Finance Bill

Peter Dowd Excerpts

Tuesday 31st October 2017 Commons Chamber

[Peter Dowd (Bootle) (Lab)]

I beg to move, That the clause be read a Second time.

[Mr Speaker]

With this it will be convenient to consider Government amendment 17.

[Peter Dowd]

Proceedings on this Bill started in March, but we are now drawing to a close. The Bill’s progress was interrupted by the general election. Not much happened to it in the post-election period, but it was brought back in September, and now we are moving, to use the Minister’s phrase, towards the denouement of the debate.

To solve a problem, it is first important to recognise that there is a problem. I think that that sums up the debate surrounding the Government’s deemed domicile measures—the Government cannot see that there is a problem. Non-dom status is a hangover from the days of the British Empire. Non-dom tax status was introduced in 1799 to allow British colonialists with foreign property to shelter it from wartime taxes. These days, non-doms are individuals who live in the UK but claim to have a permanent home in another country. There is no statutory definition of a non-dom; the status depends on circumstantial evidence.

Her Majesty’s Revenue and Customs says that 121,000 individuals claimed non-domiciled taxpayer status via their self-assessment returns in 2014-15. Non-domiciled UK-resident taxpayers accounted for about 85,000 of those individuals, and the remaining 35,000 or so were non-UK residents. Famous examples of non-doms include the directors of Lloyds, HSBC and RBS, the billionaire Chelsea owner Roman Abramovich, the steel magnate Lakshmi Mittal, the media baron Viscount Rothermere, and numerous footballers.

Non-doms are allowed to avoid tax on overseas investment income if that does not exceed £2,000 a year. All non-doms are required to pay income tax on their UK earnings, but they can avoid income tax and capital gains tax on assets held elsewhere as long as the amounts are not remitted to the UK. The Treasury’s proposals to reform non-dom status would mean that an individual who had been resident in the UK for 15 of the last 20 years would be considered UK-domiciled for the purposes of income tax, capital gains tax and inheritance tax.

[Charlie Elphicke (Dover) (Con)]

I am listening to the hon. Gentleman’s case with interest. I am curious why, in their first 12 years in power, the last Labour Government did nothing whatsoever about non-domiciled individuals, and then reacted reluctantly only when they were humiliated and forced to take action by the then Conservative Opposition. Why is he not praising the Conservative Government for taking further action on this matter?

[Peter Dowd]

If it takes a Labour Government to sort out a problem after more than 200 years, we will sort out the problem.

On paper, this idea seems to be reasonable and sensible —in fact, even progressive—until, metaphorically speaking, someone starts to scratch away at the very thin veneer. In reality, the Government have purposefully and deliberately exempted offshore trusts, thereby undermining their own reforms, even though offshore trusts have been identified by the OECD, the European Parliament and the International Monetary Fund as among the main vehicles for tax avoidance across the globe.

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[John Redwood (Wokingham) (Con)]

Does not the hon. Gentleman think that his well-intentioned proposal might actually backfire, as it would mean that fewer rich people would come here and pay us any tax at all?

[Peter Dowd]

The problem is that that has been a persistent argument for years, but there does not actually appear to be any evidence to back up such an assertion.

I understand that HMRC is responding to EU directives on money laundering and has started the process of registering new trusts and that those already operating must provide additional information by 31 January 2018. However, HMRC has also confirmed that it will not penalise anyone as long as they register before 5 December 2017. The rules state that all trusts with UK tax liabilities must be registered, but the process is conveniently silent about trusts registered in Crown dependencies and overseas territories. The information provided to HMRC will not be made publicly available.

The Minister and Government Members have made much of the claim that the Conservative party has been clamping down on tax avoidance. In fact, that was considered such a priority in the general election that the Prime Minister—at her most imperious, at that stage—gave the subject a grand total of eight lines in the Conservative party manifesto. However, after seven years in power, the Government’s record is still there to see. The measures in the Bill are another example of how the Government wish to be seen to be doing something, but in fact their proposals are artificial and will amount to little while the exemption for offshore trusts remains intact.

