Taxation: Evasion and Avoidance

Lord Forsyth of Drumlean Excerpts

Thursday 6th June 2013 Lords Chamber

[Lord Foulkes of Cumnock]

I have never been able to tempt the noble Lord, Lord Forsyth, on anything up till now, but I am sure that if he feels constrained, he will come in.

[Lord Forsyth of Drumlean]

I agree with everything that the noble Lord said in respect of tax evasion, but he has linked that to avoidance as if they were the same thing. Does he think that political parties that receive money from donors should return such donations to those who say that they constructed them in such a way as to avoid paying as much tax?

[Lord Foulkes of Cumnock]

My remarks are addressed as much to them as they are to other people.

When you fail to pay your fair share of tax, you break that obligation. This results in unfairness. Can we be proud of a country where 500,000 people are forced to rely on food banks while the average rate of income tax paid by the top earners is only 10% of their vast income, or where the high street shops that we are so proud of are closing at 10 times the rate at which they did in 2011, yet Amazon gets away with paying a paltry £2.4 million on sales of £4 billion? Such contrasts make a mockery of our democracy and are shameful. I do not, therefore, apologise for speaking on this issue in moral terms. It is a moral issue. When Roger Carr of the CBI says to us politicians, “Don’t make tax a moral issue”, he sounds like a man who does not want to have an argument that he knows he has already lost.

However, we need to have that argument. The argument against having a moral debate is that morality has no role to play in the solution of the problem. Of course, the solution has to be practical, but I would argue that it will involve making companies and individuals pay more tax—their fair share of tax—rather than persuading them. Yet the will to get to grips with the complex, practical problems and the energy to make people pay tax will come because of moral outrage, so we must continue to highlight the moral issue. It might not provide the solution, but it is how the solution can be achieved. It will provide the momentum or force to get that solution.

I realise that speaking in these terms may get some disapproving looks from powerful chief executives. They dismiss the campaigns of politicians and think tanks such as Progress, which is now running an excellent campaign on this, and respected NGOs such as ActionAid, which has produced some reports—I have one of them here—about the effect on developing countries of tax avoidance. I know that some of my colleagues will touch on that as well. They dismiss these as being anti-business. On the contrary, a fair tax system is about being pro-business but responsible business. In the UK, our bricks and mortar retailers are being driven out of business by online operators, based offshore, that can get away with not paying tax. Reputable companies such as John Lewis are struggling to compete with global firms that can spirit their profits out of the country. The status quo of allowing large-scale tax avoidance and evasion is favouring the large multinationals, which can pour resources into avoidance. That is hurting the growth of small and innovative British business, and it needs to be challenged.

I was glad to get a letter from the noble Lord, Lord Phillips, who unfortunately cannot be here today, in support of what I am arguing. He has given me permission to quote him. He says that,

“the already highly destructive effects of gross disparity in earnings”—

are “dire in the extreme”. He does not have very good writing, by the way. He also says:

“Restoration of some sense of civic duty is also essential”.

I have given the essence of what he says.

So what are the solutions? There is no single solution to the problem. Some of the options require international co-operation, and I welcome, as I did in the European Union Select Committee on Tuesday, the decision that was made at the recent Council of Ministers. However, we cannot allow the fact that some of the decisions have to be made internationally to serve as an excuse for us not taking action here in the United Kingdom, if for no other reason than to set an example. When we speak on this, it would give us greater authority on the international stage.

First, we need an HMRC with more bite. Tax avoidance is itself an industry. The big four accountancy firms make £2 billion a year, In order to challenge that kind of vested interest, HMRC needs to be given significantly more muscle. The £154 million so-called “blitz” that the Chancellor recently announced simply does not match up, especially—and I hope that the Minister will deal with this—against a backdrop of overall cuts to HMRC that will diminish it to its lowest staffing level ever by 2015. For every £1 invested in HMRC, £9 is returned to the Exchequer. That is a real investment. For every 10 cases of tax evasion brought by the Crown Prosecution Service, nine end in a conviction. So we have some of the tools, but we need more and we need to make them tougher.

We also need an HMRC that is more transparent. While HMRC is of necessity a big part of the solution, it is also currently part of the problem. With no proper ministerial oversight, it has become a closed community that cuts deals with big business. Noble Lords will have heard the stories of Vodafone having £8 billion in tax waived, which appear to go largely unchallenged. We need to be able to put a spotlight on HMRC. We need it to disclose the deals that are being done with big business. Every year HMRC writes off £5 billion that it knows that it will not collect. We need to be able to hold it accountable for that and for it to become substantially more transparent.

The chair of the Public Accounts Committee in the Commons, Margaret Hodge—who is doing a terrific job, by the way—has called for the publication of the tax affairs of the FTSE 100, which may be a provocative idea but certainly has great merit.

We need the Government to negotiate a series of new multilateral automatic information exchanges. While the recent agreement signed between our overseas territories and the EU G5 is welcome, it is just a small first step. We need agreements that go further and draw in a greater number of participants. Developing countries in particular, as I have said, need to be brought within the fold. Rampant tax-dodging means that many of them are unable to capture the benefits of the foreign investment occurring within their boundaries. They would be less reliant on aid and therefore less dependent on us developed countries if they received the tax revenues that are due to them from the multinational companies operating within their boundaries.

We also need a public register of beneficial ownership. If we do not act on beneficial ownership and tax, we have not got to the nub of the problem. David Cameron, the Prime Minister, was right to call on our overseas territories to develop a register, but this is an issue on which the UK should lead from the front. At present, we have no formal obligation for companies to register their beneficial owner, so front companies are set up, and it is difficult to know who is the ultimate beneficial owner. We need to pull back the curtain and see who is really benefiting from tax scams. We must change that and set the kind of example that will enable us to speak with authority on this issue at the G8 and then at the G20. I am sure my colleagues around the House who are participating will make other useful suggestions.

Finally, I shall try to anticipate one of the Minister’s defensive responses. He might try the familiar attack on Labour’s 13 years of government, using one of the four or five clichéd images circulated in the memos we have see from government: “Asleep at the wheel”, and so on. I am happy to have a conversation with the noble Lord, Lord Newby, and any other Minister at any other time, but that is not the subject for today. Today we are challenging the present Government, who have been in power for three years, about what they are doing. Therefore I ask the Minister, first, whether he will agree with me, and more importantly with the Public Accounts Committee, that cuts of as much as £2 billion to HMRC have hindered our ability to collect tax, and will the Government think again about those cuts in the coming spending review. Secondly, will he commit the Government to a public register of beneficial ownership? Thirdly, will he encourage the Prime Minister to lead a multilateral automatic information exchange that is much broader and much more ambitious than any that has gone before and that includes, above all, the developing countries? I hope that his answer to each of those questions is positive. Unless he does so, he will not have answered the challenge that I put at the start, and he will have failed the people who are losing because of the tax dodging. I hope that today we can have a positive response from a Minister who I know deep in his heart is sympathetic to the cause that I have been putting. I beg to move.