Oral Answers to Questions

Debate between John Pugh and Stephen Williams

Monday 15th December 2014 Commons Chamber

[Stephen Williams]

The hon. Gentleman makes a very good point. In April, the Campaign to Protect Rural England estimated that councils spend more than £600 million on street lighting, accounting for 30% of their carbon emissions. Tackling the remaining street lights not using LED will reduce carbon emissions and cut the maintenance costs he mentions.

[John Pugh (Southport) (LD)]

3. What assessment he has made of the recommendations of the report by the National Audit Office entitled, “Financial Sustainability of Local Authorities 2014”, published in November 2014, HC 783.

Tax Avoidance and Evasion

Debate between John Pugh and Stephen Williams

Thursday 13th September 2012 Commons Chamber

[John Pugh (Southport) (LD)]

I congratulate the right hon. Member for Oldham West and Royton (Mr Meacher) on stimulating this debate. I also welcome the Exchequer Secretary, who survived the ministerial cull. We all welcome his dry wit and expertise. Indeed, I debated this very subject with him in Westminster Hall about a year ago.

As other Members have said, we live in a society where the rights, benefits and privileges that people extract from society are often disconnected from the obligations that they feel towards it. That brings the spectacle of people benefiting from society and thriving because of it, but avoiding contributing to the tax base through either evasion or, more commonly, avoidance. Tax avoidance is a deliberate attempt to frustrate tax law and the intentions of tax legislators. It differs radically from tax evasion, whereby one deliberately ignores or flouts the letter of the law.

There are various remedies for tax avoidance. One, as has been suggested, is to simplify the law to make avoidance more evident and stark. That is what the Mirrlees review was, in part, about. Another remedy, which has been very attractive to people in this place, is to outlaw individual tax avoidance schemes piecemeal. That has been tried in Finance Act after Finance Act, only for further countermeasures to be needed for other schemes. That exercise is a bit like a cat chasing its tail—it is endless. That is why I favour a general anti-avoidance rule and have argued for it consistently in this Parliament and the previous one. That is also why the Government are considering it and why it is in the coalition agreement.

I do not want to comment on Mr Aaronson’s specific proposals, but a GAAR essentially bans schemes that have no commercial benefit other than to frustrate the intent of the law. The right hon. Member for Oldham West and Royton has argued that the progress does not look as though it will be enough. Other people have argued that it goes too far. There are those who believe that we should go only by the absolute letter of the tax law and therefore oppose a GAAR. There are Government Members who believe that. I call such people tax fundamentalists, because they argue that a GAAR would create an element of tax uncertainty and that what is not expressly prohibited should be allowed. They add to that the argument that if we had a GAAR, there would be other disbenefits, such as an increase in litigation and a reluctance to make investment decisions.

More fundamentally, some people argue that it cannot be wrong to do what is not formally and expressly forbidden. That argument is astonishingly weak. It reminds me of the arguments that cropped up during the expenses scandal, when people argued that it was acceptable to buy duck houses or to flip homes because it did not breach a particular rule, even though it frustrated the intentions of the scheme. It is worth noting that there is under-specification in other areas of law, not just in tax law. Disturbing the peace encompasses a number of scenarios, as does defamation in civil law.

None the less, there are ways in which the operation of a GAAR in tax law can be made more certain to address those concerns. The first is through the pre-vetting of tax schemes and disclosure. The previous Government went some way down the road to ensuring that that could and should happen. The second is, during the passage of the legislation, to make clear the intent of the law and what it is contrived to do. The objection about uncertainty is slightly exaggerated. When Tesco set up a holding company in Liechtenstein for its properties, it received no commercial benefit, unless it was in avoiding the property taxes that the Government expected it to pay.

In a recent speech, the Exchequer Secretary spoke about things that would be covered:

“Buying a house for personal use through a corporate entity to avoid”

stamp duty

“is avoidance. Channelling money backwards and forwards through complex networks for no commercial reason…is avoidance. Paying loans in lieu of salaries through shell companies is avoidance. And using artificial ‘losses’ deliberately accrued to claim back tax is avoidance.”

Those examples give a clear indication of the kind of things that should be caught by a GAAR. As my hon. Friend the Member for Bristol West (Stephen Williams) said, we can contrast that with other things that would not be caught, such as charitable tax relief. In that case the Government encourage people to organise their tax affairs in a way that causes a loss to the Exchequer.

We can speculate for as long as we want on the effects of a GAAR, but in some ways we do not need to, because we have a certain amount of evidence to go on. A lot of countries have GAARs in place, and not all of them produce uncertainty and litigation, although some do.

[Stephen Williams]

I believe that the UK is actually unique in not having a GAAR or a rule that is called something else but is effectively a GAAR.