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

On bearing down on tax avoidance, evasion and non-compliance, does the hon. Gentleman recognise that we have brought in £160 billion since 2010 by clamping down on avoidance? It was announced just last week that the tax gap—the difference between what we should be bringing in and what we are bringing in—is now at just 6%, which is much lower than it was in any year under the previous Labour Government.

[Peter Dowd]

I am pleased that the Minister raises that point because we will no doubt have another debate about it in the future. I have an interesting assertion that I shall make when we debate the tax gap, but that is for another day. I am happy to debate that subject with the Minister in due course.

[Vicky Ford (Chelmsford) (Con)]

Does not the hon. Gentleman agree that a tax gap that is one of the lowest in the world is something that we should celebrate while we are debating a Bill about taxation? We should be thanking the Government for making sure that the taxes we approve are collected.

[Peter Dowd]

This does not actually include the multinationals, but I was trying to make the point that I am happy to return to that point in another debate, if the Government so wish.

[Mel Stride]

The hon. Gentleman is being extremely generous in giving way. On this very important question, does he not recognise that the tax gap is currently 6%? In 2005, under the previous Labour Government, it was about 8%. If the tax gap was 8% today, we would be bringing in £11.8 billion less in tax, which is the equivalent of the funding for every single police officer in England and Wales. The tax gap really does matter, so I think that the hon. Gentleman should address the questions that are being put to him.

[Peter Dowd]

The tax gap fell in every year between 2005 and 2010. The Minister brings my attention to his record, but I am bringing his attention to Labour’s record. As I have said, if we want to have a debate about the tax gap, we can do that. I am more than happy to do so, as are my colleagues, but as I have said many times, this is also about trying to look forward. We can all talk about our record—how good or bad it might have been—but let us move on and try to deal with the issues we are facing, not those we used to face.

[Ms Nusrat Ghani (Wealden) (Con)]

I accept that you do not want to talk about the tax gap and want to move forward, but if you want to move forward, will you at the very least welcome the fact that we have collected more than £1 billion—

[Ms Ghani]

I am sorry, Mr Speaker.

The hon. Gentleman might not want to talk about the tax gap, but will he at the very least acknowledge that an extra £1 billion has been collected under this Government compared with under Labour? Surely he wants to take this opportunity to welcome that.

[Peter Dowd]

As much as I would like to debate the tax gap with the hon. Lady, I think that shows an ignorance of the issues involved in the nature of the tax gap. As far as I am concerned, I am quite happy—more than happy—to debate this issue in due course, but I am simply making the point that we must move on.

[Lucy Frazer (South East Cambridgeshire) (Con)]

Will the hon. Gentleman give way?

[Peter Dowd]

I want to make a little progress, but I will come back to the hon. and learned Lady in a few moments.

In the past month alone, the Government have faced a barrage of criticism from the European Union for their poor record on tackling tax avoidance. The European Parliament’s report on money laundering, tax avoidance and tax evasion has accused the Government of directly obstructing the fight against tax avoidance, while the European Commission has opened an investigation into the Government’s changes to controlled foreign company rules, which made it easier for multinational companies to shift their taxable income offshore and reduced last year’s tax take by £805 million. That goes to the heart of the point I am making about the tax gap and some of its intricacies.

[Lucy Frazer]

The hon. Gentleman is being very generous with his time. He has made it clear that he wants to talk about the issue before us rather than others. Labour Members say in new clause 1 that they want a review after 15 months. Despite speaking for more than 10 minutes, he has not addressed that. Has Labour assessed how much a review would cost and whether it would divert resources from the Treasury?

[Peter Dowd]

I thank the hon. and learned Lady for that intervention. Government Members have taken up about seven minutes of the time I have been on my feet—[Interruption.] Six and a half minutes, the Minister says.

I am quite happy to debate these issues, but that is the point of a review. Why not have a review? It is a perfectly reasonable and legitimate proposal, given the nature of what we are considering. If there is nothing to hide, and if the Government are quite happy to be open and transparent and to tell everybody how wonderfully they are doing, let us have a review. No doubt the hon. and learned Lady will support the new clause in due course.

[Lucy Frazer]

Forgive me for intervening again, but I do not think the hon. Gentleman heard my question: how much would the review cost?

