Scottish Football (Tax Liabilities)

Owen Smith Excerpts

Wednesday 29th February 2012 Westminster Hall

[Owen Smith (Pontypridd) (Lab)]

I congratulate my hon. Friend the Member for Dunfermline and West Fife (Thomas Docherty) on securing an important debate, which has touched on a much wider set of issues than just Scottish football. It covered the importance of football, and football and sporting clubs, as cultural institutions within communities—institutions that help bind communities together. I thought that my hon. Friend’s remarks about Dunfermline, and in particular Cowdenbeath, were deeply informative. I confess I was not aware that Cowdenbeath were known as the Blue Brazil. I assume that that is to do with the shirts, and not the temperature in which they play north of the border; but it could be either, I guess.

Two broad sets of remarks have been made in the debate, and I want to frame mine against that context. I have already mentioned one of the areas covered: the importance of football clubs as cultural and community institutions that are integral parts of communities—aspects of communities that inspire pride, loyalty, aspiration and ambition in individuals, but which also act as standard bearers for those communities in the wider world. I do not think that anyone could deny that Rangers, Celtic—their great rival—and all the great clubs of Scotland have been standard bearers for Scotland in the world of sport and beyond.

Rangers, of course, are a great Scottish club, and the one that prompted today’s debate. We heard a bit of their 140-year history, and about the nine great championships that they won on the trot in Scotland, equalling, I believe, the Celtic record. I was not aware, until I started looking at this subject, that they are also the club that has won more national championships than any club in any national football league in the world. That is a measure of the club’s success. However, what we cannot understand by looking at the names inscribed on trophies and trophy walls in such clubs is the wider, deeper, historical, cultural and sporting significance of the club. Anyone who has been to Ibrox, as I have, as a great sports fan—though a Welshman, of course—knows the importance that the community attaches to it. It is right that we should be discussing the issue today, and framing our remarks in that context.

The other broad set of remarks on the sporting front was about the role of money in sport, and football in particular, as well as about ownership, the transparency of football club financing, and the sustainability of clubs in a world where money seems to be the prime driver, despite all those other—in many respects far more important— cultural, historical and community values associated with the role of the club. That is something that I, as a Welshman and a sports fan, feel is significant for a different code of football—rugby football. We have similar issues with the game in Wales. I agree with the hon. Member for Folkestone and Hythe (Damian Collins), who made some remarks about the necessity for greater transparency about finances. He also said some things, to which I hope the Minister will pay attention, about the role of HMRC and the Government in seeking greater transparency in finances, ownership structure and the potential pitfalls and difficulties that clubs may encounter, in rugby and of course football. Clubs are businesses, yes; but they are more than just businesses.

However, in that context of clubs as businesses the role of HMRC is simple. Its job is to collect the taxes that are due in the appropriate volume and at the appropriate time. It is not often that I or other hon. Members quote judges; perhaps judges would feel that we do not do so approvingly. However, Lord Justice Mummery, in a recent tax case at the Court of Appeal, said rather appositely that

“tax is a contribution towards the costs of providing community and other benefits for the purposes of life in a civil society”.

That is a phrase that would have fallen, perhaps not as eloquently, but certainly as easily, from my lips. Tax is important to the wider community just as those football clubs are.

It is in those two contexts that I place my remarks. Individuals and businesses, however humble or, in the case of Rangers, mighty they are, need to pay their taxes. Therefore it is a matter of great regret to me that Rangers have not paid the £9 million in taxes that HMRC has said is outstanding for PAYE and VAT. That is why Rangers have gone into administration, which we deeply regret. As I understand things, HMRC is also looking at whether there may have been instances of tax avoidance. I am sure that the Minister will take great care over that, given his and my deep and continuing concern about tax avoidance. I know, in particular, that HMRC is interested, in the Rangers context, in the use of employee benefit trusts. There are several investigations in progress about EBTs, and, as I understand the matter, their use for payment of individuals working for Rangers, including players, plays a part in the non-transparency of the financial affairs. I will not go into further detail because I cannot: we do not have the detail that would make further comment possible. However, I should like assurances that the Minister is making himself certain that he understands, to the extent that he can, given the arm’s length nature of HMRC, the detail and complexity of the issues involved. I also ask him to consider the wider cultural set of understandings and sensitivities that HMRC needs to bring to bear in this case.

One of the other issues that has clearly come out of this debate is the importance of local knowledge and local understanding—the rootedness of Rangers in the local community. Under the current Government, in particular, and under the last Government, there has been a reduction in numbers of local HMRC staff. That reduction is being sped up under the current Government, with 10,000 more HMRC staff due to go before the end of the spending period; it was announced in January that 4,000 or so staff would go. Given that reduction and the potential loss of local knowledge, is the Minister certain that those people in HMRC who are dealing with Rangers in Scotland will understand the cultural context and have the requisite sensitivity to appreciate both the financial nexus locally—the interconnectedness of clubs and businesses that surround Rangers, and of course the connection between Rangers and the wider Scottish professional football league, which, as we have heard from hon. Members, is a crucial connection—and the cultural significance of Rangers for the local community?

