Taxation (Cross-border Trade) Bill

Paul Farrelly Excerpts

3rd reading: House of Commons & Report stage: House of Commons
Monday 16th July 2018 Commons Chamber

[The Financial Secretary to the Treasury (Mel Stride)]

Mr Speaker, that is quite an introduction; thank you most graciously for your lovely comments—you will no doubt be injecting some zip into my marriage.

The Government have been clear that when we leave the EU we will leave the customs union; this is a matter of fact. And when considering the end state, the Government will not be seeking to negotiate any form of customs union. The Government proposal will create a UK-EU free trade area which establishes a common rulebook for industrial goods and agricultural products. This will maintain common high standards in these areas, but also ensure that no new changes take place in future without the approval of Parliament. As a result, we will avoid friction at the borders and protect jobs and livelihoods, as well as meet our commitment to Northern Ireland. We are proposing a new business-friendly customs model with the freedom to strike new trade deals around the world, a facilitated customs arrangement.

[Paul Farrelly (Newcastle-under-Lyme) (Lab)]

I wish the right hon. Gentleman—my old friend, who was my former economics tutorial partner at university—a happy anniversary, but why are services less important than goods?

[Mel Stride]

Services are most certainly not less important than goods; they make up about 80% of the economy and we will retain greater freedoms in terms of being able to do deals around the world in that respect. But under this approach, the UK will apply its own tariffs and trade policy for goods intended for the UK and the UK’s tariffs and trade policy for goods intended for the EU. This option meets the UK’s strategic objectives for our future customs relationship with the EU.

UK Economy: Post-Referendum Assessment

Paul Farrelly Excerpts

Monday 23rd May 2016 Commons Chamber

[Mr Gauke]

The remit of the Office for Budget Responsibility is set out in legislation, and it can set out forecasts only in accordance with Government policy. Today’s report, however, as I said earlier, has been signed off by Sir Charles Bean, who said that

“this comprehensive analysis by HM Treasury, which employs best-practice techniques, provides reasonable estimates of the likely size of the short-term impact of a vote to leave on the UK economy.”

We have third parties endorsing the analysis, having worked through the details.

[Paul Farrelly (Newcastle-under-Lyme) (Lab)]

Is it not the truth that this report simply echoes the concerns about the adverse impact of Brexit that have already been expressed by businesses in all our constituencies up and down the land? They include the ceramics industry in my area, representing manufacturing, and in recent days our biggest local private sector employer, Bet365, representing international services. Yesterday, The Sunday Times set out in detail the fundamental concerns of London’s vitally important financial and professional services industries. Does the Minister agree, therefore, that all the evidence not only suggests, but shows, that there is absolutely no economic rationale for the United Kingdom’s leaving the European Union?

[Mr Gauke]

The hon. Gentleman has made a good point. The analysis that we have set out in our document is consistent with what businesses up and down the country are telling us: every business survey has indicated that they are in favour of our remaining part of the European Union. It is also consistent, as we have heard, with the view of the likes of the International Monetary Fund, the OECD and the Bank of England, all of which have highlighted the risks of our leaving the EU.

Tax Credits

Paul Farrelly Excerpts

Tuesday 20th October 2015 Commons Chamber

[Ian Blackford]

My hon. Friend is absolutely correct. We must ensure that we deal effectively with child poverty in this country, but these measures will constrain that effort.

[Paul Farrelly (Newcastle-under-Lyme) (Lab)]

On Friday a lady called Edith came to my surgery to complain about her daughter’s situation. She is a nursery assistant earning £8 an hour. She works 30 hours a week and cannot work any longer because she has school-age children. Edith was mortified about the effect of the cut in working tax credits on her daughter and her family’s welfare. What does the hon. Gentleman think the Prime Minister should say to people like Edith up and down the land as to how they can trust his word in the future?

[Ian Blackford]

The sad reality is that I do not think the Prime Minister has anything to say to Edith in the hon. Gentleman’s constituency. That is why I am appealing to hon. Members on both sides of the House to reflect on the damage that these measures will do to Edith and others. We are having a good debate today.

Tax Avoidance

Paul Farrelly Excerpts

Wednesday 11th February 2015 Commons Chamber

[Shabana Mahmood]

My hon. Friend makes a powerful point. We should pursue with equal vigour all those who game the rules in our country, whether it be benefit fraud or tax avoidance and evasion.

There remain serious questions for the Government to answer. I hope we hear some answers from the Financial Secretary to the Treasury to these pressing questions. Did he ever speak to Lord Green about tax avoidance and evasion at HSBC? If not, why not? I am happy to give way to him, if he wants to clarify those matters now, but it does not seem as though he is willing to take up that offer. I hope he will see fit to answer some of those questions in his speech. The Prime Minister was asked about conversations with Lord Green four times during Prime Minister’s questions today, but he failed to answer each time.

It has been difficult to keep up with the conflicting reports about who knew what and when, but today the Government have claimed they knew that HSBC customers were in the frame for tax avoidance and evasion but not about any possible culpability by the bank itself. It is ridiculous to suggest that, despite having files showing that 1,100 customers of a bank possibly avoided or evaded tax, Ministers did not consider the possibility that perhaps the bank itself had a hand in it and did not bother to ask any questions of a ministerial colleague they knew was head of the bank over the period in question.

The Government were given the data in May 2010; Lord Green took office in January 2011; and the Swiss tax deal was signed in August 2011. In fact, the Minister and David Hartnett, the senior tax official, started negotiating the Swiss tax deal straight after the data on HSBC were received from the French authorities, so at a time when the Government knew, or should have known, that serious wrongdoing had been going on.

I think we need some answers from the Minister about whether he ever discussed the Swiss tax deal with Lord Green, who was, after all, a colleague who had run an organisation with a Swiss banking arm. We need the Minister to explain the conversations he had—or the conversations that, on reflection, he now feels he should have had—with colleagues in government, and to clarify whether he has any regrets.

We also need to hear explicitly from Lord Green—our motion calls for this—with a full and frank statement about what he knew and what discussions he had with those in government about his knowledge of what was going on in the Swiss arm of HSBC. I also think it is about time we heard from the Chancellor. He has been quiet since Sunday, when all this started to come to light, so we need to hear from him as the head of the Treasury what he knew.

[Paul Farrelly (Newcastle-under-Lyme) (Lab)]

Richard Brooks is a fine journalist for Private Eye, not the BBC, and has done seminal work in investigating tax avoidance and evasion. Does my hon. Friend agree that the fact that neither HSBC nor any of the individuals involved are being prosecuted shows that HMRC is still a pussycat when it comes to big tax avoiders, yet will eagerly go after the small fry and small businesses?

[Shabana Mahmood]

There are real questions to be answered about how HMRC conducts its investigations and the rigour with which it pursues its different investigations. These take place, of course, within the context of legislation set by this Government, so ultimately these are matters for the Government. It is also the Government who decide on the amount of resources HMRC gets to do its job—an issue that I have discussed with the Minister on a number of occasions.

Fundamentally, the failure to act is symptomatic of the Government’s failure to tackle abuse within the tax system. That is why people are losing faith in it. Our motion sets out what we would do to restore that faith in the system. First, we have said that we will introduce penalties for those caught by the general anti-abuse rule, which is supposed to catch those who set up abusive schemes—the most egregious forms of abuse. However, there is currently no penalty scheme association with the so-called GAAR, which lacks teeth.

A Labour Government would introduce a tough penalty regime with fines of up to 100% of the value of the tax avoided. That will provide a tough and genuine deterrent to those who try to abuse the system and avoid paying their fair share of tax. [Interruption.] The Minister says from a sedentary position that the Government are now consulting on whether to have a penalties regime for the GAAR—but only after we announced our policy that we would have such a regime.

The truth is that when the GAAR was introduced, there was a huge amount of discussion and a review was carried out for the Government, with lots of academic work done on whether or not we should have a general anti-abuse rule in this country. The Government could and should have introduced penalties immediately. Where they have failed to act, we will act.

Secondly, the quoted eurobond exemption is used legitimately by many companies to raise finance on the international bond market, but it is also abused by some companies to shift profits out of the UK into tax havens, and so reduce the amount of corporation tax they pay. HMRC itself identified the problem, but the Government failed to act. Again, where they failed to act, we will act.

--- Later in debate ---

[Mr Gauke]

I am going to make a little progress. Since we came to power in 2010, we have made a huge investment in HMRC to tackle avoidance, evasion and non-compliance. That investment has clearly made a difference. HMRC has secured more than £85 billion in compliance yield since the beginning of the Parliament, £31 billion of which was from large businesses and £850 million of which was from high net worth individuals.

HMRC’s successes were recognised last week by the National Audit Office in its report “Increasing the effectiveness of tax collection: a stock-take of progress since 2010”. In that report, HMRC’s response to the recommendations to tackling marketed tax avoidance has been exemplary, particularly in terms of co-ordinating action and seeking new powers to tackle promoters and scheme users. In every year of this Parliament, my right hon. Friend the Chancellor has stood up at the Dispatch Box and closed loophole after loophole, which, I am afraid to say, had been left open by the previous Administration.

We have made more than 40 changes to tax laws since 2010. Let me trot through just a few of them as I am conscious of time. We stopped groups of companies clubbing together to reduce their overall tax bill by using loans and derivatives between themselves; we stopped businesses using trusts to pay employees in order to pay less tax; we stopped banking groups avoiding tax on profits that they were able to make by buying back their own debt cheaply; we blocked the practice by which companies could wipe out their tax bills by accessing losses made in a different group and we stopped hedge fund managers in partnerships obtaining unfair tax advantages by allocating profits to companies they controlled.

In 2013, we introduced the UK’s first general anti-abuse rule to tackle abusive tax avoidance arrangements and to deter those who might be tempted to use them. We are not stopping there. We are currently consulting on options to target serial avoiders and, on the very measure the Opposition seek in their motion, a general anti-abuse rule penalty.

In the Finance Act 2014, we introduced a set of ground-breaking measures aimed at the small minority of wealthy people in this country who involve themselves in tax avoidance schemes. If individuals and businesses are suspected of involvement in tax avoidance schemes, they have to pay HMRC the disputed amount of tax up front while the dispute is being resolved.

Accelerated payments remove the cash-flow advantage that those who deliberately try to bend the tax rules by avoiding tax previously had over the majority who paid their tax up front. We saw the problem and we dealt with it.