[Peter Dowd]

If we had a review and identified areas of non-compliance, I suspect we would bring in far more money than that review would cost. That is why we have reviews. Again, I am sure that the hon. and learned Lady will support the new clause.

The Government’s opposition to any action to crack down on offshore trusts is not new. In 2013, while G8 leaders attempted to push forward new measures to deal with tax evasion, the previous Prime Minister was busy undermining them by writing personal letters to the President of the European Council, Herman Van Rompuy, begging him to stop the inclusion of offshore trusts. By contrast, the last Labour Prime Minister, Gordon Brown, to his credit, spent his last year in office attempting to get world leaders to agree to strict measures on offshore tax havens. That is all the more reason for a review, so let us have that review. I am speaking directly to our proposal. As I have said, if there is nothing to be fearful of, let us have the review.

Our opposition to the exemption of offshore trusts from these measures is well noted. We have been calling for the exemption’s removal since March. I called for its removal in the debate on the Ways and Means resolutions for this Bill, on Second Reading and in the Public Bill Committee, as the Minister knows, and I now call for its removal once again. I am happy to give the Minister an opportunity to reconsider, because the British public are no fools. They are more educated than ever about what an offshore trust is and what it is used for.

[Mel Stride]

The hon. Gentleman is being exceptionally generous in letting us intervene so many times. To bottom out one point that came up in Committee, even though he may feel that our proposals are imperfect, does he accept that we have made more progress than any previous Government and that we are going further than before in raising fair taxes from non-doms?

[Peter Dowd]

I recognise any progress that anybody makes. If the Government have brought about progress, that is fine—I think it is wonderful—but I think there should be more progress. Under the stewardship of the Minister, I am convinced that we will have even more progress on this matter.

While the Minister might be able to use arcane rules of the House to prevent the Opposition from removing the offshore trusts exemption and introducing a public register, he cannot hide from the fact that his Government have a pretty poor record in this area. The heart of our disagreement with the Government is simple: it is about whether all UK citizens are to be treated equally in the eyes of the law and for the purposes of taxation. Throughout the passage of the Bill, it has been clear that the Government are actively content to ensure that we have a tax system that favours a wealthy few at the expense of the many.

The Government could act to close this tax avoidance measure. They could act to send a message to those who want to dodge taxes that the UK will not tolerate it. They could send a message to those who do not avoid their taxes that the Government are on their side. They could even send a message of support to hard-pressed public services by taking up the suggestion of the right hon. Member for West Dorset (Sir Oliver Letwin) and hypothecating any taxes raised by clamping down on the dodgers.

[Ms Ghani]

The hon. Gentleman has been very generous in giving way. I am a little concerned about the messages he wants to send out, but one message that we most definitely should send out is that the Government proposals will bring in an additional £1.6 billion over five years. That is money that will support all our public services for everyone.

[Peter Dowd]

That is a starter and I am sure that much more could be brought in. Again, I am sure that in an effort to get that figure up, the hon. Lady will support the new clause. I am really pleased that she agrees with us on that matter.

The only message this Government want to send is one of supine support for tax dodgers. The dodgers may want to hear that message, but public sector workers who have not had a pay rise for years do not want to hear it, the people waiting months for an operation do not want to hear it, and the police and firefighters do not want to hear it. I assure Government Members that at the next general election, the public certainly will hear that message loud and clear, because Labour will be there to remind them of a Government in chaos and disarray that is beginning to have a putrefying decay about it.

[John Redwood]

I think that we all agree in this House that we need to collect substantial revenues to have decent public services and that we all condemn people who break tax law, evade taxes and commit crimes against the tax code. However, tax avoidance—the legal avoidance of taxation—is a more difficult issue.

Many Labour MPs trotted through the Lobbies under a Labour Government to make sure that individual savings accounts had tax advantages, and to support tax breaks for Members of Parliament who choose to save for their retirement through the pension scheme. That is a kind of tax avoidance. Is the hon. Gentleman saying that the Labour party no longer agrees with that kind of avoidance, which was recommended by previous Labour Governments in the interests of spreading saving? Is he of the view that there are certain kinds of avoidance that are perfectly reasonable, such as those undertaken by Labour MPs and others, and other types of tax avoidance that are also perfectly legal but of which he does not approve?

