 6 and 7, which deal with tax avoidance by multinationals and the impact on developing countries, raise a number of important points. The hon. Member for Birmingham, Selly Oak (Steve McCabe) wanted me to set out the Government’s objectives for the G8. I am sorry that I am not in a position to do that this evening; it will be left to the Prime Minister, who will make the UK Government’s position very clear.

The point about transparency is important and the Government have a good record of encouraging transparency in a number of areas, particularly among extractive industries through the extractive industries transparency initiative. We play a leading role internationally through the global forum. We ensure that jurisdictions comply with the international standard on tax transparency and work with the G20 to maintain pressure on non-co-operative jurisdictions. We have been making a lot of progress in the Crown dependencies, particularly as regards the exchange of information, and in ensuring that the US Foreign Account Tax Compliance Act, or FATCA, arrangements on the exchange of information become the international norm. I can assure the Committee that that will continue to be a key part of what we do and part of our G8 agenda.

Amendment 6 asks the Government to require UK companies to report their use of tax-avoidance schemes that affect developing countries and for HMRC to notify those countries and assist them in recovering the tax owed. Amendment 7 asks the Government to carry out an impact assessment on the effect of the changes to the controlled foreign companies, or CFC, rules on developing countries’ tax revenues. The answer to both points is that as a matter of practicality it is difficult for HMRC to perform the roles required by the amendments as they require assessments not of our tax rules but of the tax rules of developing countries. That takes us outside what HMRC can realistically do. The point was raised that amendment 7 largely repeats the debate we had during last year’s Finance Bill, when a similar, if not identical, amendment was tabled. I refer hon. Members to the speech I gave a year or so ago, in which I stated that simply as a matter of practicality that is not something that HMRC can do.

On amendments 11 and 12, tabled by my hon. Friend the Member for Amber Valley, I do not believe that a de minimis rule would be appropriate as regards the general anti-abuse rule as it would miss the point. We do not want anyone involved in abusive schemes to make use of them, and even if only £100,000 was at stake as a de minimis, that could have a significant effect on a number of people. We believe that that would be unfair.

As I said at the outset, I believe that the general anti-abuse rule is a major new development. It sends a message to those who persist with abusive avoidance schemes that even if they try to dance around the tax law, they will face the tough but plain question, “Is it reasonable?” That is a question that we all understand. Those who think about using the schemes will all understand it and, I hope, those who create the schemes will come to understand it. The GAAR will ensure that the time for their clever games, paid at the expense of the tax-paying public, is at an end. I therefore recommend that clauses 203 to 212 and schedule 41 stand part of the Bill.

Financial Services (Banking Reform) Bill

John McDonnell Excerpts

Monday 11th March 2013 Commons Chamber

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

Thank you, Mr Deputy Speaker. Does that mean that I have an hour and a half?

[Mr Deputy Speaker (Mr Nigel Evans)]

You should be so lucky.

[John McDonnell]

I most probably will not even take 10 minutes.

I am very pleased that the plane of the hon. Member for Caithness, Sutherland and Easter Ross (John Thurso) did come in, because he always makes complex issues simple and entertaining. There is a consensus in the House around regulation as the approach to take towards resolving the banking crisis and ensuring that, if we do not prevent a future crisis, we at least stave it off for, as the hon. Gentleman suggested, possibly another 70 years. The degree of positioning is around Glass-Steagall-type full separation, a ring fence, and then, as he said, the novelty of an electrified ring fence. There must be different power levels of electricity on this ring fence, as well.

I stand outside that debate, because I do not think that regulation will work. I was the first Member to raise the issue of Northern Rock in this House. At that time, I completely underestimated what Northern Rock was up to. I thought that it was all about an offshore tax scam that was part of its link with the organisation that it called Granite; I had no idea of the scale of the problem that would be unravelled. I can remember the then Chief Secretary to the Treasury, I think, leaving the Chamber after I had talked about Northern Rock, to obtain a briefing about what I was talking about. I realised that what I was talking about was a crisis that was being created in the City by greed, primarily, and by speculation and casino banking. I remember being at the Labour party conference in the 1980s, around the time of big bang, and organising the launch of a book called “Big bang: the launch of a casino economy”, authored by the then Member for Hackney and my hon. Friend the Member for Bolsover (Mr Skinner), which predicted some of the outrageous potential that there was for speculation as a result of big bang.

When I raised Northern Rock, I completely underestimated the levels of casino banking and the corruption that was taking place. In the previous debate a few weeks ago, I described the City as a “cesspool of corruption”, which it was. However, what was also revealed was the absolute incompetence. It was like “The Wizard of Oz”—when the curtain was pulled back, there was not a wizard but someone scrambling with various levers. We discovered then that the hierarchy of British banking did not even understand the instruments with which they were working because they were so complex. Then it all started to unravel, and we discovered scales of greed, incompetence and corruption that none of us expected.

At that time, we were assured that the regulatory system was not at fault, but we soon discovered how inoperable it was. The result, as we all know, is that the then Government intervened to borrow and they used taxpayers’ money to bail out the system. At its peak, taxpayers’ exposure to the bank collapse was on the scale of £1.2 trillion. I understand that so far we have retrieved only £14 billion of that taxpayers’ money. The second wave was the austerity programme introduced to pay for the Government intervention to save the banking system. Mervyn King estimated the cost of that to be £1 trillion. Anthony Haldane, who is probably more accurate in his assessment, estimates that we have lost the equivalent of between one and five years’ GDP. Those absolutely staggering sums are the result of a crisis brought about by incompetence and greed. The majority of people are 7% poorer than in 2007, and their living standards have fallen, according to the latest estimate, by 13.2% since 2008. The median household income in 2015-16 will be the equivalent of that in 2002-03. These are the implications of what this wealth of greed brought about: mass unemployment, welfare benefit cuts, food banks, and parents missing meals so that children can eat. It is absolutely staggering.

