Finance Bill

Kevin Hollinrake Excerpts

Report stage & Report stage: House of Commons & Report: 1st sitting & Report: 1st sitting: House of Commons
Wednesday 1st July 2020 Commons Chamber

[Bridget Phillipson]

Yes, I support the point the right hon. Gentleman makes, and I will come on to say more in my contribution both about how those companies need to contribute more and how it is essential that we see international consensus on this issue. The measure the Government have put forward today is necessarily time-limited, and we will need to see a much more sustainable, long-term solution with a broader international base.

It is not right that British bookstores and other businesses face a higher tax rate than Amazon. Unfortunately, this measure does not go far enough to address this fundamental unfairness, nor does it really get to the heart of the tax avoidance strategies some of these tech companies have used in recent years. As the Chartered Institute of Taxation points out, this measure is not aimed at stopping profits arising in the UK being shifted by multinationals out of the UK to tax havens. However, for far too long the companies that make the modern economy work have got away with complex ways of moving and hiding the money we pay them.

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

I agree with many of the points the hon. Member makes, and certainly about making sure that we have a fair and level playing field for small businesses. I am certainly a supporter of new clause 33 in principle, which is trying to see these multinationals disclose profits on a country-by-country basis. However, to be fair, does she accept that the Government have gone further than previous Governments, with measures such as the diverted profits tax and now the digital services tax?

[Bridget Phillipson]

We welcome all measures and will support any proposals to tackle tax avoidance, whether it is in terms of tech giants or more broadly, but we still face a big gap in this country, and we are urging the Government to do much more. I am sure the hon. Member would agree that it is vital that we see greater action, because we have seen this unfairness, particularly during the pandemic. He, like me, will have many wonderful local businesses in his constituency that pay their taxes and are trying to come through this crisis, and they want to ensure that there is a level playing field between the bricks-and-mortar businesses and online businesses. I am sure that we all want to get behind that endeavour.

For too long, companies have moved and hidden the money we pay them. Research by TaxWatch UK estimates that we are losing £1.3 billion in corporation tax from five of the biggest firms each year. In comparison, the Government’s own estimate is that the digital services tax is only set to produce £280 million this financial year. The modest nature of this measure becomes clear when we consider what some of the tech giants might actually have to pay under the tax. I will highlight again for the benefit of the House, as I did in Committee, research by TaxWatch UK which predicts that Facebook would face an increased tax bill of £39 million, despite estimated UK revenues of almost £2.3 billion. Google would pay slightly more—around £168 million—based on estimated UK tax revenues of £9.3 billion. Many businesses, such as Amazon, that blend their activities will be unaffected by the measure.

The Government will be aware of our concerns that streaming services are not included at all, which we discussed in Committee. The Financial Secretary to the Treasury said then that

“it would not be appropriate to implement a temporary tax on a broader basis.”––[Official Report, Finance Public Bill Committee, 11 June 2020; c. 126.]

He will doubtless be aware that taxes introduced on a temporary basis have ended up becoming permanent fixtures, including income tax, introduced to fund war with Napoleon. With little evidence that the Government are working to secure international agreement on a replacement for this tax, temporary could end up being for a very long time. Her Majesty’s Revenue and Customs employs many extremely capable people, and I am sure that it is not beyond their wit to develop a way of taxing streaming services too.

New clause 33, which was tabled by my right hon. Friend the Member for Barking (Dame Margaret Hodge) and has many cross-party supporters, would require those liable for the digital services tax to publish a country-by-country tax report. My right hon. Friend has campaigned tirelessly and incredibly effectively on this issue, and I wish it were possible for us to hear from her directly today. Sadly, the way in which we now conduct our proceedings makes it impossible for her to contribute, which is a real shame, given the expertise and insight she brings, but I am aware that the cross-party support of the new clause will allow other speakers to raise the points that she might have sought to make.

