Tax Avoidance and Evasion

Natascha Engel Excerpts

Wednesday 13th April 2016 Commons Chamber

[Kevin Foster (Torbay) (Con)]

It is a pleasure to follow the hon. Member for Dundee East (Stewart Hosie). Although there are probably some things we would disagree on, there are a couple of issues on which we do agree. One is that it is welcome that we are having this debate on the Floor of the House today. The other is the fear that the next tax haven to be listed—this time it would affect ordinary working people—might be England if the Scottish Labour party gets its way after the elections this May and makes tax rates for working people higher there than they are south of the border.

It is always good, as a member of the Public Accounts Committee, to be discussing on the Floor of the House how we get in the tax that is owed. During Prime Minister’s Question Time, I think I heard the Leader of the Opposition refer to tax as partly a donation. I can understand why he said that, but let us be clear: a donation is something people voluntarily give to a charity, as I do out of my salary; a tax is a legal requirement to pay something—it is not a donation or an act of charity.

As a member of the Committee, I sat on our recent inquiry into Google, which is perhaps one of the cases that has helped to prompt the debate on this issue over the last few months. We focused a lot on some of the offshore locations, but we also had references to things such as the “double Irish” and the “Dutch sandwich”, which helped to reduce the company’s tax liability. Neither of those relates to offshore territories; they both involve jurisdictions that are members of the EU. It is therefore important that, as we work across the world to try to deal with tax evasion and avoidance, we make sure that other nation states give these issues the attention they deserve. [Interruption.]

[Madam Deputy Speaker (Natascha Engel)]

Order. I am sorry to disturb the hon. Gentleman, but there is quite a lot of chattering going on, and I am finding it quite difficult to hear him.

[Kevin Foster]

Thank you, Madam Deputy Speaker.

In its report, the Committee was clear that HMRC should try to lead a debate about openness and tax rules. In that instance, the issue was revenues and the discussion of information with HMRC. It is easy to grandstand in such debates, but it is important to have not a knee-jerk reaction, but a considered debate about what information is available publicly, because there cannot just be specific rules for individual companies. If we change our general principle of not discussing individual taxpayer data, there are obviously some pitfalls to that, as well as some potential benefits, as we see when we look at deals such as the one with Google. However, the Committee felt that HMRC could lead a debate on that.

The report summarises some of the issues involved in judging whether the Google deal was the best deal that could have been done. It is worth noting, however, that the debate was based on previous tax rules, not today’s tax rules; effectively, we were having a debate about things as they existed some years ago—in some cases, 11 years back, when many Members sitting here today were not actually in the House—and about laws that have, in many cases, changed.

What came out of the Committee’s discussion is that HMRC’s performance is being looked at more widely, and the Committee regularly looks at it. It is encouraging to see some of the figures that have been published on the reduction of the tax gap—not least the corporation tax gap, which has gone from 14% to 7%. That is welcome. Yes, there is more we can do to drive down that 7%, but it is far better to be talking about 7% than 14%.

As has been referred to in the debate, the tax haven where a hedge fund manager could pay as low a tax rate as the person who cleaned their office was the UK six years ago. I have always felt that tackling that was one of the best things done under the coalition Government, because it seemed innately unfair that someone sitting within a few miles of this building could use capital gains tax rules to pay a low rate on a substantial income—indeed, a lower rate than a person earning the minimum wage for cleaning their office.

Having had discussions with Anguilla’s Public Accounts Committee recently, I welcome a number of things about HMRC’s having the ability to get information from, and share information with, the Crown dependencies. I agree with the hon. Member for Dundee East that we should be as diligent in handing information to tax authorities in developing countries via such information-sharing arrangements as we are in using information to enforce our own tax system. I suspect there will always be a debate about exactly what information we share with countries with more repressive regimes, but where the line is purely about avoiding taxation, we should be prepared to co-operate, provided that there are assurances about the standards that will be applied afterwards as part of investigations under the relevant nation’s criminal justice system.

In terms of how the Government and the UK engage with these authorities, it is worth bearing in mind that some of the regulations involved are very complex. There is perhaps a debate to be had about the fact that we currently appoint governors, who effectively act as the Head of State, for three years, with their term being extendable to four. There is perhaps a debate to be had with Foreign Office colleagues about whether it would make more sense to have a longer appointment, to allow governors to build a relationship with the authorities in a country; to build a knowledge of the system there; and to be able to engage more, and to give difficult messages, on behalf of the UK, in a way that a three-year term perhaps does not allow.

We should be clear that being a governor is not about going round in a feathered hat being saluted by everyone; it should be about being part of building a strong and lasting bond between the UK and territories that look to us for support, particularly in the realm of defence and overseas development. We should have people who engage with territories very strongly and who build up their governance systems, but who also have a deep knowledge of those territories and a deep relationship with them. We can then have the tougher discussions we need to have about areas where those territories are sovereign, but where their decisions have a clear impact on us as the home nation.

