Corporate Tax Avoidance

Lord Field of Birkenhead Excerpts

Monday 7th January 2013 Commons Chamber

[Mr Frank Field (Birkenhead) (Lab)]

I have three points to make, but I begin by expressing my anger at companies who take us and the Government for fools. We have a fairly united view about welfare abuse. I should like the Government to enact measures that reflect the sense of urgency the country feels about people who similarly abuse their tax position.

The Government’s fiscal crisis is of long standing. In the vast majority of the 60 years since 1948, Government accounts have been in deficit. We have developed a habit whereby Governments are elected to implement programmes for which they have no intention of raising the necessary tax revenue. In only a handful of the years since ’48 have Government budgets been in surplus; for the rest of the time they have been in deficit, and under Tory periods the deficit was twice as large as during Labour years.

We habitually have real difficulties in raising revenue to support the level of expenditure taxpayers would like to see. We know that the position will get worse in the future, and I shall give two examples of where it will harden. Let us look at long-term trends in revenue in relation to the tax on fuel. We know that thanks to more efficient fuel use, the revenue gained by the Exchequer from tax on fuel will fall dramatically. At the same time, there will be pressure on Government budgets from demands for the health service and pensions, and it is not impossible to envisage that by 2060 they could be taking half of the total.

We hold this debate at a time of crisis, but not the immediate crisis about the deficit with which the Government are trying to grapple. There is a longer term crisis, because as a nation we have grown accustomed to demand far more than we are prepared to pay in tax. I have three suggestions for the Government about what they could do to convince taxpayers, as well as the House, that they are as serious about clamping down on tax abuse as they are about clamping down on other forms of abuse in our public finances.

The first suggestion is that we issue kitemarks to companies that Her Majesty’s Revenue and Customs believes have paid their fair share of taxes. We would then develop a “white list” of companies with which we know it is safe to trade, and would have warnings about those with which it is not safe to trade, or would know that if we did trade with them, we were aiding and abetting the crimes that they were committing against the commonwealth of taxpayers in this country.

Secondly, I make this plea: why cannot the Revenue be more bold in exposing companies that it believes are abusing their position and fiddling their tax rates? Might not that threat, certainly if carried out, concentrate the mind of many companies and get them to start behaving better, to the good of taxpayers?

My third suggestion relates to a point on which I do not agree with the hon. Member for Redcar (Ian Swales), whom I congratulate on his contribution; I do not think that we have the time to wait for groups of countries to behave, let alone to get the European Union to agree on a common stance. Let us look at those who are outside the European Union. Norway, for example, has to pay to trade within the European Union. Why cannot we say to companies such as those that the hon. Gentleman listed, “If you wish to trade in this country, you have to pay a fee, which will be more than we would gain from you in taxes if you paid corporation tax honestly”?

We might start with companies—coffee houses and so on—that could well find that other companies could substitute for them. There would be no diminution of the public good if we could not go to Starbucks. The country would not come to a standstill. We would not have breakdowns if we could not buy Starbucks coffee—there are plenty of alternatives—and we might begin to turn the tide in favour of honest taxpayers and against those who are taking us to the cleaners. I would be greatly interested to hear how, if the Government wish to be taken seriously on the subject, they will respond to those proposals, and other proposals that I know right hon. and hon. Members wish to put to the Government in this debate.

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[Mr Frank Field]

If Governments are inactive on this front, what action does the hon. Gentleman propose taxpayers should take, other than that mob action?

[Mr Bacon]

Governments should take notice when they see outside 100 Parliament street, the headquarters of HMRC, large crowds of riot police—there are photographs to that effect, which can easily be found on the web. When Governments see such a thing happening, they should sit up and take notice that the system is not working and that it is not fit for purpose. I understand the burden of the right hon. Gentleman’s question. I understand why people are so angry and feel that they need to do something. There are many people, including those who have given their lives and those who have fought overseas on behalf of this country, who probably would have had better equipment if more tax revenue had been collected—if more of the tax revenue that should have been paid was paid.

It is not always a case of the tax not being due. If HMRC does not have the resources in the right places to check whether the tax is due or not, it may indeed be that corporations are acting illegally, that what they are doing is evasion and that they are getting away with it. That is why it is so important that HMRC is able to have the right management information at the top level so that it can align its investments in skills and in people with its business priorities in a way that currently, as is clear from the NAO study, it is unable to do.

I believe that the solution to all this must be much greater simplicity, and I mean radically greater simplicity. The time for tinkering is over. It was Einstein, I think, who famously once said that the definition of insanity is to do the same thing over and over again and to expect different results. It is time that we got different results and we will get them only by taking different action.

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[The Exchequer Secretary to the Treasury (Mr David Gauke)]

I congratulate my hon. Friend the Member for Redcar (Ian Swales) on securing the debate, and I thank him and the other 19 Members who participated— 14 Government Members and five Opposition Members. Time is short, but I will make a few remarks before my hon. Friend concludes the debate. I will begin by putting into context the problem that we face on tax avoidance, and then I will lay out in some detail the actions that the Government are taking. I will also try to respond to some of the concerns that right hon. and hon. Members have raised.