For years, the Opposition have urged the Government to commit to country-by-country reporting on a public basis. Their reticence to do so, and the way in which they have held up progress at an international level, has been a source of deep frustration to those of us who want to see far greater transparency around the taxation of multinational companies. This new clause would not only be of practical use, so that we can see whether those liable to the digital services tax are paying an appropriate amount. It would also help to address the concerns I have outlined that the measure as it stands does little to address the tax avoidance practices by digital multinational companies. It would end the secrecy around such practices and pave the way for public country-by-country reporting at a wider level. The Government have been fond in recent months of saying that they wish to be a world leader—well, here is the opportunity to become a world leader in tax transparency, and I urge the Minister to listen to the arguments being made and take urgent action to address them.

The pressure on our public finances and vital frontline services means that we should be doing far more to ensure that those tech companies that have benefited from the lockdown are contributing more. We need a level playing field between our high streets and the tech giants. We need to build a society where everyone—individuals and businesses alike—pays their fair share. A digital services tax must be part of that, but the Government simply are not going far enough. A bolder approach on a digital services tax would not only help to address this unfairness; it would help to deliver a sustainable recovery from the economic crisis we are facing.

Labour has called for a back-to-work Budget—one that focuses on retaining jobs, sustaining jobs and creating jobs; a full Budget that invests in our young people, who are facing the worst employment prospects for a generation, and helps to secure a future that they can look to with hope. An effective digital services tax would go some way to supporting that goal. As I have indicated, this measure is expected to generate a fairly limited amount when compared with the extent of the tax avoidance practices we have seen from some of these companies in recent years and the profits they have made in recent months. Therein lies the principal reason for our amendments: we need to understand as soon as possible how effectively the measure is working and what more can be done to ensure that such companies are paying an appropriate amount of tax.

The Government’s unwillingness to conduct a review earlier than 2025 means that the opportunity for Parliament to properly scrutinise the measure will be hugely limited. I know that the Minister hopes that a multilateral approach will be in place by then; we on the Opposition Benches hope that that will be the case, too. A comprehensive multilateral agreement, based on a lasting international settlement, is the only long-term solution, but until that happens, the Opposition will continue to push for a more ambitious approach, to which our European neighbours are looking as well. The times that we are living through demand such an approach.

--- Later in debate ---

[Andrew Jones]

My hon. Friend makes a valuable point, and I agree with him entirely. It is an analogue tax in an increasingly digital world, and it will need to evolve and be replaced. However, to build on the point made by the hon. Member for Islwyn (Chris Evans) earlier, many companies operate in both spheres. I know that from my own commercial experience prior to coming here. The key thing is to be available through the channels that your customers want; otherwise, they will not buy from you.

Equally, I have been talking to high street retailers, especially some of the smaller independents in my constituency, and they do not see a level playing field. High streets and town centres have been under significant pressure for many years. This is not new, but the trend is being compounded by the coronavirus crisis. Some sectors have been incredibly badly hit over the years. Bookshops are particular example. High streets have a role beyond the purely economic. They have a social role, in that they bring people together and create hubs for communities, so the work that the Treasury is doing to create a more level playing field is welcome. This is not to deny the digital market; is about giving high streets and the businesses on our high streets more time to respond to the evolving nature of competition. We must not be in denial about the march of digital. We must embrace it, and the UK has a good record of doing so, but we must recognise that we need more digital connectivity and more emphasis on digital skills.

[Kevin Hollinrake]

My hon. Friend is raising some important points about the level playing field. Does he accept that, although introducing the digital services tax is the right thing to do, it does nothing to rebalance online versus the high street because the money is not coming off business rates? The £30 billion is still going to be coming from business rates, and if we lose that system, we will have to find another system to replace it that will raise £30 billion. The research we have done in the various Select Committees shows that there is no consensus around what could replace business rates in a fair way.

[Andrew Jones]

My hon. Friend makes a really interesting point. It is hard to create new taxes and the reform of certain parts of our taxation has been put into the bottom drawer marked “too tricky” by successive Governments over many years. Perhaps business rates are a part of that. It is clearly going to have to evolve, and it is evolving, but it is also hard to create a new and entirely fair system, particularly as the economy is changing so rapidly that we are in danger of creating a system that solves yesterday’s problem.

