United Kingdom Corporate and Individual Tax and Financial Transparency Bill

Michael Meacher Excerpts

Friday 6th September 2013 Commons Chamber

[Mr Michael Meacher (Oldham West and Royton) (Lab)]

I beg to move, That the Bill be now read a Second time.

At the outset, I want to say that this is the only time I can remember witnessing a Government Front-Bench spokesperson engaging in a time-wasting filibuster on the scale we have seen today. It was an abuse of the House. The Deep Sea Mining Bill is widely regarded as a Government hand-out Bill and yet the Minister took more than an hour over it—two or three times longer than he would have taken over a Government Bill. The practice needs to be stopped.

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. May I say to the right hon. Gentleman that I did stop the Minister at the beginning of his speech over time-wasting? The right hon. Gentleman may remember that I interrupted the Minister to suggest that he moved on to the subject at hand. The Chair did its job. The right hon. Gentleman is in danger of questioning the Chair if he is not careful.

[Mr Meacher]

I was not in any way referring to you, Mr Deputy Speaker; I was saying that the regulations and procedures of the House need to be examined in a way that prevents an abuse of that kind.

[Mr David Nuttall (Bury North) (Con)]

Will the right hon. Gentleman give way?

[Mr Meacher]

No, I am not going to give way.

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. I will help both Members. We are not going to carry on in this vein. I want to hear about Mr Meacher’s Bill, and I am sure he wishes to get on with it. I want to hear about its content.

[Mr Meacher]

I am entirely of the same mind, Mr Deputy Speaker.

Tax avoidance and financial transparency, or perhaps I should say the lack of financial transparency, have of course been high on the Government agenda for the past two years. They even led Prime Minister to make tax transparency and trade his central international focus at the G8 at Lough Erne in June. However, having marched his troops up the hill, rather like the Grand Old Duke of York, the Prime Minister has since proceeded to march them down again. Rather little of significance—that is being generous—has happened on the tax and transparency front since then.

At the G8, the UK published an action plan on tackling some of the issues involved, but it is not unfair to say that it was decidedly modest in its ambition. The same can certainly be said of the scope of the subsequently announced consultation on disclosing the beneficial ownership of companies. The Government have, of course, published the general anti-abuse rule, but as has often been said, it will cover only the most egregious forms of tax abuse and is consequently in danger of appearing to legitimise lesser forms. The GAAR is rather like the lobbying Bill that is currently before the House—the Government are extremely keen to be seen to be doing something, but they have no intention whatever of actually doing much. If we are really serious about tackling tax avoidance and the financial opacity of our tax system, a more robust approach is needed. That is what my Bill is intended to offer.

The Bill was drafted by Richard Murphy, who is the founder and director of Tax Research UK and, I think everyone will agree, one of this country’s foremost tax accountants. I am extremely grateful to him, as I believe the whole House should be.

There are two drivers behind the Bill. One is the demand for fairness and social justice. The country is in the middle of a deep economic recession caused by the bankers, yet the Government have imposed on the victims the liability for meeting the ensuing very high national debt and budget deficit.

[Mr Nuttall]

Will the right hon. Gentleman give way?

[Mr Meacher]

No, I am not going to give way. The hon. Gentleman was one of those who engaged in the filibuster, and I am not giving him any more time.

By and large, those victims are the poorer and poorest households, which bear no responsibility whatever for the crash five years ago. According to the Sunday Times rich list, the wealthiest 1,000 persons in the UK—just 0.003% of the adult population—have increased their gains by a staggering £190 billion since the crash. Most of that has now been squirreled away in tax havens, hidden behind nominee shareholdings or secreted in opaque trusts. Frankly, that is utterly intolerable. It is high time that the very richest people in this country made a fair contribution to resolving the financial crisis. The Bill would help them to do so.

The second driver behind the Bill is sheer, plain, down-to-earth, honest-to-God common sense, if I can put it like that. My right hon. Friend the Member for Edinburgh South West (Mr Darling), the last Labour Chancellor, reduced the budget deficit by about a third by the end of 2010 through his stimulatory measures, but it has now been stuck at about £120 billion after flatlining for most of the past three years.