[Paul Farrelly]

Given that list, will the Minister explain to the House why tax avoidance schemes used by multinationals such as the double Irish and the Dutch sandwich are still in existence and what the Government are doing to tackle that sort of multinational tax avoidance, which we have debated and scrutinised here on many occasions?

[Mr Gauke]

I will happily deal with that point. Indeed, if the hon. Gentleman will forgive me, I will turn to that very point in a moment or so. He raises a very fair question.

[Mr Gauke]

The CFC regime is part of corporation tax. The hon. Gentleman makes my point for me. As a consequence of our changes to the controlled foreign companies regime, we are seeing businesses move operations back to the United Kingdom. It was not that long ago—2007 and 2008—when business after business was looking to move its head office out of the UK. That flow has not only been staunched but reversed. We are seeing businesses choosing to locate in the United Kingdom, which is good for business, a successful achievement for this country and something of which we should be proud.

The changes in accelerated payments will bring forward billions in tax revenue in the coming years to help us afford the public services on which the country depends. I am pleased to say that, since the introduction of accelerated payments only a few months ago, avoiders have already agreed to pay more than £185 million to the Exchequer’s coffers, and millions more is being collected from those who, having received their up-front bill, have conceded their tax position and settled.

As well as tackling the end users of tax avoidance, we have also introduced structural changes targeted at the small but persistent minority of promoters who peddle schemes that typically use concealment or misdescription. If those promoters do not change their behaviour voluntarily, HMRC now has powers to monitor, fine and publicly name them. All this has contributed to the fall in the use of tax avoidance schemes over this Parliament. The Opposition motion suggests several areas for further action—this Government will always give a fair hearing to measures that increase compliance and tackle evasion—but they have to be properly thought through and I am afraid that some of their suggestions simply do not pass that test.

Therefore, we will not be abolishing the intermediary relief in contract for difference trading. There is no way to raise sums of the kind mentioned by the Opposition without causing serious damage to London’s position as a global centre for listing companies, as was recognised back in 1997, when the measure was introduced, and again in 2007, when it was expanded. Yes, it is relevant that the Labour party was in government at the time.

Nor will we introduce a deeming test for self-employment in the construction industry. We considered that, but it was not practicable. Indeed, to be categorised as self-employed, a bricklayer would have had to supply their own bricks. Instead, we have addressed false self-employment in construction and other industries through the Finance Act 2014 measures on onshore intermediaries, raising £2.1 billion in the process.

The Opposition motion urges us to close the quoted eurobonds exemption loophole, but it is not a loophole. I have explained repeatedly to the hon. Member for Birmingham, Ladywood that that measure would create an administrative burden, but not raise money. I have even offered a meeting with officials to discuss that, which, once again, she has declined. She set out a new proposal, but it has been looked at and it is simply not practicable.

The Opposition might be trying to recover lost ground, given their failure to get on top of avoidance and evasion, but they have to do better than this. We have led the way not only domestically, but internationally. Let me deal with the point about multinational companies. We originated the base erosion and profit shifting, or BEPS, process and have set out our commitments to multilateral action through the G20 and the OECD. In last year’s autumn statement, my right hon. Friend the Chancellor announced UK action on two of the internationally agreed outputs of the BEPS project. We are introducing legislation to implement the G20-OECD agreed model for country-by-country reporting, which will require multinational companies to provide tax authorities with high-level information on profit, corporation tax paid and certain indicators of economic activity for risk assessment.

We are consulting on implementing the G20-OECD agreed rules for neutralising hybrid mismatch arrangements. We have gone further still to strengthen our defences against the erosion of the UK tax base. As a complement to the BEPS process, we have introduced the new diverted profits tax to counter the use of aggressive tax planning by large multinationals that seek to avoid paying tax in the UK on profits generated from economic activity here.

[Paul Farrelly]

I am aware of the international dimension, but HMRC has been criticised frequently for its timidity in challenging some of those arrangements. The hon. Gentleman will be familiar with the important concept of permanent establishment. For example, has HMRC challenged Amazon’s tax arrangements, whereby everything is billed through Luxembourg and it claims, for tax reasons, not to have a permanent establishment in the UK, despite having huge warehouse operations?

[Mr Gauke]

The first point to make is that it is a matter for HMRC to challenge in accordance with the law, and taxpayer confidentiality applies. As a Minister, I do not get involved in individual cases.

Furthermore, if we want to address broader matters—I am not talking about any individual company here—and if the hon. Gentleman wants to address the issue of businesses carrying on activities here but not paying taxes here because they do not have a permanent establishment, the diverted profits tax is just the measure he should want. It is designed to address that issue.

I say again that I am not talking about the specific case, but in general the measure deals with circumstances in which contrived and artificial arrangements are made so that a business manages to misuse, if you like, the permanent establishment rules. The hon. Gentleman raises an interesting point, but the Government are already dealing with it.

Financial Conduct Authority Redress Scheme

Paul Farrelly Excerpts

Thursday 4th December 2014 Commons Chamber

[Guto Bebb]

Of course not. The whole reason behind establishing the redress scheme is to try to deal with the wrongdoing of the banks. My concern is that the scheme has not succeeded as expected.

[Paul Farrelly (Newcastle-under-Lyme) (Lab)]

rose—

[Guto Bebb]

I will take one final intervention; otherwise I will be told off by Mr Deputy Speaker.

[Paul Farrelly]

Does the hon. Gentleman agree that the level of provisioning in the banks suggests that there is inconsistency? For instance, in RBS there were 7,300 cases and £1.4 billion of provisions, while in Barclays there were 2,900 cases and £1.5 billion of provisions.

[Guto Bebb]

The hon. Gentleman makes an important point. There have been concerns throughout the process about the level of provision within banks. In view of some of the information provided by the KPMG whistleblower, RBS’s confidence in having a very low level of provision probably justifies its attitude to the review.

Another point about the lack of consistency relates again, unfortunately, to the behaviour of RBS. It has been argued that a good result for a business from the redress scheme is to have a full tear-up of the agreement or to implement a cap rather than a swap. Indeed, it has been argued that a cap would in many cases have been a much better original product. From the detail of many of the caps offered to RBS customers, it transpires that most of them are for 10 years. I do not claim to be an expert, but experts in the field of derivatives and interest rate protection tell me that there is no demand in the marketplace for a 10-year cap. They have challenged RBS to give one example of a 10-year cap that it has sold commercially in the past 10 years, but as yet RBS has not come back with such an example. Yet, time and again when businesses are offered a cap as an alternative product, the cap is for 10 years. It will not surprise hon. Members to learn that a 10-year cap is significantly more expensive than a five-year one. That added cost comes out of the redress made available to the relevant businesses. There are therefore questions to be asked about the behaviour of some banks, including RBS, and those questions raise doubts about the consistency of the scheme.

On transparency, I am concerned that the agreement between the banks has not been disclosed. That means that it is very difficult to assess the success or otherwise of an outcome, because we do not know what to measure it against. The agreement has not been made available to the all-party group or the Treasury Committee, but I must ask why, because when the FCA says that it is robustly ensuring that the agreement is maintained, we cannot assess whether that is the case.

--- Later in debate ---

[Paul Farrelly (Newcastle-under-Lyme) (Lab)]

I want to talk about one of my local businesses, DK Motorcycles, which has been badly let down not only by its former bank, the Royal Bank of Scotland, but by the Financial Conduct Authority and the partial scheme of redress over the mis-selling of interest rate products. Having finally escaped the clutches of RBS, this is the first time that the firm has felt confident enough to allow me to talk about its experiences in public, and its general manager, Ewan MacDonald, is sitting in the Gallery today, alongside many people from small businesses who feel bullied by their banks and let down by regulators.

DK Motorcycles entered into a 10-year LIBOR swap with RBS in August 2008, but there was nothing voluntary about it. The swap was an express condition of refinancing, but as interest rates fell, it later became clear how the enforced sale had exposed DK, like many other businesses, to a penal interest burden. By the time DK had extricated itself from RBS’s clutches at the end of last year, it had shelled out in interest and penalty charges more than a third of the original loan of just over £2.4 million.

In May last year, I wrote to the chief executive of the FCA with concerns about the grounds on which DK had been excluded from the redress scheme. At that time, the company was in the hands of the now infamous global restructuring—for which read “destruction”—group at RBS and was staving off a scenario where RBS would put in one of its pet consultancies, which was, as so often, an insolvency firm, and for which DK would inevitably pay to watch the vultures feast.

On the redress scheme, my concerns were about the so-called sophistication tests and the limited lessons that the FCA had learned in findings from its pilot review. The redress scheme has excluded 10,500 of the 30,000 sales of so-called hedging products, on the grounds that such firms were sophisticated and therefore either knew or should have known what they were doing, or that they would have the wherewithal to go to court if the banks failed to deal properly with their complaints. None of that, sadly, applies to a business like DK Motorcycles.

[Steve Baker (Wycombe) (Con)]

I congratulate my hon. Friend the Member for Aberconwy (Guto Bebb) on securing this debate. On the point raised by the hon. Member for Newcastle-under-Lyme (Paul Farrelly), businesses in my constituency have still not had explained to them how the charges are calculated. Does he agree that that is another area where the banks have failed, because it is clear that they have sold a product that even now is not well understood?

[Paul Farrelly]

Indeed, not only have the banks failed but the regulators have failed to show their teeth. Indeed, in the recent judgment on Crestsign the courts have only added to the uncertainty, and it behoves the Government to try to clear that up.

DK Motorcycles runs the largest motorcycle showroom in the country, selling high-value items from a single premises. It is a partnership, owned by father and son Derek and Kevin Neesam—hence the DK. At the time of the refinancing in 2008, it had a bookkeeper but not a specialist finance director. Ewan, the general manager, joined later and now looks after finance, as well as running the showroom. By no stretch of imagination could DK be called “financially sophisticated” in a world of complex derivative products. However, by dint of employing up to 75 people—both full and part time—and having a business turnover of £20 million, it failed two of the FCA’s tests. In response to the pilot, the FCA admittedly amended some of its tests, but no flexibility was applied to the turnover test. As I pointed out to the FCA, that caught different types of businesses indiscriminately and left businesses such as DK bracketed together with the likes of BP or BT as so-called sophisticated, and therefore with no help against predatory banks such as RBS.

There was a further iniquity in the redress scheme, as the campaigning group Bully-Banks has repeatedly pointed out, because under the scheme, banks have a get out. Notwithstanding the tests, if they can offer evidence that a business was financially sophisticated, it would be excluded from the review. However, there was no reciprocal ability for businesses like DK—a father and son partnership that just happened to be successful and passionate about selling motorbikes—to offer evidence suggesting the contrary.