I will conclude by saying that this positive measure creates a more level playing field, but not an absolutely level playing field. The digital economy is critical to us. I am very keen to see more digital start-ups across the country, greater digital connectivity and more emphasis on skills and start-ups. None of that is compromised by the digital services tax. It is about bringing more fairness into the tax system, but it will also give us some valuable insights into how tax may be raised in the future, because one thing we do know is that there will be a new normal after the crisis, and the digital economy will be at its heart.

[Dr Rupa Huq (Ealing Central and Acton) (Lab)]

I rise to echo some of the points that the right hon. Member for Sutton Coldfield (Mr Mitchell) opposite made about new clause 33. Although it is not being pressed to a vote today, I hope that the Government will bow to the inevitable before long and will heed our calls. A few of us on the Opposition Benches will be talking about that.

I echo the disappointment of my right hon. Friend the Member for Barking (Dame Margaret Hodge) and the hon. Member for Amber Valley (Nigel Mills), with whom I co-chair the all-party parliamentary group on anti-corruption, that they could not be here. We have had the rug pulled from under our feet with the hybrid Parliament, but let us not get into that; that is another debate for another day.

If we are talking build, build, build, the new clause would help towards rebuilding our economy post-coronavirus and rejuvenating our high streets, which have long felt clobbered by online competitors even before all this crisis. The new clause would do that by creating tax transparency for multinational giants, responsible investment and the closure of loopholes that enable financial flows that may not quite be illegal, but many would call pretty immoral.

The principle of country-by-country reporting, whereby multinational monster companies file public reports on their dealings country by country and then pay their dues, getting rid of the secrecy around their affairs and ensuring that tax is paid at the right time and in the right place—where the profits were made—has already been adopted by the OECD as an ambition. If that idea brings on a sense of déjà vu, it was passed by this House back in 2016 as the “show me the money” amendment tabled by Caroline Flint.

The issue is about fundamental fairness. When considering what the state of our public finances will be post-pandemic, we should be careful not to burden ordinary taxpayers with the whole tab, particularly when the tech giants have enjoyed state bail-outs. We have heard about high street decline, and the fact that the measure would rake in billions means it is needed now more than ever.

It cannot be one rule for hard-working UK businesses that play by the rules and pay into our Exchequer, and another for multinationals that can pretty much pick and choose what they do and pay minimal tax by shifting—sorry, “reallocating”— profits around the globe to low-tax dominions, where they might effectively just have a PO box to demonstrate a presence, all to save themselves cash that could be spent on our public services.

New clause 33 would mean that companies would have to publish how many employees they have, how much profit they make and their assets in each dominion. How is it, for example, that we have Amazon employees in warehouses here—some of them are our constituents—but its UK subsidiaries paid just £5 million of tax in the UK last year? We know that Amazon makes billions and billions. My small businesses in Acton, Ealing and Chiswick do not have the option of routing things through the Cayman Islands under the practice of tax haven abuse.

Since 2016, sadly there seems to have been a kind of stalemate. The principle is well-established and agreed, even back to David Cameron’s crusade for anti-corruption at the G8 in 2013, but there has been complete timidity from Government to act. A series of replies to written questions discuss how multilateral action is needed. The Government are basically saying, “I will move if you do”, but what good is having something on the statute book if it is not enacted? People will remember the Marcus Rashford affair the other day and they will see another U-turn here. I am hoping the Government can prove them wrong.

The new clause would make the principle a reality in relation to the digital services tax applying to the Facebooks, Googles and Amazons of this world. It is wrong that pound-for-pound, relative to what they make, they pay less tax than any of our constituents or we do. No market-sensitive data is included in the reporting format, so tech giants have nothing to fear.

The world has moved on from 2016, which was two Parliaments or three elections ago, although elections take place every other year now—I have had three in my short time here. Although the coronavirus rescue packages were entirely the right thing to do, it looks at the moment like the bill is going to have be footed by our children’s children’s children, who will still be paying it off. If we are serious about levelling up, this new clause would provide a level playing field for honest British businesses with the multinationals that can bypass proper procedures with their tentacles spreading everywhere around the world.

