Finance Bill

Nigel Mills Excerpts

Tuesday 1st July 2014 Commons Chamber

[Shabana Mahmood]

I think the Government should adopt an across-the-board strategy. I think they should deal with companies of all sizes, as well as individuals who engage in the various types of tax avoidance and evasion. I have mentioned a number of areas where there is concern about the Government’s action to date, and about their record of being able to narrow the tax gap.

The Government’s other flagship policy, introduced last year, is the general anti-abuse rule. Of course, it will take some time for the GAAR to settle in, as it is a new measure, and it is not yet clear how it will operate in practice, because it has not yet been the subject of a court case. It is, however, striking that no penalties regime associated with abuse falls within its remit. One would have thought that such a regime was a deterrent, and that the Government would want to make it clear that the type of abuse caught by the GAAR—abuse of the most egregious nature—would not be tolerated. However, it seems that an individual who fell foul of the GAAR, having engaged in the most egregious form of tax abuse, would incur no penalty but would merely be required to pay the amount that had been disputed. That strikes me as an interesting omission from the GAAR and the Government’s arsenal of measures to tackle tax avoidance.

[Nigel Mills (Amber Valley) (Con)]

I think we went through this in the Finance Bill Committee last year. It would be somewhat iniquitous to have a higher penalty for a scheme that complied with the letter of the law but was subsequently ruled out of order by the GAAR than for one that was blatantly outside the law in the first place. I think we should stick to the standard penalties that apply for under-declaring tax on a tax return.

--- Later in debate ---

[Nigel Mills]

I will not vote for new clause 12, and I will briefly explain why.

A year ago, we enacted the general anti-abuse rule. One argument that Mr Aaronson made when he reviewed that idea was that it would allow us to have fewer of these complicated, focused anti-avoidance rules in Finance Bills and to avoid cluttering up the tax regime with more complexity because we would be able to rely on the general rule. I look forward to seeing that, rather than another huge, thick Finance Bill next year.

Subsection (1) of new clause 12 speaks of

“tax arrangements that are abusive.”

Surely those come within the general anti-abuse rule and can therefore be challenged, even if they are technically legal. Given that, we will not need to come back and assess the three items that are set out, because they will already have been tackled and there will be no further revenue to raise.

I racked my brains and did a bit of googling to try to find methods of tax avoidance using dormant companies. I struggled to think of one, because once a dormant company does something, it ceases to be dormant and therefore cannot be used to avoid tax. If what is meant is that companies are pretending to be dormant, but are actually active and are not filing returns that they know full well are due, that is tax evasion and should be clobbered severely using the existing rules. We probably do not need to create a huge compliance burden for every innocent dormant company out there. There might be sensible reasons for maintaining those companies, such as to protect a name or previous transactions, or simply that the cost and hassle of striking them off are greater than they ought to be. That would be an unreasonable compliance burden to impose.

We should be a bit careful about the language that we use about eurobonds. I have some sympathy with the view that when they were created 40 or 50 years ago and the exemption was passed, Parliament probably did not intend for intra-group loans to be traded randomly on Channel Island stock exchanges but never actually traded, just held by the same third party throughout the period. I see the temptation to remove the exemption and it was right that the Government proposed some sensible ways of doing so two years ago. However, if the Government consult on something and look into the detail, but then decide that it would not raise as much money as they thought and that it would act as a big disincentive to investment, it is unwise to come back to it so quickly. We should learn the lessons from that and just accept that if we want the UK to be attractive to investment and the hub of the private equity industry, which many small businesses in all our constituencies benefit from, it is foolish to risk putting up the cost of borrowing for that industry and adding complexity for it by revising the rules again.

I think that the new clause is superfluous and I will not vote for it.

[Mike Kane]

In the few moments that I have, I want to point out that self-employment is being used by far too many employers to engage workers in the construction industry, as my hon. Friend the Member for Birmingham, Ladywood (Shabana Mahmood) pointed out. According to the Union of Construction, Allied Trades and Technicians report “The Evasion Economy”, 400,000 workers are being engaged in that way. Those workers miss out on the rights that normal workers get. According to another UCATT report, “The Great Payroll Scandal”, this practice is costing the Exchequer up to £1.9 billion per annum.

When I talked to construction workers on Friday night, they spoke of the scandal of payroll companies making millions of pounds. This is a legitimised dodgy practice. The companies get workers to sign a contract to say that they are self-employed, but they work for a single employer. In any legal sense, their status would be defined as a direct employee, yet they lose all the rights that we have spoken about. It should no longer be possible for companies to instruct such construction workers to turn up on site when they want them. Construction workers need the security of employment rights and full national insurance contributions should be paid.