Tax Avoidance and Evasion

Kevin Hollinrake Excerpts

Tuesday 25th February 2020 Commons Chamber

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

I beg to move,

That this House notes that the tax gap, the difference between the amount of tax that should be paid to HMRC and what is actually paid, has been estimated at between a minimum of £35 billion and £90 billion; believes that successive Conservative governments have failed to address tax avoidance and evasion while making savage cuts to public services and undermining the social security net; further notes that the Tax Justice Network has described the UK as backsliding on financial transparency; is concerned by reports of the Conservative Party’s links with individuals and companies that have engaged in tax avoidance; and calls for the proper funding of public services after a decade of austerity and for robust action to tackle tax avoidance and evasion.

With a Budget in just over a fortnight, over the coming days we will be setting out an agenda of issues that we believe the Government need to address to tackle the social and climate emergencies that our country now faces. And yes, there is a social emergency in many of our communities. Yesterday, my hon. Friend the Member for Leicester South (Jonathan Ashworth), the shadow Health Secretary, exposed the appalling levels of health inequality across the regions of our country. Today, the Marmot report shows what he described as the “shocking” results of 10 years of austerity: life expectancy has stalled for the first time in more than 100 years, and has even been reversed for the most deprived within our community, women in particular.

Yesterday, the hon. Member for Denton and Reddish (Andrew Gwynne), the shadow Secretary of State for Communities and Local Government revealed the scandalous impact of cuts to local councils—for example, the impact they have had on the services desperately needed to keep our children safe. This afternoon, my hon. Friend the Member for Worsley and Eccles South (Barbara Keeley), the shadow Minister for mental health and social care, will describe the immense suffering and distress caused by the cuts in social care imposed by this Government. Members will remember the report only last year, reporting that 87 people died each day before actually receiving the care they needed.

At present, we have a Government who, on this evidence, have proved to be incapable of providing care for our people, of housing our people, of feeding them or of providing the work that will lift them and their families out of poverty. There is a lot of hyped-up talk about the big expenditure numbers that might be associated with the coming Budget. What we are interested in is outcomes, and the impact on the wellbeing of our people. These will be the key tests of the forthcoming Budget. Will it really end austerity? Will it really reverse the decade of austerity cuts that have been imposed on our community by this Government? Will it ensure that our people are properly cared for, properly housed, properly fed and lifted out of poverty? Alongside all of this, in a week when we have seen the Prime Minister’s failure to respond to the flooding that has damaged so many of our people’s lives, the overriding test is: will this Budget tackle the existential threat of climate change?

It is interesting that, contrary to virtually all the advice from mainstream economists 10 years ago, the newly elected Conservative Government took the political decision to impose austerity cuts on our community. As we have repeatedly said, it was a political choice, not an economic necessity. The alternative was to ensure that we had a fair taxation system to fund our social infra- structure, and that we borrowed to invest in our physical infrastructure to grow our way out of recession. The reality is rather that the neo-liberal ideologues simply could not let the economic crisis go to waste. They seized the opportunity to launch their experiment to downsize the role of the state through cuts, outsourcing and privatisation. This was linked to ever more restrictions to reduce the effectiveness of trade unions to represent their members and to shift the balance of power between capital and labour in the workplace.

The result has been that virtually every area of our public services is in crisis, with the slowest growth in wages in 200 years, 8 million of our people in working households in poverty and over 4 million of our children in poverty. The UN rapporteur has described levels of destitution in our country and the treatment of disabled people as an abuse of human rights. The Government’s alibi for austerity was the global financial crisis, even though Government spending was never a cause of that crash. Now, 12 years on, the Government no longer have that fake alibi for the cuts. It is clear the Tories do not just want to shrink public services and cut public sector jobs in the short term; they want to downsize our public services for good—as the Institute for Fiscal Studies has said, baking austerity into Government.

All this suffering, all this hardship, all this holding back the potential of a near-generation of our people would have been rendered completely unnecessary if we had had a fair taxation system and had invested in our economy. A fair taxation system starts with ensuring that people and corporations pay their taxes. That patently is not the case at the moment. There is much talk about levelling up; well, let us start with levelling up the rules of taxation and the amount many of the rich and the corporations pay in taxes.

[Kevin Hollinrake (Thirsk and Malton) (Con)]

Surely the right hon. Gentleman will be aware that the top 1% of earners in this country now contribute about 29.6% of all taxation, whereas in 2009-10 the figure was only about 25%. How can he say that is a failure?