I find it extremely difficult to come to terms with an issue that was raised by my right hon. Friend the Member for Holborn and St Pancras (Frank Dobson). Since the crisis occurred—since I first stood up in this House and mentioned Northern Rock—and we went on to the nationalisation of banks, and then to quantitative easing on a scale that we had never seen before or could even comprehend, the scandalous practices have not gone away: they have continued. As my right hon. Friend said, the bonuses have continued, fraud has continued, LIBOR interest rate fixing has been investigated, and we have seen tax evasion and money laundering. This is happening even when the bankers are in full public sight. At a time when the eyes of the country are on them, they are still manipulating the system.

I find it astounding—I have raised this in the House three times, and 10 days ago I received a letter from the Minister about it—that when quantitative easing was introduced, we discovered through press reports that bankers even then sought to profiteer from it. The letter from the Minister confirmed that at one point the Bank of England had to intervene and withdraw from the market because there were suspicions of price fixing and manipulation of the market during quantitative easing.

[Kelvin Hopkins]

I am very interested in and admire what my hon. Friend is saying. There is a suggestion that the recent surge in share prices is simply the effect of quantitative easing and that it bears no relation to what is happening in the real economy.

[John McDonnell]

Exactly. I accept that point, but the relatively simple point that I am trying to make is that a group of people who have, in effect, been caught with their hands in the till are trying to use the money that has been used to bail them out to profiteer at the taxpayers’ expense. That is staggering and it says to me that regulation will not work with these institutions. Even when they are absolutely shamed, subject to public opprobrium and under the acute gaze of the public eye, they still try to profiteer.

[Steve Baker]

This is the point that I have been trying to make. Every time the state sets up these dreadful institutions, people are able to profiteer. If we tell people that we are creating new money out of nothing and giving it to them in exchange for Government bonds, of course they will seek to make a profit. The thing to do is to make sure that they have institutions within which they can make a profit justly.

[John McDonnell]

There is another route and I will come on to it. The hon. Gentleman and I agree about the problem, but there is another solution. As he has said, regulation does not work with these institutions or the motivation to profiteer. I do not think that the new regulatory system—whether it be subject to a ring fence, an electrified ring fence or leverage ratios—will work. The reality is that as long as the banks are in private hands and have profit as their motive, they will aim to get around a regulatory system. The hon. Gentleman has mentioned how they will dig under and go around the fence. Like a chicken finding its way into the coop, they will always find a way. The regulatory regime proposed by the Bill is complex and, to be frank, virtually unenforceable. I think it will be almost impossible to execute the attempt to impose a firewall, as the Good Banking Forum concluded recently.

I agree with the hon. Member for Caithness, Sutherland and Easter Ross that we need to revisit the question of what role banks should play and what people want. I think that people and society want and need banks in which they can safely deposit their money and savings and which lend responsibly and provide credit to finance investment growth across the country. That is not what this Bill will secure and it is certainly not what is happening at the moment. The larger banks have an estimated £6 trillion at their disposal, but just £200 billion —3% of the overall total—is used to fund investment in this country’s industry. I do not think that a system of honest, responsible banking or long-term investment is deep in the culture. That may well have occurred at the earliest stages of capitalism but, many crises of capitalism later, we should have learned the lesson that this system is not working.

I believe that the only way to secure probity and to ensure that people’s funds are safe and secure and that we can invest in our economy in the long-term to create jobs is through a publicly owned and democratically controlled banking system. Of course, we own banks at the moment—we nationalised them. After Northern Rock, I remember standing up in the House to urge the then Chancellor of the Exchequer, my right hon. Friend the Member for Edinburgh South West (Mr Darling), to nationalise the banks. The next day he said that he had nationalised three of them. I told him that I had been right and he said, “Well, you were bound to be right at least once in 30 years.” We nationalised those banks, but we have no control over them. They are not democratically accountable to Government, workers, investors or the wider community. That is why they are not investing and why people cannot secure loans.

We should take full ownership of the larger banks. We already own Northern Rock, RBS and Bradford & Bingley and a large part of Lloyds. We should take public ownership and control of the UK-based operations of Santander, Barclays and HSBC, and we should create a unitary industry. That would enable us to control investment, secure savings, stop the paying out of large bonuses and ensure that any surpluses are returned to the public by investing in the public good. That is secure and safe banking, which is what I thought was the House’s objective.

What would full nationalisation cost? An excellent piece of work for the Fire Brigades Union by Michael Roberts and Mick Brooks, which was published and launched in this House only a week ago, estimates that it would cost £55 billion at current market rates. That is 3% of GDP. We could ensure that there would be no need for any cash exchanges and could simply swap shares for bonds, thereby saving the public purse a large amount of money. The Co-operative bank and mutuals would continue to operate as alternatives, as would credit unions, because we have confidence in them as safe and secure banks. We could also—we called on the previous Government to do this—remutualise those banks that transformed themselves from mutuals into limited companies.

In that way, we could achieve the stated objectives of the Bill not through regulation, but through public ownership and control. I do not believe that regulation will work. The system has gone too far and the profit motive has overridden any sense of value or judgment in the City. Unless we take action now, we will be back in a limited number of years to deal with another banking crisis. To be frank, we have not even talked tonight about the shadow banking process, the scale of the transactions that take place within it or how we should deal with it. That is beyond all our controls at the moment.