That said, I welcome the agreements we have managed to sign. I recognise that this is a global problem. Panama is one of the few countries not to have signed up to some of the international agreements, and one of the key issues is what further steps we take against nations that do not do that. Again, however, that should be part of a proper global debate, and we should not pick off individual jurisdictions. If we do that, people will simply find the next jurisdiction that is not honouring transparency. This needs to be a slightly wider debate than just picking on individual circumstances or an individual issue.

Likewise, we need a debate so that there is clarity, for example, about which types of investment many people use—perfectly legitimately and perfectly lawfully—in this country. We have heard of trade unions, pension funds and councils that use unit trusts and that pay their taxes here. At the same time, however, we have to open the envelope on shell companies that are basically just being used to hide who actually owns something, so that we can have that information and ensure that HMRC can get the tax it is due.

I was slightly disappointed that the opening of the debate seemed to focus more on a party political attack than on a measured discussion of how we ensure that the taxes legislated for by this Parliament are collected so that they can be spent by this Parliament. In reading the motion, I thought it was strange that there was no reference to the recent Public Accounts Committee report on the Google taxation deal. Likewise, I was disappointed that there was no reference to the tax transparency Bill—to give it a rather snappier title than its official one—introduced by a former Cabinet Minister, who is now a Labour Back Bencher. Instead, the motion seems like a party political policy document, which means it is not something I feel inclined to support.

This debate is welcome. It is safe to say that all of us recognise that there is more work to be done to capture those revenues that escape all taxation in all jurisdictions, and the UK can also play a role in building the capability of developing nations to crack down on tax avoidance that costs them even more than it costs us. This is ultimately about ensuring that those tax rates that are set here and that we believe are fair are paid. That is the nub of this debate and it must be the focus of future work.

[Several hon. Members rose—]

[Madam Deputy Speaker (Natascha Engel)]

Order. Before I call the hon. Member for Newcastle upon Tyne North (Catherine McKinnell), I should say that 11 Members wish to speak and I want to start the wind-ups at about 3.30 pm. If speakers take about eight minutes or less, everybody will get in.

--- Later in debate ---

[James Cartlidge]

My hon. Friend is absolutely right to mention small businesses. I used to say to people that I ran a small business, but measured by the amount of corporation tax we paid, we were bigger than Google. The fact is that those who run small businesses feel as though they have to comply. They cannot afford expensive lawyers. I agree with the hon. Member for Newcastle upon Tyne North about the sense that there is an elite who live by different rules. We have to deal with that, but we must not run away from the key point—my concluding point—with which my hon. Friend the Financial Secretary also concluded, namely that when we talk about transparency, the transparency that really matters to the public is about our ideals and our beliefs.

What do we really believe? I fundamentally believe in the free market. I believe in capitalism. I believe in individuals getting out there and using their creativity to earn their way in the world. We cannot go back to paying our way through debt and unsustainable public finances. In the circumstances, we need to maximise the tax that we get, but we also need to maximise the investment into the country from companies that we have heard the Labour Front Benchers criticise. Those big professional firms in London are massive employers in this country. We need to expand our exports from the services sector. Basically, we need a positive, free enterprise agenda with a fair sense that companies and individuals are paying their fair share, which does not denigrate the free market but creates sustainable growth to deliver prosperity for all.

[Madam Deputy Speaker (Natascha Engel)]

Order. I have now to announce the result of a deferred Division on the question relating to employment agencies etc. The Ayes were 307 and the Noes were 241, so the Ayes have it.

[The Division list is published at the end of today’s debates.]

[Several hon. Members rose—]

[Madam Deputy Speaker]

Everybody has been speaking for just over 10 minutes, rather than eight minutes, which is the informal guide. We now need to keep to about seven minutes or less, if we want to get everybody in.

--- Later in debate ---

[Paul Flynn (Newport West) (Lab)]

I am happy to start on a note of consensus with the hon. Member for Bracknell (Dr Lee) and my hon. Friend the Member for Oldham East and Saddleworth (Debbie Abrahams) that this is all about trust. The public have reacted so fiercely against recent events because there is a collapse of trust in us. The expenses scandal was a screaming nightmare, and public trust reached rock bottom. It is now subterranean—it has got worse. An examination of our standards in this House is currently taking place, and I urge every hon. Member to contribute to it. Democracy itself—the political system—is under threat.

