HM Revenue and Customs

Mark Field Excerpts

Tuesday 5th February 2013 Westminster Hall

[John McDonnell (Hayes and Harlington) (Lab)]

I am grateful for hon. Members’ attendance this morning at this debate about Her Majesty’s Revenue and Customs and its capacity and resources. Over the past decade or so, tax debates in Westminster Hall have usually been attended by the usual public administration anoraks—a club that I am a member of—or failed accountants who have been elected to the House of Commons, which is even worse. Not any more, however: the recession means that we all take an interest in public expenditure and look at every element of public income. A tax justice campaign is being waged as a result of the recession, and I pay tribute to tax justice campaigners John Christensen and Richard Murphy for their work over the years, as well as to UK Uncut, whose direct action campaign brought the issue to the attention of the public. It is concerned about the scandal of unpaid and uncollected tax. The debate reveals that our system does not work effectively.

There is another scandal associated with our taxation system: not just how much taxation is avoided or evaded, but how badly our tax collection and administration is managed overall—and, to be frank, how it has been mismanaged by politicians over the past few decades. At times, there has been almost catastrophic short-sightedness and incompetence. The genesis of the debate was a lobby by the Public and Commercial Services Union that happened in the past six months, and meetings with members. I chair the PCS parliamentary group, and the union represents 55,000 staff at Her Majesty’s Revenue and Customs. There have been many meetings with Members, and meetings in constituencies, to express the overwhelming sense of frustration, which has at times verged on anger that, as professionals, staff have been held back from fulfilling their role of ensuring that taxes are collected efficiently.

There is a particular sense of frustration because during the recession HMRC could, through tax collection, make a significant contribution to tackling the economic crisis and, indeed, the overall deficit. Staff feel that they are being held back professionally, and undermined by cuts: staffing cuts, office closures, deteriorating work conditions resulting in low morale, and the lack of appropriate professional and legislative tools to do the job. Time and again the view has been expressed that more and more policy changes load responsibilities on to them—more work for an overstretched and overburdened work force. The expression used by many of the staff is that they have been set up to fail—in some instances so that their jobs can be privatised. I want to explore the current situation in HMRC and consider the remedies that are needed. The Government need to stand back at this point, and consider staffing resources and the challenges that staff face.

What is the job? It dates back to the time of Chaucer, the earliest famous tax collector—a putative PCS shop steward. It is simply to collect taxes. The Institute of Chartered Accountants in England and Wales circulated an excellent brief before the debate, and summed it up. HMRC simply makes the tax system work: that is what it is meant to do, but the reality is that it struggles to do so. We know that from the evidence that is available to us. If the main role of HMRC is to collect the taxes, it is clear from the recent evidence that it has not the resources and legislative tools to do so. That is clear from the evidence of the tax gap—we have debated the tax gap at length in this Chamber and I appreciate that there are disputes about using it as an overall assessment of performance, and about the overall level of the tax gap itself, but we know that the range is anything from the £70 billion to £120 billion estimated by Tax Research UK, under Richard Murphy, and the HMRC’s and the Minister’s estimate of between £30 billion and £40 billion a year. In other words, even on the Government’s own assessment, half the current deficit is not being collected in taxes, because of tax avoidance and evasion.

The scale of tax avoidance and evasion has caused anger throughout our communities. It is not only the tax justice campaigns and the media that have been railing against them—so have the Government. In December the Chancellor said that people are “right to be angry” about companies not paying their fair share of the tax, and I fully agree with him. The Secretary of State for Business, Innovation and Skills said in November that it was “completely unacceptable” that companies could get away with what he described as gaming the system, to avoid tax, and referred to “appalling stories of abuse” within the tax system.

Last week, the Public Accounts Committee, which has been consistently complimented on its excellent role, under the chairmanship of my right hon. Friend the Member for Barking (Margaret Hodge), tore aside the veil that covered the operation, mainly in secret, of the major accountancy companies of devising, and ruthlessly implementing, large-scale—massive—avoidance schemes described by some as obscene. It is worth repeating the scale of what we have seen, in example after example: Starbucks paying only £8.5 million in corporation tax since it was launched here in 1998, despite £3 billion of sales; Google paying £6 million in tax last year on a turnover of £395 million; Apple paying £14.5 million in tax on £1 billion of sales. Numerous other examples have been highlighted by the PAC and others in the investigations of the past year.