The current Chancellor has, through his enormous expenditure and benefits cuts, persistently squeezed virtually every last drop of demand out of the economy. That is a counter-intuitive and self-destructive policy if ever there was one, because it has plainly not reduced the deficit, but extended austerity indefinitely. A policy that will reduce the deficit significantly is patently needed. The obvious way to do that is to take public sector-driven stimulatory measures to kick-start real growth, but as the Chancellor has a fetish for cutting and is adamantly opposed to giving the public sector any role in promoting growth, I submit that my Bill is the next best option.

First, following the revelations of which we have heard repeatedly in the past few months of colossal tax scams perpetrated by US multinationals Starbucks, Apple, Facebook and Amazon—I recognise that those scams are more or less exactly the same as those perpetrated by a great many UK multinationals—the Bill proposes that the tax details and implied tax liabilities of both the wealthiest individuals and the biggest corporations are made public, and that the beneficial owners of companies who hide behind nominee shareholdings are also made known. That has repeatedly been discussed but never done. My Bill proposes that it should now happen. The tax enforcement that will result from what is revealed will raise tens of billions of pounds for the Exchequer and significantly deplete the deficit and interest payments on the debt. Therefore, the Bill tackles the extreme opacity in the tax affairs of both the largest companies and the wealthiest individuals in the UK by requiring that the tax returns of the top 250 in each group are put on public record.

Four criteria are used to define the 250 largest companies, starting with the FTSE 100. The Bill will ensure that other companies with substantial sales, profits and numbers of employees are also required to disclose. As a result of my Bill, companies that seek to avoid UK corporation tax but that still have a significant undertaking in this country will, for the first time, be required to disclose the full range of their tax dispositions. On individuals of highest net worth—to use the commonly used phrase—the Bill will reveal how income is commonly shifted into capital gains, and in turn reduced by allowances and relief. In respect of both companies and individuals, the data will enable the tax abuse that, according to Her Majesty’s Revenue and Customs and Treasury data, costs this country at least £35 billion a year, to be effectively addressed for the first time.

Secondly, multinational corporations have, as hon. Members know, hidden their activities behind complex and often secret corporate networks that conceal their tax liability—the networks are set up to do that—especially if a subsidiary is incorporated in a tax haven. The Bill requires any multinational corporation to publish the accounts of all its subsidiaries on public record.

Thirdly, the Bill requires that companies identify their beneficial owners and pass the details to Companies House. That is important because the registered legal owners can easily disguise who is behind a company, and thus present an entirely false view of its structure. For example, many quoted companies list only some of their shares on the stock exchange; the rest are in beneficial ownership. Limited liability partnerships are widely used for tax abuse, because members of an LLP are taxed, but not the partnership itself. If the details of ownership are known and put on the public record, the tax liabilities can be correctly assessed. Unlimited companies are almost routinely inserted into major corporation group structures in order to disguise ownership or control, often in ways that are designed to mislead about the true nature of transactions being undertaken. Obviously, foreign branches must be included if an enormous loophole is not to be created in the disclosure of beneficial ownership.

I would be the first to recognise that to presume that a company bent on tax avoidance or other dishonest purposes will necessarily comply with its obligation to disclose its beneficial owners is, frankly, naive. The Bill would therefore also place a new obligation on UK banks to report the information they collect on their limited company clients under money-laundering regulations, including the real trading address of a company, who its directors and beneficial owners really are, and where they are located. The banks would be required to submit that information to Companies House, which would then be required to publish it. The banks would also have to supply the information to HMRC, which would then be required to demand a tax return from any company with a bank account.

The sanctions—and sanctions are the only thing that will make the legislation work—for failing to supply any information demanded from the company by Companies House or HMRC would be either the removal of limited liability status or making directors and beneficial owners liable for the debts. Under the Bill’s provisions, HMRC would also be granted the power to access the company’s bank account data, so that estimated tax assessments could be raised if the company refused to supply accounts. Again, the directors and beneficial owners would be held responsible and would have to pay the consequential tax.

In order to avoid an obvious loophole, the requirement for a company to have information on its beneficial ownership and its accounts on public record—on its own website, or wherever—would be extended to the tax havens in Britain’s Crown dependencies and overseas territories, although of course only if the company in question had a beneficial owner outside that territory.

Finally, the Bill deals with the question of trusts and would require that they, too, declare the true identity of their settler, the trustees and beneficiaries to HMRC. If they do not, the sanction would be that the trust property would pass to the Crown. Trust data will also be placed on public record, but only in the case of those with significant assets or income, and those that control companies—I am not worried about trusts that are relatively trivial in their economic impact. Those measures are necessary to enforce the requirements. The information has always been available to the Government, but under both parties there has been an unwillingness to use the measures that are patently available to ensure that tax is paid in accordance with what Parliament has determined.

