Oral Answers to Questions

Debate between John McDonnell and David Gauke

Tuesday 28th February 2017 Commons Chamber

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

The Government are taking forward plans for the lower Thames crossing and major road upgrades, such as at junction 5 on the M2. We are also establishing a Thames estuary 2050 growth commission, which will set out a vision for development in the area.

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

Last week, the Government snuck out a statement on regulations denying 150,000 disabled people access to personal independence payments awarded by the upper tribunal. That was brutal. Last year, the previous Chancellor absorbed the costs when the Government were forced to halt cuts to personal independence payments to disabled people. In this case, are those disabled people being denied benefits because the Chancellor has refused to absorb the costs resulting from the upper tribunal decision?

Charter for Budget Responsibility

Debate between John McDonnell and David Gauke

Wednesday 20th July 2016 Commons Chamber

[Mr Gauke]

I completely agree with my hon. Friend. Our record on corporation tax—we cut it from 28% in 2010, it is now 20%, and we have legislated to reduce it to 17%—has made the UK much more attractive. The likes of the OECD have made it clear that corporation tax is one of the most distorting and, therefore, least growth-friendly taxes. The fact that we have moved so dramatically in this era—during which we have also put the public finances on a sounder footing—to make our business taxes much stronger puts us in a much stronger position than we would otherwise be. It is striking that, in survey after survey of international businesses, the position of the UK has improved in terms of our reputation as a place to do business. In particular, our tax reforms have helped attract investment here. I know from the meetings that I have had with international businesses when they are choosing where to locate activity that the fact that our corporation tax regime is more competitive is a factor that helps to drive investment to the UK.

Alongside that, we have taken significant steps to ensure that the international tax system is such that businesses pay the taxes that are due, but it is absolutely right that the UK positions itself as a more competitive place, and that is what we have done.

[John McDonnell]

For clarification—I raised this in my speech—is it still Government policy and in their plans to move towards 15%?

[Mr Gauke]

The Chancellor has made it clear that he will look at all the options when it comes to the autumn statement. It is the case that we have legislated to move to 17%, and it continues to be the case that we want to send out a signal that the UK is open for business and that we will still have a competitive tax system. My hon. Friend the Member for Horsham (Jeremy Quin) has already raised that important point. The precise policies we will follow at the autumn statement are a matter for the Chancellor to announce then, but Government Members are united in our belief that the steps we have taken on corporation tax have made us much better prepared for the uncertainties of the future.

Oral Answers to Questions

Debate between John McDonnell and David Gauke

Tuesday 19th July 2016 Commons Chamber

[Mr Gauke]

I note that my prediction that I would receive further representations and diary request appears to be holding true. I am happy also to meet my hon. Friend to discuss the project that he mentioned.

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

I, too, welcome the Chancellor to his position, and I welcome his whole team. It is a deserved promotion for the Chief Secretary, whom I believe I promoted only a month ago in a speech to the House.

EU funding for the regions comes to £10 billion a year. At the recent Local Government Association conference, councillors from all parties expressed their concern over the potential loss of these structural funds. Will the Chief Secretary clarify whether he plans to make funding provision equivalent to that received through the EU structural funds in the event of the UK leaving the EU?

[Mr Gauke]

First, I thank the shadow Chancellor for his kind words. Yes, his description of me as Chief Secretary last month proved to be ahead of its time. That is not a phrase I often use about the shadow Chancellor, but he was right on this occasion.

On the structural funds, of course we need to make an assessment of value for money and so on. We will make announcements in due course. I recognise the case for wanting to address uncertainty, but it is right that we follow due process before we make any announcements.

[John McDonnell]

I am grateful for that, but may I ask the Chief Secretary that, in the interests of local government stability, that statement is made sooner rather than later?

The vote to leave also affects the UK’s access to European Investment Bank funds, which last year came to £6.5 billion across the country. With business investment falling even before the vote to leave, and with Government investment scheduled to fall until the end of this Parliament, what action is the Chancellor taking to ensure that Britain retains its stake in the European Investment Bank?

[Mr Gauke]

First, on the general point, I recognise what the hon. Gentleman is driving at in terms of uncertainty and the desirability to resolve the issue sooner rather than later.

It is the case that the UK did very well from the European Investment Bank in recent months in terms of attracting investment. There is no evidence as yet that the UK will be discriminated against during the period that we remain members of the EU, but the hon. Gentleman is right to raise the issue. We will continue to monitor the situation and we want to ensure that we continue to do well from the EIB.

