Tax Avoidance and Evasion

Kevin Foster Excerpts

Wednesday 13th April 2016 Commons Chamber

[Kevin Foster (Torbay) (Con)]

It is a pleasure to follow the hon. Member for Dundee East (Stewart Hosie). Although there are probably some things we would disagree on, there are a couple of issues on which we do agree. One is that it is welcome that we are having this debate on the Floor of the House today. The other is the fear that the next tax haven to be listed—this time it would affect ordinary working people—might be England if the Scottish Labour party gets its way after the elections this May and makes tax rates for working people higher there than they are south of the border.

It is always good, as a member of the Public Accounts Committee, to be discussing on the Floor of the House how we get in the tax that is owed. During Prime Minister’s Question Time, I think I heard the Leader of the Opposition refer to tax as partly a donation. I can understand why he said that, but let us be clear: a donation is something people voluntarily give to a charity, as I do out of my salary; a tax is a legal requirement to pay something—it is not a donation or an act of charity.

As a member of the Committee, I sat on our recent inquiry into Google, which is perhaps one of the cases that has helped to prompt the debate on this issue over the last few months. We focused a lot on some of the offshore locations, but we also had references to things such as the “double Irish” and the “Dutch sandwich”, which helped to reduce the company’s tax liability. Neither of those relates to offshore territories; they both involve jurisdictions that are members of the EU. It is therefore important that, as we work across the world to try to deal with tax evasion and avoidance, we make sure that other nation states give these issues the attention they deserve. [Interruption.]

[Madam Deputy Speaker (Natascha Engel)]

Order. I am sorry to disturb the hon. Gentleman, but there is quite a lot of chattering going on, and I am finding it quite difficult to hear him.

[Kevin Foster]

Thank you, Madam Deputy Speaker.

In its report, the Committee was clear that HMRC should try to lead a debate about openness and tax rules. In that instance, the issue was revenues and the discussion of information with HMRC. It is easy to grandstand in such debates, but it is important to have not a knee-jerk reaction, but a considered debate about what information is available publicly, because there cannot just be specific rules for individual companies. If we change our general principle of not discussing individual taxpayer data, there are obviously some pitfalls to that, as well as some potential benefits, as we see when we look at deals such as the one with Google. However, the Committee felt that HMRC could lead a debate on that.

The report summarises some of the issues involved in judging whether the Google deal was the best deal that could have been done. It is worth noting, however, that the debate was based on previous tax rules, not today’s tax rules; effectively, we were having a debate about things as they existed some years ago—in some cases, 11 years back, when many Members sitting here today were not actually in the House—and about laws that have, in many cases, changed.

What came out of the Committee’s discussion is that HMRC’s performance is being looked at more widely, and the Committee regularly looks at it. It is encouraging to see some of the figures that have been published on the reduction of the tax gap—not least the corporation tax gap, which has gone from 14% to 7%. That is welcome. Yes, there is more we can do to drive down that 7%, but it is far better to be talking about 7% than 14%.

As has been referred to in the debate, the tax haven where a hedge fund manager could pay as low a tax rate as the person who cleaned their office was the UK six years ago. I have always felt that tackling that was one of the best things done under the coalition Government, because it seemed innately unfair that someone sitting within a few miles of this building could use capital gains tax rules to pay a low rate on a substantial income—indeed, a lower rate than a person earning the minimum wage for cleaning their office.

Having had discussions with Anguilla’s Public Accounts Committee recently, I welcome a number of things about HMRC’s having the ability to get information from, and share information with, the Crown dependencies. I agree with the hon. Member for Dundee East that we should be as diligent in handing information to tax authorities in developing countries via such information-sharing arrangements as we are in using information to enforce our own tax system. I suspect there will always be a debate about exactly what information we share with countries with more repressive regimes, but where the line is purely about avoiding taxation, we should be prepared to co-operate, provided that there are assurances about the standards that will be applied afterwards as part of investigations under the relevant nation’s criminal justice system.

In terms of how the Government and the UK engage with these authorities, it is worth bearing in mind that some of the regulations involved are very complex. There is perhaps a debate to be had about the fact that we currently appoint governors, who effectively act as the Head of State, for three years, with their term being extendable to four. There is perhaps a debate to be had with Foreign Office colleagues about whether it would make more sense to have a longer appointment, to allow governors to build a relationship with the authorities in a country; to build a knowledge of the system there; and to be able to engage more, and to give difficult messages, on behalf of the UK, in a way that a three-year term perhaps does not allow.

