Tax Avoidance and Evasion

Debate between Paul Flynn and Stewart Hosie

Wednesday 13th April 2016 Commons Chamber

[Stewart Hosie (Dundee East) (SNP)]

May I make a number of small observations on what we have heard so far and gently say to the Minister, whom I like, that success is not measured merely in monetary terms? There are many, many successful people who will forgo stashing cash in the attic, the bank or the offshore tax haven.

On HMRC, we have no problem with efficiency or with organisations being fit for purpose. We have no qualms about genuine waste being eroded, but we look askance at 17 out of 18 tax offices being closed and only one being reopened, and the argument that somehow that will deliver more for substantially less.

The shadow Chancellor spoke about wealth inequality now rising to a level that we have not seen since the days of the Rockefellers or, as he said, the robber barons. I would not put the Prime Minister in the category of the super-rich, such as the Rockefellers. We know, however—the Prime Minister has been very open about this—that he bought shares, as he described it, in a trust or a fund as part of Blairmore Holdings. He sold them some years later. He did nothing illegal at all. That episode shone a very bright light in a very murky corner of offshore tax havens. One thing that struck me was that he bought the stock in 1997 and sold it in 2010. Those dates were familiar to me. It was the entire duration of Blair, Brown and new Labour. On the underlying issue, which I know the shadow Chancellor is genuinely concerned about, and on many of the points that the Minister made at the end of his speech, the Labour party did nothing for 13 years. I am glad that this is now on the agenda in a proper and cogent way.

My hon. Friend the Member for Kirkcaldy and Cowdenbeath (Roger Mullin) made a number of telling points on this subject in his speech on the Second Reading of the Finance Bill on Monday. He said:

“you cannot build economic success on the back of social injustice.”—[Official Report, 11 April 2016; Vol. 608, c. 115.]

He also said, quoting Adam Smith:

“No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable.”

He argued that creating such division does not bring progress, and he went on to describe how much of this division is characterised today by people in certain quarters being able to park large sums of money offshore, and the rest—the vast majority—being unable to do that.

My hon. Friend suggested that, according to Jason Hickel of the London School of Economics, tax havens hide one sixth of the world’s total private wealth—in excess of $20 trillion. Some estimates put that as high as $32 trillion, and CNN described it on Monday evening as about 6% of total global GDP. There are higher estimates. We can probably all agree that it is around $20 trillion, or 15 times UK GDP, parked offshore in tax havens—money and assets which very wealthy people and criminals can hide from the relevant tax authorities.

The revelations in the millions of documents in the Panama papers from Mossack Fonseca are but the tip of the iceberg. I am told that it is the fourth biggest law firm in Panama providing these services, which means there are three larger firms, and I presume that there are dozens, scores or hundreds of smaller firms doing the same. And it is not simply in Panama. Indeed, Panama does not even make it into the top 10 tax havens. Taken together—I do not think this situation has changed yet, notwithstanding the measures that the Government have announced—the UK and the overseas territories collectively are No. 1, outstripping even Switzerland by some margin, it is argued.

It is worth reminding ourselves that at a single address in the Cayman Islands, Ugland House, there are 19,000 registered businesses. I am certain that some of them will be legal, but many will not be. Many will be companies whose beneficial owners remain hidden from the tax authorities there, here or elsewhere. That means that income that should be the subject of taxation will go untaxed, to the detriment of public services here and elsewhere.

We have, in essence, an international system of finance that enables tax avoidance on an industrial scale, a system that hides from scrutiny the owners of vast wealth while the ordinary man, woman or business in the street does not have, and does not want, that luxury. They pay their fair share, and they simply want others to do the same. What makes it most unfair—I think this is why people are so angry—is that when assets or income are hidden and go untaxed, we all suffer as the resources we need for vital public services are reduced and squeezed.

It is also the case that much of the tax stashed in tax havens is looted from developing countries, so this is not simply an issue for the west. It is a matter of fundamental importance to those developing economies, which frankly are in even more need of the tax receipts that are effectively stolen from and then parked in tax havens around the world. That is why part of the solution must involve a global agreement on country-by-country reporting to ensure that tax authorities and others can follow the money.

The question from my hon. Friend the Member for Aberdeen South (Callum McCaig) was absolutely right. We are moving to having data shared between the Crown dependencies and overseas territories and the law enforcement and tax authorities here. We think that should be public—there is absolutely no doubt about that—but it should also be shared elsewhere. If miscreants are identified by the Revenue or the police here, I hope that there will be a very swift phone call to the appropriate authorities elsewhere so that they, too, can follow the money.

[Paul Flynn]

Does the hon. Gentleman think it is significant that China has £44 billion invested in the Cayman Islands and £49 billion in the British Virgin Islands? Is not one of the reasons why the Government might not want to act against these tax havens that they are ingratiating themselves with the Chinese, who are busy destroying our steel industry?