Oral Answers to Questions

Debate between John McDonnell and David Gauke

Tuesday 7th June 2016 Commons Chamber

[Mr Gauke]

Thank you, Mr Speaker. What I say to my hon. Friend the Member for Amber Valley (Nigel Mills) is that, some years ago, HMRC brought in an assurance procedure to ensure that all such settlements are properly scrutinised. HMRC is very confident that it has reached a fair and proper settlement with Google. It is worth pointing out that, in recent years, we have seen increases in revenue collected by HMRC and increases in yield from its compliance activities including from large businesses.

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

If we are to tackle tax evasion and avoidance effectively we need to remain within the EU. Will the Chancellor and the Minister join me in calling on all MEPs to support the new anti-tax avoidance directive being voted on in the European Parliament tomorrow? Conservative MEPs abstained at the Committee stage, and this morning there are worrying noises that they may be thinking of abstaining once again. Will the Minister make it clear now that Conservative MEPs will be voting for the directive?

[Mr Gauke]

The anti-tax avoidance directive was discussed a couple of weeks ago at the ECOFIN meeting, which I attended. The UK made the case for us taking strong action and working through an anti-avoidance tax directive. What we suggested and proposed was taken on board. The matter will also be addressed at the ECOFIN meeting next week. The UK is pushing for progress and it is working co-operatively with other member states to ensure that we do make progress.

[John McDonnell]

I am mystified as to whether Conservative MEPs will be voting for the directive tomorrow. I just live in hope that they will. The European directive did show the value of European Union co-operation in tackling tax avoidance and evasion. As part of that co-operation, following the raids on Google’s Paris offices, will the Chancellor inform the House what arrangements are in place with the French authorities for sharing information from the raid? If new evidence comes to light, will the Chancellor stand ready to reopen his deal with Google?

[Mr Gauke]

The first point of which I must remind the shadow Chancellor is that all settlements are reached by HMRC. Operational matters are rightly for HMRC, and not for Treasury Ministers. Of course if there is new evidence, HMRC will take it into account. The position is that HMRC has made it very clear that, under the law that existed between 2005 and 2015, it believes that it has reached a settlement that ensures that the right amount of tax has been collected—and that is what its job is. Our job is to ensure that it has the tools and the rules, and that is what we are delivering.

Tax Avoidance and Evasion

Debate between John McDonnell and David Gauke

Wednesday 13th April 2016 Commons Chamber

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

It is a great pleasure, for the second time this week, for the Government to be able to inform the House of how much more we have done than the previous Government to tackle evasion, avoidance and aggressive tax planning and to become a world leader in tax transparency. In 2010, we inherited a situation in which no one could find out who really owned a company in the UK or find out the details of a London property if it was owned by a foreign company. Not only were the international rules governing multinational companies out of date, allowing the tax base to be eroded and profits to be shifted, but there was no attempt to bring those rules up to date. Nor was there any sign that those matters were going to change. Loopholes, secrecy and concealment are the issues that we are sorting out, not only through what we are doing in the UK but through our firm and decisive action overseas.

[John McDonnell]

I want to clarify something that the Minister just said. Can he confirm that, under his proposals, members of the public will not have access to the register of beneficial owners of companies and trusts in overseas territories or elsewhere?

[Mr Gauke]

Let me tell the hon. Gentleman precisely what I just said. In 2010, no one could find out who really owned a company in the United Kingdom. From June, we will be publishing a public register of beneficial ownership. What is more, HMRC could not find out who owned a company based in an overseas territory. As a consequence of the agreements we have reached this week, HMRC will be able to do exactly that. That is evidence of the progress that has been made under this Government, and that was not the case under the previous Government.

Budget Changes

Debate between John McDonnell and David Gauke

Monday 21st March 2016 Commons Chamber

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

(Urgent Question): To ask the Chancellor of the Exchequer if he will make a statement on changes to the Budget.

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

Immediately after this urgent question the Prime Minister will make a statement, and following that the Secretary of State for Work and Pensions will set out the Government’s position on personal independence payments and the welfare cap. For the rest of the day the debate on the Budget will continue, and tomorrow it will conclude with the Chancellor of the Exchequer responding. The House will therefore have three opportunities to discuss these issues before voting on the Budget tomorrow. I am grateful for the opportunity to talk about how this Government, through our long-term economic plan, are creating growth, generating employment, cutting the deficit, and securing long-term prosperity for the people of this country.