[Kevin Hollinrake]

The hon. Lady has said that the Government are being timid. Does she accept that it is not timid to introduce a digital services tax in the teeth of opposition from our largest trading partner, the United States? Much as I support new clause 33 in principle, the digital services tax is a very bold move.

[Dr Huq]

The hon. Gentleman is on the all-party parliamentary group and I know that he secretly agrees. Perhaps he is not saying so because his Whips are listening. The EU is our biggest trading partner. For many years before I came here, I used to teach and would sometimes say, “Could do better.” Yes, we support the measure, but we could do better, and this is a glaring example of an issue that is in need of urgent rectification.

The covid-19 crisis necessitating Government help for industry has, I hope, reversed the trend towards laissez-faire economics. It has been remarked by many people that we are missing a trick. We could bring some of these unscrupulous companies—we can call them companies with clever accountants, if Members prefer—to heel. It seems wrong that the Bank of England has made £1 billion of loans available to the German chemicals giant BASF, which has transferred profits to Malta, the Netherlands and Switzerland in order to avoid tax. There are countless other examples, but because these things are shrouded in secrecy, that is the example I am able to give. The easiest way to do it is by enacting what is already agreed, and we do that via the digital services tax, which the hon. Member for Thirsk and Malton (Kevin Hollinrake) hails. These companies could be given time to make adjustments, and the very fact of transparency, rather than overly punitive measures at the start, could shame them into action and make them see sense.

We face a double whammy of the covid financial crisis and uncertainty outside the EU. The Chancellor said, “Whatever it takes”. Those headquartered in the UK already submit all this information to HMRC and to other relevant tax authorities. All we are asking is that we can all see it and that there is full and frank disclosure—including for investors and other stakeholders, who increasingly want to know these things—and then we can see where each company has its economic bulk or footprint. Making public what already exists would be low cost and straightforward. I see no downsides to this. The only people who oppose the proposal are those who usually abuse the rules. I understand that the tax havens of Jersey and Luxembourg are not too keen on it.

We keep being told that, post-virus, things cannot go on as before and, “We shouldn’t waste a good crisis, should we?” Ensuring that very large companies publicly reveal revenue and tax information could be something on which we lead the world, and we can still apply pressure on the OECD and G20—the two are not mutually exclusive. We cannot wait forever for action from the EU, because we are no longer a member of that organisation. Time and again, we were told by the leavers that we could be an independent nation and we were reminded of the sovereignty of Parliament. This proposal has wide cross-party support.

--- Later in debate ---

[Miriam Cates]

I did not enjoy the Committee that much; I want to put that on record. The hon. Gentleman makes a good point, but I will say two things. First, we are only talking about the very largest businesses here—those with £25 million of UK revenues, though I appreciate that for some companies that may be split. Secondly, we are one of the first countries in the world to introduce a tax such as this, and it will take time to record, report and analyse its exact effects. As a number of Members have said, we are hoping for international co-operation in the long term, and hopefully this is a short-term measure where the UK is acting alone. I think things will become clear over time.

For companies that do become liable for the tax following the passage of the Bill, it may be some time after the 12-month period following Royal Assent before they actually pay the levy, and some businesses will only be paying the amount due during the part of the year that the Bill was enacted. That means that there will be little, if any, meaningful data within six months or even 12 months of the Bill being enacted, so the amendments add little value to the Bill.

New clause 33 would require all groups subject to the DST to publish a group tax strategy with a country-by-country report, including information about the group’s global activities. While I have no doubt that this is a well-intentioned amendment, I fear that it may have some unintended negative consequences. We need to remember that the DST will affect only the very largest companies—those with over £500 million of international revenues and over £25 million of revenues from UK-based activities. Companies like this will think nothing of rearranging their activities to avoid this kind of enforcement, so UK mandation alone could push businesses offshore. We want to encourage voluntary compliance, and I know that my right hon. Friend the Financial Secretary to the Treasury and his colleagues have worked hard to ensure that this new tax will not deter UK trade. At this point, especially given that the UK is one of the first nations in the world to introduce such a tax, and given how mobile these companies are, it is prudent to ensure that the administrative burden is as light-touch as possible.