I did not get a reply directly from the chief executive of the FCA. Instead, at the end of June 2013, a reply came from Christina Sinclair, then acting director of retail banking in the supervision division. The reply did not tell us any more than we already knew, and it still stressed DK’s ability to lodge a complaint with RBS directly. Ms Sinclair singularly missed the point made by DK and many other businesses that, given their experiences so far, they were frankly petrified of making a formal complaint for fear that the bank would pull the plug on the business. From what I have seen of RBS, they were right to be frightened.

In the interim, DK, like me and all hon. Members in the Chamber, had seen the Tomlinson report and all the stories about the global restructuring group into which DK had been shunted. At the end of last year, DK finally found alternative bankers who were willing to take a proper, unsullied credit decision, but as a parting shot, RBS, in the form of their so-called relationship manager, the inaptly named Vicky Smart of the global restructuring group, said it did not want any of DK’s business any more and withdrew crucial direct debit support for DK’s customer finance arm. Fortunately, DK managed to overcome that apparent act of spite and the new bank put alternatives in place. RBS has continued to deal with DK in that way, refusing any meetings about redress and insisting on communicating through lawyers.

[Steve Rotheram]

It will be cold comfort to DK that the sorry tale my hon. Friend outlines is almost a mirror image of what has happened to a business in my constituency. I am sure other hon. Members will extol the virtues of companies that have also fallen foul of RBS. As I suggested to the hon. Member for Aberconwy (Guto Bebb), does my hon. Friend think that it is a disgrace that the very banks that caused the financial crash benefit from selling sophisticated derivatives to organisations that did not fully appreciate what they were getting into?

[Paul Farrelly]

It is indeed a disgrace. RBS has form not only outside the House, but inside it. The Chair of the Treasury Committee recently said that the bank had misled it. He said:

“If this is how RBS deals with a parliamentary committee, how much can customers and regulators rely on it to be straightforward with them?”

[Jonathan Edwards (Carmarthen East and Dinefwr) (PC)]

The hon. Gentleman makes an important point on refinancing. One of the main difficulties that my constituents, Mr and Mrs Bartels, got into was that they were unable to refinance their mortgages as a result of the interest rate swap on their current mortgage, which led to the demise of their business. That is not addressed in the redress scheme.

[Paul Farrelly]

Given the cash flow difficulties of firms such as DK and penal interest rate payments, they have problems financing their work in progress and stock. DK had to retrench, through which jobs were lost. Fortunately, it is now back on its feet and successful again, but it is allowing me to share its experience because so many other businesses are afraid of sharing theirs, for different reasons.

By September last year, when the FCA replied to my follow-up letter, in which I reiterated those fears, Christina Sinclair had gone—she had joined a bank as a senior member of compliance, in the latest twist in the regulator merry-go-round. The reply was from her successor, Andrew Giles, who, I believe, is still the FCA’s acting director of retail banking and therefore responsible for the scheme. His response to what we might call the fear factor was as follows:

“If having submitted a complaint to RBS, DKM has evidence of the bank attempting to penalize the business, DKM should send it to us… We would consider this in the context of our wider work in this area and in particular in relations to our ongoing supervision of RBS. Unfortunately”—

here is the clincher—

“due to confidentiality restrictions, we would not be able to say how we have used the information provided.”

What a great backbone stiffener that is for a small businesses. It is as useful as a chocolate fire guard, as we say in the potteries. Yet again, the FCA, as a regulator, is letting down businesses such as DK.

Mr Giles also said that the review did not stop the likes of DK going through the courts. Having been let down by the regulators, and having been rebuffed after asking RBS directly for redress, that was the only option available. DK considered it again and again, but decided not to go through the courts. It is no longer an option, because the statute of limitations on this sorry saga started six years ago and has just run out. The reality was that DK faced a possible legal bill of £250,000 and possibly twice that if it lost to RBS. Like many small businesses, it simply could not afford the costs and risks of going to court.

I shall conclude with a few remarks on what DK and we would like to happen. One key thing is for the FCA to review its scheme for redress from banks. As a regulator, with Government backing, it should push through changes. DK wants to be able to appeal to an independent assessor against the finding that it was a sophisticated customer, just as banks were able to do under their get-out. When I pressed that with the FCA last year, Mr Giles said that, had that been allowed from the beginning, it would have slowed the process down and led to lots of small businesses not being compensated so quickly. We have seen great progress over the past year, so that argument holds no water today, and certainly not if the process completes in June 2015. It is not an argument against the regulator or the Government acting more effectively in pursuing the mis-selling of such damaging products.

As far as RBS and customers such as DK are concerned, the Government could cut through directly, because RBS was bailed out by the taxpayer after its folly and perfidy and is still owned by the taxpayer. All the major banks have been tainted by that scandal, but, as the FCA figures show, RBS was by far the worst offender. Of the 15,400 sales at redress offer stage at the end of September, 7,300—nearly half—belonged to RBS. That is just the number of businesses who were admitted and not excluded from the scheme, not the size of their exposure.

That suggests wholesale pumping of those toxic products down the RBS sales pipeline. The Government should address that as the majority owner of the bank. They should force the bank to have fully independent handling of complaints from customers such as DK that have been excluded from the scheme, in the interests of businesses, in the interests of a thorough clearing of the stables and in the interests of the future of RBS and therefore of the taxpayer when it is finally sold off.

My final thought is on consistency and the different attitudes of banks to the review. Given the scale of RBS’s participation in the scandal, the Government should satisfy themselves, before RBS is sold off, that they are reserving the costs of its mis-selling in a way that reflects the reality of its involvement.

--- Later in debate ---

[Sir Edward Garnier]

I could not agree more. The banks and the FCA must take responsibility for what they have done, and if that requires the urging of the Treasury, please let that happen. These banks are making vast amounts of money, and although I am a Conservative capitalist and like companies to make profits, I expect them to behave properly.

[Paul Farrelly]

Do the hon. and learned Gentleman’s constituents feel that they were advised by the bank to take on that collar? I ask because in the recent Crestsign case it was found that a company had been advised by RBS, but the bank was none the less allowed to rely on its disclaimer that it has not given advice. Does he agree that that legal position only compounds the uncertainty and the risks posed to businesses that take the banks on?

[Sir Edward Garnier]

I will not comment on the legalities or illegalities involved in that specific case, but I will say in relation to the case to which I have referred that the bank not only failed to explain the risks of moving into a new loan vehicle fully, properly and candidly, but subsequently sought to hide its own responsibilities for its failures. Such action, besides being—in my view—immoral, lowers not just the trust and confidence that small businesses should have in the retail banking sector, but the collective confidence of Members of Parliament, who should hold the Government to account for those failures if they are such, and if they occurred on the Government’s watch.

--- Later in debate ---

[Bill Wiggin (North Herefordshire) (Con)]

I shall not trouble the House for too long, but I must draw its attention to my entry in the Register of Members’ Financial Interests.

My constituents William and Frances May have brought the actions of UK Acorn Finance to my attention. I understand that the problems with UK Acorn Finance have been raised many times in the House over the past seven years and that at least 40 Members have Acorn victims among their constituents. My constituents tell me that the Financial Conduct Authority claims that it has an insufficient mandate to investigate, while the Financial Ombudsman Service compensation ceiling is inadequate for many commercial businesses impacted by UK Acorn Finance. My constituents would like to know what action the Government are taking to regulate and investigate effectively the actions of the company and whether it should even be allowed to continue trading.

The Connaught Income Fund will also be familiar to many colleagues. It was incredibly disappointing to learn last month that investors and all parties had failed to reach a negotiated settlement to address investor losses in the Connaught Series 1 fund by the FCA, the deadline being 31 October. Will the Government maintain the pressure on the FCA to ensure that it continues to work actively to sort out this mess?

Another of my constituents runs a company called Pixley Berries and claims that he is currently

“receiving the same treatment from HSBC as widely published with reference to RBS.”

My constituent has refused to go along with it and is in the process of transferring to another bank. Meanwhile, he has consequential losses of some £500,000, so he estimates that the interest rate hedging product he was mis-sold set back his business by £500,000. He has received £200,000 in redress, but in terms of well considered and evidenced consequential losses he has been offered £5,000 against a claim of £190,000. The reality for a business such as his is that there has been no change in conduct. Does the Minister agree not only that the FCA redress scheme needs to be improved, but that the banks need to change their behaviour fundamentally?

[Paul Farrelly]

Given that the hon. Gentleman has mentioned RBS, which is owned by the taxpayer, may I add to my previous remarks? DK Motorcycles was not only bounced into the global restructuring group at RBS, but bounced back and forth between Birmingham and Manchester several times. Is it not a duty of the Government to make sure not only that the stables are properly cleaned, but that the shark cage is emptied so that the activities of people in the bank are brought to book and we can have more confidence in RBS in the future?

[Bill Wiggin]

What is not to love in an intervention about motorcycles? I thank the hon. Gentleman for that. Obviously, the Minister is going to speak, so I will not take too much time. It is right that she should have the opportunity to explain the Government’s position, but the hon. Gentleman’s point about confidence is absolutely right.

The campaign group Bully-Banks has a number of suggestions—many colleagues have mentioned them—on how to improve the FCA redress scheme. One suggestion targets the fact that many small and medium-sized enterprises were excluded from the scheme because they were deemed to be “financially sophisticated” and therefore able to understand the interest rate hedging product sold to them.

The Government need to create an independent appeal tribunal to determine whether a company was in fact “financially sophisticated” and therefore able to understand what it was buying. One company that would benefit is allpay, which is in my constituency and with which I have worked. It was excluded from the redress scheme because it had more than 50 employees at the relevant time. That cannot be a qualification for understanding a complex financial instrument, so I urge the Government to consider the issue carefully. Apparently allpay falls outside the FCA’s unique version of what constitutes an SME, and that cannot be right. That company lost £2.25 million and it has spent the past five years paying it off.

I appreciate that an extension of the FCA redress scheme might open the floodgates to a wave of new claims against other banks and trigger a significant increase in their provisions for mis-selling liabilities. However, I want the Government to support all affected businesses, of whatever size, in this matter. As I have said, the campaign group Bully-Banks wants an independent tribunal to determine “financial sophistication”. It wants the redress scheme to be extended so that appeal tribunal decisions are based on what actually happened, not on the size of the company.