[Peter Dowd]

Does the right hon. Gentleman agree that there is a difference between an ISA and institutional, systematic avoidance and abuse of the tax system?

[John Redwood]

There is a huge difference between breaking the law and living within the law. However, where Governments of both persuasions and the coalition have put provisions into the tax code that encourage people to save or invest in a certain way to pay less tax, that surely is the will of Parliament and the will of those parties, and we cannot object if people and institutions take advantage of it. The right thing to do—as I think the Labour party is now trying to do in some ways—in respect of rich people who come to our country to undertake part of their affairs but not all of their affairs, is to ensure that we have settled on a law that we think is fair and then to enforce it. Obviously we should take a tough line were any of them to break our law, but we cannot object if they take advantage of measures that have been put into the tax code to encourage certain kinds of investing or saving behaviour, in exactly the same way that most MPs take advantage of the avoidance provisions to save through a pension scheme or an ISA.

The subject of this debate is whether the assets of very rich people—often productive assets that they have saved for, earned and accumulated before they came to the UK—are a suitable object of taxation if they choose to do some things in the UK in respect of which they are clearly subject to our law codes and have to pay our taxes. In the past, Labour Governments as well as Conservative Governments have taken the pragmatic view that there is an advantage in very rich entrepreneurial successful people coming to our country setting up businesses, making investments here and committing part of their capital to our country; that we will tax that fairly in exactly the same way that you or I would be taxed, Mr Speaker, if we were making such investments on a much smaller scale; and that that is fair to us as taxpayers and investors, but that it is not our business to try to tax their assets and income accumulated or earned elsewhere that they have established by other means before, which are presumably being taxed in those other countries and would normally be governed as well by some kind of double taxation arrangement or agreement.

I would therefore just say to Labour Members who think there is a huge crock of gold here, which for some unknown reason successive Labour, coalition and Conservative Governments have been reluctant to pluck, that maybe they did not do it in the past because there is not, and that maybe we are quite close to that point. If we go further and further encroach on the legitimate income and assets of foreigners coming here, which are asset and income not actually in this country, we might get to the point where more of them say, “I’d rather go somewhere else. Plenty of other countries around the world would actually welcome the money, investment and income I wish to spend, which is going to be taxable in that country. If they are prepared to not tax my other income and assets elsewhere, then they will have the benefit of me rather than not.”

The art of taxation is finding the right balance, so the host country gets enough out of it and where there is obviously a fair imposition of tax on anything they do in that country alongside fellow residents of that country, while not deterring so many that we are no longer a great centre for people with money, investment and talent who would otherwise come here.

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[Bim Afolami]

I know that is a controversial view that many have. In particular, I listened very carefully to the speech by the hon. Member for Bootle (Peter Dowd) from the Opposition Front Bench.

[Peter Dowd]

Quite right.

[Bim Afolami]

I am. The hon. Gentleman made some interesting remarks, but I am going to pick him up on one phrase, which we should think about and bear in mind as we look not only at the implications of new clause 1 but at the Bill as a whole. He said that the British public are no fools. As I listened to him expound on that, I thought to myself, “The British public in the public gallery and the many millions undoubtedly watching the debate at this moment are no fools and will realise that this Conservative Government, since 2010, have brought in more than £160 billion-worth of anti-avoidance and tax evasion measures.” The British public are no fools. They will realise that the Conservative Government, since 2010. have reduced the tax gap—the gap between what should be collected in tax and what actually is collected—to 6.5%, the lowest that has been recorded. The British public are no fools and will see that this Government, a Conservative Government, will abolish permanent non-dom status for the first time. Those are the practical achievements that the Bill helps to build on.

On the precise nature of new clause 1, I can do no better than agree with my dear and honourable Friend the Member for Chelmsford (Vicky Ford), who suggested entirely accurately that the timing of such a review may cause disruption. It may be a significant disincentive and difficult from a business perspective because of the Brexit negotiations and the situation at that time. It is also important for us, whatever party we represent, to recognise that this Government are making the case for a sustainable fiscal policy that makes sense in the modern world.

