Tax Avoidance and Evasion

Margaret Hodge Excerpts

Tuesday 25th February 2020 Commons Chamber

[Steve Barclay]

Not only is my right hon. Friend point absolutely right in the point he makes, but he draws attention to the measures taken in 2014—when he was a key figure in Government—through the UK’s G8 presidency, when we drove the adoption of greater tax transparency through the automatic exchange of information. It is part of the UK’s role at the forefront of a number of international bodies, including the G20 and the OECD, to improve tax transparency at an international level. Across the House, Members recognise that many of the measures that are required to reduce the tax gap, which I think is a common goal across the House, need international action, not just action on a domestic level.

[Dame Margaret Hodge (Barking) (Lab)]

This is the first time that I have spoken to the Minister in his current job and I welcome him to it. I see him a bit as a poacher turned gamekeeper, because he was certainly an extremely determined interrogator of many of the big corporations that we think are still not paying the right amount of tax. I hope he still accepts from our interrogations of Google, for example, that although it pays a bit of tax, it is a very small percentage of the profits it makes in this jurisdiction. To help us, we could enact a measure that has been passed by this House, which is country-by-country reporting, which would enable us to see the economic activity of companies within this jurisdiction, the profits they make here and so the tax for which they are liable. Why does he not enact that measure?

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[Dame Margaret Hodge (Barking) (Lab)]

I welcome the debate this afternoon so early in the new Parliament, but the importance of tackling aggressive tax avoidance, tax evasion, economic crime and money laundering cannot be overstated, and this debate will not go away until the Government are seen to have taken far more action, not just uttering warm words of support in principle but demonstrating firm action in practice.

There is a lot of money at stake, and that is not just reflected in the tax gap, as others have suggested. The tax gap does not measure the money that we should be collecting in tax from, for example, the profits from the activities that big digital companies undertake here. Looking simply at the tax gap, as currently defined by HMRC, is not enough if we are serious about tackling tax avoidance, tax evasion and economic crime.

As I said, a lot of money is at stake, which is important when we have a new Government who have pledged to restore some of the cuts that they have implemented over the past decade and to invest in services and who want to level up living standards across the country. Fairness is at the heart of this debate, as has already been said. It is not about castigating the rich or anything like that; it is about ensuring that everybody pays their fair share of tax. Everybody should contribute to the common pot for the common good from the wealth they own or the income they receive. It is about ensuring that everybody is treated equally before the law. Until everybody in the nation, particularly the 85% who pay their tax automatically through the PAYE system, can be sure that there is fairness in who pays tax and how much they pay, we will not be able to raise the necessary revenue to fund the services that this country so desperately demands.

I urge the Government and the Chief Secretary to the Treasury to listen carefully to what is being said in today’s debate. There is a cross-party consensus on many of the issues, and the Government need to heed that. They will be unable to ignore the voice of Parliament, despite their increased majority, because to do so would be morally wrong and totally unprincipled.

Let me give a figure that has not been mentioned so far. The National Crime Agency estimates—the figure has not changed and, if anything, has gone up—that about £100 billion of illicit money flows through Britain each year. We have become the jurisdiction of choice for too many kleptocrats, too many criminals and too many people who want to launder their money. We will never build a global Britain on the back of dirty money. Post-Brexit Britain will not prosper by, at best, ignoring the extent of the problems of avoidance and economic crime or, at worst, facilitating it.

I ask the Government to respond to four current concerns. In 2018, the right hon. Member for Sutton Coldfield (Mr Mitchell), who is in America talking to elected representatives about how to tackle evasion and avoidance, and I led a successful cross-party campaign to place on the statute book an obligation on overseas territories to provide public registers of beneficial ownership. In 2019, the Crown dependencies, recognising that the will of Parliament was to include them in the legislation, voluntarily agreed to come along with that. We accepted a concession that registers should be implemented by 2023—too late, but it was better to have the scheme accepted by all parties. I remind Members of why the change is so important. We have already heard today that half the entities named in the Panama papers were registered in just one of our overseas territories: the British Virgin Islands. Secrecy enables wrongdoing, and we must understand that.

Our Crown dependencies are as complicit as the overseas territories, and I have two examples: Silvio Berlusconi was accused of bribing two judges, and the payments were allegedly made through a secret offshore branch of the Berlusconi empire, with funds sent to the judges’ bank accounts in Switzerland through a Jersey-based company; and Bono used a company in Guernsey to hide the profits he made in Lithuania.

We need public registers of beneficial ownership in both the Crown dependencies and the overseas territories. Transparency is a key tool in tackling evasion and economic crime. Global Witness has shown a thirst for open access to company data. Since 2015, when the paywall came down on UK company data searches, there have been, on average, 2 billion searches a year, compared with just 6 million a year before the pay wall came down. It has been used by individuals, investigative journalists, campaigning organisations and the voluntary sector, and it has been used by businesses to try to ensure other businesses are treated fairly.

What support have the Government now put in place to help the overseas territories and Crown dependencies implement public registers? Will the Minister confirm the 2023 date this afternoon? Has he taken any steps to bring that date forward? That would be perfectly possible.

Research from Tax Watch shows that, between them, the big five global digital companies—Google, Cisco, Facebook, Microsoft and Apple—paid £240 million in corporation tax in 2018. They should have paid £1.3 billion according to Tax Watch’s calculation of the activity they undertook here, the profits they made here and, therefore, the corporation tax bill that was liable here.

