Finance (No. 2) Bill

Mark Field Excerpts

Wednesday 17th April 2013 Commons Chamber

[Mr Meacher]

Yes, I appreciate that. It seems that Graham Aaronson, whom I have criticised pretty strongly in the House in the past, has for reasons best known to himself—although I am very appreciative that he has done this—changed his mind in the important respect that the hon. Gentleman described and which I tried to set out at the beginning. There is more joy in heaven over one sinner who repents than over 100 just men.

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

The right hon. Gentleman will appreciate that I have grave concerns about going down the route of even a general anti-avoidance rule, but surely he must recognise that if his new clauses were agreed and we took a principled, rather than a rules-based approach, that would lead to ever more uncertainty and, dare I say it, even larger fees for the lawyers and accountants whom he wishes to clamp down on in this regard.

[Mr Meacher]

I will come to that point. I know that the hon. Gentleman, who has spent enough time in this Chamber, as I have, might think that I am kicking it into the long grass, but I will come to it at the end. I think I have an effective answer to it, but I prefer to give it at that point.

There are other problems with the GAAR. For the reasons given, it is far too narrowly drawn, tackling only the most aggressive forms of tax avoidance. It would not, for example, tackle Google or Amazon—which have had enormous publicity over the last weeks and months—because the channelling of profits from genuine sales through tax havens would still be permitted. That is just one example. The implication—dare I say it one that was probably intended by the Government; I hope that is not unreasonable—is no doubt that a veneer of respectability is thereby cast over everything else, which might well include artificial contrivances designed to avoid tax. They will somehow be seen to be okay.

There is also no clear penalty regime in the GAAR, which is certainly needed if others are to be deterred from exploiting every opportunity to go down the tax avoidance route. Contrary to all other tax logic, where the burden of proof has always fallen on the taxpayer, uniquely in the case of the GAAR, the burden of proof that an arrangement is abusive has unaccountably been placed on HMRC. Despite the one improvement, which I am glad to mention—

[Mr Meacher]

I would rather get on, if I may, as many others wish to speak and it is a very short debate.

Despite the improvement I mentioned at the beginning, the net accumulated effect of all these flaws makes it reasonable to argue that the GAAR is a step backward for two particular reasons. One is that while the most heinous cases will certainly be caught—we are all agreed about that—the impression given is that virtually everything else is somehow okay and everything else goes. The other is the outrageous fact that HMRC cannot commence GAAR action on its own initiative. That is rather like forbidding the courts to take action against a thief until the honorary city guild for thieves has given permission.

The alternative is the general anti-tax avoidance principle—the GAntiP—as set out in new clauses 7 to 16. It was drafted by Richard Murphy, one of our foremost tax accountants, as the Minister knows only too well as a sparring partner, and a founding member of the Tax Justice Network. What are the advantages of GAntiP? I will set them out briefly.

First, tax avoidance is currently estimated to cost this country and its other taxpayers £25 billion or up to £25 billion—I know the figure is much disputed, but it is certainly a very substantial sum. It would be significantly reduced, so that many services now under threat because of Government cuts could be saved and more money would be available to help promote jobs, which the Government want, and economic recovery.

Secondly, to deal with the point raised by the hon. Member for Cities of London and Westminster (Mark Field), the UK tax system would be made considerably more certain if HMRC were for a small sum to provide prior indication, which I would strongly support, about whether or not an arrangement would fall within the scope of tax avoidance. No one is trying to trick companies; we want certainty, and this would be a very good way to achieve it.

[Mark Field]

On this matter, I entirely agree with the right hon. Gentleman. I have said on a number of occasions that if we are to go down this route, whether it be a general anti-avoidance rule or on the basis of the principles that the right hon. Gentleman prefers, it must be done hand in glove with a proper pre-clearance process. It needs to be a swift process and it may be that a fee is to be paid as well, but it must be done on the basis that before any new scheme is marketed it must get the thumbs up from HMRC that it is a legitimate one. That would provide a sensible way forward taking into account the certainty reasons that I pointed out earlier.

[Mr Meacher]

I am glad to have the hon. Gentleman’s agreement on that. I hope that he will also agree with me that what the Government are proposing—that the criterion should be whether a certain arrangement amounts to a “reasonable view” or a reasonable course of action—is an extremely vague, subjective and uncertain way of deciding this matter.

[Mark Field]

rose—

[Mr Meacher]

The hon. Gentleman should really make his own speech.