I will not detain the House a great deal longer. The FCA has a difficult job, but an important one, and I believe I am registered with the FCA in one of my roles. My plea is for it to focus its efforts on the people who have done the wrong thing, rather than increase the burden of regulation on people who are doing the right thing.

--- Later in debate ---

[Cathy Jamieson]

The hon. Gentleman makes a good point, and some of the concerns and examples have been about banks that seemed to be selling products, but not outlining the potential for interest rates to drop or giving customers information about the bank’s own forecasts. We have real difficulties with such circumstances.

[Paul Farrelly]

One issue that arose in many cases is that firms were not given a choice—the issue of conditionality, when a loan was advanced only if the customer took out a hedging product that was acceptable to the bank. I would want confidence that an easy test is being applied in the review process: if the bank was not the provider of the product, would it have accepted the company entering into an open-ended obligation? If the answer is no and the bank would otherwise have refused the loan, the sale was clearly inappropriate.

--- Later in debate ---

[Cathy Jamieson]

Indeed, the hon. Gentleman makes a useful point and similar circumstances have been brought to my attention of people who thought at the point of signature that all they were signing was a refinancing agreement, and they had not understood the full consequences. We must drill down on those issues to ensure that people get the justice they deserve.

In some instances, product sellers painted only a partial picture of the product and the nature of the protection offered—I see the Minister is listening intently and I am sure she will agree. That resulted in customers purchasing products that were not appropriate to their circumstances, with the result that they lost money or spent money unnecessarily.

In the review, the FCA draws a distinction between sophisticated and unsophisticated customers. Under the terms of the agreement with the banks, only the cases of customers deemed to be unsophisticated were subject to the review. The FCA defines unsophisticated customers as those less likely to have had the expertise or resources to seek advice before purchasing an interest rate hedging product. People might suggest that that is a common-sense distinction, and one that correctly focuses on customers who were less likely fully to comprehend the nature and consequences of the product they were being sold, but the question of how the distinction was arrived at is an entirely different one. It will be interesting to hear the Minister’s view on that, and on the question of whether people ought to have the opportunity to appeal if they were put into the sophisticated category.

[Paul Farrelly]

I was going to ask the Minister about the tests but, as my hon. Friend has mentioned it, I will ask her. The tests applied in the review reflect the definitions in the legislation that allows small companies to file less information than large companies. The test of sophistication is size, and yet small-ish or relatively small firms were deemed as sophisticated. Does she agree that that needs to be reviewed?

[Cathy Jamieson]

My hon. Friend once again puts forth his points coherently. I am sure the Minister is considering her response. We must always look for unintended consequences. Did the review pull in all possible situations? Perhaps it could pull in more if the Minister is of a mind to look at things slightly differently.

Non-advised sales perhaps strayed into advice. The FCA describes non-advice sales as ones in which

“no personal recommendation is made and you leave the customer to decide how they wish to proceed.”

There is an analogy with other generic advice. If someone recommends that a person should buy household contents insurance without mentioning a specific insurer or policy, and if the recommendation is unconnected with the sale of a contract, that would not fall within the definition of advice. The FCA is clear that sales staff should avoid making personal recommendations, and therefore giving advice. It states that sales staff

“should confirm that the decision is the customer’s and that the”

salesperson “cannot give them advice.” The problem in many of the situations we have heard about today appears to be that sellers actively recommended and even promoted IRHPs to customers. My hon. Friend the Member for Newcastle-under-Lyme (Paul Farrelly) outlined that in some detail, as did my hon. Friend the Member for Dumfries and Galloway. There were devastating consequences for businesses and lives in those situations.

I have criticised the sales-driven culture—the culture of targets, rewards and incentives—in the past. The banking sector will say that it is trying to address that culture and to move to a different approach, but the reality is that the culture was imported into retail banking from the more speculative areas of investment banking, where the risks were greater and the rewards higher. It simply was not appropriate for many of those small businesses and customers. Some of the overt incentives to sell such products, whether or not they were in the customer’s interest, have been removed, but I continue to worry. I want the Minister’s assurance that we are on top of the situation, and that there is no indirect pressure on staff to sell those products. We need to continue that culture change in our banks. That has to come from the top and go right through to the bottom.

On the perceived problems with the FCA scheme, the scheme was supposed to ensure that small business customers who were mis-sold products received an offer of fair and reasonable redress as soon as possible. The FCA tells us that more than 99% of redress offers have been communicated to almost 17,000 small businesses. More than £1.5 billion has been paid out in redress so far, including £300 million in compensation for lost opportunities. However, I think it would be fair to say, given the debate this afternoon, that it is evident that people still have concerns about the scheme’s shortcomings. I hope the FCA will take that into consideration, with support from the Minister. Customers who purchased caps that place a limit on interest rate rises are not included in the scope of the review, unless they have complained to the bank during the course of the independent review and are non-sophisticated customers. Other types of hedged loans were not included in the review process either.

My hon. Friend the Member for Newcastle-under-Lyme mentioned the case of Crestsign v. NatWest, illustrating the difficulty that some small businesses have experienced in getting redress from banks. The judgment in the case concluded that the bankers

“did not show themselves worthy of the trust that was placed…but unfortunately for Crestsign, the common law provides…no remedy because the banks successfully disclaimed responsibility for the advice they gave on the suitability of the swap, which was negligent but not actionable.”

In this case the bank managed to successfully argue that, since it did not owe its customer any duty of care, it had no obligation to pay compensation. We can see why people are concerned. The bank was able to argue its case after the event and was not held to account on whether it should have sold the product in the first place. Worryingly, the independent reviewer KPMG—independent reviewers are a crucial part of the FCA redress process—seemed to agree with the verdict. Does the Minister think that appeals need to be looked at?

I argued at the start of my speech that what we really need is cultural change.

--- Later in debate ---

[Paul Farrelly]

Progress is undoubtedly being made, but that does not mean that lessons should not be learned. The hon. Member for Shrewsbury and Atcham (Daniel Kawczynski) rightly asked the Minister whether she would look at each of the cases named in the House. I urge her to do so. In addition, she should review the scheme and the way in which it was set up, leaving small businesses such as DK Motorcycles with no right of appeal. Will she commit to giving such businesses some hope of effective redress in the future?

[Andrea Leadsom]

I will certainly write to the FCA about all the cases raised in the Chamber today—and I will expect a reply.

--- Later in debate ---

[Bill Wiggin]

Will my hon. Friend give way?

[Paul Farrelly]

Will the Minister give way?

[Andrea Leadsom]

I will give way once more, but not, I am afraid to the hon. Member for Newcastle-under-Lyme (Paul Farrelly), because time is short.

[Andrea Leadsom]

I can certainly tell my hon. Friend that the number of employees is a factor, but it is not necessarily the only factor, so the fact that a business has more than 50 employees may not necessarily make them a sophisticated investor.

[Paul Farrelly]

rose—

[Andrea Leadsom]

I am sorry, but I will not give way.

Many Members have mentioned the financial ombudsman scheme’s money award limit that it is able to offer to customers. This level was deemed to be most appropriate. It does ensure that most complaints made by consumers and micro-enterprises can be addressed, but reflects the fact that cases involving very large sums of money may be more appropriately dealt with by the courts, rather than an informal process that has limited prospects of appeal.

In the event that the financial ombudsman scheme considers that fair compensation requires payment of a larger amount, it can make a recommendation that a firm pay the balance. That decision on the higher amount is not binding on the firm, but there is evidence that suggests that firms that subsequently go to the courts will find the courts take into account the recommendation of the FOS in determining what the outcome should be.

[Andrea Leadsom]

I agree with my hon. Friend in principle, but, as I have just set out, the intention has been that the sophistication test captures those who are not sophisticated as well as those businesses that are small and do not have the means to go to the courts. In addition, if they have been to the FOS, the intention is that that would cover the vast majority of cases. As I have said, I urge Members to write to me with any specific cases that they want me to look at.

[Paul Farrelly]

Will the hon. Lady give way?

[Andrea Leadsom]

No, I am sorry. The hon. Gentleman has had many opportunities.

It is important to note that the aim of redress is to put the customer back in the position they would have been in if a mis-sale had not taken place. The FCA has been clear that the appropriate redress for each customer will be determined on the basis of what is fair and reasonable. This could include, for example, the replacement of an existing product. That might be appropriate in the case of a business that was highly leveraged. In these instances, it seems reasonable that redress can consist of providing the small business with the alternative product they would have purchased, and refunding the difference in costs incurred by the business as a result.

Members have raised the question of whether there should be a separate appeals process. I would, however, reiterate that the role of the independent reviewer is to be that appeal—to ensure that the process is fair and businesses have adequate opportunity to put their case. Furthermore, eligible businesses have recourse to a further appeal to the FOS if they are not happy with the outcome of their review.

Many Members also raised the issue of Barclays and its decision not to delink the original loss and consequential losses. I think at the moment that that decision is one for Barclays to have made, but after hearing the strength of feeling in the Chamber today I will write to Barclays to ask it to explain precisely why it feels this is fair to customers and to ask it to consider whether it would be willing to conduct its review in a different way. I understand that Barclays has agreed to split the payment for those customers in financial distress, but I will follow that up with the bank.

I shall now return to the specific points Members have made. The hon. Member for Newcastle-under-Lyme raised the case of DK Motorcycles, which failed the sophistication test. He made a very good case in supporting his constituents, and I will take it up on his behalf. He did not say whether the company’s situation was now resolved and he named RBS as the culprit. For many small businesses the new competition being promoted by this Government—the arrival of new banks, particularly in the SME market—will be vital.

My hon. Friend the Member for Redditch (Karen Lumley) named HSBC as the bank in the case of her constituents the Parsons, who had an ethical business. There were significant consequential losses and she felt that the offer made by the bank was not significant. The hon. Member for Dumfries and Galloway (Mr Brown) mentioned Barclays as the bank to the leisure park business in his constituency. He cited fear of talking to the bank as one reason why some small and medium-sized enterprises will not use this redress scheme—they are afraid of the consequences of taking on their bank.

My hon. Friend the Member for Hexham (Guy Opperman) gave an informative intervention, particularly about the risk of having to go to court and the fear of taking on a bank, given the inequality in the resources between a small business and a bank. I take that very much to heart. My hon. and learned Friend the Member for Harborough (Sir Edward Garnier) named RBS as the bank for his constituents Mr and Mrs Hamblin and their property company. He asked me particularly to lean on the FCA to ensure that it is doing a thorough enough job in enforcing the redress scheme, and I am happy to do that.