[John McDonnell]

They pay that much because they earn so much more than everybody else, but the other issue, and it relates—[Interruption.] Let me finish. We have this debate time and again. The hon. Gentleman is referring to income tax, but when we take into account overall taxation we see that the poorest-paid in our country are paying about 40% of their income while the richest are paying around 34% of their income. It is the poorest who are hit hardest, it is the poorest who have shouldered the burden of austerity, and it is the poorest whose life expectancies are being reduced at the moment. That cannot be right; surely to God no one in this House was elected to ensure that life expectancy for the poorest stagnates and for some goes backwards.

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[Steve Barclay]

It is always good, 10 days into the job, to get specific challenging questions on the detail, but to answer that question—and I do not want to tempt hon. Members who usually come with in detailed questions such as that—the tax has raised £5 billion in additional revenue. On this occasion, I can satisfy the House, but I do not want to tempt fate with too many colleagues on this outing.

It is interesting that attitudes in large companies are changing. I am sure that there will be Members who will want them to change further, but since 2013 the proportion of large businesses agreeing that tax avoidance is acceptable has more than halved, moving from 45% to 21%. There is clearly more to do, but that shows a change in attitude within many large companies.

[Kevin Hollinrake]

One of the measures that the Government introduced in 2017 was a corporate offence of failing to prevent tax evasion, which certainly has had an effect on advisers. Will my right hon. Friend consider expanding that failure to prevent offence to include economic crime and money laundering, which would further narrow the tax gap?

[Steve Barclay]

As my hon. Friend will know, before coming to the House I worked in the field of trying to prevent money laundering in our financial institutions. As a principle, we are always keen to look at that, but he is right to draw attention to the measures that we have taken, including on the professional responsibilities of advisers, whether that relates to the property business—in businesses linked to his previous senior business experience —or accountants, lawyers and others.

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[Steve Barclay]

The target is a gap that is as narrow as possible, and I do not think HMRC’s commitment to that can be questioned. As I have said, the gap is now at a record low, but I entirely share my hon. Friend’s desire for us continue our efforts to reduce it further, because there is a common purpose: to reinvest that money in levelling up all parts of the United Kingdom and in our public services.

Part of this requires domestic action, but part of the action must be international. That is why in the 2018 Budget we announced 21 measures forecast to raise a further £2.1 billion by 2023-24, including measures to bear down on those using offshore structures to hide their profits and avoid tax; it is why the UK is at the forefront of international action to address global tax avoidance and evasion, including the OECD’s base erosion and profit shifting project, which seeks to align the taxation of profits with the underlying economic activities and value creation; and, indeed, it is why in 2016 we led the world with the first public registry of company beneficial ownership in the G20, to provide for analysis of suspicious patterns of behaviour, and to disclose inconsistencies in supposedly factual information and reveal wrongdoing.

[Kevin Hollinrake]

This is not just about the money. It is also about a fair and level playing field for everyone in the country. We know that Google turns over about 10 billion quid in the UK, we know that its international profit margin is about 22% and that 19% corporation tax on that should be £418 million, and we know that it pays about £67 million. Will all the additional measures that my right hon. Friend has described, along with those previously implemented, narrow that gap so that everyone pays a fair amount of tax?

[Steve Barclay]

My hon. Friend has been in the House long enough to know that Treasury Ministers will not comment on individual companies. However, there is a wider principle, which I think was reflected in the shadow Chancellor’s opening remarks and on which there is agreement across the House. We all want the tax gap to be narrowed, and we celebrate the HMRC’s work in achieving a near record low, but we continue to think about what further measures can be taken, and I have described to the House a wide range of measures taken by the Government in recent years.

It is in everyone’s interests that we continue to crack down on evasion and avoidance and continue to narrow the tax gap. Doing so will allow us to invest in services, and to level up and unleash the potential of every corner of the United Kingdom. That is why we have done everything that we have done so far, it is why we will continue to keep searching for improvements, and it is why we will continue to invest in HMRC’s powers following the forthcoming comprehensive spending review.