I will finish by saying who we are taking action for. We are doing it for my constituents, some of whom are threatened with evictions or job losses or are having their welfare benefits or their services cut, all because of an economic crisis that they had nothing to do with. They did not cause it and did not contribute to it. It was caused deep in the financial sector of this country and across the world. My constituents deserve not reform of the banking sector in this country, but an absolute transformation of it, based on public ownership and democratic control.

Financial Services

John McDonnell Excerpts

Wednesday 6th February 2013 Commons Chamber

[Greg Clark]

There are a number of reasons why I think it is achievable. The first is the contribution that regulation can make. As Members have said, it is important to have a more exacting set of regulatory standards that are intolerant of the kinds of abuses that have taken place. Secondly, it is in the commercial and strategic interests of banks to restore the reputation that they used to have for trust. Financial services depend on trust. If people do not trust the banks, they will not do business with them. I think the penny has dropped across the City, and most of the new generation of chief executives understand the connection between their future profitability and performance, and the need to provide decent services to their customers.

The third reason is a matter being investigated by the Treasury Committee and concerns a failure or subversion of the culture of banking. Banking was always associated with high standards of probity; it was a vocation for people who were thought to be of a rather conservative disposition and inclined not to take excessive risks. That was subverted by exposure to some of the practices of recent years, and because that was inadequately regulated it distorted what should be the right culture in the industry. We need to make changes to all three of those areas, and that is precisely what we have done and what we have embarked on for the rest of the Parliament.

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

Following the point made by the hon. Member for Cities of London and Westminster (Mark Field), let me urge the Minister that there can be no drawing a line in the sand and no amnesty given until corruption is rooted out. My constituents now look on the City of London as a fetid swamp of corruption. They see only people forgoing bonuses but no one being imprisoned for the swindles that have taken place. There can be no amnesties at all. Will there be any investigation into allegations—I have raised this point previously—of attempts to manipulate the auctions associated with the quantitative easing exercise undertaken by the previous and current Governments?

[Greg Clark]

I am not aware of those allegations but I will look into them. Any criminal activity in any part of the financial services industry ought to be prosecuted and pursued with the same degree of vigour as in any other walk of life. The hon. Gentleman overstates the case in his reflection of the City. Hundreds of thousands of people work in the City and do a decent job working hard for their clients and businesses up and down the country. They are as outraged as any of us in this House about the damage done to the City’s reputation. The future for us and for our interests is to see that reputation restored and root out the corrupt individuals—corrupt is the word in this case—who have done disproportionate damage to the reputation of a set of institutions that should be one of the prides of this country.

HM Revenue and Customs

John McDonnell Excerpts

Tuesday 5th February 2013 Westminster Hall

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

I am grateful for hon. Members’ attendance this morning at this debate about Her Majesty’s Revenue and Customs and its capacity and resources. Over the past decade or so, tax debates in Westminster Hall have usually been attended by the usual public administration anoraks—a club that I am a member of—or failed accountants who have been elected to the House of Commons, which is even worse. Not any more, however: the recession means that we all take an interest in public expenditure and look at every element of public income. A tax justice campaign is being waged as a result of the recession, and I pay tribute to tax justice campaigners John Christensen and Richard Murphy for their work over the years, as well as to UK Uncut, whose direct action campaign brought the issue to the attention of the public. It is concerned about the scandal of unpaid and uncollected tax. The debate reveals that our system does not work effectively.

There is another scandal associated with our taxation system: not just how much taxation is avoided or evaded, but how badly our tax collection and administration is managed overall—and, to be frank, how it has been mismanaged by politicians over the past few decades. At times, there has been almost catastrophic short-sightedness and incompetence. The genesis of the debate was a lobby by the Public and Commercial Services Union that happened in the past six months, and meetings with members. I chair the PCS parliamentary group, and the union represents 55,000 staff at Her Majesty’s Revenue and Customs. There have been many meetings with Members, and meetings in constituencies, to express the overwhelming sense of frustration, which has at times verged on anger that, as professionals, staff have been held back from fulfilling their role of ensuring that taxes are collected efficiently.

There is a particular sense of frustration because during the recession HMRC could, through tax collection, make a significant contribution to tackling the economic crisis and, indeed, the overall deficit. Staff feel that they are being held back professionally, and undermined by cuts: staffing cuts, office closures, deteriorating work conditions resulting in low morale, and the lack of appropriate professional and legislative tools to do the job. Time and again the view has been expressed that more and more policy changes load responsibilities on to them—more work for an overstretched and overburdened work force. The expression used by many of the staff is that they have been set up to fail—in some instances so that their jobs can be privatised. I want to explore the current situation in HMRC and consider the remedies that are needed. The Government need to stand back at this point, and consider staffing resources and the challenges that staff face.

What is the job? It dates back to the time of Chaucer, the earliest famous tax collector—a putative PCS shop steward. It is simply to collect taxes. The Institute of Chartered Accountants in England and Wales circulated an excellent brief before the debate, and summed it up. HMRC simply makes the tax system work: that is what it is meant to do, but the reality is that it struggles to do so. We know that from the evidence that is available to us. If the main role of HMRC is to collect the taxes, it is clear from the recent evidence that it has not the resources and legislative tools to do so. That is clear from the evidence of the tax gap—we have debated the tax gap at length in this Chamber and I appreciate that there are disputes about using it as an overall assessment of performance, and about the overall level of the tax gap itself, but we know that the range is anything from the £70 billion to £120 billion estimated by Tax Research UK, under Richard Murphy, and the HMRC’s and the Minister’s estimate of between £30 billion and £40 billion a year. In other words, even on the Government’s own assessment, half the current deficit is not being collected in taxes, because of tax avoidance and evasion.