The hon. Member for Rochester and Strood (Mark Reckless) asked why information on redress is not shared in detail and why consequential loss claims have almost all been turned down. Information on bank-by-bank redress is available but in aggregate form. One reason that has been put to me for that is a sense that if a bank just pays out, there is an implication that they may have been guilty as charged, whereas in fact the ability to offer an alternative product will depend on the bank’s product range and its ability to offer a suitable alternative product. I will look into this further, but that is potentially partially an answer. On consequential losses, 8% of consequential losses is deemed to be sufficient in most cases, but, again, if Members want to write to me, I will look into individual points.

My hon. Friend the Member for Nuneaton (Mr Jones) talked about how linking simple to consequential losses is very unfair. He feels that the Financial Ombudsman Service is not able to enforce enough compensation. He should be aware that FOS is consulting in the new year on that point. He also mentioned the issue of the tax treatment of redress, and I will raise that with Her Majesty’s Revenue and Customs, as a fair point has been made by many hon. Members.

The hon. Member for Ceredigion (Mr Williams) raised the issue of tailored business loans, which I have already addressed.

My hon. Friend the Member for Beckenham (Bob Stewart) raised the case of Mr D’Eye, who was put into the RBS GRG and then administrators were sent in. The FCA is looking at the accusations that have been made about the way RBS has treated small businesses and will report on that in due course.

My hon. Friend the Member for Wyre Forest (Mark Garnier), an ex-colleague of mine on the Treasury Committee, made important points about the cohort of claimants who do not feel they have received justice. He discussed how this is the first major scandal the FCA has had to deal with and said that it should see that it is vital it handles it properly. I can absolutely assure all Members that I will do my best to ensure that that is the case.

The hon. Member for Brecon and Radnorshire (Roger Williams) raised the case of Springdew and how a mis-sale cost the whole community, naming Barclays in that case. The hon. Member for Redcar (Ian Swales) named HSBC and made the point that his constituent Stephen Lilley was sold an extraordinarily complex product. Finally, my hon. Friend the Member for North Herefordshire (Bill Wiggin) raised another case involving UK Acorn Finance, which the FCA is currently looking at closely.

I wish to conclude by saying that SMEs are the lifeblood of our economy, and it is vital that this Government do everything we can to support them. Therefore, I urge Members not only to tell me about specific cases, but to have confidence in the fact that the FCA and the Treasury are determined to get to the bottom of this.

Multinational Companies and UK Corporation Tax

Paul Farrelly Excerpts

Thursday 27th June 2013 Commons Chamber

[Paul Farrelly (Newcastle-under-Lyme) (Lab)]

I saw this somewhat curtailed debate as an important opportunity for other Back Benchers to add more power to the elbow of the Public Accounts Committee, chaired so forcefully by my right hon. Friend the Member for Barking (Margaret Hodge). The Committee has shone a powerful spotlight not only on multinational tax dodgers but, importantly, on the timidity of HMRC. I shall return to the subject of HMRC’s mindset a little later.

Controversy over profit-shifting is hardly new—it has rumbled on for years—but, with the G8 only just over, it is easy to forget that it is only a little over 12 months since the issue finally gained enough traction to be given a place on the national agenda. I think that the reasons for that are clear: it has happened because since the banking crash and the recession Treasury coffers are bare, because of the sheer cumulative scale of the avoidance, because of the sheer size of the deposits held by United States multinationals offshore—at the last count, $83 billion was held offshore by Apple, the biggest of them all—and because the companies themselves are so brazen. Eric Schmidt of Google said that he was proud of what the company had done. He said:

“It’s called capitalism. We are proudly capitalistic.”

This year, Apple put its money where its mouth was silent. In May, in the world’s biggest corporate bond issue, it raised $17 billion in the United States. Given the comfort of its offshore cash pile, it will pay even less tax, because the interest is tax-deductible.

It is cheaper to borrow than to pay tax in those companies’ universe. They are perhaps not so much “immoral”, as they were memorably described by my right hon. Friend the Member for Barking (Margaret Hodge), as entirely amoral. However, HMRC is so meek that legislators would not have the necessary ammunition without investigative journalists and campaigners prying into the shadows. It was a close friend and former colleague of mine, Ian Griffiths, who combed Amazon’s accounts in Luxembourg and the United States last year. “A great deal for Amazon: £7 billion sales, no UK corporation tax” was the headline on the front page of The Guardian. In February last year, Simon Duke wrote an in-depth piece in The Sunday Times about Facebook entitled “The Anti-Social Network”. He tracked the way in which the social website had deliberately organised the avoidance of millions in tax, routeing revenues through Dublin à la Google. A series of exposés followed on different companies—“the untaxables”, as the newspaper called them—and kept up the pressure.

The third journalistic push came from Reuters, an organisation for which I once worked as a journalist. Following his investigation of Starbucks, Tom Bergin revealed that rather than reducing sales booked in the United Kingdom, like Google and Amazon, it loaded its United Kingdom operation with so many costs that little or no UK profit was apparently made. Two campaigners have also been at the forefront of these investigations: Richard Brooks, a former tax inspector, and Richard Murphy, an accountant and founder of the Tax Justice Network. I urge the people at HMRC to read their recent books closely, as I entirely agree with the PAC report of last year that criticised the mindset of HMRC in not being more assertive in pursuing multinational tax avoidance.

We have heard about how absurd it is for HMRC to accept the way that Amazon does business; that flies in the face of common sense. Despite the scale of its operations here, its overseas Luxembourg subsidiary is not classed as having a permanent establishment. It is important that the OECD changes the rules as they are outdated, but we should not let our attention simply be deflected internationally as there are plenty of things we can do here. There is plenty that HMRC can do. To see that only takes an examination of its rule book, and the double tax treaty with Luxembourg, and the test it applies. With the tools at its disposal, it can push harder here and now, to pursue this issue and raise billions of pounds for the hard-pressed coffers of the Treasury.

--- Later in debate ---

[Katy Clark (North Ayrshire and Arran) (Lab)]

I strongly welcome the cross-party will among Back Benchers to bring this incredibly important issue to the House.

The estimates of how much is lost to the British economy through tax avoidance in its many forms go up to in the region of £120 billion. Lots of people have different figures, but there is no doubt that if we could get on top of the issue—not of tax evasion, when people illegally do not pay their taxes, but of tax avoidance—many of our other debates in this House about the deficit and so on would be skewered. We face a major challenge, as over decades we have reached a situation in which we do not collect the taxes we need to pay for the services we want to provide in the communities we represent. We need to reach some sort of solution so that we can collect those taxes.

It is interesting that in this Back-Bench debate we have heard people from different political parties speaking with one voice. One of the problems in the debate is that for a long time the leaderships of the parties have not had the political courage to take on the multinationals. If we reflect on the speeches we have heard today and read Hansard tomorrow, we will see that it is notable that these companies are household names. They are not the kinds of companies that would move out of Britain. To suggest that Starbucks, Amazon, Vodafone, npower, Google or HSBC will pack up their bags, move away and stop making profits out of our constituents is ludicrous. The reality is not that progress will be made only by the companies themselves. Yes, we need to change the culture in companies. Yes, we need to name and shame. But as politicians we have to change the rules of the debate. That means changes in law so that we are far tougher on those who avoid taxes but also tackle those who evade taxes.

[Paul Farrelly]

Does my hon. Friend agree that we should use our influence within the European Union to, as the hon. Member for Redcar (Ian Swales) said, sort out the cuckoos in the nest who provide effective tax havens? Will she join me in congratulating Senator Philippe Marini, president of the French Senate finance committee, who has been in the vanguard in Europe of pressing for concerted European action?

[Katy Clark]

I congratulate all those who are working to get international agreements to tackle this problem, including the British Government.

The reality is that we also have to look at what we are doing here and now. Since 2005, we have lost 37,000 jobs in HMRC. We expect to lose another 10,000 tax inspectors by 2015. No doubt the Government will come back and say that there are slight increases in the numbers of staff in specialist and criminal investigations, but they are only one part of the team that looks at all these issues. We have to highlight clearly the use of tax havens by FTSE companies—98 out of the top 100 use them. We have to say that roughly one in five of the world’s tax havens are the responsibility of the UK and that the use of those tax havens is estimated to cost the UK £18.5 billion a year. These issues need to be tackled internationally, but we have a lot to do at home.

We need to build a consensus in all political parties that we need tax laws which ensure that multinationals pay their due in this country. Unless we do that, a lot of the other debates in this place, whether on legal aid or how we fund hospitals or education, are nonsense. We need the money to go forward. Perhaps one of the things that comes out of this financial crisis will be a recognition that all parts of society must make their contribution. Some of the companies that we have been talking about today should be at the top of the list for ensuring that we all pay our way.

Spending Review

Paul Farrelly Excerpts

Wednesday 26th June 2013 Commons Chamber

[Mr Osborne]

I hope that all local authorities take it up, but ultimately that is a matter for them—that is local democracy.

[Paul Farrelly (Newcastle-under-Lyme) (Lab)]

From 2006, the Conservative and Liberal Democrats who used to run Newcastle borough council spent all of our £50 million reserves. In dictating a further indiscriminate 10% cut across the board to local government, how carefully has the Chancellor considered its impact, council by council, on their ability to provide decent basic public services and to give discretionary support to valued community groups and organisations?

[Mr Osborne]

We are giving local councils more freedom, including some more flexibility in the use of assets, particularly where they want to spend to save. The broader point is that if all the changes in local government and social care I announced are taken into account, the change for local government is more like minus 2%—still difficult, but I think that good local councils can continue to deliver excellent local services.

Financial Services (Banking Reform) Bill

Paul Farrelly Excerpts

Monday 11th March 2013 Commons Chamber

[Cathy Jamieson]

I understood the hon. Gentleman to be blaming the regulators rather than the individuals who were involved in the wrongdoing. Let me repeat that, notwithstanding the amount of regulation that is introduced, if there are people who are intent on wrongdoing, we need to address the culture and the expectations in banking. I think that members of the public expect us to do that.

A number of important points were made at the outset of the debate about the timing of the Committee stage. My hon. Friend the Member for Nottingham East, and a number of those who intervened subsequently, expressed concern about the fact that the Bill provides such a slim framework for further secondary legislation, largely by Treasury order. My hon. Friend the Member for Bassetlaw (John Mann) described it as an “Is this it?” sort of Bill, and my right hon. Friend the Member for Oldham West and Royton (Mr Meacher) called it a mini-Bill.