[Mark Field]

The right hon. Gentleman referred earlier to egregious schemes, and I think we all recognise that there are some, as highlighted by The Times and other newspapers in recent months. Which particular schemes does the right hon. Gentleman, who is obviously in close contact with Richard Murphy among others, think would not fall foul of the reasonableness test? Which schemes would be regarded as highly egregious yet would fail to be caught?

[Mr Meacher]

I have already mentioned two that have had a great deal of publicity—Google and Amazon—but there are many, many others. Only a very narrow and small proportion of the most “aggressive”—the Chancellor’s phrase—or abusive tax-avoidance schemes would be caught. What worries me is the impression given that everything else is somehow okay with the Government. I think that is a very unwise position to adopt.

Briefly, the third advantage of GAntiP is that the incentive for accountants, lawyers and bankers to sell tax-avoidance schemes would be curtailed. That would be a thoroughly good thing, because they and their clients would know that most of those schemes would fail in future.

Lastly, my fourth advantage might be the single most important one. GAntiP really could help to change the rancid culture in British society today whereby the top 1%—whether it be super-rich individuals or the big corporations—are widely perceived to be ripping off the honest remainder of the population.

--- Later in debate ---

[Nigel Mills]

It is a pleasure to speak in this debate, and I rise to speak to amendments 11 and 12, which stand in my name.

I have said this before, but I have concerns about Parliament agreeing overwhelmingly with a principle that effectively says, “We as a Parliament, even with all the specialist advice we get, cannot draft the law sufficiently well to leave our taxpayers to try to apply and follow it, and leave HMRC and the courts to determine whether that is the case.” The proposals of the Government and of the right hon. Member for Oldham West and Royton (Mr Meacher) would in effect create a power for HMRC to say, “While the law actually says that, what we really meant was something a little bit different, so while the taxpayer has complied with the letter of the law, they have not complied with the letter of the law as we wish it had been written.”

That is a real power for Parliament to give away. We are saying to an executive agency of the state, “Your job is no longer to apply the law; your job is to rewrite it as you wish it had been written by Parliament in the first place.” I think we should be very careful before going taking such a line. We need to know exactly what we are doing and we need to be happy with setting that principle. If the Government tried to apply such a principle to criminal justice law, we could end up arresting people for something that was not a legal offence but we wished had been a criminal offence. If we applied it to immigration law, for example, there would be howls of outrage saying that the state had gone mad with excessive power, and that it was the end of the rule of law and not the way for a sensible Government to behave.

[Mark Field]

I entirely agree. That sense of arbitrariness will potentially do great damage to the UK as a place that has always been welcoming to business internationally, benefiting our economy as a whole. He is absolutely right to draw a direct comparison between issues relating to the Finance Bill—after all, we have one every year, so we can try to tighten up any problems—and issues relating to the criminal justice system. As he says, if the same principle were applied to criminal justice, it would rightly lead to outrage.

[Nigel Mills]

I am grateful to my hon. Friend and I would like to expand a little on this theme. It has been said before that there are various ways of interpreting what the rule of law means. One version from the 17th century is that the rule of law is the

“supremacy of regular power as opposed to arbitrary power”.

In the case before us, rather than saying “Here is the law that applies to everyone,” we are giving the Revenue the right to rewrite the law only for certain people subject to certain permissions. That sounds like arbitrary power to me.

As a classics graduate, I thought I would dip back into history and finally find some use in having done a classics degree. Plato said:

“Where the law is subject to some other authority and has none of its own, the collapse of the state in my view is not far off; but if the law is the master of the government and the government is its slave, then the situation is full of promise.”

What we are doing here is saying that the law now has no authority, as we are giving somebody else the power to change the law, and that rather than the Government having to follow the law, the Government and its agencies can change the law retrospectively. We need to be clear that we are weighing up whether the real sin of the existing excessive, outrageous and truly abominable level of complex tax avoidance by people who should know better and should not be doing it is enough for us to risk weakening the rule of law.

--- Later in debate ---

[Mark Field]

My hon. Friend has identified the nub of the problem. The complications and the sheer size of the tax code have become the godfather of much of the tax avoidance with which many Members in all parts of the House want us to deal.

[Nigel Mills]

Am I right in thinking that the second sign of madness is to keep doing the same thing and expecting a different result? I think that that applies to introducing more and more complexity and assuming that the outcome will eventually be different.