The scale of tax avoidance and evasion has caused anger throughout our communities. It is not only the tax justice campaigns and the media that have been railing against them—so have the Government. In December the Chancellor said that people are “right to be angry” about companies not paying their fair share of the tax, and I fully agree with him. The Secretary of State for Business, Innovation and Skills said in November that it was “completely unacceptable” that companies could get away with what he described as gaming the system, to avoid tax, and referred to “appalling stories of abuse” within the tax system.

Last week, the Public Accounts Committee, which has been consistently complimented on its excellent role, under the chairmanship of my right hon. Friend the Member for Barking (Margaret Hodge), tore aside the veil that covered the operation, mainly in secret, of the major accountancy companies of devising, and ruthlessly implementing, large-scale—massive—avoidance schemes described by some as obscene. It is worth repeating the scale of what we have seen, in example after example: Starbucks paying only £8.5 million in corporation tax since it was launched here in 1998, despite £3 billion of sales; Google paying £6 million in tax last year on a turnover of £395 million; Apple paying £14.5 million in tax on £1 billion of sales. Numerous other examples have been highlighted by the PAC and others in the investigations of the past year.

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

The hon. Gentleman has listed a range of selective statistics, but he is well aware that tax is paid on profits, not turnover. Part and parcel of sales is VAT, so taxes other than corporation tax are involved. Does he think that a big danger in the debate is the intermingling of the sense of tax evasion, which is absolutely illegal, with tax avoidance? Not only is tax avoidance legal, but it is bizarre for politicians in government to rail about it, as they have it within their power to change the law to remove loopholes.

[John McDonnell]

That is an excellent point, which goes to the heart of the debate, because I agree with the Prime Minister that much of what is happening is morally repugnant, but the onus is on us to ensure that the system works effectively in relation to tax evasion and avoidance, and other matters, so that we serve the community that elected us well and so that HMRC does its basic job of collecting taxes. That means giving it sufficient staff and the right resources, so that they can do the job.

[David Simpson (Upper Bann) (DUP)]

I congratulate the hon. Gentleman on obtaining the debate. Does he agree that a simpler form of tax collection is needed, in relation to administration? I understand that the UK is second to India for paperwork. Does he also agree that HMRC needs to make a radical change to its approach to tax collection in Northern Ireland? We have a major problem with fuel smuggling. More than £200 million should be going to the Exchequer and is not.

[John McDonnell]

That excellent point about simplification of our taxation system, and focusing on priorities, is made time and again, and I fully agree. We shall return to it, and perhaps new measures that the Government are presenting this year will help. However, there is no use in our introducing measures or making policy demands without the staffing resources and professionals to implement them.

Last week’s PAC interrogation of the big four accountancy firms revealed the scale of the resources that they plough into advising their clients—the big corporations, and the wealthy—on how to avoid tax. Private sector accountancy firms, including many of the banks—it is not just the big four, but some banks and other financial advisers—have a long history of devising ingenious tax avoidance schemes on what I believe the Minister once described, with reference to a scheme that Barclays Bank once operated, as an industrial scale. Schemes to enable companies to avoid tax have been operated on such a scale. It has been going on for at least the past two decades.

Although the big accountancy firms, along with banks and financial advisers, have been investing in staff recruitment and training on a scale that has produced this massive base of tax avoidance opportunities for companies, there have been massive staff cuts in HMRC and the department feels, therefore, that it has one hand tied behind its back when trying to confront the issue.

[Sir Peter Bottomley (Worthing West) (Con)]

The greater part of the hon. Gentleman’s speech is obviously about the collection service and HMRC’s resources, but as he has talked about some of the bigger companies and the accountancy firms, does he agree that it is right to consider whether each company should state on the front of its annual accounts its turnover, surplus, calculated profit, and tax paid other than on staff wages and national insurance? That would bring things out in the open, and directors might ask themselves, “Is this justifiable?” let alone lawful.

[John McDonnell]

That is an excellent proposal. The hon. Gentleman has hit the nail on the head regarding transparency and openness. It is not only the directors; the shareholders have a responsibility as well. The veil of secrecy over tax avoidance, and the advice given on it, undermines the opportunity for shareholders to hold directors and companies to account. Many shareholders are institutional ones, and they have a commitment to their companies behaving morally as well as legally.

It is not just avoidance though. On January 7, I read —in The Daily Telegraph, so it must be true:

“Tax fraud has reached its highest level since the onset of the financial crisis, as VAT evasion has exploded, costing Britain more than £3bn a year…The size of the so-called ‘VAT gap’ due to fraud, the difference between the amount of tax HMRC expects to receive and what it actually collects, is reckoned to have reached £3.3bn, or enough to fund a 1p reduction in the tax of every UK taxpayer.”

So it is not just evasion and avoidance; it is VAT fraud as well. It is no wonder there are problems. I again quote from The Daily Telegraph—I am going to have to give up reading it:

“taxman embroiled in 20,000 tribunal cases”.

According to the article, HMRC estimates that because of the lack of staff the backlog of cases will take “38 years to clear.” That is how bad it has got.