It has been a great opportunity to serve on the Finance Bill Committee. My hon. Friend the Member for Aberconwy (Robin Millar) said how much fun it was. I am not sure that I would go so far as to say that it was fun, but it has been a privilege, particularly given the opportunity to discuss a groundbreaking new measure that will level up our tax system and help to restore a level playing field in our UK economy.

[Kevin Hollinrake]

It is a pleasure to follow my hon. Friend the Member for Penistone and Stocksbridge (Miriam Cates), who made some very important points. She made the critical point that the digital services tax is a temporary, short-term measure, and we need something more encompassing to replace it. That is why I want to speak to new clause 33, which proposes a radical reshaping of how tax affairs would be disclosed. If we are going to tackle this fundamental problem, it is essential that we have country-by-country reporting. I therefore do not secretly support this new clause; I openly support it, even though it is not going to be pushed to a vote today. The principle behind the clause is absolutely right, and I pay tribute to my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell) and the right hon. Member for Barking (Dame Margaret Hodge) for their work on it and in many other areas to tackle tax avoidance and corruption.

The other key element of the digital services tax is that it tries to level the playing field in corporation tax, but it does not level the playing field for business rates. That is a completely different discussion and it is one that we definitely need to have.

When I first came to the House, I attended one of those breakfasts; I think it was run by the Industry and Parliament Trust, of which I am a trustee. The subject of that seminar was the values of business—I have been in business for 30 years, and in my view business is a force for good in the vast majority of cases—and it was addressed by a vice-president of Kellogg’s, who talked about the values of business to the economy and the inherent values of some businesses. As examples, he talked about the great values and corporate social responsibility of businesses such as Facebook, Google and Amazon.

While the speaker was addressing us I googled, “Do Kellogg’s pay corporation tax in the UK?” My search came up with a Daily Mail article saying that Kellogg’s turns over £650 million in the UK and does not pay any corporation tax. When he got to the end of his comments, I asked him, “How can you square the circle—saying that you have great corporate social responsibility policies and put money into good causes in the UK, which might cost you a few pence or percentage points in terms of cost and contribution, when you are not paying corporation tax? Your customers are taxpayers. You are trading and turning over a significant amount of money in the UK. And yet you are not contributing back to the bills and the vital public services that your customers rely on. I think it is a cynical approach.”

This Kellogg’s vice-president was clearly quite stunned by my question. I quoted to him that Kellogg’s is one of those companies that does not pay corporation tax. When pressed for an answer, the only one that he could come up with was, “Well, we’ve got a duty to shareholders to minimise our tax burden.” That is an old chestnut. I hear lots of big shareholders of big companies in the US—people such as Warren Buffett—absolutely reject that notion. In my mind it cannot be right that businesses seek to avoid fair taxation rates in this world and, as many hon. Members have said, we have a duty to stand up for small and medium-sized enterprises that cannot benefit from these kinds of devices. The vast majority of us pay tax through pay-as-you-earn anyway, so we pay our fair share of tax—and most people do so willingly.

[Jesse Norman]

My hon. Friend raises an interesting point. Does he share my view—I think it is also the view of the people who really know the law in this area—that in Britain a corporation exists to maximise the interests of all its members, rather than merely the shareholders, and that the shareholder entitlement is to the residual that is left after satisfying other claims on the company?

[Kevin Hollinrake]

I absolutely agree. Any businessperson starts off on the premise that they have responsibilities not just to their shareholders, but to their customers and other stakeholders.

Due to the scale of the problem and the lack of country-by-country reporting, it is difficult to establish exactly what some of these companies are making in the UK, but let us look at Google as an example. In 2018, Google turned over $137 billion and had net revenues— so a profit—of $31 billion. The whole organisation internationally works on a profit margin of about 22%. The company turned over around $10 billion in the UK in the same year, and makes about $2.2 billion of profit from UK activities each year. If we applied 19% corporation tax to that amount, we would come up with a figure of £420 million in corporation tax that Google should have paid. It actually paid £67 million that year. This is happening on a huge scale and is multiplied by many other companies.

