Finance Bill

Kelvin Hopkins Excerpts

Tuesday 1st July 2014 Commons Chamber

[Shabana Mahmood]

Focusing on the actual figure is important. It concentrates the mind when assessing the scale of the task both for this Government and the successor Government in 2015. By anyone’s analysis, £35 billion is a huge sum, which, if collected, would make a very significant difference to the nation’s finances.

[Kelvin Hopkins (Luton North) (Lab)]

My hon. Friend is making an excellent speech and she is right that this is a large sum of money. It is equivalent to 9p on the standard rate of income tax.

[Shabana Mahmood]

My hon. Friend makes an excellent point. He is of course right that this is a huge sum of money and that people are rightly concerned that £35 billion-worth of tax is potentially going uncollected in our country.

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[Shabana Mahmood]

I am grateful to the hon. Gentleman for his intervention, but as I just said, the tax gap has widened: despite those efforts, it has gone up by £1 billion or more.

The Public Accounts Committee also raised concerns about the monitoring of tax relief at HMRC and the Treasury. In 2013, there were 1,128 tax reliefs in the UK taxation system—a number that continues to grow. Tax reliefs can range from fundamental components of the tax system, such as the level of the personal allowance, to tax expenditures with more specific objectives to change behaviour, such as film tax relief. They play an important role in the tax system, but can be abused. Indeed, even in this Finance Bill the Government have had to take steps to close down the abuse of tax reliefs. It is therefore very worrying that the Public Accounts Committee has concluded:

“There is a lack of transparency and accountability for tax reliefs and no adequate system of control, following their introduction. HMRC and HM Treasury share responsibility for tax reliefs, but there is no accounting officer with responsibility for the stewardship of tax reliefs, as there would be for”

other elements of

“public spending. In 2010, HM Treasury committed to developing a framework for the introduction of new reliefs”.

However, no measures have been implemented so far.

In December 2013—this is relevant to what the hon. Member for Dover (Charlie Elphicke) said a moment ago—there were just four full-time officers in the fugitive unit, trying to catch 124 HMRC fugitives. The Government launched a “most wanted” campaign in August 2012, but earlier this year it was found that just four fugitives had been caught since the publication of the list. Moreover, it was admitted that of the 32 “most wanted”, 11 could not be located. If the Government are to support their claim that they are succeeding in the fight against tax avoidance and evasion, they must be able to demonstrate that they will catch those who break and abuse the rules, and will prosecute them to the full extent of the law.

[Kelvin Hopkins]

Does not what my hon. Friend is saying suggest that there is a cosy relationship between the Conservative party and the very rich? The Conservatives do not want to chase those people, because they do not want to upset their friends.

[Shabana Mahmood]

My hon. Friend has made his point powerfully, and in his characteristic way.

As we can see, despite the Government’s claims, their record of tackling tax avoidance is simply not good enough in a number of areas. They will say that the avoidance measures in this Bill are radical and bold, and are evidence of a commitment to tackling avoidance. We have supported the measures relating to follower notices, accelerated payment notices and the need to tackle promoters of tax avoidance schemes, although we have questioned the Minister about some of the deeply felt concerns of those who will be affected by the follower notices regime and by accelerated payment notices, which have caused a great deal of debate outside the House. However, although those measures have received the Opposition’s support, the fact is that they are not revenue raisers. They will simply bring in money that the Government were expecting to collect, but which had been clogging up the various back channels and alleyways of the legal system.

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[Shabana Mahmood]

My hon. Friend is absolutely right about the findings of that report and we know that this is a real problem, particularly for people in the construction industry.

[Kelvin Hopkins]

My hon. Friend is making a very fine speech and I agree with what she is saying. In 1970, I serviced on the TUC construction committee, and a major item on the agenda at the time was bogus self-employment and the loss to the taxpayer. Another point is important, too. They do not pay their national insurance, so they will suffer when their pensions come to be paid.

[Shabana Mahmood]

I am grateful to my hon. Friend, who is right that this is a long-standing problem for Governments of all colours and persuasions who have for too long been unable to deal with these very serious issues which result in people not being entitled to sick pay, holiday pay, maternity and paternity leave and other employee rights.

The third problem associated with disguised self-employment is that the unhealthy level of self-employment in the construction industry—40% compared with an average of 14% across all other industries—does not offer a sustainable skill supply for emerging growth opportunities or a change in the economic weather. Employers who want to invest in their staff and employ directly are losing out to companies that use payroll companies which, because they are paying less tax, can sometimes offer slightly higher pay to poach skilled staff.