The Institute of Chartered Accountants briefing states simply that, in the view of independent accountants, the system is not working. Why not? One reason is the scale of the cuts. HMRC has been charged with finding a 25% reduction in expenditure. I accept that that was under the previous Government, but I was critical then also. Under this Government, it is expected to find another 15%. What does that mean? The Minister and I were involved in a discussion about this in the main Chamber a few weeks ago. That scale of reduction would be startling for any organisation. In 2005, HMRC employed 97,000; by 2015 it is planned that the total staff numbers will be 55,000—almost half the staff cut. Since this Government were elected, 7,000 HMRC jobs have gone. The objective in all this is to save what? Some £1 billion. That makes no economic sense when there is a tax gap—tax that remains uncollected—of, according to Government figures, £40 billion or, according to other people, potentially £120 billion.

To be frank, HMRC is woefully under-resourced to tackle the tax gap, and fraud and evasion, and the view of professionals in the field is that the staff cuts seriously hinder the department’s effectiveness. The Government have claimed that they have recently overseen a rise in staff levels, and that is true. There have been some additional staff, and I congratulate the Minister on that. Overall, however, staff numbers have dropped by 7,000 since the Government were elected.

[John Mann (Bassetlaw) (Lab)]

Does my hon. Friend accept that it is not just about the numbers of staff but about their morale? Has he read the repeated surveys, over a number of years, that demonstrate that HMRC staff are the most demoralised anywhere in Government?

[John McDonnell]

I will come on to that in due course. The expression that has been used by non-HMRC staff—observers—is that staff morale is “at rock bottom.” That was demonstrated by a recent internal Government survey, which reported that fewer than one in five staff thought that HMRC was well managed. That is how bad it has got.

I want to get back to the important issue of staff numbers. The Minister claimed in a previous debate that there had been an increase in the numbers of tax inspectors, with 100 new ones having been or being recruited, but that fails to appreciate the role of other front-line staff in dealing with tax inquiries and chasing up payments. Those essential back-room staff, who are not respected in the role they play, seem to be the ones who are vulnerable to losing their jobs. The Government have partially recognised some of the staff resource issues, providing £900 million to secure an extra £7 billion in tax revenue, and announcing a further £77 million in December to expand HMRC’s anti-avoidance and evasion activities, which they predict will secure another £2 billion. That small investment over the coming years will secure a total of £22 billion of additional taxation, demonstrating that investing in the staff and the professionals will have an economic success in tackling the tax collection problems.

Although limited, the additional funding is welcome, but it fails to appreciate the impact of previous job cuts and the threat to staff of another 10,000 jobs going between now and 2015. It is not just PCS members who urge the Government to think again about the cuts; accountants, including the Institute of Chartered Accountants, have expressed their concern in public. One of them described the cuts as happening “wildly”, with little planning, resulting in the loss of highly skilled professional staff.

I urge Members to read the Commons Library briefing note, which cites a number of independent accountants who have gone public with their worries about the impact of staffing cuts on HMRC, including Ken Frost, the accountant blogger, and Mike Warburton. The running theme is that the cuts are causing difficulties and leading to lost experience, and that staff are overwhelmed at a time when more demands are being placed upon them. According to the briefing by the Institute of Chartered Accountants, the recent child benefit changes are predicted to bring an extra 500,000 taxpayers into self-assessment, stretching the already overstretched system.

HMRC staff have expressed their concerns that under-resourcing is leading to mistakes. In an article in the Institute of Chartered Accountants journal, one staff member states:

“The pressure we’re under to hit targets and get post turned round leads to errors because we’re having to do it that fast…The emphasis is placed on getting rid of the stuff whether it’s right or wrong.”

It cannot be right that that is happening in our system. To deal with the work load with fewer staff, HMRC management has introduced a working system based on what have been described as manufacturing principles. The pacesetter system is a rigid, time-limited process with specific targets, which leaves little room for professional judgments, resulting in further errors and failures to resolve problems.

It is not just accountants and other professionals who are complaining about the impact of cuts on services; members of the public, individual taxpayers and small businesses are complaining about the often nightmare problems of accessing HMRC services. The closure of local offices has meant that virtually all contact for some taxpayers is now by telephone.

The National Audit Office reported in December that, in 2011-12, HMRC answered 74% of phone calls. The NAO acknowledges that, despite exceeding an interim target of 58%, the level of service is low. For example, 20 million calls, including calls where customers rang back because they did not get through the first time, were not answered. Customers who got through to HMRC in 2011-12 had to wait on average 282 seconds to speak to an adviser. Between April and September 2011, 6.5 million customers waited more than 10 minutes to have their call answered. Depending on the tariff they pay their phone company, customers are charged from when their call is connected, even if they are held in a queue. The NAO estimates that being in a queue cost customers £33 million in call charges; the estimated value of customers’ time while they were in a queue is £103 million, which cannot be right.

I am pleased that the Government have announced that, from the end of the summer, people who phone for advice will no longer use the costly 0845 number. They are also setting a new target from April for 80% of people to wait no longer than five minutes to speak to a real person, including recorded messages. I am grateful to the Government, because there have been improvements and HMRC has hired an extra 2,500 staff. Those staff, however, are employed only on temporary contracts, and the union and others feel that the Government need to allow HMRC to employ properly trained, permanent staff who will benefit the organisation, rather than the reactive, quick-fix recruitment policy that many people feel will not bring about sustained improvement in service delivery.

There is anxiety about over-reliance on phone services. The reason for high caller demand and over-reliance on caller services is because 200 local HMRC offices have closed over the past six years, and there are more to follow.