[Bob Stewart (Beckenham) (Con)]

I thank my good and hon. Friend for allowing me to speak. This confuses me. I would have thought that very clever tax inspectors could visit these international companies. Surely these companies cannot disguise the money that they are sending out of the country. Surely we have methods of checking that, and, from that, we can devise a way of actually taxing them. It seems to me, from what I can gather from this debate, that these companies seem able to spirit money away with magic dust or something, and I am sure that that cannot be so.

--- Later in debate ---

[Kevin Hollinrake]

My hon. Friend makes a very good point. We have some very good people here in our tax authorities and in our ministerial team. The difficulty is, of course, that those companies have some very good advisers working for them, too. It is a case of “Catch me if you can”. That is why the Government have stepped in with a diverted profits tax and a digital services tax, neither of which existed before 2010. The Government have stepped forward to try to do this, but it is certainly not easy.

From the figures, Google should be contributing £420 million to the Exchequer. Of course, much of that money would have previously gone to the Exchequer through some of our own companies, but they no longer get that revenue. Regional media is a good example of that. As businesses, we used to spend our money in regional newspapers and regional radio. Now we put that money straight into Google and Facebook and other such places, so it is being shifted away from UK jobs and UK businesses and spirited away to different parts of the world.

I know the Minister will say that we are working with the OECD in terms of base erosion profit shifting, which is absolutely right. The difficulty, of course, is the lack of public scrutiny of that. That information is available only to tax authorities. The media play a hugely important role in highlighting the inappropriate shifting of profits internationally by companies, which therefore do not pay their fair share of tax. It is hugely important that we have publicly disclosed country-by-country reporting.

I very much support new clause 33. I hope that the Government will step forward with something similar in the very near future. The digital service tax is a great step forward and a very bold move in the teeth of international opposition, particularly from the USA, but it is a short-term measure. We need something much more important and much more fundamental. At a very minimum, that fundamental thing should be country-by-country reporting and I urge the Government to go further, continue with their great efforts to tackle tax avoidance, and bring in country-by-country reporting for all multinationals.

[Alison McGovern (Wirral South) (Lab)]

It is good to rise to speak in support of new clause 33. In doing so, I want to begin by thanking the right hon. Members for Sutton Coldfield (Mr Mitchell) and for Haltemprice and Howden (Mr Davis) for their leadership on this issue. They have been talking about this and pressing the Government on this for many years. Although this House is not always a model of cross-party decorum and high-mindedness, on this it certainly has been, and I pay tribute to their work. They have made compelling arguments, and I sincerely hope that the Minister will listen.

Other very good arguments have been made in this debate. The hon. Member for Penistone and Stocksbridge (Miriam Cates) caused slight jocularity in the Chamber when she suggested this idea that Finance Bills are not fun. I do not know who she thinks thinks that, but, obviously, they are the best bit of Westminster.

The hon. Member for Harrogate and Knaresborough (Andrew Jones) pointed out how difficult it is to introduce new taxes. He is right, and we are introducing a new tax here, so we should have a think about how the circumstances are different. Anybody who thinks that it is easy to introduce new taxes should offer George Osborne a trip to Greggs. He thought that the pasty tax would be a minor and uncontroversial measure—how wrong can you be?

--- Later in debate ---

[Kevin Hollinrake]

I am surprised that my right hon. Friend says that this is not a method to try to bring companies that are avoiding tax to the tax table. The previous Chancellor, Philip Hammond, said in a speech that these measures would effectively insist that,

“global internet giants…contribute fairly to funding our public services.”

Is that not reflective of a position where he felt those companies were avoiding tax?

[Jesse Norman]

I think one could put it a slightly different way, which is to say, “You do not have to take a position on avoiding tax to come to the view that this is a base of tax revenue that has not been adequately taxed and should be taxed, and if you do follow that approach,” —here I will defer to the hon. Member for Wirral South (Alison McGovern)—“ipso facto you are going to be levelling the playing field to a degree.” Anti-avoidance measures are measures used in separate contexts to level the playing field as well.