In July 2009, we published proposals to tackle the problems of false self-employment in the construction industry, but it was not until last year’s Budget that the Government took an interest in the problem when they announced that they would consult on proposals to tackle tax avoidance by intermediaries based offshore who provided labour services to UK companies. We are still waiting for the Government’s response to their consultation on onshore intermediaries, which closed, I think, in March.

Last year, the shadow Secretary of State for Work and Pensions, my hon. Friend the Member for Leeds West (Rachel Reeves), reviewed the issue and, based on an investigation of the available evidence and widespread consultation with the industry, we have proposed that workers should automatically be deemed to be treated as employees for tax purposes if they meet criteria that most people would regard as obvious signs that they were employees rather than self-employed subcontractors. It is important to note that the measure would not only close a costly tax loophole but remove a perverse financial incentive for those workers whom most would regard as being in an employment relationship to be classified as self-employed. Such a shift would be good for the construction sector and its work force, too. We want the Government to take further action today to consider the issue and prepare the report envisaged in our new clause.

The third area in which we seek greater action is that of dormant companies. It has been estimated that 30% of all UK companies are not asked to submit tax returns. One explanation that has been given is that those companies are either dormant or are not liable to pay tax in the UK as they trade exclusively overseas. Once companies have declared themselves dormant, they are exempted from filing a corporation tax return for five years. For some companies, that window could be used as an opportunity to trade with tax impunity and yesterday we set out our proposals whereby we will require annual confirmation of dormancy and will further explore the possibility of banks’ automatically informing HMRC when there is activity in supposedly dormant accounts. That would deal with an issue of tax evasion, rather than tax avoidance, but it is important that the tax lost as a result of weaknesses in the rules of dormancy is firmly on the Government’s radar and it has not been to date.

As I have set out, tackling tax avoidance and closing the tax gap effectively remains a top priority for the public. This Government’s record is not good enough. Our new clause pushes for greater action on three important issues and practical measures that can help to close the tax gap. We hope that it will have the support of the House this evening.

[Sir Gerald Howarth]

I am pleased to take part in this debate—it is the first time I have participated in a Finance Bill debate for quite a long time. I rise to take issue with the hon. Member for Birmingham, Ladywood (Shabana Mahmood), who made a long and interesting speech, about her definition of tax abuse. Indeed, there was no definition of what is considered to be abusive tax arrangements. I think that we have all become lax in our use of language in a matter which is of huge concern to our fellow citizens, for the powers of the Inland Revenue—HMRC—to take money earned by our fellow citizens is an important power and one that should be used very carefully indeed. This House has a responsibility to ensure that these matters are properly debated.

I have to tell my hon. Friends that I am increasingly alarmed by the Government’s rhetoric on what they refer to as “aggressive tax avoidance”. I was brought up to understand that tax avoidance is not only legitimate but, indeed, the duty of the head of every household. It is not their duty to maximise their tax; it is their duty to minimise it. It is our money, which is taken from us by the Government.

[Kelvin Hopkins]

Will the hon. Gentleman give way?

[Sir Gerald Howarth]

Quite a lot of people want to speak, but the hon. Gentleman is a good man, so I will give way to him briefly.

[Kelvin Hopkins]

It is a simple point: the great majority of wage earners and salary earners can never escape, avoid or evade tax because they pay through PAYE. They have to pay every penny of their tax every week, every month, every year.

[Sir Gerald Howarth]

The hon. Gentleman is entirely right, but overwhelmingly it is the entrepreneurs of this country who drive our economy. Ensuring not only that our entrepreneurs are encouraged to invest in providing jobs for people but that this country is a good place in which people from overseas wish to invest their enterprise must be a major consideration.

As I say, I was brought up to understand that tax avoidance is entirely legitimate, and if a scheme is found to be outwith that which the Government intend, it is for Parliament to close any loopholes; tax evasion, on the other hand, is illegal. However, we have become consumed by the idea that because some high-profile companies do not pay tax in this country, tax avoidance as a whole is somehow immoral. I think that some of the companies that do not pay tax here ought to and I strongly support endeavours by the Government to ensure that they pay their fair share, but when, 10 days ago, I was approached by a constituent who told me about the accelerated payment scheme, I became very concerned indeed.