We should be clear that being a governor is not about going round in a feathered hat being saluted by everyone; it should be about being part of building a strong and lasting bond between the UK and territories that look to us for support, particularly in the realm of defence and overseas development. We should have people who engage with territories very strongly and who build up their governance systems, but who also have a deep knowledge of those territories and a deep relationship with them. We can then have the tougher discussions we need to have about areas where those territories are sovereign, but where their decisions have a clear impact on us as the home nation.

That said, I welcome the agreements we have managed to sign. I recognise that this is a global problem. Panama is one of the few countries not to have signed up to some of the international agreements, and one of the key issues is what further steps we take against nations that do not do that. Again, however, that should be part of a proper global debate, and we should not pick off individual jurisdictions. If we do that, people will simply find the next jurisdiction that is not honouring transparency. This needs to be a slightly wider debate than just picking on individual circumstances or an individual issue.

Likewise, we need a debate so that there is clarity, for example, about which types of investment many people use—perfectly legitimately and perfectly lawfully—in this country. We have heard of trade unions, pension funds and councils that use unit trusts and that pay their taxes here. At the same time, however, we have to open the envelope on shell companies that are basically just being used to hide who actually owns something, so that we can have that information and ensure that HMRC can get the tax it is due.

I was slightly disappointed that the opening of the debate seemed to focus more on a party political attack than on a measured discussion of how we ensure that the taxes legislated for by this Parliament are collected so that they can be spent by this Parliament. In reading the motion, I thought it was strange that there was no reference to the recent Public Accounts Committee report on the Google taxation deal. Likewise, I was disappointed that there was no reference to the tax transparency Bill—to give it a rather snappier title than its official one—introduced by a former Cabinet Minister, who is now a Labour Back Bencher. Instead, the motion seems like a party political policy document, which means it is not something I feel inclined to support.

This debate is welcome. It is safe to say that all of us recognise that there is more work to be done to capture those revenues that escape all taxation in all jurisdictions, and the UK can also play a role in building the capability of developing nations to crack down on tax avoidance that costs them even more than it costs us. This is ultimately about ensuring that those tax rates that are set here and that we believe are fair are paid. That is the nub of this debate and it must be the focus of future work.

[Several hon. Members rose—]

--- Later in debate ---

[James Cartlidge]

I simply do not agree with that. I want to start by focusing on the action that has been taken, because I do not think that the anger out there is caused by a lack of action.

[Kevin Foster]

Will my hon. Friend give way?

[James Cartlidge]

May I just make one point first, although it is lovely to have so popular a speech and so many interventions? On the action we have taken, as my hon. Friends the Members for Torbay (Kevin Foster) and for Newark (Robert Jenrick) have said, there has been a 50% fall in the corporation tax gap. I am sure that that is the sort of point on which my hon. Friend the Member for Torbay wants to support me.

[Kevin Foster]

I thank my hon. Friend for giving way. He has already been very generous with interventions. Does he agree that one of the things that really used to anger people was that an office cleaner could be paying a higher rate of tax than a hedge fund manager who worked in the same office? That was happening not in a tax haven, but here in the UK, and it is right that it was tackled.

[James Cartlidge]

That is an excellent point. It was a fundamental injustice, and we dealt with it. In the latest Budget, we announced a series of measures to tackle tax avoidance on matters such as hybrid mismatch, VAT evasion through online sales and the general anti-abuse rule. We will introduce a new penalty of 60% of tax due in all GAAR cases that are successfully tackled. We have brought in a long list of measures on matters such as serial tax avoidance and offshore avoidance.

On the broader point about the wider economics, I founded a small business in 2004—a mortgage broker specialising in the shared ownership sector—and it was obvious to me in the build-up to 2008 what was coming down the track. I believe that the then Government were trying to tackle inequality through debt. In those days, two potential homebuyers, one of whom was relatively wealthy and well educated, and the other who had less good skills and was less able to command such a salary, could both obtain similar levels of mortgage through the extraordinary measures that existed at the time, such as self-certified and sub-prime mortgages. We all know where that led.

In terms of public debt, the then Government’s main measure to deal with inequality was tax credits, which led to a £30 billion increase in in-work benefits. We paid for that increase in benefit spending on the national overdraft at a time when the country was doing pretty well and the world economy was relatively strong.