Taxation: Evasion and Avoidance

Lord Foulkes of Cumnock Excerpts

Thursday 6th June 2013 Lords Chamber

Moved by

[Lord Foulkes of Cumnock]

To move that this House takes note of the economic and social consequences of tax evasion and avoidance.

[Lord Foulkes of Cumnock]

My Lords, I am particularly pleased to have obtained this debate on this subject, which is not just tax evasion and tax avoidance but the social and economic consequences of that tax evasion and avoidance. I must say I am disappointed that no Conservative Members have sought to participate in the debate; it might have added an interesting angle—some spice—to it, although I understand that some of the things that they might try to defend are not easy to defend. Tax is a question of a real moral imperative as well as having profound practical consequences. Those who dodge their legitimate tax obligation commit a severe moral breach, but they also deprive our schools and hospitals of much needed investment and create problems for responsible businesses that pay their full share of taxation.

Tax evasion and avoidance is not new. Plato—I see that the Convenor of the Cross-Benches is looking astonished that I am quoting Plato—said that when there is income tax, the just man will pay more and the unjust less on the same amount of income. How true that is. However, what is new about the current crisis in tax is the scale of the issue and how far out of control we have let it go. The amount that we lose in the United Kingdom in uncollected taxes is a third of the deficit. It dwarfs the personal tax allowance, and it is more than twice the size of the bill for housing benefit—and how often do we hear about all those? That is nearly £40 billion. It is a cash sum the size of the budgets of some government departments, which are being asked to make cuts that are causing tremendous problems. We have heard of them recently in debates on legal aid and defence, and of all the difficulties that are being created for our departments. It is money that could be used to cut the deficit, to build 2,500 new schools or to employ more than 1 million new nurses, teachers and policemen. On its own, tax evasion is costing the average household £530 every year.

These are the real and significant costs of tax evasion and tax avoidance. In responding to them, as well as in talking about the moral principles at stake, I will of course address some of the solutions to the problems, but first we must say that not paying your full and legitimate share of tax is immoral. By making use of our roads or our highly trained workforce, or by breathing our clean air, or even by casting a vote, you are bound by the obligations of society—and one of those key obligations, agreed through our democratic process, is to pay your legitimate share of taxation.

[Lord Campbell-Savours]

If my noble friend will allow me to intervene, I wonder whether he might be able to tempt the noble Lord, Lord Forsyth, out of his corner on the question of a flat tax in his whole argument.

[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.

--- Later in debate ---

[Lord Foulkes of Cumnock]

My Lords, I have found this a really encouraging debate, with such well informed contributions. It was also notable for one of the most helpful and sympathetic responses by a Minister that I have heard for a very long time. I really am most grateful to him, and I will return to that in a moment.

I also thank all those who have contributed. My dear friend, the noble Lord, Lord Browne of Ladyton, echoed the description of the tax avoidance “industry”, which it has become, and underlined that very effectively. I say to the noble Baroness, Lady Kramer, that I accept her scolding, gentle as it was. I was only saying, “Hands up” to our lack of action. But now it is the present and the future that we have to concentrate on. I will return to the noble Baroness, Lady Kramer, in a moment because she made a contribution, which was echoed, that was perhaps the most important new thing to come out of this debate.

Perhaps I might also say how pleased I am to see the noble Lord, Lord Haskel, back, not just in good health but, as we heard, in his robust, powerful and informed debating style. We really are very pleased to see him and we know that on this issue he is one of our noted experts. He talked about Luxembourg, and others talked about Liechtenstein and the Cayman Islands. It is interesting that over the past few years Ireland has been developing itself and organising its affairs to become a tax haven. That is something that has crept up on us. Perhaps we ought to be discussing this with the Irish, since they are so close to us.

When the noble Lord, Lord Watson, intervened, I realised that, along with my noble friend Lord Browne and myself, we have got three football fanatics from Scotland. He pointed out the fankle, if I may use the Scots word, that the chairman of Bayern Munich had got himself in. Sometimes the owners of football clubs, as I have found recently—not in my own personal case but in the case of my club—get themselves into these kinds of difficulties. He also picked up the suggestion made by the noble Baroness, Lady Kramer, which I will come back to.

Perhaps the most welcome of all interventions was from the noble Lord, Lord Brooke. His interventions are always welcome and sometimes the funniest things I ever hear in this Chamber, which is a relief sometimes through the long tedium of some of the debates that we have. I hope that his anonymous rich insomniac is now sleeping well, having paid the money that was due. If there are any more rich insomniacs who think they have not paid enough tax, I am sure that the Revenue would welcome their contributions.

I also thank the noble Lord, Lord Davies, for his very kind remarks, and his very perceptive points. He made the important point that if these taxes are paid properly, ordinary people become better off and the companies benefit because they have more consumers, purchasers and people involved. He summarised the points I was making about identification and enforcement very well, and echoed the call for the lead to be taken at the G8 meeting, which I am glad to say is going to be held in Northern Ireland.

The noble Lord, Lord Newby, answered my questions. It is good to come and have questions that are posed specifically being given an answer. I hope that other Ministers will learn from the excellent example of the noble Lord, Lord Newby. To echo the debate by saying that the moral compass of some companies is clearly lacking is a strong point for a Minister to make.

The one new point that I want to finish on, for which I give credit to the noble Baroness, Lady Kramer, was this idea of consumer power, of having some kind of boycott so that we can show our dissatisfaction with and distaste for the great tax avoiders. The noble Lord, Lord Watson, mentioned this as well and went through some of them: Google, which he is no longer using; he will go anywhere but Starbucks for coffee; and Amazon. There are competitors. I am glad to see that the right reverend Prelate the Bishop of Derby is nodding. That gives me great comfort. I remember the great apartheid debates we had and how the boycotts really had an effect in South Africa. The noble Lord, Lord Brooke, made a plea to NGOs to keep us briefed. Perhaps a collective of NGOs could get together and produce a list of companies that they feel are the most outrageous and that we ought to avoid. That was very encouraging. We will call it the “Kramer coefficient” or the “Kramer list” and give credit to the noble Baroness.

It has been a very good debate. Once again, I thank everyone who contributed, particularly the Minister for his helpful responses.

Motion agreed.