Finance Bill

Lord Bilimoria Excerpts

Monday 15th July 2013 Lords Chamber

[Lord Bilimoria]

My Lords, I declare my interests in this area. I remember when qualifying as a chartered accountant it was very clear that tax avoidance was legal and tax evasion was illegal. Recently, there has been a huge public outcry about avoidance having escalated to abuse and companies operating within the law have been vilified.

The tax gap has been estimated at around £32 billion. Within that tax gap, it is estimated that the annual cost of tax avoidance is around £5 billion and the annual cost of tax evasion about £4 billion. The official definition of tax avoidance is,

“bending the rules of the tax system to gain a tax advantage that Parliament never intended. … It involves operating within the letter but not the spirit of the law. Tax avoidance is not the same as legitimate tax planning”.

Tomorrow an event will be held by the All-Party Parliamentary Group for Social Science and Policy entitled, “What can policy makers do to reduce tax avoidance by large companies?”. The invitation letter to the event states:

“Tax avoidance by multinational companies such as Google, Starbucks and Amazon has sparked a public outcry. A recent poll commissioned by ActionAid found that 80% of people want the government to take tougher action. In 2012 Amazon paid just £2.4m of UK corporation tax on UK sales of £4.2bn—less than the £2.5m it received in government grants. Thames Water paid no corporation tax and pocketed a £5m credit from the Treasury. Every pound lost through tax avoidance could have been spent on protecting public services—yet last year HM Revenue & Customs wrote off £5bn in tax as uncollectable. It estimates the … ‘tax gap’ at £32bn”—

as I said—

“while many tax experts believe the … figure is twice that”.

I thank the noble Lord, Lord MacGregor, and the Economic Affairs Committee, of which I was proud to be a member, and all the officials—Bill Sinton and the team. It was a tremendously constructive and pro-active committee in which to take part.

In his opening speech, the Minister said that the objectives are to improve competitiveness, tackle tax avoidance and help hard-working families. The noble Lord, Lord MacGregor, made the very important point that, for the first time, we as a committee were able to meet in advance of the Finance Bill being published and look at a draft version. I congratulate the Government on allowing us to do this and thus take advantage of this House’s expertise.

There is no question that the intentions of the GAAR—the general anti-abuse rule—are good. However, does the Minister accept that it is too narrowly targeted and focused through the double reasonableness test, and therefore will not catch the Googles, the Amazons and the Starbucks? Do the Government accept, as the noble Lord, Lord MacGregor, said, that they need to communicate very clearly to the press and public that this will not happen, although the intentions are very good, given that people have the expectation that now that the GAAR is there, all this tax avoidance—tax abuse on a large scale—will disappear?

As the noble Lord, Lord MacGregor, said, the important point is that this needs to be tackled internationally. Are the Government confident that they will be able to do that on an overall basis? Furthermore, I do not think that the public understand clearly where the tax that is generated comes from or the composition of the tax pie. Will the Government confirm that they will publish tax information to enable everyone to understand where the tax they are paying is going so that they understand clearly that corporation tax actually makes up a very small proportion of the tax that is generated in this country? The companies that are being attacked should pay more corporation tax but are they being sufficiently congratulated on the employment they are generating, the taxes generated through that employment, the innovation they are generating and the business they are bringing to this country? Are things being looked at in proportion? However, as the noble Baroness, Lady Kramer, said, there is no question that the GAAR should at the least be a deterrent and send out a signal that tax avoidance which becomes abuse is not acceptable.

The cap on income tax reliefs was not consulted on properly by the Government. It was ill thought through and I agree with the noble Baroness, Lady Wheatcroft, that it risks restricting reliefs for genuine trading and other losses. In fact, she described it as perverse. I request that the Government do a more detailed review to get a better understanding of the effect of the cap because it could hamper business investment. The Government did very well in consulting on the GAAR, but unfortunately I do not think that they consulted adequately on the caps and reliefs. The noble Lord, Lord MacGregor, spoke about simplification and the noble Baroness, Lady Wheatcroft, spoke about Tolley’s Tax Guide getting bigger and bigger. Surely the Minister would agree that the Government should be working towards simplifying tax. Could he confirm that?

President Clinton spoke here in London a few years ago and I remember him clearly saying that, increasingly, we live in a world that is more interconnected and integrated. Now the time has come to work together to tackle this tax abuse on a global scale. Better transparency is the only way that we can deal with it. The noble Lord, Lord Wakeham, as a fellow chartered accountant, summed it up beautifully when he talked about being true and fair. That is what we were brought up to do. Audit reports had to reflect a true and fair view. We have to aim for that.

Once again, I thank the committee, the noble Lord, Lord MacGregor, and the officials. I also thank the Government for consulting and allowing us to meet in advance so that the House of Lords can play a role and use our expertise, even though we have no power whatever over financial matters. Here is an opportunity for us to give our views in advance, and to have them listened to and taken into account by the other place, so that, as the Minister said, we have a tax system that will tackle avoidance, is fair and, most importantly, is competitive, transparent and simple.