[Mrs Sharon Hodgson (Washington and Sunderland West) (Lab)]

My hon. Friend is right that there are more closures to follow. In my constituency, Weardale house is due to close, and in the neighbouring constituency of Sunderland Central, the closure of Shackleton and Gilbridge houses is under consultation. That is three offices and a number of staff in just one city, and in Sunderland unemployment is 7.5%. Does he agree that that is not only bad for HMRC services but devastating for the local area?

[John McDonnell]

I will use the example of Sunderland, because my hon. Friend has hit on a wider issue than just the impact on staff. HMRC plans to close Gilbridge and Shackleton houses, which are in the centre of Sunderland, and Weardale house next to the Washington Galleries. Some 300 staff from Sunderland and 200 staff from Washington could be moved to Waterside house, which is on an enterprise park outside the centre of town.

PCS asked staff at Gilbridge and Shackleton houses to keep track of their city centre expenditure for two weeks as a sample. They spent more than £22,000 across more than 100 businesses in that particular area. I have details of a survey that I would like to hand to the Minister after the debate, because it demonstrates the financial impact on a town centre of removing that number of staff. To a previous question on the union’s assessment that £600,000 would be lost each year, the Minister’s response was that that will be made up for when the buildings are let. Well, those buildings are not being let; the offices are being closed and not being replaced by firms that recruit and employ the same number of staff with the same spending power in a town centre.

[Mr George Mudie (Leeds East) (Lab)]

Does my hon. Friend agree that closing offices is a false and unfair economy, because it limits the opportunity for face-to-face discussion in settling complex tax matters, which now have to be decided by either calling a call centre, going online or writing?

[John McDonnell]

That is both frustrating for the person who is trying to identify what they should properly pay and counter-productive given the lost revenue to the HMRC.

[John Mann]

Has my hon. Friend considered the disproportionate impact of tax office closures on traditional market towns such as Retford? Where a significant number of staff are moved out and the offices are not re-let, the consequence is that other small businesses, newsagents, cafés and so on get into difficulties because part of their core lunch-time business disappears.

[John McDonnell]

It flies in the face of all the statements by this Government and previous Governments about moving staff out of London into the regions to boost regional economies. We now have a hokey-cokey, with staff being brought in as other staff are taken out. The result is not only instability but, through overall cuts in staff numbers, a depressing effect on local economies, as evidenced across the country where there have been closures.

The offices set to close by 2014-15 are: City Gate house in Leicester, where there are 124 staff; Pentland house, Livingston, with 220 staff; Crownhill court, Plymouth, with 76 staff; Wingfield house, Portsmouth, with 510 staff; Merrywalks house, Stroud, with 53 staff; Gilbridge and Shackleton houses, Sunderland, with 213 and 103 staff respectively; Truro with 49 staff; Weardale house, Washington, with 181 staff; Valiant house, Wembley, with 40 staff; and Lingate house, Wigan, with 69 staff. Those are enormous figures within a particular local economy. HMRC has also confirmed plans to shut nine offices in 2013-14 that were threatened with closure in September 2011, including one in Wick in northern Scotland that won a reprieve after a previous union campaign. Those offices are: Norfolk house, Bristol, with 213 staff; Norwich with 72 staff; St John’s house, Poole, with 67 staff; Somerset house, London, with 265 staff; Slough with 101 staff; Stockport with 415 staff; Twickenham with 51 staff; Quorum contact centre, Newcastle, with 647 staff; and Government buildings, Wick, with 17 staff.

More than 100 staff in Stockport have recently been offered voluntary redundancy as the office prepares to close, which means the loss of many staff with many years’ experience of administering the system and delivering customer services. We are losing staff with years of knowledge and experience. That is local knowledge of local tax collection policies and of where the local tax gap may be addressed.

I will not delay the Chamber too long, but I have an example of the contradictory nature of the whole affair, which is the closure of the Wick office. All 15 staff based at the office work in local compliance, or local tax collection. The total cost of commercial rent and staff comes to £494,475—I will offer the Minister my detailed brief afterwards if he so wishes. The total tax yield for the same period is £14 million. Each member of staff is responsible for bringing in close to £1 million in one tax year. The office, which we think has a realistic target of £20 million a year, is to close. To save £500,000, therefore, we lose £20 million as a result of the staff cuts. The Wick staff are all experienced and have used that experience gained over the years to be successful in their work. The loss of 15 jobs in Wick is equivalent, per head of population, to the loss of 17,000 jobs in London. There is a significant impact on the local economy, and that is repeated in area after area. The problem is that local office closures will mean new demands on call centres.

The transition to universal credit will bring added problems. The Government expect 80% of universal credit claimants to use online services, but it is likely that many of those people will not have internet access. In the absence of local offices, the next port of call will be the telephone service, on which the cost burden will fall ever more greatly as people are called on to fill out more detailed information in order to access benefits such as tax credits and employment and support allowance. That demonstrates the digital divide in our country and the divide between those who can access a local office and those who cannot. That is worrying.

My hon. Friend the Member for Bassetlaw (John Mann) mentioned staff morale. Any manager would say that an organisation that deals with the general public, provides a public service and works in such a complex field needs committed, dedicated, well-trained and professional staff, which HMRC has built up over the years, and which both the Inland Revenue and Customs and Excise had before HMRC was formed from their merger. I still believe that HMRC staff want to work in an organisation that values them for that.

I warn the Minister and others here that staff morale in the organisation, as the media have described, is at rock bottom. Recent evidence in documents leaked from the department has confirmed that, and I have mentioned the recent survey in which only 18%—fewer than one in five—of staff felt that the organisation was well managed. Any manager in such an organisation will tell you that there are problems if staff morale is that low.