The Budget delivered last week by my right hon. Friend the Chancellor of the Exchequer set out how we are taking more people out of income tax, supporting small businesses, encouraging investment, tackling tax avoidance, helping young people to save, and investing in our education system, all while restoring the public finances. That is what the British people voted for last May, and that is what we are delivering.

[John McDonnell]

Thank you, Mr Speaker, for granting this urgent question. I asked it because the Budget process is in absolute chaos. It is unprecedented for a Government to have withdrawn a large part of the Budget and accepted two Opposition amendments before we have even reached the third day, and from what we have heard from the Chief Secretary to the Treasury today, we are little wiser. I have some sympathy for the hon. Gentleman, who has been sent out yet again to defend the indefensible, while the Chancellor insults this House by his refusal to attend.

This whole debacle started two weeks ago when the Government announced cuts of up to £150 a week in personal independence payments to disabled people. By the day of the Budget last week, we discovered that those cuts to disabled people had been forced through by the Chancellor to pay for cuts in capital gains tax for the wealthiest 5% in our society, and for cuts in corporation tax. I agree with the former Work and Pensions Secretary: such cuts are not defensible when placed in a Budget that benefits high earners.

How can the Chancellor any longer suggest that we are “all in this together”, when the Institute for Fiscal Studies confirmed today that poorer working age households with children will be the hardest hit? Will the Minister rule out any further cuts to support for people with disabilities in the lifetime of this Parliament? Over 600,000 disabled people and their families have been caused considerable distress over the last week, and they need the reassurance that their benefits are safe. If the PIP cuts are not going ahead, the money required from the Department for Work and Pensions still sits in the Red Book.

Will the Chief Secretary tell us which other vulnerable groups the Chancellor is considering targeting for cuts? If the Chancellor halts the attack on disabled people, a £4.4 billion black hole is created in the Budget. Add to this the billions of unidentified cuts, and the amendments on the tampon tax and solar power that we have won today, and within five days an enormous hole has appeared in the Budget. Is not the prudent thing for the Chancellor to do to withdraw this Budget and start again? I say that this is no way to deliver a Budget and no way to manage an economy.

[Mr Gauke]

First, may I thank the shadow Chancellor for promoting me to Chief Secretary to the Treasury? Secondly, may I just make this point about disability benefits? There is no question of this Government cutting disability benefits to the level we inherited in 2010. Spending on disability benefits has gone up by £3 billion in real terms. Thirdly, does the shadow Chancellor really want to talk about fiscal black holes? Does he really want to do that? [Interruption.]

Last week the Chancellor of the Exchequer reported on an economy set to grow faster than any other major advanced economy in the world. With wages up, the deficit cut by almost two thirds and 1,000 more people in work every single day, our economic plan is delivering for Britain. It is a Budget that continues this economic recovery, a Budget that takes us into surplus by the end of this Parliament, a Budget that backs British businesses, protecting jobs in difficult economic times, a Budget that helps more people buy their first home or save for their retirement, a Budget that builds our young people’s skills and invests in educating the next generation, and a Budget that helps to close the gaps between rich and poor and between north and south, because we believe in helping people to succeed wherever they come from. Since 2010, inequality is down, child poverty is down, pensioner poverty is down, the gender pay gap is smaller than ever, while the richest—[Interruption.]

Tax Avoidance and Multinational Companies

Debate between John McDonnell and David Gauke

Wednesday 3rd February 2016 Commons Chamber

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

I beg to move an amendment, to leave out from “House” in line 1 to end and add:

“notes that the Government has taken action to promote international cooperation in relation to clamping down on tax avoidance by multinational companies, challenging the international tax rules which have not been updated since they were first developed in the 1920s, that multilateral cooperation at an international level has included the UK playing a leading role in the G20-OECD Base Erosion and Profit Shifting Project to review all international tax rules and increase tax transparency, and as part of that, the UK was the first country to commit to implementing the OECD country-by-country reporting model within domestic legislation, that the Government recognises the case for publishing country-by-country reports on a multilateral basis, that the Government has introduced more than 40 changes to tax law, that the various measures taken by the Government have included the introduction of a diverted profits tax aimed at targeting companies who use contrived arrangements to divert profits from the UK, stopping the use of offshore employment intermediaries to avoid employer National Insurance contributions, stopping companies from obtaining a tax advantage by entering into contrived arrangements to turn old tax losses or restricted use into more versatile in-year deductions, and requiring taxpayers who are using avoidance schemes that have been defeated through the courts to pay the tax in dispute with HM Revenue and Customs upfront, and that the Government is committed to going further, enabling HM Revenue and Customs to recover an additional £7.2 billion over the Parliament.”