The country is rightly angry about the unfairness in the system. The other day in the House, we heard the most insulting speech, which will deepen the sense of alienation between the Government and the Opposition. I have been here a long time and I recall an incident in which the person who made that speech revealed to the newspapers how he made some of his money. He bought the council house of an elderly gentleman in London, who I think was a neighbour, on the basis that it would appreciate greatly in value and that the neighbour would not live very long. The agreement that the hon. Member made was that he would give the tenant, who would get a discount for being there for years, the money to buy the house and then the hon. Member would inherit the house. That is Tory morality, and it is morally repugnant. It is not the right to buy, but the right to greed. That man lectured us the other day and tried to castigate those whom he described contemptuously as low achievers.

The difficulty is the gulf between what the Government say and what they do. In March 2010, the Prime Minister made an impassioned speech about how he would clean up lobbying. He knew all about it: he was a lobbyist, and he was going to sort it all out. Where are we today, six years later? The Transparency of Lobbying, Non-Party Campaigning and Trade Union Administration Act 2014 has been passed, life for trade unions and charities is a bit more troublesome, but the big corporate lobbyists do not have to declare who their clients are. No worthwhile reform has happened. The Prime Minister has worried the minnows in the shallows, but the great fat salmon still swim by unhindered.

There is similarly no sincerity in the Government’s determination to tackle the tax havens. I will give the House an interesting example. Lord Blencathra, who sees himself as the spokesman for the Cayman Islands, mocked the Prime Minister, saying that he had no intention of carrying out his threats to deal with tax havens and that they were a “purely political gesture”—those were Lord Blencathra’s words. We have just heard that the First Minister of the Cayman Islands is putting two fingers up to the Prime Minister. They are not going to take any notice.

Let us look at the remarkable history of Lord Blencathra. It is a fascinating story that shows the laxness of our controls in this House. In 2012 I made a complaint about his behaviour. My complaint was taken to a Committee in the other House to examine. It suggested that he was in breach of the parliamentary code of conduct. His activities included lobbying the Chancellor about taxes affecting the Cayman Islands; he also facilitated an all-expenses paid trip to the islands for three prominent Members of this House. The Committee that deals with standards in the Lords held an investigation, and produced a remarkable document. Lord Blencathra explained that he was taking £12,000 a month in payment from the Cayman Islands, but that he was not lobbying Parliament or Government, but Members—or the other way around; he gave some spurious excuse. Quite remarkably, the decision was taken in 2012 that he had not been in breach of any rules of the House.

Two years later, the contract that Lord Blencathra had signed was leaked. It appeared that he had agreed in the contract to

“Promoting the Cayman Islands’ interests in the UK and Europe by liaising with and making representations to UK ministers, the FCO (Foreign and Commonwealth Office), Members of Parliament in the House of Commons and Members of the House of Lords.”

He put up a spirited defence, saying that he may have signed the contract but he had forgotten what he had agreed to, and anyway if he had signed it he had no intention of doing what it said. That is a most egregious breach of the code of conduct of the House—

[Madam Deputy Speaker (Natascha Engel)]

Order. I have been listening very carefully. The hon. Gentleman knows that he is not to criticise Members of the other House directly or personally. He has been quoting from reports up until now. If he would desist from directly criticising Members of the other House, I would be very grateful.

[Paul Flynn]

These are not new matters, if I may say so. I have dealt with that matter now.

If the Government fail to act against their own Members, who are not trying to stop the abuses of tax havens but are actually lubricating them, how can we take them seriously? There is some agreement on this, and some pleasure in the House that this situation has happened, because it might expose the corruption that is so endemic and the huge sums disappearing into tax havens. Light has been shone on all that.

I believe that there is a political agenda behind those who have hacked into Mossack Fonseca’s site. We do not know what that agenda is, and it might well be very sinister, but I will repeat my earlier point: one of the curious things here is what is happening with other nations. China has $44 billion in the Cayman Islands and $49 billion in the British Virgin Islands. Those are huge sums of money, but they are only part of the revelations—part is still to come. The reverberations of this pivotal scandal will spread for decades.

I am curious about the Government’s reluctance to act against China in many other ways. We have already done a dreadful and financially disastrous deal over Hinkley Point, which might give us the most expensive electricity in the world, although the deal is now collapsing. The Government seem to want to ingratiate themselves with the Chinese Government. As a result, they are going soft on them in many ways. What is most damaging is that they are not taking sharp action against the undercutting of the steel industry that is affecting so many jobs here.

We have a strange relationship with the Cayman Islands. We provide them with great advantages, by providing their defence for them. The Government’s permissiveness must stop. We will look to the Government to take the tough line that they have promised at the anti-corruption conference. They have not taken it before, so let us see them do it there.

[Several hon. Members rose—]

[Madam Deputy Speaker (Natascha Engel)]

Order. I am sorry to have to say that everyone has gone way over my informal speech limit, so I am going to have to impose a formal one, of six minutes per speaker. I hope that people will not take too many interventions.