My constituent, a pharmacist, together with a local GP practice and a dentist, wishes to set up an enterprising, innovative scheme in Aldershot to provide a new, modern facility, but if he is told to pay the thick end of £100,000 when he understood the scheme to be perfectly lawful, where is that money to come from and what happens then to his investment in his proposed business? I think this measure will lead to great uncertainty. I pay tribute to my hon. Friend the Member for Cities of London and Westminster (Mark Field) for the clear way he has drawn attention to the potential repercussions of the Government’s proposal.

The Government are proposing to confer massive powers on state officials. Clause 213(3) provides that

“The payment required to be made under section 216 is an amount equal to the amount which a designated HMRC officer determines, to the best of that officer’s information and belief, as the understated tax.”

There we have it—huge power residing in the hands of unelected officials. We, as right hon. and hon. Members, all know from our constituency experience the number of cases where HMRC gets it wrong. We are invoked to try to recover the money that constituents in many cases have been unable, by direct contact with HMRC, to secure for themselves. Very often, it is only after our intervention that the matter is put right. A dangerous precedent is being set here for a rapacious future Government, perhaps a Labour Government. Perhaps that is what the hon. Lady was threatening; I am not sure that I would yet be in a position to accuse her of being rapacious, but perhaps she will let us know her intention.

We should be careful about giving these extensive powers to HMRC. Interestingly, my noble Friend, Lord Howard of Rising, asked Her Majesty’s Government

“how much money was repaid to taxpayers as a result of overcharging by HM Revenue and Customs in each of 2009-10, 2010-11, 2011-12 and 2012-13.”

The noble Lord Deighton responded:

“The information is not available as HM Revenue and Customs does not collect information on amounts underpaid or overpaid.”—[Official Report, House of Lords, 23 June 2014; Vol. 754, c. WA135.]

Therein lies a severe problem. If HMRC is incapable of giving us that information, what confidence can we have that it will exercise these powers carefully?

I quite understand the challenge faced by my hon. Friend the Exchequer Secretary, who is a very splendid Minister indeed, in trying to restore the public finances to order after they were destroyed by the former Prime Minister and Chancellor of the Exchequer. It is a massive challenge that we face. But we could make a start by looking at some of the money owed to Departments. I understand that the Ministry of Justice, for example, has quite a lot of money outstanding. In November 2011, the National Audit Office reported that the Ministry of Justice was owed £2 billion in outstanding fines and uncollected criminal assets. Last year, it wrote off £76 million in uncollected court fines, which was a 50% increase on 2010-11.

I also understand when my hon. Friend says that the Government want to address the issue of taxpayers dragging out contested cases in the courts. It is a fair point. But if the measure goes through, what incentive will there be on state officials, never knowingly understanding the importance of time, to expedite contested claims themselves? The president of the Chartered Institute of Taxation made a good observation. He said:

“We have sympathy with the Government’s need to accelerate dealing with some tens of thousands of outstanding mass marketed avoidance cases which are jamming up the courts…However, handing HMRC almost unprecedented executive powers to decide who falls within the mischief they intend to deal with, without the usual safeguards and appeal rights, is not something which should be done lightly”.

I strongly endorse that.

I remind my hon. Friends that when we came into office 35 years ago, and the noble Lord Howe, then Sir Geoffrey Howe, as Chancellor of the Exchequer, delivered his first Budget on 12 June 1979, he and his successor, my noble Friend Lord Lawson, set about reducing tax, because they believed that by reducing the burden of taxation, they would reduce the incentive for taxpayers to incur costs in seeking tax avoidance schemes. I urge the Government to look more carefully at how we might increase our drive to reduce taxation itself as a more efficient way, a more Conservative way, to reduce the incentive for taxpayers to seek avoidance schemes.

I will not support new clause 12 and do not think that the House should do so, but I do think that it needs to look much more carefully at the powers that the Bill proposes to confer on HMRC officials.

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[Charlie Elphicke]

I will endeavour to be as brief as possible, Madam Deputy Speaker.

I have often made the case against tax avoidance—international and national—in the House. I have often mentioned the behaviour of the water companies, which used the quoted eurobond exemption to further their strategies. Yet I cannot support the new clause, which is, in the words of the Labour party’s head of policy, the hon. Member for Dagenham and Rainham (Jon Cruddas), nothing less than an “instrumentalised, cynical” nugget

“of policy to chime with…focus groups and…press strategies”.

