Finance Bill

Baroness Hodge of Barking Excerpts

Tuesday 28th June 2016 Commons Chamber

[Mr Gauke]

I begin by expressing my gratitude for your dispensation, Mrs Laing. I will, of course, take interventions, and I hope it will not disconcert Members if I remain standing at the Dispatch Box while doing so. There is a great deal to cover and a large number of amendments have been tabled by Opposition Members, many of which I shall have to cover briefly. I shall try to provide as much information as I can as quickly as I can and respond to points raised in the course of the debate.

Clauses 144 to 146 make administrative changes to the general anti-abuse rule—the GAAR procedure—and introduce a new penalty for those who enter into abusive tax arrangements. Clause 144 allows Her Majesty’s Revenue and Customs to make a provisional GAAR counteraction where it believes additional tax is due but the assessment time limits are due to expire. Clause 145 is an administrative change to strengthen the GAAR’s procedural efficiency. The GAAR procedure currently requires each user of the same type of marketed tax avoidance arrangements to be referred separately to the GAAR advisory panel. This is an inefficient use of HMRC’s and the advisory panel’s resources, so clause 145 corrects this. Clause 146 introduces a new penalty of 60% for taxpayers who enter into abusive tax arrangements that are counteracted under the GAAR.

The Government have tabled 84 amendments to clauses 144 to 146, making minor changes to ensure that the legislation works as intended, but let me respond now to new clause 4 and amendment 4, which relate to the GAAR clauses I have just outlined. New clause 4 asks the Government to conduct a review of the GAAR in a year’s time. The GAAR advisory panel is already required to publish anonymised reports of the cases it considers. It is difficult to see how this new clause could provide a better insight into GAAR cases than this.

Amendment 4 proposes that a penalty of 100% is introduced for the GAAR. While under HMRC’s existing penalty rules a penalty of 70% to 100% will usually be charged in cases of fraud, it is right for the GAAR penalty to sit just below this. Under the new measure, tax avoiders can be charged penalties under the existing penalty rules and the GAAR penalty up to a maximum of 100%. As such, the amendment does little more than what we are already suggesting, and I therefore urge the House to reject it.

Clause 147 and schedule 18 introduce the new serial avoidance regime and a new threshold condition for the existing POTAS—promoters of tax avoidance schemes— regime introduced by clause 148. The new serial avoidance regime will tackle those tax avoiders who use multiple tax avoidance schemes. It will work by putting avoiders on notice when HMRC defeats a scheme they have used. If they use further schemes and HMRC defeats them, they will face serious and escalating sanctions, including a penalty starting at 20% of tax understated and reaching 60% for a third scheme defeat while under notice. Clause 148 introduces a new threshold condition for the promoters of tax avoidance schemes regime so that promoters who have promoted three schemes that have been defeated by HMRC over an eight-year period risk entering the POTAS regime.

The Government have tabled 27 amendments to clause 148 and schedule 18. The amendments to schedule 18 provide for those who try to avoid tax through companies they own or partnerships to be brought within the scope of the new regime. Amendments to clause 148 provide for POTAS to cover circumstances where tax avoidance is promoted through associated persons. The remaining amendments make minor changes to ensure the schemes work as intended.

Clause 149 introduces a new requirement for large businesses to publish their tax strategies, ensuring greater transparency about their tax approach to HMRC, shareholders and the public. Transparency promotes good tax compliance while providing a fairer, more stable and competitive environment in which to do business. The strategy published by businesses must cover the areas specified in legislation, be updated annually and remain accessible. A penalty may be chargeable if a strategy is not published or if the information contained does not meet the requirements of the legislation.

The Government are also committed to tackling cases of aggressive tax planning. Schedule 19 introduces a new special measures process which will apply sanctions to large businesses that persistently undertake aggressive tax planning or refuse to work with HMRC in a collaborative and transparent way. Taken together, clause 149 and schedule 19 will help to reduce the appetite for aggressive tax planning and improve large business tax compliance.