As I am sure all Members will understand, it would not be right for me to discuss individual examples of alleged tax avoidance. I therefore do not intend to respond to accusations made this evening against specific businesses. However, I do want to point out that the vast majority of UK taxpayers, whether they be businesses or individuals, pay the tax that is due on time. They do not try to dodge, avoid or delay paying their tax. Large businesses, which are the subject of our discussion tonight, pay about 60% of all taxes in the UK, or more precisely, they write the cheques. The Government are fully committed to ensuring that everyone contributes to reducing the deficit by paying their fair share of tax, and we are determined to clamp down on the minority who engage in tax avoidance.

As other Members have pointed out, tax avoidance not only damages the public finances but undermines the perception of fairness in the tax system and is anti-competitive, which in turn risks harming genuine investment by those who play by the rules. At a time when we all have to tighten our belts, it is particularly unacceptable for some taxpayers to manipulate the system and act to reduce their tax liability in a way that is contrary to Parliament’s intention. It is for that reason that where HMRC finds tax avoidance, it takes action.

It is important that those who should pay do pay. It is also important that we have a competitive tax system. Our intention is to have the most competitive tax system in the G20. That is the best route to economic prosperity. Foreign direct investment plays an important role in that. It is worth pointing out that approximately half our total corporation tax receipts in 2011-12 that came from large businesses was from foreign-owned companies. The Chancellor recently announced a further cut to the main rate of corporation tax, so that by 2014 it will reach 21%—the lowest it has ever been and the lowest in the G7. Having set a competitive rate, we aim to ensure that all businesses, including multinational companies, pay the right amount of tax by taking action internationally and domestically.

[Mr Frank Field]

Will the Minister give way?

[Mr Gauke]

I am very short of time, but I will give way this once.

[Mr Field]

We all want to see the lowest possible competitive rate, but is it not possible to combine that with denying access to our markets to companies that clearly do not pay it?

[Mr Gauke]

I do not think the right hon. Gentleman sets out a practical approach by proposing that we should deny those companies markets and engage in protectionism. We have to ensure that all businesses pay the tax due under the law in this country.

There are two ways we can look at this: domestically and internationally. Internationally, it is clear that our tax system, as with all other major economies, works within internationally agreed OECD guidelines—we have heard a number of hon. Members make that point. I know that there are concerns about whether the current corporate tax rules adequately capture the profits generated by multinational companies in the jurisdictions where the economic activity is located. We take those concerns seriously. Reform in this area will require concerted international action. This is an issue that all countries face. We need to work with others to develop the appropriate solutions. We are doing just that through the OECD, on the erosion of the tax base and the shifting of profits to lower-tax rate jurisdictions.

Two months ago the Chancellor issued a joint statement with the German Finance Minister calling for concerted international co-operation to strengthen international tax standards. Following that statement, the UK, together with France, offered voluntary contributions, equivalent to €150,000 each, in order to make rapid progress in achieving concrete results. The OECD’s work is vital in helping to promote a better way of dealing with profit shifting and the erosion of the corporate tax base at the global level, and it will be reporting to the G20 Finance Ministers on progress in February. I should also mention that only last week the Prime Minister wrote to G8 leaders calling for international action to tackle tax evasion and aggressive avoidance. He suggested that the issue should be at the heart of the forthcoming summit’s agenda. We agree that more needs to be done in this area internationally. I hope that the fact that the Chancellor and the Prime Minister have intervened on this issue will reassure Members that it is very much a priority for this Government.

As far as domestic action is concerned, we have strengthened HMRC’s capability in this area. It is worth pointing out that since March 2010 HMRC has collected £14.8 billion in additional compliance revenue through its large business service. In particular, £1.5 billion has been raised since 2010 through increased efforts in tackling transfer pricing. We want to build on that success, which is why we have announced additional sums. In the autumn statement we announced a further £77 million in new investment by the end of 2014-15 for HMRC to expand its anti-avoidance and evasion activity. Together with the package we announced in the October 2010 spending review, we expect to see additional yield, rising from £13 billion a year when we came into office to £22 billion a year by the end of 2014-15. Some of the money we announced recently will be focused on tackling tax avoidance by multinationals.

Let me deal quickly with the point about HMRC staff. The point was made that staff numbers had fallen. The big fall, from around 94,000 to 65,000, occurred under the last Government. Yes, there will be a fall in the total number of staff from 65,000 to 55,000 during this Parliament, but the number of staff who deal with tax evasion—the tax inspectors—is going to go up. The number of people working on enforcement and compliance will go up by 2,500, in contrast to the 10,000 reduction that we saw during the last Parliament.

I should also point out HMRC’s success in other areas, including its litigation strategy. Over the past two years, 85% of tax avoidance cases in the courts and tribunals have gone in HMRC’s favour. We have also taken legislative measures to deal with a whole range of corporate tax avoidance arrangements. Indeed, just before Christmas we closed down a further corporate tax avoidance scheme that sought to exploit tax rules to generate artificial loss relief from a property business. HMRC had become aware of the scheme only a week previously.

We are also bringing in a general anti-abuse rule, following the advice of Graham Aaronson’s committee. He is a distinguished tax QC, and his committee comprised a number of distinguished figures from the tax world. They recommended measures that focused on the abusive end of the matter. We believe that that will not have the disadvantages of the proposals suggested by the right hon. Member for Oldham West and Royton (Mr Meacher), which would create uncertainty for ordinary taxpayers. Also, his proposals contain an exception for any arrangements specifically permitted by legislation, and much avoidance is built on that. His proposals would therefore be defective in some respects. I think that we have struck the right balance, and that the concerns expressed by some of my hon. Friends are unfounded. It is right that we should focus on abuse of the system.