The Government’s proposed digital services tax is the beginning of an answer, but, by 2023, it will raise only around £400 million, which is a tiny start to ensuring that these large global corporations pay a proper amount of tax on digital services. It makes me so angry, because these companies are as dependent as anybody else on the services our tax provides. They need a well-educated workforce, which is provided from taxpayers’ money; they need a healthy workforce, which is provided from taxpayers’ money; and they need infrastructure—whether roads, the internet or whatever else—which is often also provided from taxpayers’ money.

[Peter Grant]

I am sorry to interrupt the right hon. Lady because she is making a valid point that those who are the most enthusiastic in giving advice about how to dodge taxes are often people who, in a previous life, benefited from other people’s taxes. Does she believe there is a bit of inconsistency in that some Members of Parliament who get significant support from tax advisers who promote themselves on giving advice about how to legally avoid taxes are themselves paid very handsomely indeed from other people’s taxes?

[Dame Margaret Hodge]

I am unaware of that specific allegation, but I will come on to facilitators, advisers and enablers who get away with far too much.

The only way we will start ensuring that digital companies pay the right amount of tax is by implementing country-by-country reporting. I asked the Chief Secretary and he did not reply, so I hope the Financial Secretary will reply to the question in his winding-up speech. When will this Government implement the country-by-country reporting that will allow us to see what activity takes place here, what profits are made here and, therefore, what fair tax should be paid here?

I reiterate to the Financial Secretary an issue that I raised with him in an Adjournment debate a couple of weeks ago, and to which he failed to reply at the time. Netflix has so far avoided public scrutiny, but it exports its profits by ensuring that subscribers pay into a server located in Holland. We reckon Netflix earned about £1 billion last year and paid no corporation tax, but in over two years it has benefited to the tune of £1 million from the high-end television tax relief. Not only was Netflix not paying tax, but it was benefiting from what is, in effect, a grant to encourage the production of content here in the UK.

I welcome such reliefs, but it seems utterly unacceptable that companies should benefit from grants offered through tax reliefs here in the UK yet behave in such an appalling way and refuse to pay their tax here. Now that we are Brexiting from Europe, surely it is not beyond the realms of possibility to introduce legislation so that companies will be eligible for such tax reliefs only if they show responsibility in how they behave and in paying their fair share of tax.

The other thing that really gets me with many of these American-headquartered companies is that the Americans, under Donald Trump, extract tax from profits earned through activity undertaken here in the UK. They extract tax at a lower rate but, nevertheless, they are getting more tax than we are, which is unacceptable. Americans are profiting from tax on profits and intellectual property created here in the UK.

I again ask the Minister what I asked him in the Adjournment debate and to which he refused to respond: will he extend the digital services tax to include streaming services? Will he stop those who deliberately avoid tax having access to grants and tax reliefs?

The hon. Member for Glasgow Central (Alison Thewliss) talked about creating a register of beneficial ownership of property, which David Cameron first promised us five years ago. Why is it important? The last figures I could get show that getting on towards 90,000 properties across the UK are owned by companies incorporated in tax havens.

The purchase and ownership of properties has become a key way in which money is laundered into the UK. Transparency International has established that one in 10 properties in just one London borough—Westminster —is owned by a company registered in an offshore secrecy jurisdiction. Private Eye claims that one in six properties sold in Kensington and Chelsea was bought by a company located in an offshore tax haven. This is a key way in which people launder money here.

The electoral register of Kensington and Chelsea is interesting. There has been a 10% decline in the register over the past decade or so, whereas registers have increased everywhere else in London. Why? Because people buy the properties and leave them empty. They simply use the purchase as a way of laundering money, and we know lots of that money comes out of Russia—about £70 billion has flowed out of Russia into the UK in the past 10 years.

When are we going to see that legislation? When will it be put before the House? When will we see the promise made a long time ago by a Conservative Prime Minister fulfilled by this Conservative Government?

Finally, the hon. Member for Glenrothes (Peter Grant) mentioned the role of advisers. It is the advisers who create these schemes. Whether they are banks, accountants, lawyers or just advisers on their own, they found schemes that are later deemed to be unlawful. Film tax credit and, most recently, the loan charge are good examples of schemes that have caused terrible hardship to people. I feel ambivalent about it because, of course, there is never something for nothing, and people should have been much more careful before they entered into such schemes. Nevertheless, they have led to suicides—they have been terrible schemes. Advisers always get away scot-free, whoever they are, and none of them is held properly to account. The law in this policy area is just too weak. In criminal law, we have to prove dishonesty to pursue a criminal prosecution, which is very difficult. In civil law, the penalties are ridiculously low and are limited to the amount of fee that the adviser would have gained. There is also what is known as a double reasonableness test: it cannot be regarded just as an unreasonable course of action; it also has to be demonstrated that it was unreasonable to think it was reasonable—I hope that makes sense to Members.

The calling to account of advisers, enablers and promoters would be a powerful tool. At a stroke we would kill off many of the schemes that are currently exploited, which lead to such tax loss in this country. I urge the Minister to bring forward legislation to toughen up the regime and to make it easier to hold the advisers, enablers and promoters to account.

In conclusion, it is vital to battle against tax evasion—it is vital to demonstrate fairness in our system, to ensure the proper funding of our public services, and to the building of a global Britain that is respected around the world for its values and integrity and that is seen as a good place to do business. The Government will pay a heavy price if they fail to respond properly to the issues that have been raised in this debate. They must not just give us warm words; they have to give us tough action. I hope that in my short contribution I have given the Minister some good ideas that he could easily implement and that would make the world of difference. I urge him to have regard to them.

[Several hon. Members rose—]