Finance (No. 3) Bill

Debate between Paul Masterton and Chris Philp

Committee: 2nd sitting: House of Commons
Tuesday 20th November 2018 Commons Chamber

[Chris Philp]

It will not have escaped the hon. Lady’s notice that by the fifth year of the five-year period there is a fiscal loosening of £30 billion—that is hardly austerity—and that the NHS will receive a huge amount of extra money, including the NHS in Scotland via Barnett consequentials. I think that we can say very clearly that this was not an austerity Budget. I agree, however, with her more serious point. As my hon. Friend the Member for Ochil and South Perthshire said, where a law is passed, it should be properly enforced, and if there is more scope to enforce this law, it should certainly be done.

A further legislative measure was announced over the summer in relation to transparency. By 2021, we will start recording the ultimate beneficial ownership of property owned by companies, which is an important measure, because some properties, particularly very expensive, high-end properties, are often owned in offshore companies, but there is currently no transparency in respect of who owns those companies. As of 2021, we will know who the ultimate beneficial owners are, and that will also create an interesting taxation opportunity that I strongly commend to the Financial Secretary.

At the moment, when an ordinary property is bought or sold by an individual, it triggers residential stamp duty, but when a transaction takes place whereby the company owning the property is sold, no residential stamp duty is paid, because, as far as the Land Registry is concerned, no change of ownership has taken place. At the moment, we have no visibility over any change of ultimate beneficial ownership, because it is not registered, but from 2021 we will, because that change will have to be registered. I suggest, for a future Budget, that a change of ultimate beneficial ownership should trigger a stamp duty charge as though for a direct change of ownership, as would happen if any of us bought a property. That would yield significant extra residential stamp duty.

I will give an example. I am aware of a transaction in Belgravia, not far from here, that took place two or three years ago. It was a collection of luxury houses developed by an offshore company—based in the Cayman Islands or British Virgin Islands—and sold to a Chinese gentleman for £110 million, but he did not buy the property and therefore no stamp duty was payable. He bought the offshore company and no stamp duty was paid. Had that change of ultimate beneficial ownership been registered and had stamp duty been payable, a stamp duty charge of about £16 million would have been crystalised for the Exchequer’s benefit.

I suggest we collect that sort of money in the future. Of course, that property is liable for annual taxation on envelope dwellings, because it is held in a company, but that only levies at a rate of £226,000 a year, so the payback period is 73 years, and most of these properties are traded more frequently than that. I challenged the hon. Member for Oxford East earlier to come up with some ideas for raising revenue and combating non-compliance. There is my idea. I hope that a future Budget adopts it and takes it forward.

I will conclude—I know the shadow Chancellor wants to hear more, but I have to disappoint him—by briefly addressing Government clauses 15 and 16 on intellectual property charges and charges in relation to fragmented profits. This is an extremely important area, because a number of large corporates are using intellectual property charges to spirit away profits attributable to UK operating activities.

Most notoriously, Starbucks used this about five or six years ago. It managed to extract almost all its UK profits by levying an intellectual property charge in relation to its beans. It said the beans were special beans and had a very high charge on them, and it managed to register pretty much zero UK profit. That is precisely the kind of intellectual property charge that these measures are designed to combat. An arm’s-length, third-party intellectual property charge cannot possibly result in zero profit for the company paying that charge, and it is right that the Government are taking further action.

Multinationals take their profits out of the UK and into, typically, the Luxembourg, Swiss or Caribbean jurisdictions, and intellectual property charges are more often than not the means by which they do so. I strongly commend clauses 15 and 16 for taking direct action to prevent avoidance measures that have undoubtedly cost the Exchequer. I think that I have spoken long enough about these clauses, which I shall be extremely happy to support if there are Divisions in 10 minutes’ time.

[Paul Masterton]

It is a pleasure to follow my hon. Friend the Member for Croydon South (Chris Philp), although, as ever, the problem with following him is that he has done such a thorough and detailed job of going through the minutiae of pretty much every single piece of the Bill that there is not a huge amount left for me to say. However, I will do my best and raise a few points that I know are particularly important to people and businesses—particularly small businesses—in East Renfrewshire.

One reason why these measures are so important comes back to the perception of fairness. Action to deal with tax avoidance and evasion is important because people often perceive that they are playing by the rules and doing everything right, while other guys—often the big guys with lots of money, who can afford to pay the “big four” huge sums—are able to find clever ways of reducing their tax liability.

There have been many examples of companies diverting profits, in a way that is not fair and is not right, to other jurisdictions with much lower tax levels to save themselves money. They are taking money that was produced when taxpayers in this country went into their shops and bought their goods, supporting them and their products, but that money is not being kept in our economy or reinvested in our economy. It is being shunted offshore to other jurisdictions, where it is swept up and often manoeuvred around other areas, particularly when a global business is moving it around to prop up less competitive and less successful parts of that business offshore.

Since 2010, an extra £180 billion or so has been brought in as a result of some of the measures that we have introduced. That is a huge amount, which is being reinvested in the country in which it was produced. It means more money for our schools, hospitals and small businesses—the sort of money that can give people a bit of a break.

I want to touch briefly on the new clause tabled by the hon. Member for Glasgow Central (Alison Thewliss). She talks frequently, and with a great deal of knowledge, about Scottish limited partnerships—rightly, I think, because they are being increasingly scrutinised and are coming under the spotlight. They have been around for a long time, and previously no one paid much attention to them—no one really understood what they were being used for. They fall within a slightly odd grey area in terms of the Companies Act 2006. In my former job as a pensions lawyer, they were used as a vehicle to allow companies to put an extra step between them and an investment. They helped companies to reduce their tax in relation to employer contributions that they had made through the sweeping round of funds.

That was a legitimate funding mechanism, but there is no doubt that because of where Scottish limited partnerships sit in relation to the wider tax system, they are being used pretty unscrupulously. A lot more stuff has been coming out about them, and I think that the hon. Lady is right to go on probing and testing to establish whether their proper use is being properly enforced and checked.