The shadow Chancellor showed that at the weekend.

The new clause would not raise £500 million. I will be interested to hear the Minister say exactly how much it would raise, as in many cases double taxation treaties could be used. When I raised the loophole in question, my case was about the debt-equity gearing ratio—a far more effective way of looking at the issue. I would be surprised if the Labour party had consulted experts beyond its own advisers. Indeed, there was a consultation on this issue in 2012. I stand to be corrected, but I do not believe the Labour party gave a response to that consultation. It simply thought, “What wheeze can we table as a new clause to plonk out there for our press strategy as our instrumentalised policy nugget?”

The new clause is highly cynical. It has been devised purely to make a case and to say, “Yes, we are on the pitch in the tax avoidance debate.” In fact, when the Labour party was in power receipts from income tax doubled but receipts from corporation tax went up by 6%. Again, we heard cynicism in the debate today with remarks about the tax gap going up by £1 billion to £35 billion. That is because the economy is growing. In reality, the percentage has fallen from 7.1% to 7%, so the tax gap has been heading in the right direction.

The Government have done a lot to make the case on this issue and to take the battle to the tax avoiders. I support the accelerated payments regime—I differ from my hon. Friend the Member for Aldershot (Sir Gerald Howarth) on this—because people who are subject to it know that they are engaging in a tax avoidance arrangement that is going to be under attack, and so should be prudent and keep the money to one side. If they are not doing so, they should be thinking about things rather more carefully, because they know they have entered into an arrangement that is likely to be under attack from the Revenue.

[Kelvin Hopkins]

It is a disgrace that while millions of ordinary people suffer the privations of wage cuts, unemployment and poverty, a rich minority is avoiding and evading taxes. I am talking about corporates and billionaires. There is indeed one law for the rich and one for the poor, the poor being the great majority of wage and salary earners. They are not necessarily poor in the specific sense, but they pay their taxes—I pay PAYE myself.

The Government’s concerns about the deficit seem hypocritical given that they have failed to collect the taxes that are owed. The estimate of the amount of uncollected tax made by HMRC and the Government is of the order of £40 billion. But estimates by others—including the Public and Commercial Services Union, the trade union that represents the workers in the tax collecting industry, the TUC and Richard Murphy, a noted tax expert I have seen speak on many occasions—put the amount at £120 billion or even more.

Even if we take the £40 billion figure, if the Government collected half of it, that would be an extra £20 billion a year, equivalent to 5p on the standard rate of income tax. I suggest that that would not just bring down the deficit but would give us plenty more to spend on the health service and on decent pay rises for public servants, who have suffered so much for so long.

As for staffing in HMRC, I have spoken out about that under previous Governments as well, not just this one, because that has been a weakness for Government efforts to challenge tax avoidance and evasion for a long period. I will tell a little anecdote. In 1997, when I first came into Parliament, I went to visit my local VAT office. The people there said that if they had more staff, they could collect more taxes. In VAT from local businesses alone, every individual tax inspector collected five times their own salary. Naturally I wrote to the then Chancellor of the Exchequer. I got an answer back from a civil servant, not from the Chancellor, which said that the Treasury wanted to make savings by cutting staff. That is utterly irrational when staff collect many times their own salary.

As I said, with VAT from local firms the amount collected is five times a staff member’s salary. When it comes to the big corporates, extra staff collect many, many times their own salary, and we should have many more tax staff. Perhaps if HMRC did not have such difficulties with staffing, it would be able to work more accurately and would not make the mistakes that have been mentioned.

We have recently seen Vodafone, which apparently owed something like £7 billion in tax, do a cosy little deal with Dave Hartnett, the then boss of HMRC, and pay £1 billion. The rest was siphoned through Luxembourg, I think—wherever it was, large amounts of money were lost from the corporates. Interestingly, Dave Hartnett, who was a public servant and should have been committed to the public interest, retired and finished up as an adviser to corporates on tax avoidance. That is unacceptable. Civil servants should be motivated by the public service ethos and be determined to collect taxes. They should not be cosying up to the corporate world.

Finally, as my right hon. Friend the Member for Oldham West and Royton (Mr Meacher) has pointed out, the 1,000 richest people in this country have seen their wealth double in the past five years from a quarter of a trillion pounds to half a trillion pounds. That is a staggering amount of money. Much of that must be to do with tax avoidance and tax evasion. If we were to collect just some of that, we would have no deficit and plenty more to spend on the health service.