Industrial action has taken place in HMRC in recent years; in some areas, for the first time in the history of tax collection and administration arrangements in this country. Staff morale is low because of the continuing threat to jobs and terms and conditions, and of privatisation. It is wearing people down and undermining morale. Insecurity is ever present. Staff have suffered a pay freeze, pension cuts, job cuts and office closures, and now, as a result of Cabinet Office procedures, the department is reviewing all terms and conditions, including hours of work, leave, parental and special leave, child care, job sharing, flexitime and part-time working, all of which affect HMRC staff, many of whom are women with caring responsibilities whose arrangements are being destabilised as a result of the review.

The handling of the HMRC nursery closures was brutal and incompetent. HMRC announced on 23 August 2012 that it was to close eight workplace nurseries by November. The nurseries were in Blackburn, Cardiff, East Kilbride, Leeds, Leicester, Nottingham, Salford and Wolverhampton. Parents were given just 12 weeks’ notice, and the decision was taken without any consultation with the trade unions. PCS led a campaign with the support of numerous Members, whom I thank, and one of my hon. Friends secured an Adjournment debate on the topic. HMRC agreed to keep the two biggest nurseries open until October 2015 and provide financial compensation for the carers and parents affected.

HMRC’s rationale for closing the nurseries was that it would be fairer to everyone to have the same level of child care provision, so it introduced a child care voucher scheme, taking no account of the financial or personal impact of the decision on staff. It raised serious concerns among staff about HMRC’s commitment to family-friendly policies. The organisation’s management have admitted that it was not their finest hour. It has certainly hit morale badly within the department.

The threat of privatisation is ongoing. All jobs are up for sale. What is most galling to HMRC staff and to us is that contracts are being handed out to corporations involved in large-scale tax avoidance. It is extraordinary. I raised the issue in the House some weeks ago, but I will run through the examples. Capgemini and Accenture, two IT companies with HMRC contracts, were both identified recently as having avoided paying tax. Capgemini, the lead contractor on the £8 billion Aspire contract, paid only £308,000—or less than 1%—in corporation tax last year on £38 million in profits. There is no justification for that happening in the first place, and certainly no justification for us feeding a tax avoider with Government contracts. Accenture, which has a £9.6 million contract with HMRC to supply technical support, managed to reduce its tax bill to 3.5%, paying only £2.8 million in tax on nearly £82 million in profits in Britain last year, yet we awarded it another contract.

To be fair, the last Government were to blame as well, and under them I raised the issue of the selling-off of the HMRC estate to Mapeley. HMRC now leases the buildings back. In 2010, NAO findings showed that if Mapeley, which is now part of the US offshore group Fortress Management Services, were based in Britain, the Treasury could expect to receive around £184 million in tax revenues. In fact, the company is expected to pay only £14 million on its lucrative HMRC contract. We have to learn some lessons. If nothing else, we must ensure that we do not provide tax avoiders with incentives by giving them Government contracts.

Many staff members and independent advisers have expressed the view that the general tax avoidance mechanisms that the Government are introducing will not give them the tools that they need to tackle tax avoidance. That needs a much wider debate than we have had so far in the House and elsewhere about the parameters, role and remit of the tax avoidance measures that the Government are introducing. As the hon. Member for Upper Bann (David Simpson) said, that also includes simplification of the system.

Cut after cut has been made. Staffing cuts are undermining professionalism, reducing the number of local offices and creating low morale among staff. It all points to a key department labouring under intense pressure without the resources to cope. HMRC has been on the edge of a crisis for some time. I believe that Ministers have begun to become aware of it in recent months, but there are public fears about tax justice, and the Ministers responsible for HMRC must recognise that the department needs to be re-resourced. Staffing levels must be brought back up. A new sense of purpose and a new direction must be injected into the department. Staff must be re-motivated, and the threats of privatisation must end, as well as the cutbacks to terms and conditions that are impeding staff in undertaking their professional work.

All staff want is the chance to make their contribution by collecting taxes, enforcing legislation and advising us how to create a system that is fair, efficient and effective. They are professionals, and they should be treated as such. I hope that as a result of this debate, the Government will open a wider dialogue, particularly through the trade unions, especially PCS, about how HMRC will go forward, working with the grain of its staff’s professionalism and with their good will to turn the department around so that it can implement a fair and effective tax collection system.

[Several hon. Members]

rose—

--- Later in debate ---

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

It is a pleasure to serve under your chairmanship, Mr Howarth, and to respond to the debate. I congratulate the hon. Member for Hayes and Harlington (John McDonnell) on securing it. He has taken a close interest in HMRC funding over a number of years. Although I did not agree with everything he said, I commend him for his consistency and the non-partisan way in which he has pursued this issue over many years with a willingness to criticise Governments of both descriptions.

Time may be short, but before addressing the points raised today, it will be helpful to set out some context by discussing the history of the resources available to HMRC over recent years and the results that it has managed to achieve with those resources.

As hon. Members will know, HMRC was formed a little under eight years ago by the merger of Customs and Excise and the Inland Revenue. At that time, it was made up of around 100,000 staff. The previous Government sought efficiencies and, as a result, staff numbers fell by around 25,000 between 2005 and 2010. As part of that process, the number of staff engaged in compliance work also fell each year, and by 2010, about 10,000 staff had been lost in those important revenue-raising areas.

