HM Revenue and Customs

Debate between John McDonnell and Peter Bottomley

Tuesday 5th February 2013 Westminster Hall

[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.