It is no exaggeration to say that the effect of these measures on the UK system’s capability would be nothing less than transformational. We have repeatedly been shocked by multinational corporations and their armies of City lawyers and accountants regularly running rings around the UK tax authorities—sometimes, one might think, with the apparent complicity of Government—but that is not inevitable or irreversible. My Bill will redress a massive injustice in tax burdens, put a stop to enormous tax abuse by large companies which has persisted for far too long and make a huge contribution to reducing the budget deficit. I commend it to the House.

--- Later in debate ---

[Jacob Rees-Mogg]

That is a complete non-sequitur. The issue is bad regulation, not too much or too little. It is perfectly logical to argue that there was too much bad regulation prior to the financial crisis and not simply think that we need more to solve the problem. I would argue that the Governor’s eyebrow is not something that can be regulated particularly effectively. No Act of Parliament, powerful though Acts of Parliament are, can determine how the Governor should raise his eyebrows or not; on the other hand, that was an effective way of regulating banking and ensuring that banks did not become overextended. Ticking boxes to comply with regulation often ensures that people obey the detail of it, but get away from the spirit. That is certainly what happened with some of the bank capital regulations prior to the financial crisis and some of the behaviour of financial institutions, which followed the letter of the law but got into a great deal of trouble. It was not that there was too much or too little regulation; it was that there was bad regulation.

I disagree with the right hon. Member for Oldham West and Royton on his understanding of the crisis, but I disagree with him even more firmly on the Government’s approach to solving it. Getting the public finances back into good order is the essential foundation for an economic recovery. The idea that the situation could have been improved by spending more each year in deficit, when tax revenues were low and the economy was weak, than we had ever spent in peacetime, is absurd. It would have just put us into a debt spiral. The United Kingdom’s credit would have declined and we would have been unable to finance our annual deficit and our cumulative debt.

[Mr Meacher]

I was not proposing any increase in public expenditure at all. The whole point of my Bill is that raising money from the extremely wealthy individuals of this country, and possibly also some corporations, would provide the money to generate probably 1 million or 2 million jobs within a couple of years. That would lead to a far bigger reduction in the deficit than anything the Government have done or just concentrating on cutting expenditure.

[Jacob Rees-Mogg]

The Government had a fiscal tightening and a plan for increasing taxation—which has come through—that forecast taxation going up to over 38% of GDP. Taxation at 38% of GDP is about the highest level that Governments ever achieve. If we go back to Harold Wilson’s prime ministership, we still find that it is almost impossible to get taxation at much more than 38% of GDP. The issue was that spending was so high, not that taxation was too low. The ability to squeeze imaginary rich people to get a lot of money coming in was simply not there. Such fiscal tightening on the taxation side as was possible was undertaken by the Government, but had they gone as far as the right hon. Gentleman proposes, any prospect of economic recovery would have been postponed. The tightening would have been too great, which would have harmed the economy. It would have taken money out of the economy simply to put it into the Government’s coffers. That would have led to a shrinkage of the economy, not least because people would have changed their affairs so as not to pay that extra burden of taxation.

[Jacob Rees-Mogg]

My hon. Friend is absolutely right. It is certainly my view—I accept that it is not the view of the right hon. Member for Oldham West and Royton—that it is the private sector that creates employment. Every job in the public sector has to be paid for by the taxes of the private sector. The public sector has no ability to create jobs without imposing a burden of taxation either now or in the future. I shall not go into the details of Ricardian equivalence, but the electorate understand that extra spending that is borrowed is merely taxation postponed.

[Mr Meacher]

In the depths of a recession, the private sector will not take this country or any other country out of that recession. There is £775 billion in corporate cash stockpiles in this country that is not being used. The problem is a lack of demand. The only way to insert demand into the economy is, initially, through a public sector-driven promotion of stimulatory measures. Only when the economy starts to rise will the private sector take off.

[Jacob Rees-Mogg]

Once again, I do not agree with the right hon. Gentleman’s assertion. Placing an extra tax burden on the private sector during the lowest point in a downturn will make that downturn even worse. The cash that has been built up by the private sector is waiting to encourage the recovery as it begins and as the private sector begins to recover. At that point, people become more confident because they have kept their own money, rather than it having being taken by the Government.