[Mark Field (Cities of London and Westminster) (Con)]

The hon. Gentleman has listed a range of selective statistics, but he is well aware that tax is paid on profits, not turnover. Part and parcel of sales is VAT, so taxes other than corporation tax are involved. Does he think that a big danger in the debate is the intermingling of the sense of tax evasion, which is absolutely illegal, with tax avoidance? Not only is tax avoidance legal, but it is bizarre for politicians in government to rail about it, as they have it within their power to change the law to remove loopholes.

[John McDonnell]

That is an excellent point, which goes to the heart of the debate, because I agree with the Prime Minister that much of what is happening is morally repugnant, but the onus is on us to ensure that the system works effectively in relation to tax evasion and avoidance, and other matters, so that we serve the community that elected us well and so that HMRC does its basic job of collecting taxes. That means giving it sufficient staff and the right resources, so that they can do the job.

--- Later in debate ---

[Mark Field (Cities of London and Westminster) (Con)]

Let us cut to the chase. Among the vast number of businesses and UK taxpayers, HMRC has a not entirely undeserved reputation as a byword for incompetence, opaqueness and arbitrary action, verging on shambolic. In his passionate opening speech, the hon. Member for Hayes and Harlington (John McDonnell) expressed some specific concerns, and I want to touch on some of the issues.

I am a Member of Parliament who represents a constituency that is an important part of the UK economy, and there is a real problem—we will, no doubt, discuss it at greater length in other debates—about tax and the increasing feeling of unfairness, which is dangerous for society. I have spoken about that in the House, and particularly against the backdrop of the protests at St Paul’s cathedral a little over a year ago. Many—dare I say this?—middle-class Conservative voters feel that somehow the rules of capitalism are skewed against them. The narrow politics of that is obviously dangerous, but it reflects a real feeling of concern about where we are going with tax.

I want to mention a few warning signs about some elements of the political game scoring that goes on. We need a far better pre-clearance system, certainly if we are to have a new anti-avoidance rule that is both equitable and, more importantly, effective. The Government have made it clear that they want to introduce such a rule in the Budget within six or seven weeks. Therefore, the pace of change of tax law must alter. I have served on many Finance Bill Committees, both as a Front Bencher in opposition and as a Back Bencher in government and opposition. Our system is horribly and terribly complex, and our code is much longer than the much-derided Indian system of the past. We should all aspire to a simpler tax system because complexity is the godfather to the complex avoidance schemes that we have heard about at great length during this debate.

Taxation of small businesses must be better understood. I was a small business man for seven years before I became a Member of Parliament in 2001, but thank goodness, I am not still in business. I speak to businesses of a similar size in my constituency—I had a dozen staff with a £2 million turnover—and they have appalling problems trying to get their tax right, not just with HMRC, but with all tax authorities.

There is a danger that, in the perennial chatter about the failings of the tax system and politicians’ understandable reluctance not to play to the gallery, tax regulation will become much more arbitrary. One of this nation’s greatest assets as a place to do business is our reputation as a predictable, reliable and certain jurisdiction that is underpinned by the rule of law. We undermine at our peril that timeless tradition of being an open place to trade and prosper.

If large international corporations are arranging their affairs to avoid playing their fair share of tax, Governments and Oppositions—at least, Front Benchers—should cease moralising about that and get back to legislating such loopholes out of existence. The sheer complexity and size of the UK’s tax code, which is now larger even than that in India, has created the highly remunerated guild of tax avoiders, of which my hon. Friend the Member for Redcar (Ian Swales) may have been a member.

What should worry us most is that, when the tax authorities are empowered to make ethical judgments on the affairs of global corporations, before long they will turn their attention to ordinary taxpayers—the easy target—who may not have access to an army of professional advisers to allow them to make a long and protracted case. Ordinary taxpayers have every right to feel that once settled, their tax affairs should not be reopened on a whim.

My impassioned plea is to use our money wisely. I appreciate that, in the resources battle, it is not easy at this difficult time to justify employing vastly more people, but we need a much better relationship and more co-operation between tax advisers, companies and individuals, and HMRC, instead of its role being portrayed as a battle with a presumption that every taxpayer is trying to rip off the system. I hope that we will have better pre-clearance and that such debates will be consigned to history.