We have heard from many Members on both sides of the House about the international context in which we operate. We are in a smaller world; we all know the impact that technology and ease of travel are having on every aspect of life. Bearing that international context in mind, things are more competitive. We cannot rest on our laurels.

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[Mel Stride]

I think I have answered that question. It is probably time to move on.

Even with these protections in place, non-doms who become deemed UK domiciled will be protected from tax, as I have said, only on income and gains that remain in the trust. Any moneys withdrawn or benefits provided will lead to a tax charge on the individual. This is a fair system that has been carefully considered and consulted on since it was announced more than two years ago. It is simply unnecessary to introduce legislation to place additional bureaucracy and additional reporting burdens on HMRC, which already scrutinises non-doms’ compliance with the UK tax regime.

Government amendment 17 will remove and correct a minor inaccuracy in schedule 8 to ensure that the policy is delivered as intended. The change applies to part 4 of the schedule, on the cleansing of mixed funds. For the purpose of these rules, a qualifying individual is one who was not born in the United Kingdom and whose domicile of origin is not in the United Kingdom. The amendment simply corrects the Bill by replacing “or” with “and” when defining a qualifying individual. I therefore urge the House to accept the amendment.

These reforms have been carefully drawn up to ensure that we get the right balance between protecting the public finances, remaining internationally competitive and showing how much we value the contribution of non-doms in the UK. I therefore urge the House to reject new clause 1.

[Peter Dowd]

I thank the hon. Member for Brentwood and Ongar (Alex Burghart) for referring to Plutarch, a Greek citizen who became a Roman citizen—but not a non-dom in that country. Our new clause would require a review to be undertaken on the effects of

“the provisions for the protection of overseas trusts in relation to deemed domicile.”

Like Queen Gertrude in “Hamlet”, Conservative Members protest too much. Why can we not have a review? That is all the new clause asks for: a review. What is wrong with a review?

Question put, That the clause be read a Second time.

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[Peter Dowd (Bootle) (Lab)]

The Finance Bill that is before the House is nothing short of a wasted opportunity. It is indicative of a Government who wish to serve the interests of a wealthy few at the expense of the many. That is a fact. Rather than introducing measures to bolster people in their daily lives, such as sensible proposals on investment, fair taxation, raising the UK’s woeful productivity and improving the terrible productivity in many of the regions, the Finance Bill will, if it is enacted, water down workers’ rights, bring added financial burdens to small and medium-sized businesses and exempt offshore trusts from any reform of non-dom status. It is telling that Conservative Members spent more time on the latter than they did on redundancy payments or digital taxation, which affects many of our small businesses.

This Government are enveloped in atrophy. They have done nothing to tackle falling wages, deal with rising levels of personal debt, or tackle poor productivity. They have overseen an economy in which women are paid, on average, 14% less than men, and in which there are large race and disability income gaps. They refuse to invest in the nation’s infrastructure or in the British people. Under Tory rule, Britain has become one of the most unequal countries in Europe. UK Government investment is lower than that of every other major economy. That is a fact.

Inflation is outstripping wage rises, while housing and energy bills are rising once more and our productivity is lower than in the rest of the G7. What a record after seven years. The public sector pay cap has driven down wages, and cuts to in-work benefits are leading to more people than ever using food banks, with 1 million food parcels having been given out. Meanwhile, the Chancellor boasts of high levels of employment, but is in absolute denial about the rising numbers of people in insecure, low-paid work that does not meet their needs and those of their families.

The Government have managed to stitch up Public Bill Committees, despite not having a majority, and they are using arcane rules to deny this House the ability to amend and scrutinise legislation. The younger generation feel betrayed after seven years of Tory austerity. The Government have trebled tuition fees to over £9,000 and abolished maintenance grants, ensuring that the average working-class student leaves university heavily in debt and with little prospect of relieving it. The bottom line is that the Tory Government are in complete and utter decay. The housing market is entrenching and extending inequality between regions, classes and generations. Quite frankly, we cannot support a Bill that does not put any of that right, so we will not support it.