The Minister seemed to suggest that we would have adequate opportunities not only to scrutinise the Bill itself, but to scrutinise and respond to whatever other measures or recommendations were made by the parliamentary commission at a later stage. I think that how, when, and where that scrutiny will take place remains rather uncertain. The hon. Member for Chichester (Mr Tyrie), the chair of the commission and of the Treasury Committee, asked for two days to be provided on Report, but it seems that Ministers did not consider that appropriate, or did not wish to do so. That is serious, because the Bill is very thin as it stands, and a great deal of work will be needed in connection with the secondary legislation. We ought to have every opportunity to scrutinise not just the good work that has already been done by the commission, but what it will do in future.

The commission report has helpfully provided us with a series of amendments and explanations of why they are important. It has also provided us with information on why the members of the commission feel that certain amendments should be proceeded with even if the Government do not agree with them. I think that we should have an opportunity to look at those amendments properly. I think that the public would expect us, having given the responsibility to the commission to make recommendations, to pay proper attention to them, and would expect the Government to take heed of them.

It is hard for the public to believe that things have changed when they perceive that a massive bonus culture is alive and kicking, and that has been reflected in the debate. A number of Members pointed out that debates of this kind may appear to be technical, and concerned very much with the rules and regulations. People watching may wonder how it affects their everyday lives. A number of hon. Members made the point that we have to ensure that we use the opportunity of legislation to rebuild consumer confidence, but we also have to talk about financial inclusion and diversifying the sector, and we have to change the culture of high-risk banking and see an improvement in standards, because that is what people expect legislation and the change to deliver. We also want action to support growth and to create a banking system that serves the needs of our economy, a point well made by hon. Members on both sides of the House.

[Paul Farrelly (Newcastle-under-Lyme) (Lab)]

I, too, used to work for Barclays in a past life. Does my hon. Friend agree that it would not do justice to the reputation and professionalism of this House, and to the many months of work by the Parliamentary Commission on Banking Standards and the Select Committee, if this Bill were not given the most time possible for scrutiny, because it is so important for this country? Does she also agree that one thing we should be very wary of is the watering down of recommendations that have been made by experienced people on commissions, in much the same way as experienced people have looked at the press?

[Cathy Jamieson]

My hon. Friend makes very good points. There would be real concerns if the Committee stage of the Bill was seen as a rubber-stamping process and the Bill was not scrutinised properly. The Economic Secretary to the Treasury likes to think of himself as a listening Minister—he says that often—so I hope he is listening today to the real concerns expressed by hon. Members. [Interruption.] He does not seem to be listening at the moment, but perhaps someone will give him a nudge and tell him what points I am making on behalf of other hon. Members about the Committee timetable.

I wish to make a number of points about the particular issues that hon. Members have raised. On leverage, I was reminded very much about our discussions on the pronunciation of “schedule” in a previous financial services debate. Obviously, it will be important for us to have the opportunity to look at the issue of leverage properly. I heard the Financial Secretary to the Treasury talk about the dilemma of trying to ensure that he not only does the right thing for the taxpayers, but listens to the industry. It is very important that the leverage ratio powers need to be clearly taken in the Bill and, as was said during the opening speeches, phased in ahead of the European Union plans for the end of the decade.

The Parliamentary Commission on Banking Standards highlighted that issue, particularly in respect of building societies and the concern about the 3% ratio. Indeed, my hon. Friend the Member for Bassetlaw raised particular issues about small building societies, with others raising the more general issue of the building societies and how the matter could be dealt with. I would hope that proper scrutiny of the Bill would give us the opportunity to overcome any negative impact or any problems that would arise for building societies, which clearly have different equity structures. I would argue, as did my hon. Friend the Member for Nottingham East, that that is not a reason for not putting safeguards in place. I wonder whether the Government have looked at the matter specifically or will do so. Could they give us some further information, perhaps in the Economic Secretary’s closing speech?

Another issue raised by a number of hon. Members was the derivatives inside the ring fence. A number of references have been made to the Vickers report and the fact that derivatives trading should not be allowed—that was of course the position. However, the parliamentary commission recognised that there was a case for some simple derivative products. A lot of hon. Members have sought a definition of a “simple derivative product”. Again, we need clearer protections to prevent abuses within the ring-fenced retail banks where derivatives are being sold. Again, I expect us to examine that more fully in Committee. I hope that we will be able to get assurances from the Economic Secretary about the Government’s intentions, as this is one area where they depart significantly from the original recommendation of the Vickers report.

I mentioned that the Economic Secretary likes to think of himself as a listening Minister, and we heard that again from the Financial Secretary when he opened the debate. I have heard that comment on a number of occasions, as I have been on a number of Committees and in Bill debates with the Economic Secretary. Although he has certainly appeared to listen, I am not sure that that has translated very often, if at all, into the acceptance of Opposition amendments or to any change in Government policy. I hope that on this occasion, even if he does not accept amendments tabled by my hon. Friend the Member for Nottingham East and me, he might at least be persuaded to accept the amendments proposed by the Parliamentary Commission on Banking Standards, which are very important.

I also want to pick up on a number of areas where the Bill makes no comment or does not do enough, as discussed by a number of Members. The hon. Member for Wycombe (Steve Baker) mentioned the Bank of Dave and the Bill does not address the issue of challengers or new entrants. There is nothing in the Bill on a universal obligation for banks on basic bank account services, which is very important. We take it for granted that we have a bank account, but it is not quite so simple for many people on low incomes.

Questions were asked about switching and bank account portability. There is nothing in the Bill on mutuality and I do not see anything about a fiduciary duty of care, which was mentioned by my hon. Friend the Member for Glasgow North East (Mr Bain).

My hon. Friend the Member for Wirral South talked eloquently about how in such debates everyone on the inside speaks in code, making it difficult for those who are external to break through and understand how important such discussions are for them. She put that into perspective very well when she talked about some of the issues that matter to ordinary people. The theme was picked up by my hon. Friend the Member for Hayes and Harlington (John McDonnell), who rose to the challenge of the dropping of the 12-minute limit on speeches and gave us a clear account of some of the challenges for his constituents in the current economic circumstances.

Of course, it is important that we have a banking system that enhances our economic prospects. We want to see support for enterprise, we want to see growth and we want to see the supply of lending and credit to the economy. A number of Members mentioned that, particularly in relation to small businesses. I hope action will be taken in the Budget, but if it is not, I hope that we will at least see an improvement made through this Bill to the funding for lending scheme so that we give priority to lending to small and medium-sized enterprises. We called for that last summer when the scheme began, but it has not been as successful as the Government might have liked.

We heard a number of interesting suggestions from my right hon. Friend the Member for Oldham West and Royton and my hon. Friend the Member for Glasgow North East about the idea of a national investment bank as well as about how regional banking could be organised along the lines of the German model or in other ways to support SMEs. I hope that we can consider those issues as the Bill makes progress.

We heard a couple of comments about whether the Bill would become known as the Clark-Javid Act. It has certainly seemed that it might end up being known as the Chancellor’s disappearing Act, given that he did not come to the Chamber and does not seem to have prioritised the debate today. When we discussed timetabling and the Committee, the shadow Chancellor asked the Financial Secretary whether he would take the opportunity to go out to track down the Chancellor and ask whether he would be prepared to amend the timetable to allow for proper scrutiny of the Bill.

In conclusion, we will not oppose the Bill’s Second Reading today because reforms are clearly needed, but there are many important policy changes that are conspicuous by their absence from the Bill, and those must be addressed as we proceed.

Corporate Tax Avoidance

Paul Farrelly Excerpts

Monday 7th January 2013 Commons Chamber

[Paul Farrelly (Newcastle-under-Lyme) (Lab)]

I am glad that the hon. Gentleman has chosen to talk about Amazon, because it gives me the opportunity to pay tribute to my great friend and former journalistic colleague, Ian Griffiths, who wrote the seminal investigation on behalf of The Bookseller in The Guardian in April, which showed that Amazon had made £7.6 billion of sales in the UK but had paid zero corporation tax because of the Luxembourg structure, even though the warehouses are here. I am sure that the hon. Gentleman will come on to this, but does he think that it is right that the tax playing field should be levelled, because booksellers and record retailers are going out of business day after day in this country?

[Mr Gibb]

That is why this issue is so important. It is not just about the corporate tax base, which is hugely important, but about the competitiveness of British-based businesses.

Another thing that I found odd about the Amazon structure was that the accounts filed at Companies House report that the company has 2,265 employees, which is vastly different from the 15,000 employees that Andrew Cecil told the Public Accounts Committee Amazon employs in the UK. The other strange thing about Amazon’s group structure is that even the Luxembourg operation, with its €9 billion turnover, appears to have made a post-tax profit of just €20 million.

As we have seen with Starbucks and Google, profits can be siphoned off from individual jurisdictions by payments for intellectual property rights through royalties or technical fees. Starbucks pays a royalty of 6% of its turnover to its company in the Netherlands. Google also pays for the use of its technology. Although that technology was developed in California, the rights to use it outside the USA are held in Bermuda.

Much of this area of law is governed by a network of double tax treaties, of which the UK has signed more than 100. They are based on a model double tax convention that was agreed at the OECD and have been highly effective in boosting worldwide trade and overseas investment over the decades. Britain benefits hugely from that network of treaties. We have £10.9 trillion of investments abroad, which generated £188 billion of income in 2011. The Government are therefore right to want to tackle the problem of corporate tax avoidance through international negotiation. As the Prime Minister wrote in his letter to G8 leaders on 2 January:

“in a globalised world, no one country can, on its own, effectively tackle tax evasion and aggressive avoidance. But as a group of eight major economies together we have an opportunity to galvanise collective international action.”

One such action is the OECD’s study into the transfer pricing aspects of intangibles. In its discussion draft, snappily entitled “Revision of the Special Considerations for Intangibles in Chapter VI of the OECD Transfer Pricing Guidelines and Related Provisions”, published in June last year, the OECD concluded:

“It should be emphasized that not all intangibles deserve separate compensation in all circumstances, and not all intangibles give rise to premium returns in all circumstances.”

