Digital Taxation

Lee Rowley Excerpts

Tuesday 27th March 2018 Westminster Hall

[Lee Rowley (North East Derbyshire) (Con)]

It is a pleasure to serve under your chairmanship, Dame Cheryl. I am grateful for the opportunity to speak. Like my hon. Friend the Member for Witney (Robert Courts), I congratulate my hon. Friend the Member for Harborough (Neil O’Brien) on securing this vital and incredibly timely debate on an issue that we talk about in this Chamber and beyond.

An important principle that needs to be established is that of a level playing field on taxation as a whole across commerce. If we do not ensure that people have confidence in that, legitimate questions can be and are asked about how markets work, whether they are effective and whether the Government are regulating them properly.

Before I talk about the specific issue before us, it is important to recognise the huge benefit that the development of the internet has brought over the past 20 or 30 years. It is something of a truism to say this, but we have an entirely epoch-changing set of opportunities before us because of what the internet offers us and what e-commerce hopes to drive. We have been able to make more perfect—I use that phrase advisedly—markets in terms of reduced barriers to entry. We are able to serve customers in an easier, more timely and more convenient way. We can ensure that people have the things that they want, and that we respond to the combined views of people, as demonstrated via the mechanism of the market. In the United Kingdom, 1.5 million people are employed in e-commerce businesses directly, and a vast supply chain and vast group of people support those industries indirectly. It is important to recognise and acknowledge the benefits that the internet has brought over the past 15 or 20 years—within our lifetimes—to the country as a whole and to the world in general.

However, the principle that my hon. Friend advances is absolutely right. We must have a taxation system that is fair, notwithstanding the huge benefits that have been brought to society by the internet over the past 15 or 20 years. I completely agree with the statement in the Government’s paper that failure to find the right system undermines the fairness, sustainability and public acceptability of the corporate tax system, which we need to avoid at all costs.

I therefore welcome the review of taxation and what the Government are doing to look at the matter in more detail. I acknowledge and recognise the challenge—my hon. Friend outlined that better and more comprehensively than I could ever hope to do it. The Government are right to have an open mind on many aspects. It is right that they will have an open discussion with those who are interested, and to set out that, of necessity, they are likely to look at both short and longer-term solutions.

Underneath, there is an inherent tension and problem, which is how we define user-created values. I think I accept the principle that taxation should be based on value creation as a whole, but how we define that and whether we create a system that is incredibly complicated in order to be able to tax it is something on which the debate and discussion has a long way to go. It is good to see the Government are approaching the matter in that open way.

I also think we have to get away from some of the tendencies over the past five years or so on corporate tax to shout loudly as a collective political class about corporate tax, rather than doing some of the hard spade work. That is exactly what the paper suggests and what many hon. Members are debating. It is no good shouting at companies in Select Committees when they are obeying the letter of the law, even if they are not obeying the spirit. Let us change the law so that that does not need to be done. I say that as someone who has just joined one of those Committees and will probably be shouting at people over the coming months and years as a result.

I understand why that happens, but I am similarly sceptical of gifts, benevolence and contributions to the Exchequer for no apparent reason, much as I understand the principle. That kind of approach is not one that we should perpetuate over the long term if we want to create the stable taxation system that attracts companies, promotes economic growth and supports development on all sides.

I therefore welcome the discussion. I welcome the willingness to review and to do so in such an open way. I agree with many of the points that have been made, particularly in the introduction. I would just like to broaden the subject slightly and make two additional points.

This is a symptom of a much wider challenge in capitalism, corporation tax and taxation in general. We are entering an era of internationalisation with regard to many of the challenges. That has been evident for a number of years, but has come increasingly to the fore over the past decade or so. I am thinking of the cross-border challenges that my hon. Friend outlined. What the OECD has done to date is a good start—the principles it has outlined are positive—but there appear to be limited opportunities to move that forward in the short term. We have to encourage supranational organisations to take on these knotty problems and look more closely at how they can solve them over the long term. If we do not have the institutions that can support the regulation of things such as tax, we will lose the confidence of populaces that rely on us to ensure that taxation is taken. We can debate in this Chamber how big or small that taxation should be, but we have to ensure that the framework is there in the first instance to support it.

There is a much wider conversation to be had, not just about taxation but about the approaches within the sphere of the internet, and how it has commercialised over the past 20 years or so. That is probably a debate for another time, but I hope you will allow me to spend just 30 seconds on it, Dame Cheryl.

I separate out entirely the many hundreds of thousands, or millions, of companies that use the internet to deliver services daily in a cheaper, and a more efficient and effective way. I welcome and celebrate them as an excellent example of how capitalism works, but a very small number of very large companies at the top of the tree have created what are essentially monopolies. They have essentially taken over whole swathes of industries. Some of them have created those industries, and all credit to them. Many of them have become very rich in doing so, or the people behind them have. But they have essentially annexed an individual industry. In any other area of commerce, we would call them out for what they are. They are monopolies or oligopolies. If someone has 90% of the search engine market, they are a monopoly. If they have 100% of the social media market, they are a monopoly. If they have 47% of the e-commerce market in the United Kingdom, they are a monopoly.

We can debate the definition of monopoly, but there are monopolistic companies at the top of these industries, and we have to think in the longer term about how we address that. If we do not do so, we will lose the confidence of people that we can regulate effectively. Either they have become so embedded that they are ultimately the infrastructure—they are the pipes upon which things run—and should be regulated accordingly, or we have to look at how we can stop monopolistic practices. The first duty of those of us who are pro-free market and pro-capitalist is to avoid corporatism and monopolistic practices at the top. Perhaps that is a debate for another time, but it is important for the wider point about how we tax, because of the activities of those companies. The reasons why we tax them in the first place derive from some of the things that they do—some of the practices and some of the monopolistic instincts that, for good or otherwise, have grown up over the past decade or so.

I therefore very much welcome the debate. I again thank my hon. Friend the Member for Harborough for introducing it and for giving us the opportunity. I look forward to the Government’s response in relation to the paper.