It is a great pleasure to move the Government’s amendment. There is much that we have heard from the Labour party today on this subject that is wrong, confused and, to put it kindly, oblivious to the record of the last Labour Government. However, before addressing those points, I hope to strike a note of consensus. Both sides of the House believe that all taxpayers should pay the taxes due under the law. Both sides believe that taxpayers should refrain from contrived behaviour to reduce their tax liabilities, and all taxpayers should be treated impartially. That is why the Government’s record is one of taking domestic and international action to tackle tax avoidance.

I will set out details of that action, but first I want to address another issue. The shadow Chancellor’s approach has generated more heat than light, and often reveals a complete misunderstanding of how the corporation tax system works. Let me take this opportunity to explain to the House how it does, in fact, work.

The independent Institute for Fiscal Studies, in a paper it published last week, puts it well:

“The current tax rules are not designed to tax the profits from UK sales. They’re certainly not designed to tax either revenue or sales generated in the UK. They are instead designed to tax that part of a firm’s profit that arises from value created in the UK. That is the principle underlying all corporate tax regimes across the OECD.”

I make that point because it is fundamental to understanding the tax we are entitled to receive from multinational companies. It is not a point that the shadow Chancellor appears to have grasped.

Let me give an example of why this matters, and it is similar to the point made by my hon. Friend the Member for Dudley South (Mike Wood). The UK is home to one of the most successful video games sectors in the world. Would it be fair for a firm to design a game here, develop it here and take the risks here, but to go on to sell it overseas and then have to pay corporation tax on all that activity in the country in which it makes the final sale, and not in the UK? The current international tax arrangements are clear that such profits are taxed in the UK—the place of economic activity—rather than in the place where the sales are made. That is the internationally agreed and internationally applied concept of corporation tax. That is the law that HMRC applies. Quoting numbers to do with revenues or profits from sales, as opposed to activities, demonstrates a lack of understanding of how the tax system works, or—and this is worse—an understanding of the way the tax system works, but the hope that those following these debates do not.

[John McDonnell]

Is the Minister saying that Google employs 2,300 staff in this country on an average salary of £160,000, and they cannot be defined as involved in economic activity or as adding any value? What are they doing? Playing cards all the time? Are they not actually involved in economic activity—this sizable proportion of the Google workforce?

[Mr Gauke]

The point I am making is that the shadow Chancellor goes around quoting numbers based on profits from sales. To be fair, he went through the methodology carefully in the House today, but that methodology appears to be based on a complete misunderstanding of how the tax system works.

HMRC and Google (Settlement)

Debate between John McDonnell and David Gauke

Monday 25th January 2016 Commons Chamber

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

(Urgent Question): To ask the Chancellor of the Exchequer to make a statement on the settlement reached between HMRC and Google.

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

I am proud of the work the Government have done to make our tax system internationally competitive, but also to make sure that those taxes are paid. Time and again, we have taken the lead, domestically and internationally, when it comes to getting international companies to pay their fair share of tax. This is the Government who, working through the G20 and OECD, led on the base erosion and profit shifting project—BEPS—making the international tax rules fit for the 21st century. This is the Government who introduced a diverted profits tax to address the contrived movement of profit out of the country, so that profits from UK activities are taxed in the UK. And this is the Government who have invested heavily in HMRC to strengthen its compliance activity, which has allowed HMRC to secure around £100 billion in additional compliance yield over the last Parliament, including more than £38 billion from big businesses.

We have competitive taxes—that is why we have cut our rate of corporation tax so that it is the lowest in the G7—but we are also making sure those taxes are paid, reforming the international tax rules, introducing a diverted profits tax and investing in HMRC’s capacity. That is action taken by this Government that was sadly lacking in 13 years of Labour rule.

The statement made by Google at the end of last week is solid evidence that companies are changing their models and reviewing their structures because we have strengthened the rules. The statement comes at the conclusion of a lengthy inquiry by HMRC. The tax that individuals and companies pay is collected by HMRC enforcing the law, not politicians who are, rightly, not engaged in or informed of particular cases. I am therefore unable to go into the details of the inquiry’s conclusion beyond those made public at the end of last week. I would point out, however, that the National Audit Office examined the HMRC settlement process in 2012 and examined specific settlements. In all cases, the NAO concluded that HMRC obtained a reasonable settlement for the Exchequer. It also made recommendations on the process by which HMRC should operate when reaching a settlement—recommendations that have been implemented.