In other words, the OECD is coming to the view that the huge royalty payments that some international groups make their overseas subsidiaries pay to their home country or to tax havens may no longer be allowable against tax in the overseas jurisdictions. However, the OECD, by necessity, moves slowly. Speedier action could be taken by the UK tax authorities by speeding up transfer pricing inquiries. It is therefore welcome that the Chancellor has allocated additional funding to HMRC to do that. HMRC could also take powers to require companies to disclose in advance all international connected party payments and to supply the associated documentation. There could be tougher penalties when a company’s tax return is wrong because of over-aggressive transfer pricing.

I conclude by touching on a wider issue relating to corporate tax avoidance: the ethics of companies and their boardrooms. In our everyday lives, we are all governed by a sense of morality, not just by law and regulation. Corporations are artificially created legal personalities. The morality of a corporation is determined by its board—by both executive and non-executive directors. It is no good for individual companies or for free market capitalism, which I support passionately, if directors interpret their role too narrowly. Too often, people who sit on company boards fail to ask the simple and straightforward question that governs moral behaviour: is this the right thing for us to do? Too often, directors seem to take the view that their fiduciary duty as directors stops at the maximisation of shareholder value, but section 172 of the Companies Act 2006 makes it clear that the duty of a director to promote the success of the company must be subject to a number of wider considerations including

“the desirability of the company maintaining a reputation for high standards of business conduct”.

I question whether the directors, including the non-executive directors, of the three companies so ably questioned by the PAC were fulfilling that duty.

Action needs to be taken to ensure that the corporate tax contribution of a multinational to a nation’s Exchequer is broadly consistent with the level of economic activity in that jurisdiction. We need to ensure that that action does not hamper world trade: it must be multilateral, but it needs to be swift. There are measures that HMRC can take in the meantime to ensure that it has the intellectual resources to match those of the international accounting firms. There are also questions that the boards of corporations need to take seriously as business leaders and members of society.

--- Later in debate ---

[Nigel Mills (Amber Valley) (Con)]

It is a pleasure to speak in yet another tax debate—we seem to be having more and more of them as the months of this Parliament go by. This is an important issue, and the debate is about corporate tax avoidance, not just corporation tax avoidance. We can sometimes drift into focusing on tax on profits and miss out on the avoidance of VAT or payroll tax, which we could more readily do something about.

The publicity on the issue has had some positive impact, because it has probably discouraged a lot of businesses from entering into aggressive or artificial avoidance schemes. That has to be welcomed on one level, but we do not want to go so far that we start to do damage. The last thing that we want to do is deter international investment in this country. After all, the Government have set out to make ours the most attractive corporate tax regime in the G20. There has been great progress on that through rate reductions, and I believe that after the latest reduction we are about fifth in the G20. However, when we consider the effective rates that people actually pay, we are down to about 15th because of the complexities of our system. There is still a lot of work to do to make our system an attractive one that encourages investment both internationally and domestically.

We have to be careful that we do not drift towards having a tax regime that ceases to be based on a clearly advanced and published rule of law and is instead based on arbitrary decisions, with the Revenue having the power to ignore the law completely or rewrite it retrospectively, or if that fails, to bully people into paying a bit more tax until we think it is about right. After all, corporation tax is on profits for tax purposes, not on profits for accounts purposes, and certainly not on sales for accounts purposes. It is worrying that people seem deliberately to confuse the matter, talking about a company with a turnover of £1 billion paying only £500,000 of corporation tax and saying that that is a low percentage. That percentage could be completely irrelevant, because if it has made no profit, it will pay no corporation tax. We need to be accurate and focus on a different issue.

There are some aggressive avoidance schemes that are intended to exploit UK domestic law that we can tackle. The Government are tackling them, and I believe they have announced some more rules today to do so. We need to be as proactive as we can on those schemes, and that is where the general anti-abuse rule has a role to play. I am a sceptic about that. I am not sure I like the idea of giving any government bodies the power to implement something that is not law, but which they think ought to be. We are here to make laws; they are there to implement the laws we make. If we get the laws wrong, we should sort that out and improve our processes, not expect those bodies to find a way of fixing the problem retrospectively.

However, a lot of the avoidance we have been talking about involves transfer pricing. We are an international economy and we want to remain one. One of the things we are focused on is trying to encourage exports—we want people to invent and design things here, and then export and license them and get royalties and sales back. However, we will not win if we start an international war to see who can clobber royalties the most or put up the biggest barriers to trade. That would be a suicidally stupid thing to do.

[Paul Farrelly]

One example of where the Government have quite sensibly changed the taxation regime is their approach towards remote gambling, where they are moving towards a “point of consumption” basis. We might argue about what profits should be taxed, but the principle is that the bet is taxed where it is “consumed”—that is, where the good or service is consumed—not where the business is accounted for. Does the hon. Gentleman agree that that is a model we might follow in order to repatriate other tax revenues?

[Nigel Mills]

Yes, I do. Indeed, I think we will end up travelling in that direction, because corporation tax rates will be in some kind of global race to the bottom—as we reduce ours, people will follow suit, which will lead to revenues falling. However, it is right to say that if something is sold to a UK customer, the VAT on it should be accounted for in the UK—in fact, what we are talking about is like a trading activity. To be fair, if I rang a random business in Botswana tomorrow and said, “Can you send me a widget you’ve made?”, and that business did not regularly sell anything to the UK, I suspect we would not be too worried, but sales of things regularly marketed into the UK should be accounted for here and VAT should be paid. I think we are moving towards that system, which is absolutely right.

To return to my thread, it is not in our interests to encourage some kind of global race towards tax barriers, withholding taxes or whatever else. The right hon. Member for Birkenhead (Mr Field) was talking about some strange tariff for international companies to come and trade here, which would be crazy—certainly illegal and probably economically suicidal. We do not want to end up in that sort of mess.

We should not vilify the payment of royalties, management fees, design fees or even interest. What we need to do is ensure that those payments are not excessive, either individually or collectively. One of the things I fear, having worked in the industry, is this. At times, it is easy to say, “That fee’s okay, that fee’s okay and that fee’s okay,” but then we forget to look at the overall situation in the UK and reflect on the fact that no one would operate a business if the most they could ever make was a 1% margin on turnover in a very good year, while regularly making a loss in an average or bad year. That is not how to trade: these things have to be looked at as a whole, to try to ensure that the profit expected in an average year is reasonable enough for a business to want to operate in that territory.

That point can easily be lost, so what the Government can do to try to improve the situation is this. First, we need global rule changes to try to make internet-based business fit our tax systems. What we are trying to do, not just in the UK but globally, is make a tax system from the 1940s and 1950s—or even earlier—work for a different model of business. I remember that even when I started work a lot of my clients were inbound investors who actually made stuff in the UK and sold it just in the UK. That is not how things work now: people make stuff in low-cost territories, market it globally and administer that regionally. I do not think our system can be made to work in the current situation, where we have Amazon. There is a global need for reform.

However, we can do more on transparency. As I said earlier, we ought to require large corporates to file their tax returns with their annual accounts. People might say, “We have taxpayer confidentiality,” and yes, for individuals we do have that. However, we make companies file accounts and show what their profits are. What is the harm in making them show how they got to their taxable profit and the tax they paid? That would add transparency and show that the vast majority of corporates are not avoiding tax at all, but trying to do the right thing and making use of the different calculations that exist for tax. I have moved amendments in this place proposing to move our corporate system much closer to one based on accounting profit. We do not need all the different tax schedules—we probably do not even need a capital versus revenue divide. We can get our tax system much closer to one based on accounting profit, which would stop all these fears that some people are avoiding tax when they are perhaps not doing so. It would be much harder to implement complex transactions if that were in the accounts published. Indeed, we are talking about the profit that a business is judged on by lenders and the markets.

We could go so far as to say that all multinationals had to disclose all their cross-border transactions with related parties. A lot of companies used to do that in their accounts. They would list the royalties that they had paid to the US, for example, and the management fees that they had paid to Japan. We could get back to that. It would not be too difficult for a company to say that it had paid a royalty of 6% on sales to the United States. That would aid disclosure. There are practical measures that we could take to improve the situation without ending up with some kind of awful taxation baseball-bat regime that would put people off investing here at all.

--- Later in debate ---

[Stephen McPartland (Stevenage) (Con)]

I congratulate the hon. Member for Redcar (Ian Swales) on securing such an important debate. I listened with great interest to the comments of my hon. Friends the Members for South Norfolk (Mr Bacon) and for Bognor Regis and Littlehampton (Mr Gibb), who eloquently described the differences between tax avoidance and tax evasion, and how the lines between them have been blurred. Tax evasion is clearly wrong, illegal and unfair to the rest of society, as everyone else has to pay more in taxes to make up for those who do not pay their fair share. We cannot have mob rule and, as explained by my hon. Friend the Member for Cities of London and Westminster (Mark Field), we cannot have anti-business sentiments.

Just before Christmas, there was an explosion of public interest after the Public Accounts Committee named and shamed some well-known companies that used transfer pricing to offset their tax liability here in the UK, basically to avoid paying tax. I am aware there is a strong argument that the tax authorities in the UK could do more to enforce tax payments. The Government have done a lot of work on tackling tax avoidance—so much so that I fear the general anti-avoidance rule that will be introduced might be too severe and end up penalising the sole trader and small and medium-sized enterprises more than the larger corporates.

My interest in tackling tax avoidance stems from a meeting I had with Christian Aid supporters in my constituency last September when the tax justice bus tour visited Stevenage. The tax justice campaigners believe that tax dodging by international companies costs the UK around £35 billion and developing countries an estimated $160 billion a year. Just imagine the dramatic difference such a huge sum of money would make if it were available to invest in public services, infrastructure and other vital services essential for economic growth—both at home and abroad.

There is growing anger and concern at the fact that some large companies are hiding behind complex accounting rules that may be strictly legal, but are considered to be unethical by the public. The problem of the missing billions in tax is not just a problem in the UK; it is worldwide, and it does the greatest damage to poor and developing countries that cannot stand up to massive corporations.

I know that Governments from all around the world will agree with the sentiment of greater tax transparency, but they will struggle to introduce it as every nation competes in the global race. I welcome the Prime Minister’s initiative to make tackling tax avoidance a priority as the UK takes over the presidency of the G8, and I would urge him to convene a cross-Whitehall meeting with tax justice experts and campaigners to identify what this policy would look like in practice.

There is real concern and feeling in this evening’s debate about the fact that transfer pricing seems to be at the heart of the problem, so the draft Finance Bill could include some measures to try to create enforcement in respect of transfer pricing and to stop the problem. However, despite the best of intentions, I believe that in the end it will be up to the companies themselves to lead the way and they will only do that if their customers—the British public—drag them kicking and screaming towards tax transparency and a fairer tax system for us all.