On the amendments tabled by the Opposition, amendments 5 to 18 would collectively introduce a requirement for directors of a business to be personally, jointly and severally liable for a penalty of £25,000 should the business fail to comply with the legislation, rising to a monthly charge of £25,000 after the initial 12 months have passed. Amendments 9, 14 and 18 also propose that the said named directors should not be reimbursed in any way and would impose further penalties.

These amendments are disproportionate and go against the principle of encouraging behavioural change across businesses. Boards take a collective responsibility for any decisions made on behalf of their businesses and their tax strategy is no exception. Ultimately, this Government believe any penalty is a business responsibility, not one to be pursued across a group of directors. In summary, these amendments would result in less clarity around any sanctions, not more, and I urge the House to reject them.

The amendment to clause 149, tabled by the right hon. Member for Don Valley (Caroline Flint), seeks to require large multinational enterprises to publish a country-by-country report on their activities within their published tax strategy. As I have set out, this Government fully share her aims of increasing transparency and clamping down on avoidance and evasion wherever it occurs. Indeed, this Government have led the way in calling at an international level for public country-by-country reports. However, I do not believe that her amendment would help to achieve the objectives that we all share. It is technically flawed, and hence would not achieve the stated transparency or pro-business objectives that we all espouse.

The right hon. Lady has said that multinational businesses such as Google would be forced to publish headline information about where they do business, the money that they make and the tax that they pay, but that is not the case. According to Government legal advice, the amendment would, in practice, place such a requirement only on UK-headquartered multinationals. Foreign-headquartered multinationals such as Google would not be caught at all, and that undermines the transparency objective of the amendment.

The amendment also risks putting UK multinationals at a competitive disadvantage by imposing a reporting requirement that does not apply to foreign competitors operating in the same market. For example, a company headquartered in the UK, whether on the mainland or in Northern Ireland, would have to file public reports, but a company headquartered in the Republic of Ireland—or, indeed, pretty well anywhere else—would not. That, I think, contradicts the level playing field objective whose importance the right hon. Lady has emphasised. At a time of increased uncertainty, we should be particularly cautious about disadvantaging UK-based businesses and imposing on them a further commitment that does not apply to their foreign competitors.

[Dame Margaret Hodge (Barking) (Lab)]

I am grateful to the Minister for giving way, especially as he is in pain. He said earlier that the amendment was “technically flawed”, but that is not the advice that my right hon. Friend has received. It seems to me that, in reality, the Government are more driven by their ideas about tax competition. Will the Minister confirm that that is the case? If it is, I suggest to him that transparency is more important for the British people in particular, and that if any global company chooses to leave the UK simply because of demands for transparency and demands that it pay fair tax, which will be a rare occurrence, it may well be that it is not the sort of company that we want to be headquartered here.

[Mr Gauke]

There are some issues of timing, but I must emphasise that the only companies that would fall within the scope of the amendment would be UK-headquartered companies. The Googles of this world would be unaffected. We believe that all this should be done on a multilateral basis, and—although my timing may be slightly unfortunate—I should point out that considerable progress has been made at European Union level. Indeed, the relevant commissioner has said that we are on the cusp of a deal and that he hopes that it will be concluded during the course of the Slovakian presidency, in the second half of this year. The UK has been leading the way in that debate, and, indeed, we have been calling for the Commission to toughen up its rules.

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New clause 8, tabled by the SNP, proposes a review of arrangements to facilitate whistleblowing about suspected tax evasion in the banking and financial services industry. HMRC values the extensive information provided each year by the public. During the 2015-16 financial year, HMRC received over 125,000 pieces of information from the public. HMRC’s actions are subject to independent scrutiny and regular inspection from the Office of Surveillance Commissioners. I am satisfied that that gives me good assurance that its work in this area is well managed and highly effective. We therefore do not believe a review is necessary and urge Members to reject the new clause.

[Dame Margaret Hodge]

Will the Minister give way?

[Mr Gauke]

I will certainly give way. I was about to turn to new clause 9.

[Dame Margaret Hodge]

I want to make two points about the response to whistleblowing. First, as I read the clause, it would lead to a review of whistleblowing in the banking and financial services sector. During my period as the Chair of the Public Accounts Committee, we did a lot of work on the whistleblowing from Falciani on the Swiss bank accounts and on the PwC leaks in Luxembourg. What was so interesting was that the only action that the two financial institutions took was to try to pursue the whistleblowers through the courts—trying to get them indicted and jailed. That is unacceptable.