[Stewart Hosie]

I suspect that the Chinese authorities are interested in that £93 billion just as much as we are, because I suspect that much of it is not there—how can I put this gently?—officially. They have as big a problem with money being fleeced from their system as we and other countries have with ours.

Another issue raised by my hon. Friend the Member for Kirkcaldy and Cowdenbeath, and by my hon. Friend the Member for East Lothian (George Kerevan), is the question of where the money actually is and how it is set to work for its beneficiaries. As we know, cash funds do not actually sit in the Cayman Islands or the Bahamas. One of the biggest centres for the cash is London, and we can see where some of that money is spent. For example, hundreds, if not thousands, of rather expensive properties in London have been bought by persons unknown. We have therefore called for radical reform to address tax avoidance, outright evasion and criminality and to deliver fairness across the board so that the very wealthy pay the tax that is due in precisely the same way as those on more modest earnings.

The starting point for paying tax in this country is the Revenue knowing precisely who owns what assets and what income is derived from them. In short, that means a public register of beneficial ownership of companies, and not just in the UK, but for the Crown dependencies and the overseas territories as well, precisely so that nobody can hide assets or incomes through an opaque structure of a company registered in an overseas territory, registered by a Panamanian lawyer while the money comes swiftly to a bank account in London and is parked in a multi-million pound mansion in Mayfair through an anonymous shell company.

That also means taking serious action on trusts. The argument that the Prime Minister used was that he would not have got the agreement had trusts been included. He argued—possibly correctly historically—that those trusts were set up in order to allow sophisticated investors to invest in dollar-denominated stock. But times have changed. I took a cursory look at the stock exchange website this morning. On its “frequently asked questions” page, I saw the following question: “Can a company have its securities traded in currencies other than sterling, for example euros and dollars?” The answer was, “Yes, your shares can be denominated and traded in any freely available currency you choose.” Indeed, the stock exchange launched a Masala rupee-denominated bond last week. The old arguments that these structures are required for non-sterling trades or investment are now simply wrong. As my hon. Friend the Member for Kirkcaldy and Cowdenbeath put it, even if the Prime Minister was right some years ago, he is wrong now and public opinion has changed dramatically.

That brings me to what else the Prime Minister said on Monday. He said that he has published all the information on his tax returns for the past six years. He has provided details about money inherited from and given to him by his family. He has published other sources of income and his salary. He dealt specifically with the shares that he and his wife held in a unit trust called Blairmore Holdings, set up by his late father. That, from our point of view, was precisely the right thing to do. However, in a sense, all of that is irrelevant because it did not actually address the fundamental issue of individuals holding assets through overseas shell companies and being able to hide them and their income from the tax man.

Also, in describing the actions that the Government are taking to deal with tax evasion, aggressive tax avoidance and international corruption more broadly, the Prime Minister said that they have put an end to rich homeowners getting away without paying stamp duty because their houses are enveloped within companies. He said that they had made 40 changes to close loopholes, and they have sought agreement on global standards for the automatic exchange of information, and in June this year, as the Minister has pointed out, the UK will become the first country in the G20 to have a public register of beneficial ownership so that everyone can see who really owns and controls each company. We recognise that there has also been work on base erosion and profit shifting.

All of that is to be welcomed. What we are saying is that we need to go further. It will simply not be enough for the police and the tax authorities to see beneficial ownership of companies registered in Crown dependencies; it must be public, so that the citizens of those countries and ours can see who precisely owns and benefits from what. Also, while we welcome the publication of beneficial ownership of companies in the UK, I ask the Government to ensure that sufficient resources are now dedicated to HMRC so that it can forensically scrutinise the sources of income to ensure that they are legal and that the tax due is paid. Of course, as I said earlier, the Government must also pass on to other authorities the details of any miscreants suspected of looting cash from other countries.

I am delighted that this subject is now under real scrutiny. I am also delighted that we have gone wider than the parochial. Oxfam has pointed out how significant this is in its report “Ending the Era of Tax Havens”. It gives encouragement to the Government, stating:

“The UK is especially well placed to show leadership here because it controls or directly influences by far the largest network of tax havens in the world. This network, encompassing the UK’s Crown Dependencies and Overseas Territories and centred on the City of London, is estimated to account for nearly a quarter of global financial services provided to nonresidents within a jurisdiction. Taken together, this UK entity would sit at the top of the ranking in the Tax Justice Network’s Financial Secrecy Index”.

That is not something we should be proud of. However, Oxfam goes on to talk about the opportunity the Government have, saying that success in tackling corruption and tax evasion could be transformative not just in terms of our revenue, but in terms of the fight against global poverty and inequality, which, for the SNP, is just as important.

I will end by saying one thing to the Government: the cat is out of the bag. This is not just about Mossack Fonseca; this is the tip of the iceberg. The public will not allow this matter to be quietly swept under the carpet again.