In 2010, as part of this Government’s first spending review, it was crucial that we recognised the dual role that HMRC would play in contributing to deficit reduction, through both cost reductions and, more significantly, collecting additional revenue by tackling tax avoidance and evasion—a point that several hon. Members raised this morning. Our priority was to ensure that HMRC delivered a service that would provide the best possible value for money to taxpayers. Consequently, we required HMRC to make 25% efficiencies to reduce its costs. We then agreed to reinvest a proportion of those efficiencies to tackle avoidance and evasion. The result was a net impact of overall savings over the spending review period of about 16% and a net reduction in overall staff numbers of about 10,000. I say “net” because in that figure is an actual increase of about 2,500 in the number of staff HMRC deployed on its compliance activities over the period.

[John McDonnell]

The Minister mentioned the impact. One of the points made by PCS, ARC and the ICAEW is that the impact assessments religiously fail properly to assess not only the implications for staff, but the cost to business and taxpayers overall. Will the Minister look at, and perhaps consult on, how such impact assessments are undertaken and how they can be improved?

[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.

Corporate Tax Avoidance

John McDonnell Excerpts

Monday 7th January 2013 Commons Chamber

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

The hon. Member for Redcar (Ian Swales) set the scene exceptionally well and went through all the points that have been reiterated by others.

I want to take up one point. I chair the cross- party parliamentary group of the Public and Commercial Services Union, which represents 50,000 of the 54,000 members of staff in HMRC—in other words, tax inspectors. I echo the simple point made by my right hon. Friend the Member for Oldham West and Royton (Mr Meacher) and the hon. Member for South Norfolk (Mr Bacon): if we want to collect the taxes, we need the staff to do it. If HMRC is to do that efficiently, it also needs those staff to have the appropriate skills and resources. I have raised that matter consistently on behalf of the PCS parliamentary group over the past decade, and particularly over the past seven years, as have other Members.

When HMRC was created by the merger of Customs and Excise and the Revenue, we had a debate in the House for which I think there were little more than half a dozen Members in the Chamber. However, there were staff cuts of 3,000 overnight, and a further 12,000 within six months. A process called the lean system was introduced, producing the first industrial action in the Inland Revenue’s existence, so there was an element of demoralisation.

In 2005 there were 97,000 staff in HMRC, and by 2015 there will be 55,000. The Government have recognised that further investment is needed, for which I am grateful. They have provided £900 million for reinvesting in tax collection and recently pledged another £77 million over the next two years on top of that, but that does not make up for the £3 billion of cuts in the October 2010 statement. That means that there will be another 10,000 jobs cut from HMRC by 2015, which is ludicrous and completely counter-productive.

My right hon. Friend the Member for Oldham West and Royton made the point about how much each tax inspector brings in in proportion to their salary. The cuts and tax office closures seem to be undermining the very system that we want to make effective in delivering the tax that we need and tackling the scandals that have occurred. There is also real anxiety about the use of private companies in the tax collection system, which the Government have developed. I urge the Government to rethink the whole process of investment in HMRC for the long-term future. It has lost staff and is losing skills, which is undermining its ability to undertake the work that we ask it to do.

The hon. Member for Redcar mentioned the awarding of contracts to companies that we then discover avoid their taxes. I raised that matter under the previous Government. I found it bizarre when the private finance initiative scheme was introduced and the Inland Revenue offices were sold off to Mapeley, and then leased back from that company, only for us to discover that it was using a tax haven and not paying tax itself.

The hon. Gentleman also mentioned Capgemini. Let us get on the record what has happened in that case. Capgemini and Accenture are the two IT companies with which HMRC has contracts, and both were recently identified as avoiding tax themselves. Capgemini, the lead contractor on the £8 billion Aspire contract, paid only £308,000 of corporation tax last year on £38 million of profits—less than 1%. That company is employed by HMRC but avoids the tax that HMRC seeks to use it to collect. It is extraordinary. Accenture, which has a £9.6 million contract with HMRC to supply technical support, managed to reduce its tax bill to 3.5%, paying only £2.8 million in tax on nearly £82 million of profits in Britain last year. It was employed by HMRC and awarded a massive contract, and then used those resources to avoid paying tax. You couldn’t make it up, but it is happening regularly. As the hon. Gentleman said, the Government should introduce some principle to ensure that when we award contracts to such companies, we are at least confident that they are not in the tax avoidance business.

We need to ensure that the staff of HMRC have the tools to collect tax effectively. As the hon. Member for Lincoln (Karl MᶜCartney) said, we cannot criticise others if the House itself does not fulfil its own responsibility of ensuring that we have effective legislation that the staff can use to collect tax. That is why we should listen to the experts—the HMRC tax inspectors—when they advise that the Government’s proposed general anti-abuse rule will not be effective and instead advise support for the Bill tabled by my right hon. Friend the Member for Oldham West and Royton to introduce a general anti-avoidance principle. Their view is that we need to return at least partly to the Ramsay principle, which was a decision of the Lords in 1982, overturned in 2001, that at least led to some commitment to the anti-avoidance principle in law. It laid a duty upon directors to abide by that principle.

The hon. Member for Cities of London and Westminster (Mark Field) said that we should not drag this into being a moral issue, but it is a moral issue. When my constituents pay their taxes in the pay-as-you-earn system, they expect others to make their fair contribution as well, yet the Public Accounts Committee has effectively exposed scandal after scandal. I understand why UK Uncut is occupying premises and taking direct action. That is the only way to publicise what companies are doing.

We have been at this for a number of years in the House. I hosted what I think was the first meeting in the House with Richard Murphy and John Christensen of the Tax Justice Network, when the issue was not particularly popular. It became popular and had resonance when UK Uncut took direct action. We have a responsibility to our constituents to ensure that the balance is redressed, by providing resources for HMRC and putting in place appropriate legislation so that it becomes effective as a tax collector once again.