Secondly, the internal HMRC lawyer who gave us the evidence that demonstrated that a sweetheart deal had been entered into with Goldman Sachs could not, in the end, return to his job. Everything of his was rifled through from his wife’s computer to his telephone and everything else. That is not good enough. I urge the Minister to think again and to instigate a review.

[Mr Gauke]

I note what the right hon. Lady says, but I will not let her comments about sweetheart deals pass. We have discussed the matter before, and I point her in the direction of Sir Andrew Park’s review of those settlements and his conclusion that there were no sweetheart deals. This is an issue that she and I have discussed before and no doubt will discuss again, and I fear that we will not reach agreement. I note her points, but I am not persuaded by the case for new clause 8.

--- Later in debate ---

[Dame Margaret Hodge]

I am grateful for the support that amendment 1, tabled by my right hon. Friend the Member for Don Valley (Caroline Flint), has received from MPs on both sides of the Chamber and a range of charities and voluntary organisations. The way in which she prepared for the debate was excellent, and I wish I had done as well, but I was a little distracted by other issues.

New clause 9, tabled by me and other hon. Members, would require the Chancellor to publish an estimate of the impact on levels of tax avoidance and tax evasion of extending the current requirement on UK-based companies to publish information to companies incorporated in the Crown dependencies and overseas territories that have significant levels of trading activity in the UK. The purpose of the new clause is to take forward the Prime Minister’s commitment to have publicly available registers of beneficial ownership for all the Crown dependencies and overseas territories.

As others have said, it is difficult to estimate the amount held in tax havens. Some estimates have put the private financial wealth held in them at between £21 billion and £32 billion, and that money is untaxed or very lightly taxed. The French economist Zucman estimated that $7.6 trillion was held offshore last year, which is the equivalent of the US budget for two years. The OECD has estimated that tax havens may cost developing countries the equivalent of three times the global aid budget. We are talking big, big, big sums.

We saw from the Panama papers how much of the money that is held offshore is held in UK tax havens. Of the 214,000 corporate entities that were exposed in the Panama papers, more than half were registered in the British Virgin Islands. I draw Members’ attention to another interesting bit of data, which shows the role of tax havens and overseas territories. A World Bank review that looked at 213 corruption cases over 30 years, from 1980 to 2010, found that 70% of those cases involved anonymous shell entities. The UK Crown dependencies and overseas territories were second behind the US on the list of those providing the shell entities that enabled that corruption and money laundering to take place.

I welcome the action the Government have taken and the leadership they have shown on the international stage, and we could just stay where we are, but the purpose of the new clause is to urge them to go further. All these issues are being revealed, and will continue to be revealed, through leaks—we have had the Falciani leaks and the Luxembourg leaks, and we have now had the Panama leaks. I am waiting for the next set of leaks; I bet they are out there—I bet a whole bunch of journalists are working on them now—but is that the way we want to learn about how corrupt individuals and greedy corporations are hiding their money, aggressively avoiding and evading tax? Would it not be better if we did everything within our power and within our authority to open up these issues so that we could see whether people were paying their fair share of tax, based on their profits, wealth or earnings, depending on whether they were an individual or a corporation?

The Minister knows that people are really angry about this issue. It is not something that has been invented by Opposition Members. I receive huge swathes of emails and letters every time I raise the issue of tax evasion and tax avoidance. If he takes the action we are suggesting and closes down the tax havens, that will be not just popular but right. That may damage the interests of a few wealthy individuals or corporations, which I think the Minister holds in awe, but it will be in the interests of the many, many people and small companies here in the UK who loyally pay their tax without any question.

I want to take the Minister through the pledges the Prime Minister has made. I was delighted in 2013 when he pledged at Loch Erne:

“Every one of the Crown Dependencies and Overseas Territories are going to have an action plan on beneficial ownership.”

In 2013 he also told them that it was time to rip aside the “cloak of secrecy” by creating a public register of beneficial ownership. In 2014 he wrote to the overseas territories urging them to consider having public registers of beneficial ownership, saying that

“beneficial ownership and public access to a central register is key to improving the transparency of company ownership and vital to meeting the urgent challenges of illicit finance and tax evasion.”