With that in mind, in October or November I wrote to the chief executives of all the FTSE 100 companies asking them individually whether they were willing to pledge their support for corporate tax transparency, and whether they would support a new international accounting standard for country-by-country reporting. The current international accounting standards only require multinational companies to report accounts on a global consolidated basis, which makes it incredibly difficult to know where taxable economic activities are occurring and where profits are declared. Companies, particularly multinational corporations, move billions of pounds of profit between jurisdictions in order to reduce their tax bills, and large companies are allegedly manipulating their centres of interest through the use of holding companies, offshore accounts and intellectual property rights.

Whether this is tax avoidance or tax evasion, whether it is illegal or immoral, the British public and most Members of Parliament believe that it is wrong and should be stopped. A recent inquiry by the International Development Committee recommended legislation

“requiring each UK-based multinational corporation to report its financial information on a country-by-country basis. Such information should include the names of all companies belonging to it and trading in each country, its financial performance in each country, its tax liability in each country, the cost and net book value of its fixed assets in each country, and details of its gross and net assets in each country.”

I believe that the only way of resolving the problem is to introduce greater transparency, and Members will be pleased to learn that, in the interests of transparency, I am publishing all the responses that I have received on a website that I launched today: www.taxchallenge.co.uk. The first 15 responses from the FTSE 100 are now live, and many more will be published during the coming days and weeks. The responses have been wide-ranging. HSBC has offered to help design a tax transparency standard, BT and others have welcomed the transparency initiative—although not the means—and Hargreaves Lansdown has questioned the value that it receives for the taxes that it pays. My hon. Friend the Member for Lincoln (Karl MᶜCartney) spoke about that eloquently earlier today.

[Paul Farrelly]

One of the reasons for the Government’s intention to change remote gambling taxation is the fact that all the companies bar one have gone offshore. That one is Bet365, which owns my local team, Stoke City. It is staying here because the Coates family believe in paying their taxes—they paid £130 million last year through Bet365—and in creating local employment. Does the hon. Gentleman agree that all the companies in his survey should wholeheartedly follow their example, and that the National Association of Pension Funds and the Association of British Insurers should try to ensure, on our behalf, that shareholders encourage them to do so?

[Stephen McPartland]

I do agree, and I firmly believe that most employees in most of the FTSE 100, the FTSE 250 and other companies in the United Kingdom would expect their employers to pay their fair share of tax in the UK. They all have very devolved and developed corporate social responsibility projects and organisations, and they want to understand what British customers, employees and consumers want them to do. They are very conscious of their brand.

The new website—www.taxchallenge.co.uk—gives Members’ constituents an opportunity to sign a petition calling for greater tax transparency, so that everyone will know which FTSE 100 companies are willing to sign up to tax transparency and which are not. Every one of us can then decide individually whether the biggest companies in Britain really care about the poorest in our society, at home and abroad.

[Jackie Doyle-Price (Thurrock) (Con)]

I am very pleased to follow my hon. Friend the Member for Stevenage (Stephen McPartland). I think that his excellent initiative will do much to provide transparency, and to enable consumers to make informed decisions. If there is one thing that the debate has shown us, it is that consumer power is perhaps the most effective weapon that we have when it comes to ensuring that companies pay their fair share of tax.

I pay tribute to my hon. Friend the Member for Redcar (Ian Swales) for securing this important debate. Let me say for the benefit of some of my colleagues that I am happy to refer to him as my hon. Friend, and that I am gratified to see that so many of his own colleagues are present. That contrasts markedly with the attendance on the Opposition Benches.

As my hon. Friend the Member for Redcar will know, the debate was prompted partly by the work of the Public Accounts Committee—of which I am proud to be a member—and its work on tax avoidance by global companies. Our report at the back-end of last year found that HMRC’s performance in that regard was perhaps not as good as we would have liked.

I shall concentrate on some of the wider lessons learnt from the inquiry about how to make the UK tax system efficient and effective, while remaining competitive. I would like to associate myself with the comments made by my hon. Friend the Member for Cities of London and Westminster (Mark Field) and others about the debate becoming unduly political and playing to the gallery. It is good politics to attack global names as tax dodgers in the media, but we have to be careful about the messages we send out to potential investors in our country. I am pleased that, in the main, this debate has been a lot more mature than the debate that has played out in the media.

Members will know that the Committee heard evidence from Google, Starbucks and Amazon. We looked at the extent to which they exported their profits to more favourable jurisdictions and whether those arrangements could be described as fair. In that respect, the evidence supplied by Amazon was the least convincing—that has very much been the flavour of this debate. Those of us who have used Amazon—I am sure that many of us have—think we were dealing with a company in Slough, and those of us who visited our local post offices over Christmas would have seen just how much business Amazon was doing, yet, despite booking billions of pounds of sales through the UK, it pays less than £2 million in corporation tax, as has been said, with the profits being exported to the parent company in Luxembourg on more favourable terms.

Before we get too excited, we need to recognise that this is one of the things the European single market contributes to achieving—a company, wherever it is based in Europe, can sell across member states. The question is why, when Amazon has so much business here, it has chosen not to locate here. Ultimately, there is nothing wrong with trying to limit tax liability. After all, that money is earned and owned by the individuals and business; it does not belong to the Government. We need to look at what more we can do to encourage those firms to be more honest in their reporting of how much money is made here. In that sense, I associate myself with the comments of my hon. Friend the Member for South Norfolk (Mr Bacon): this is about simplicity of the tax system.

[Paul Farrelly]

Does the hon. Lady agree that it is not just a case of headline corporation tax rates—for instance, ours compared with Luxembourg’s—but about the special deals that those companies can do with the authorities in Luxembourg, the Republic of Ireland or the Netherlands, through which they pay very little tax and export their profits to tax havens? Does she agree that we need to do more at European level to ensure that those sorts of special deals do not happen in one jurisdiction in a way that disfavours another jurisdiction?

[Jackie Doyle-Price]

I suspect this will be a rare occasion, but I totally agree with the hon. Gentleman. The important point to which he alludes is that we cannot afford to take unilateral action in this area. We live in a global marketplace, and in reality some countries—even members of the EU—are perhaps less honourable in their dealings under tax treaties than we are. We all need to be a lot more savvy and a bit more mature about what will make our tax system more efficient and competitive, and that comes down to simplifying rates.

The hon. Member for Newcastle-under-Lyme (Paul Farrelly) mentioned the sweetheart deals made by other countries. In that respect, I would like to highlight the issue of Google. Google is an internet firm, but the language of the internet is English, so why would a company such as Google choose Ireland over Britain? It can only have been because of the offers made to it. Again, we need to use the institutions of the EU to ensure a level playing field and a genuine single market. We need to recognise that companies will locate where they like and make sure that everybody is doing their bit to ensure a genuinely competitive market between states.

In response to the comments of my hon. Friend the Member for Stevenage, I mentioned the issue of consumer power. Perhaps the most telling thing about what has happened since the PAC’s inquiry is how Starbucks has reacted. Amazon and Google are in near-monopoly positions, so competition cannot make them change their behaviour. There is no doubt that the negative publicity Starbucks faced following our inquiry forced it to make its gesture of offering to pay more corporation tax. We are in the bizarre position where that company seems to behave as if the amount of tax it pays is very much a voluntary contribution. It is incumbent on the Treasury and HMRC to make it clear that such a practice will not be tolerated.

I wish to highlight another issue that the Committee found when it examined Starbucks and the more sinister impact it had on the marketplace here in the UK. This comes back to the degree to which the ability to export taxes on profits enables these companies to engage in anti-competitive behaviour. Despite the phenomenal growth in the presence of Starbucks throughout the UK, we were told throughout our inquiries that Starbucks had made no profits here. We were also told that Starbucks was committed to expanding its operation, as its presence in the UK was important to it. Those two statements simply do not add up. If we look a little more deeply, we find that it seems the most significant losses were run up during a bidding war with Coffee Republic for certain sites on our high streets, with the result being that Starbucks entered into more expensive contracts for property and Coffee Republic was reduced to having a mere fraction of the stores it had had hitherto. So we are talking about a global provider engaging in very aggressive anti-competitive behaviour against a home-grown provider, and the tax system, in effect, subsidising it to do so. I would like the Minister and the Treasury to reflect on the extent to which that sort of behaviour gives unfair competitive advantages to foreign providers.

I am running out of time, so I shall just come back to one point: we cannot afford to act unilaterally. I call on the Government to make full use of relationships in the G20, the OECD and the EU to lead a global effort to tackle these unfair and uncompetitive practices.

Autumn Statement

Paul Farrelly Excerpts

Tuesday 29th November 2011 Commons Chamber

[Mr Osborne]

I am glad that my hon. Friend welcomes the support that we have given to businesses and families in Staffordshire. I am also glad that he welcomes the M6 managed motorways scheme. We have taken specific measures to deal with both tax avoidance and unfair tax treatment. For example, the measures that I have announced to deal with double tax relief and asset-backed pension contributions will raise £450 million and the measures to deal with low-value consignment relief, which was strangling music shops on our high street, will raise £100 million. We have taken action, which the previous Government failed to take, to ensure that everyone pays their fair share.

[Paul Farrelly (Newcastle-under-Lyme) (Lab)]

I look forward to meeting the Chancellor over the Prime Minister’s broken promise to award an enterprise zone to north Staffordshire.

Regarding lending to small business, can the Chancellor confirm that under his loan guarantee scheme, the credit risk will remain with the banks? If so, how will it work in practice given that the banks have been averse to lending and expanding their balance sheets? Furthermore, what safeguards will there be to ensure that they do not largely fatten interest margins and their profits under his scheme?

[Mr Osborne]

Of course I am happy for the hon. Gentleman to be part of those discussions on enterprise zones. Many areas of the country put in bids for enterprise zones. We were able to give the go-ahead to only the 22 that we announced previously and the two now for Humber and Lancashire, which I have confirmed today. There is also the expansion of the north-eastern one to the Port of Blyth, which is warmly welcomed on the Opposition Benches. I am happy to meet the hon. Gentleman to discuss the problem. On the national loan guarantee scheme, he is right to say that we have to get the audit trail right. We are looking very closely and seeking to model a lot of what we are doing on the European Investment Bank’s scheme, which already delivers lower rates to small businesses in Britain. It is a small scheme but the procedures are already in place. I can confirm that the credit risk of the small business loan sits with the banks.