It might be helpful to the House if I reiterate what the law is and how the corporation tax rate works, both in the United Kingdom and around the world. The first thing to note is that corporation tax is charged on profits, not on turnover. Equally important, corporation tax is not calculated on the basis of profits attributed to sales in the United Kingdom, but to economic activity and assets located in the United Kingdom. To illustrate my point, imagine a UK company—a car manufacturer, for instance—manufactures its vehicles in the United Kingdom, but half its profits come from sales in the United States. The law as it stands in the UK, as elsewhere, would mean that those profits would be taxed in the United Kingdom, the place of activity, and not the United States, the place of sales.

Ever since 2010, we have been engaged in reforming the tax system both domestically and internationally. Government action is levelling the playing field among businesses, giving worldwide tax authorities more effective tools to tackle aggressive tax planning and helping us to better align the location of taxable profits with the location of economic activity. We are incentivising businesses to do the right thing and come to the table early. Last week’s announcement represents an important result of those actions. I can assure hon. Members that we will continue to tackle the tax risks posed by multinational companies over the coming years, giving the Exchequer more money to fund the public services we all rely on.

[John McDonnell]

I thank the Minister for his statement. However, many will feel it is a display of disrespect to this House that the Chancellor of the Exchequer confirmed the deal with a tweet over the weekend, but has refused to come here today personally to make a statement.

I pay tribute to the former and current Chairs of the Public Accounts Committee, my right hon. Friend the Member for Barking (Dame Margaret Hodge) and my hon. Friend the Member for Hackney South and Shoreditch (Meg Hillier), as well as all the campaigners for tax justice who have forced this issue on to the agenda. The Chancellor has managed to create an unlikely alliance between myself, the Sun newspaper, the Mayor of London and, according to reports, even No. 10 this morning. All of us think this deal is not the “major success” the Chancellor claimed at the weekend.

The statement offered today has left a number of questions unanswered, which I turn to now. Does the Minister not agree that it is important in our tax system that everybody is treated equally and fairly, whether they be large multibillion-pound corporations or small businesses? In that respect, independent experts have suggested that the effective tax rate faced by Google is now about 3%, despite estimated profits of £1 billion in 2014 alone. Will the Minister confirm whether this is the effective tax rate faced by Google over the past 10 years? In the interests of openness and transparency, will he now publish details of the deal and how it was reached? Will the Minister confirm that Google is not changing the company structures that enabled this avoidance to take place over the past decade? Are the Government not concerned that the agreement creates a precedent for future deals with large technology corporations, such as Facebook and Amazon? Will the Minister assure us that this deal does not undermine international co-operation on tax avoidance, such as the OECD base erosion and profit shifting scheme that the Chancellor once supported?

I also ask the Minister, once more, to halt the programme of HMRC staffing cuts, which is undermining morale and removing the very staff with the collective experience and expertise in collecting these taxes. Finally, will he address a confusion that seems to have arisen? Does he agree with the Chancellor, who thinks the deal was a major success; with the Prime Minister’s Office, which said this morning it was only a step forward; or with the Mayor of London, who described it as derisory?

[Mr Gauke]

I welcome the progress the Government have made over the past six years in ensuring that large companies pay more tax. At a time when we have been cutting the rate of corporation tax, corporation tax receipts, excluding North sea oil, have remained buoyant, partly because we have been more effective than ever at collecting tax from large companies. HMRC’s operational capability in this area has been strengthened—by the way, HMRC staff numbers are going up, not down, this year.

The shadow Chancellor mentioned the 3% figure. That is the very reason I drew attention to how corporation tax is worked out. It is worked out on the basis not of sales profits in a country, but of the economic activity and assets held in a country, and there would be severe dangers to moving in the direction of basing it on sales profits. He is right that every taxpayer should be treated fairly and has to pay the rate determined by the law; there is no lower, special rate for Google or any other taxpayer in this country.

We are collecting more tax, which is evidence of the steps we have taken, in both the BEPS process and the diverted profits tax, forcing companies to change their behaviour. That should be welcomed around the House. The real threat to collecting tax revenue from big businesses would be the anti-business policies of the Labour party.