Financial Crime: Legislation

Lord Newby Excerpts

Thursday 17th March 2011 Lords Chamber

[Lord Newby]

My Lords, I, too, thank my noble friend Lady Williams for initiating this debate. In my brief remarks today I would like to cover the three issues of bribery, the tax gap in the UK and the tax gap in the developed world.

As my noble friend said in her introductory remarks, our bribery is someone else’s corruption. Although a number of noble Lords have talked about BAE in the context of Saudi Arabia, arguably even more damaging were the bribes paid, in connection with selling aircraft, to the ANC in South Africa to fund an election campaign. That has changed the political culture in South Africa to such an extent that bribery is now endemic and by all accounts getting worse. A British company was the catalyst for starting that process.

I share the view of my noble colleagues that the sooner the Bribery Act comes into force the better. I was heartened by press reports earlier this week that we might now get the guidance very quickly. It is not a completely straightforward issue, of course, although morally it appears to be. I have some sympathy with the noble Lord, Lord Hodgson of Astley Abbotts, on the issue of British exporting companies who will lose business as a result. There should be no doubt that there will be a tangible cost and a loss of business to British businesses if they abide by the Act. Although I would like to share the view of my noble friend Lord Marks, that this would just be a short-term cost, in some circumstances it will be a long-term cost. By putting the Bribery Act on the statute book we have accepted that there will be a cost, whether or not we recognised that at the time.

I have less sympathy with the concern mentioned by the noble Baroness, Lady Wheatcroft, in respect of mining companies and others listed in the UK but with no substantive operations here. Mining companies have been responsible for some of the worst abuses of corporate behaviour. It seems to me that, if they want the benefits of a London stock market listing, they should be prepared to take on the full responsibilities that that implies. I hope that the Minister can give me an assurance that there will not, in effect, be an opt-out for extractive industries with a listing here but with no operations here.

On the UK tax gap, the noble Lord, Lord McFall, pointed out that we are talking about an amount of as much as £50 billion, which covers all forms of taxation. Interestingly, the major components of that are VAT and the personal taxes—not corporate taxes, although there is a significant corporate tax loss as well. I am pleased that the Government are putting an additional £900 million into dealing with certain aspects of this, particularly tax evasion and offshore tax evasion and organised crime.

However, the cuts to HMRC, although justified in part because of the increased use of IT, have, in my view, hollowed out the organisation to such an extent that very often it cannot deal with the day-to-day tax affairs of taxpayers. That makes it easier for people, advertently or inadvertently, to pay less tax than they are due. Staffing needs to be looked at again. My suggestion, which I hope will go with the grain of the coalition thinking, is that we should incentivise the department by setting it a target for certain aspects of tax raising. If it exceeds the target, it should be allowed to keep a significant proportion of that excess to reinvest in staff—not in staff bonuses—so that there are more people the following year to devote to the task. There is no doubt that the cost of additional staff in the area of tax collection would be more than repaid.

Finally, on the international tax gap—which has barely been discussed today—the OECD recognises that poor countries are likely to lose more money through tax dodging than they receive in aid. Therefore, the more that they can collect tax themselves, the less dependent on aid they will be in the long term. Christian Aid and other development charities have described tax as the

“route out of aid dependency”.

I think we need to spend more time looking at how we can support that route. Christian Aid’s two specific proposals, which I support, are the extension of the multilateral and automatic exchange of tax information between jurisdictions and country-by-country reporting by companies, which has been mentioned by several noble Lords. On the latter, I believe that the Chancellor has said that he supports the extension of the Dodd-Frank provisions, which require the extractive industries to provide country-by-country reporting, and he has proposed that at EU and G20 level along with France and Germany. I would be grateful if the Minister will confirm that is the case and that the Government will keep the pressure on there.

The issues that we are debating today are typically seen by many of our colleagues as extremely technical, which some of them are, but of secondary importance, which they are certainly not. As today’s debate has demonstrated, these issues lie at the heart of economic development and governance. We need to keep the pressure on, to drive up standards and drive down corruption and tax evasion.