In 2015—this is the fourth example—he went to the Caribbean and again made clear his determination that overseas territories should open up. He said:

“I say to them all today, including those in this region, if we want to break the business model of stealing money and hiding it in places where it can’t be seen: transparency is the answer.”

We all agree with that, and we urge the Government to take action. They should stop talking and start acting. They should not always hide behind international co-operation. There is stuff that we can do now and that we should proceed with urgently.

If we are to know how much tax we lose from individuals hiding their money in anonymous accounts in the overseas territories and Crown dependencies—it could well be laundered money—and how much money global companies are hiding in tax havens as part of their aggressive tax avoidance strategies, we need every country to have a register of beneficial ownership, as set out in my right hon. Friend’s amendment, and those registers have to be public. That is especially important for developing countries.

As the Minister knows, we have the power to act. I fear that the reason the Government are not using their power is that they are happy to allow this massive tax avoidance and evasion to continue. I hope the Minister will reassure me in his reply that that is not the case, but that is what it feels like.

The Government have used the powers they currently have in other areas. We could therefore use an Order in Council to instruct all the overseas territories and Crown dependencies that are under our control to issue public registers of beneficial ownership. It is easy. The Conservative Government did it in the past when they used such Orders to ensure that capital punishment was abolished in overseas territories and Crown dependencies. A previous Labour Government used absolutely the same powers to ensure that discrimination against gay men was made illegal in overseas territories and Crown dependencies. If both the main political parties have used those powers in the past, why are the Government so reluctant to use them for something that is so popularly demanded and would be so important, and where they themselves agree that transparency has to be the way forward?

Some of the overseas territories are co-operating with the Government’s endeavours. However, newspaper reports tell us that the Cayman Islands and the British Virgin Islands are ignoring requests to meet officials to discuss evasion and avoidance. I understand that the Prime Minister has not met a single overseas territory since he first made the commitment to take action on opening up these tax havens in August 2013. I also understand that the Minister asked the overseas territories with financial centres to have plans for registers of beneficial ownership by 2014, but he was ignored, and he is still doing nothing.

I have here a table prepared by Transparency International that shows the current commitments on beneficial ownership by overseas territories and Crown dependencies. As the Minister knows, it shows that Turks and Caicos has done nothing, the BVI has done nothing, and the Cayman Islands is half co-operating, while Bermuda and others are refusing to have a public central register. The only country in our control that is having a public central register is ourselves. I congratulate the Minister on that—we are setting an example—but let us use our powers to go further.

What we hear and read from the two most important overseas territories—the British Virgin Islands and the Cayman Islands—is a matter of great concern. The British Virgin Islands did not come to the anti-corruption summit; it is against the proposal. Its Premier and Minister of Finance, Orlando Smith, has said:

“The moment we begin housing vast amounts of highly sensitive, private business information and then providing access to that information to a wide array of actors, the risk of a breach goes up immeasurably.

If legitimate businesses fear that their international transactions will be exposed to the world, or, worse yet, accessed by criminals or terrorists”—

I am not sure how that will happen—

“and used as a weapon of extortion or intimidation—then the gears of international finance will start to grind.”

Talking about terrorists and criminals is purely an excuse. The British Virgin Islands simply does not want to open up the books. It does not want us to know what are the beneficial ownerships of companies that have registered there or individuals who hold their money there.

After the Prime Minister said that he had made such wonderful progress in ensuring registers of beneficial ownership that would help us to find out who owned what, where, Premier McLaughlin of the Cayman Islands said:

“This is what we wanted, this is what we have been pushing for three years, for a disaggregated system which leaves the beneficial ownership information intact with the service providers.”

He got away with what he wanted. He was not forced by us to reveal the data that we so desperately need to find out what is hidden there. He went on to say:

“People don’t do business with us because we are nice”.

That is simply not good enough.

I urge the Minister to take this little new clause really seriously. I will request a Division on it. I urge him to do what he says he wants to do and open up to public account the tax havens that we, the United Kingdom, control.