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[Kevin Hollinrake (Thirsk and Malton) (Con)]

It is a pleasure to follow the hon. Member for Coventry South (Zarah Sultana). I share some of her concerns about ensuring that those with the broadest shoulders pay the most, following the lead of the shadow Chancellor, but it is useful to look at the facts. An interesting survey was carried out by PricewaterhouseCoopers and the BBC on the nations that have the highest proportion of tax on high earners, looking at people earning a quarter of a million pounds a year. The UK is the third highest taxing country in the world—only Italy and India are higher. The hon. Member for Stalybridge and Hyde (Jonathan Reynolds) shakes his head, but he can google that. We should clamp down on tax avoidance and tax evasion, but we cannot raise the taxes we want without the negative consequences of people shifting that wealth and income elsewhere.

[Peter Grant]

The shadow Chancellor said at the beginning of the debate that tax is about a lot more than just income tax. Can the hon. Gentleman confirm whether the statistic he just cited relates to all taxes paid by wealthy individuals or only income tax? Does he agree that, if he is only talking about income tax, that statistic is highly misleading?

[Kevin Hollinrake]

It related to income tax. [Interruption.] The point I was making was about income tax. The shadow Chancellor talked about raising taxes from the people who earn the most, and I was simply responding to that point. I have said in the Chamber many times that we should clamp down on tax avoidance and tax evasion.

The shadow Chancellor strikes me as the failed football manager turned TV pundit—having lost all his games by a wide margin, he suddenly complains when the incumbent manager is only winning his games 1-0. This Government have done far more to collect avoided and evaded taxes than the previous Administration—that is a fact. We can choose our opinions, but we cannot choose our facts. We need to go further. This is not just about the money; it is about creating a fair and level playing field and building confidence in the system, so that SMEs, which are the lifeblood of our economy and business, feel that they are not playing in a rigged game. It cannot be like that.

It is utterly wrong that we should countenance tax avoidance, because it undermines the level playing field for SMEs, and that has a tangible effect. For example, the Johnston Press, which owns The Yorkshire Post and many other titles around the country, was turning over £177 million in advertising revenue in 2008, and today, that figure is £22 million. There has been a transfer of revenue from areas such as regional press to online advertising, and particularly Google. Johnston Press will have paid its fair share of taxes, as most companies of that size do. Internationally, Google turns over about £100 billion. We know that around 10% of its turnover is in the UK—that is a stated fact—which is £10 billion. Its international profit margin is 22%, which means that it makes £2.2 billion. It should be paying £418 million in corporation tax at 19%, but it pays £67 million. That is simply iniquitous. It cannot be right, and it cannot be sustainable.

I am delighted that the Economic Secretary to the Treasury is on the Front Bench, because I want to give another example of where we are not maintaining a fair and level playing field. It relates to some of our banks and Cerberus. UK lenders who pay UK tax have sold their loan books to inactive lenders who work offshore and do not pay corporation tax or operate on the same regulatory playing field. Cerberus, which has bought loan books off Northern Rock and UK Asset Resolution, plays by a completely different set of rules. Its costs are therefore lower, which means that it can afford to pay more for those loan books. It does not properly look after its customers, nor does it have the responsibility to look after them and treat them fairly. We have to make an extra effort to ensure that everybody operates on a fair and level playing field. Cerberus paid £15,000 in corporation tax on six subsidiaries in 2015, despite working on a 20% profit margin.

In terms of my own business experience, our business grew to a point where we were making a reasonable profit. Our adviser—a normal accountant, not one of the big four—said, “How about trying this scheme to avoid tax?” It was perfectly legal, but we refused to take that option, because we did not think that it was right. We need to work harder with advisers and promoters to ensure that everybody pays their fair share of tax. The Government use the big four in many ways and take their advice, and it seems wrong that those very companies then go to large multinational companies and others and show them how to avoid tax.

One of the solutions is country-by-country reporting. We have a precedent for that, with the bookmakers’ point of consumption tax. The Labour party came up with a ruse that involved charging businesses in terms of where their economic activity, people and premises are, and there is very much a basis for that. We need to ensure that what the Government have done through the digital services tax and diverted profits tax narrows the gap for companies such as Google and Facebook.

We need to implement some other key measures, including on transparency about overseas entities and ownership of property, which is a way to avoid tax and move money around the world illegally and unfairly. We need to see measures on beneficial ownership in overseas territories brought forward to 2023. Finally, a corporate offence of failure to prevent economic crime and money laundering would reduce the amount of money that is illegally shifted out of the UK into foreign jurisdictions and increase the amount of tax that is paid.