Given the Minister’s slightly arm’s-length relationship with Revenue and Customs, has he been briefed in detail about Rangers, to the extent that he can be briefed about the issue? Does he feel that he is fully on top of the issue? Does he understand—I am sure he must—the importance of Rangers to the wider community and the wider sporting fraternity in Scotland? Is he certain that the HMRC people dealing with Rangers have the requisite expertise?

In closing, I will say a few things about the issue that I think is at the root of many of the problems that we have in football; there may be particularities around Rangers connected with the takeover of the club by Craig Whyte and the way that the club’s business has been managed since May 2011, but Rangers are not a unique case. The root cause of the problems that football clubs, rugby clubs and other sporting institutions across the length and breadth of this land are facing is to do with the role of money and the commercialisation—the commodification—of sport, whereby players and clubs are bought, sold and traded in a global marketplace that Governments in this country and elsewhere seem to have little control over, and perhaps they also have too little insight into the financial machinations and the rationale for the changes that happen. But if those changes come about, especially if they come about as dramatically as they have done with Rangers, and if they lead to the potential loss of great institutions that are of such cultural and financial importance to their local communities, Governments need to think about the extent to which they must improve their insight into those sporting institutions and those businesses, and consider their particularities. I hope that the Minister will comment on that issue too.

Finally, I will make what is perhaps a personal point. I echo the plea made by the hon. Member for Folkestone and Hythe that we should look at alternative models of ownership for football clubs and that the Government should also become engaged in a discussion about those alternative models. In my capacity as a constituency MP, I have been working with Pontypridd rugby football club and other Welsh rugby clubs to look at FC United of Manchester, which is a fan-owned football club with extremely transparent structures and financial arrangements. Those sorts of arrangements may provide the key for the Government when they think about how to frame policy, not only at HMRC but more widely across government, that will help to ensure there is a greater degree of transparency in ownership, management and—crucially—sustainability for institutions that are not simply sporting institutions or businesses but, of course, a vital part of their local community.

[Damian Collins]

I am grateful to the hon. Gentleman for picking up on something that I said. I wanted to clarify that although there is a role for HMRC, before HMRC becomes involved there is a role for the competition organisers to act as whistleblowers and bring in the relevant authorities if they think there is a problem. The competition organisers should be the first port of call and then there should be recourse to a higher authority if they cannot sort out the problem themselves.

[Owen Smith]

Again, I agree with the hon. Gentleman on that point. Clearly, there is a role not only for the authorities but for the clubs themselves—indeed, for the sport itself—to think about both the sport’s sustainability in the long term and the extent to which money is quite often eroding the ability of local clubs to represent a local community, whether that community is in Leeds, Pontypridd or, as in the case of Rangers, Glasgow. These clubs were not created for professional or financial benefit; they were created as part of community representation.

HMRC needs to reflect on that point when it deals reasonably, sensibly and even-handedly with those clubs, as it professes to do with all of the individuals and institutions with which it works. We have all encountered instances of individuals feeling that HMRC is not dealing with them even-handedly. I am sure that the Minister will want to assure us in a moment that HMRC always deals even-handedly with institutions and individuals. However, in this instance—a case in the public eye that is of such enormous importance, not only to Glasgow but to Scottish life in general and indeed to the representation of the UK on a wider, even global stage—I am also sure that he will want to make certain that HMRC painstakingly looks at the wider financial and cultural disbenefits of Rangers ever collapsing, and ensure that in collecting the tax, as it must indeed do, it understands that it must also make sure that that situation does not happen.

--- Later in debate ---

[Mr Gauke]

I do not know what advice the Scottish First Minister provided, if indeed he provided any. I know that there were discussions informing him of the issues, as was appropriate; for example, whether there were going to be any public order issues that could be related to progress on this particular matter. There was nothing in any way improper about a discussion with the First Minister in broad terms. Similarly, I assume that the discussions with Ministers of the UK Government were not about specific tax information, but in the broadest of terms.

[Owen Smith]

I appreciate what the Minister has said about the limited nature of the advice that he has been given by HMRC, given the nature of his relationship with HMRC. Can he tell us whether he in turn has impressed on HMRC that it needs to think of the wider financial nexus around Rangers, and of course the cultural significance of the club? It is a business, but it is not just a business.