--- Later in debate ---

[Julie Hilling (Bolton West) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Howarth. I start by congratulating my hon. Friend the Member for Hayes and Harlington (John McDonnell) on securing this important debate.

In 2010, the Public and Commercial Services Union commissioned one of the most comprehensive calculations of the UK tax gap ever undertaken. The report, by Tax Research UK, estimated that the tax gap could be as big as £120 billion a year. I accept that the report was criticised by tax professionals, Ministers, HMRC and many large companies, but we have learned since 2010 that that estimate is likely to be more accurate than HMRC’s estimate of £35 billion.

What is the tax gap? The tax gap includes tax lost to avoidance, which is people seeking to minimise their tax bill without deliberate deception, but contrary to the spirit of the law. A good example was seen when tax for those earning £150,000 a year went up to 50% and some payments were brought forward, so that people subject to the 50% tax rate did not pay tax on that amount of money. As we see now, payments such as bonuses are being paid late, so again, they miss the 50% tax rate. That is immoral, as I am sure that many in the Chamber would agree, but it is not illegal. There is also tax lost to evasion, which is the illegal non-payment and underpayment of taxes by making a false declaration. Interestingly, that includes not only fraud, but error and neglect, which I will briefly come on to later. The tax gap also includes late or non-payment of tax—tax not due or not paid on time.

Whether the tax gap is £35 billion, £120 billion, or somewhere in between—or, as some of the recent scandals with well known names show, possibly even higher—it is a heck of a lot money, and it could make a real difference at this time of austerity and devastation of public services. All Labour Members will argue that we need to grow our way out of a recession, and we can see the current consequences of trying to cut our way out of it, as the triple-dip looms. However, fundamental to that growth must be the effective collection of tax, and it seems the closure of local offices does not make financial sense.

When Starbucks, Amazon, Google, and the others were exposed for arranging their tax affairs so that they did not pay their taxes here, all of us could recognise that something was wrong. All who used their shops and services could say, “Hang on a minute. How could enormous companies like that be paying such little tax in this country?” They are household names. We could all question it.

[Mark Field]

It is important in the context of Starbucks and the other companies to point out that much as there was public outrage, they pay significant amounts of value added tax on the products that they produce, and they pay significant amounts of employers’ national insurance on the number of people that they employ. I accept that there was a lot of unrest, but to suggest that they pay no tax at all misrepresents the situation.

[Julie Hilling]

I accept the hon. Gentleman’s point, but it is like saying, “I pay VAT when I buy things in shops, and I pay other taxes.” People who are employed by all of us pay national insurance, but there is that whole bit of tax that should be paid, and there are those who are not doing so. As we know, many individuals and companies manage to avoid paying it, and as has been said, the tax system is so complicated that it makes it easy and possible for people to avoid tax. It is wrong, and in my view, absolutely immoral that people, particularly at this time of austerity, do that.

If Fred Bloggs of Bolton or Freda Brown of Wigan do not declare all of their tax, how will the tax collector in another area have any idea of the scale or scope of their business when they are not household names? Local knowledge is invaluable and it is a real asset in ensuring that the right tax is paid. As other hon. Members have said, it is also an important service in the local area. It is about assistance so that people can try to get their tax right, so that they are not evading tax by error or neglect—unwittingly or unwillingly. They should have people to talk to on their doorstep. Again, as others have said, HMRC is an important local employer with an important role in the local economy.

It is a disgrace that 20 million calls were not answered in 2011-12, that the estimated cost of calls was £33 million, and that the value of customers’ time was £103 million. How can we support and run a system that costs businesses so much? We need to be working to build our economy. How can it be right that trying to talk to people about paying tax costs industry that amount of money? It is a service that earns money. It beggars belief that we are cutting it to the level that we are, and reducing staff by almost 50%.

I am running out of time, but I hope that the Minister will explain how he expects to collect all the tax that is due by nearly halving the number of tax inspectors, by closing local offices, and through the cuts that are taking place. Having served on the Finance Bill Committee and seen even more taxes introduced from the previous Budget, I hope that the Minister will explain what the Government will do to simplify tax as a whole, so that people do not either manage to avoid or unwittingly evade their tax.