[Mr Gauke]

HMRC is well aware of the significance of Rangers football club and its importance in Scotland. I have no doubt that HMRC is aware of that sensitivity. I am sure the hon. Gentleman is not suggesting that Rangers should receive special treatment, but HMRC is aware of the importance of Rangers to Glasgow and to Scotland, and indeed to the UK more widely. I have no doubt about that.

I return to the issue of the support that businesses receive from HMRC, both generally and in respect of football. Of course, facing tough conditions, many businesses can stumble upon difficult times. That is why HMRC invests so much time and energy to support those businesses, whether they are start-ups or established large businesses, when they encounter difficulties.

I will focus on the support that is provided for the many thousands of businesses, large and small, through the time to pay arrangements, which allow them to spread the payment of their liabilities beyond the due date. That facility took on a more prominent role in November 2008 when the Business Payment Support Service was launched. Its purpose is to provide speedy access to quick decisions from HMRC for businesses facing short-term financial difficulties and who wish to discuss time to pay arrangements.

Many hundreds of thousands of businesses have accessed the service since its launch. The time to pay arrangements have helped hundreds of thousands of individual taxpayers and businesses suffering short-term financial difficulties. This has been particularly helpful during the past four years, given the economic challenges that the UK has faced. HMRC will continue to offer that support service where it is appropriate to do so, although I make it clear that the facility is not there to prop up an insolvent business whose existence is dependent on not paying the taxes for which it is liable. That is why HMRC will probe deeper when a business comes back repeatedly to seek time to pay. Such repeat requests can indicate a more deep-rooted financial difficulty, which can mean a time to pay arrangement is unlikely to be the appropriate outcome.

At a time when the public finances are as they are, it is crucial that businesses and individuals pay the tax that is due. That is a point that every speaker has made this afternoon. Businesses and individuals who do not pay their taxes are restricting growth and getting an unfair advantage over those who follow the rules. The Government are committed to levelling the playing field for the compliant majority. Even as HMRC puts in place services to support businesses, small and large, to realise that ambition, it also expects all businesses, be they football clubs or not, to be run effectively from a tax management point of view.

As reported in the media, it is true that in recent years some football clubs have had poor compliance records for the payment of tax liabilities. I am not talking about the payment of tax on profits; I am referring to the PAYE and national insurance that the clubs have deducted from their players and other employees and the VAT that they have charged their customers. Too often some football clubs have used those moneys, which were never theirs, to fund their business, because they have overstretched themselves in other areas. Many hon. Members will doubtless have views on why that situation has arisen, and why clubs so often apparently spend more than they can afford. I think all hon. Members will agree that it would not be right for taxpayers to fund such shortfalls.

However, things have begun to change. One practical way was when the previous chairman of the English football league, Lord Mawhinney, approached HMRC to explore how they—the football league authorities and HMRC—could work together to reduce the levels of tax debts in the football league.

From those initial discussions emerged a working arrangement that remains in place today. All English football league clubs consented to HMRC sharing information with the football league on their payment compliance in respect of PAYE and national insurance. Not only does any club that withholds those taxes face decisive action by HMRC, it will also encounter sanctions from the football league.

However, the issue is not always about sticks. The carrot is that eventually, all clubs will compete on an even basis. No club should benefit over another simply because it retains taxpayers’ money to fund its operation. That is an absurd proposition, with which I know hon. Members will disagree.

The decisive action taken by HMRC and collaboration with the football league authority has paid dividends. Similar arrangements are now in place with the Irish Football Association and the football conference, which is the tier immediately below the football league.

In addition, some months ago HMRC met the Scottish premier league and the Scottish football league authorities to explore whether similar arrangements could be put in place for the top four divisions of football in Scotland. Further discussions are scheduled soon on that proposal. HMRC will meet the Scottish leagues next week to monitor the payment of taxes, which addresses one of the specific points raised by the hon. Member for Dunfermline and West Fife.

--- Later in debate ---

[Owen Smith]

Will the Minister give way?

[Mr Gauke]

I have provoked the hon. Gentleman. Before we go too far off the topic, I will let him come in.

[Owen Smith]

I want to confirm that the Minister is saying that there will be 10,000 further jobs going under this Government over the spending period, as well as the 4,000 job losses announced in January.

[Mr Gauke]

The working assumption is as I have said, and as is in the public domain. The hon. Gentleman will be aware that there is redeployment within that, so that there are additional staff dealing with tax evasion. There is capability to reduce the number of staff working in processing, where the use of new technology can substantially reduce the need for manual work.

I cannot comment on the case of Rangers specifically, but I assure the hon. Member for Dunfermline and West Fife that HMRC is working with the administrators, alongside other creditors, to reach the best solution for the public purse and the club. We have heard how Rangers going out of business would be a disaster for Scottish football. The purpose of administration is to save the club and to ensure that creditors get as much as possible.