Finance (No. 2) Bill

Peter Grant Excerpts

Committee stage & Committee of the Whole House (Day 2)
Tuesday 20th April 2021 Commons Chamber

[Dame Margaret Hodge (Barking) (Lab) [V]]

It is a pleasure to follow the right hon. Member for Sutton Coldfield (Mr Mitchell), with whom I work very closely on this issue; it demonstrates the best of Parliament that we are able to do so across the House.

I rise to speak in support of amendment 77, which stands in my name and that of members of the all-party group on anti-corruption and responsible tax. Our proposals command support across the House, and I know the Minister will therefore address this issue thoroughly and seriously, not just in his response today but in the work that I know he is doing to bear down on those who enable and support tax avoidance and financial crime. I simply say this to the Minister: he may have reservations about the technicalities of our proposals, but he should at the very least accept the principle that underpins them and say so today.

Big corporations and high net-worth individuals who engage in tax avoidance schemes and financial crime do not dream up these schemes on their own; they are invented and developed by the huge army of tax professionals—accountants, lawyers, banks and advisers—who spend their working life trying to identify loopholes and wheezes. The schemes they devise do not just help but actively encourage people not to pay their rightful contribution through tax to the common purse for the common good.

At present, HMRC may slowly and belatedly catch up, and may deem such schemes unlawful. If it does so, the individuals have to pay up and sometimes face enormous tax demands, but the enablers of tax avoidance mostly get away scot-free; at worst they may lose the fees they earned from setting up the scheme for their clients. Our amendment would hold these enablers to proper account. If advisers and promoters involved in a scheme know that the scheme does not work, they are committing the criminal offence—mentioned by the Minister—of cheating the public revenue. They are breaking the law, so they should be pursued, charged and convicted with a criminal charge.

That does not happen now, and our amendment seeks to make it easier for the enforcement agencies to pursue criminal prosecutions. Not only would they hold the advisers to account, but I am completely convinced that the threat of a criminal prosecution would act as the most effective deterrent and bring to a halt many of the activities of these rogue advisers. It would be the most efficient way of tackling tax avoidance at source. It is a common-sense approach to the problem, and it would be welcomed by all taxpayers, who are so frustrated by paying their tax unquestioningly while seeing others avoid tax or break the law. It would restore confidence in the tax system. It is a good idea, and I hope that when the Minister responds he will say that he shares our view that we need to amend our legislation to make it easier to pursue and prosecute advisers who deliberately promote egregious schemes that are unlawful.

I know from my time chairing the Public Accounts Committee how embedded the culture of avoidance, evasion and financial crime has become in our financial services sector. We saw it plainly with the revelations from HSBC, with the Falciani leaks from its Swiss branch. It was there in the PricewaterhouseCoopers leaks keenly exposing that firm’s activities in Luxembourg. The Panama papers uncovered the shenanigans involving the law firm Mossack Fonseca, while the Paradise papers disclosed the nefarious activities of another law firm, Appleby. While it may no longer be seen as cool to be involved in tax avoidance, the latest leak of documents contained in the FinCEN papers spells out the complicity of major global banks in facilitating and enabling financial crime, from tax avoidance through to fraud and money laundering.

Normal working people, however, often suffer the most. The film tax relief that was exploited ruthlessly by the company Ingenious Media left many facing huge tax demands, though the chief executive, Patrick McKenna, is still lauded through public appointments in the creative sector. The loan charge scheme was promoted vigorously by enablers. They walked away scot-free, but left devastation in their wake. I understand from the all-party parliamentary loan charge group that seven suicides have been reported to the group—people driven to suicide because they were conned by enablers into participating in a scheme that later unravelled. That is truly shocking.

I welcome the consultation that the Government have launched on tackling the promoters of tax avoidance. The all-party parliamentary group will be preparing a response to that consultation. Most advisers, of course, work in an honest and straightforward way, and we do not want to pursue with criminal charges those who make an honest mistake, but there are still individuals, companies and organisations who deliberately and wilfully promote egregious schemes that they know do not work. Such enablers move quickly, they are well resourced and they are well capable of outmanoeuvring HMRC. As soon as one wheeze is uncovered, they move on to the next. Worst of all, they act with impunity, safe in the knowledge that they will escape any real punishment if they are ever caught.

Why do these rogue advisers not get prosecuted? The answer lies in what the Minister said: HMRC has to demonstrate dishonesty to proceed against them and it is virtually impossible to do so. The advisers can always claim that they honestly believed that the scheme would work. We therefore want a new test, which makes criminal prosecutions feasible and practical.

We suggest adopting the test that is in place for the work of the GAAR—the bar for prosecution for those ne’er-do-wells should be just as stringent. It would simply make it possible and practical to take action. HMRC would have to demonstrate not simply that the avoidance scheme was not reasonable; it would have to demonstrate that it was not reasonable for anybody to think that the avoidance was reasonable. Sorry for the complication, but that is a double reasonableness threshold. I assure the Minister that that double reasonableness test is in effect the same as the “beyond reasonable doubt” test that he mentioned in his opening remarks. Of course, it would be easy for enablers to avoid prosecution —they just need to stop promoting or recommending tax avoidance that is so aggressive that they know it will fail.

Our amendment tackles a gross injustice in the system. People are completely fed up with reading endless stories about scurrilous tax avoidance schemes promoted by those working in the financial services sector. The perceived difference in the way that hard-working taxpayers and rich individuals are treated breeds mistrust. We suggest a practical change in the law that would make it possible to pursue the enablers, not because we want to see the courts clogged up with prosecutions against bankers, accountants, lawyers and advisers, but because we think that that is the best way of making those advisers think twice before they promote unlawful schemes. It would deter most of them from trying to cheat the public revenue. I urge the Minister, please, to be bold on the issue, to state today that he will tighten up the law and to give us the assurance that, if he does not like our particular solution, he will come forward in a timely manner with his own proposal.

[Peter Grant (Glenrothes) (SNP) [V]]

I am pleased to speak in this debate and to speak to the amendments and new clauses to which I have added my name and which were detailed earlier.

All the SNP amendments relate to schedule 6, under clause 30. Amendments 70 to 72 and 84 and 85 seek to amend subparagraph (3A) of paragraph 2. Taken together, the paragraph would read:

“Where the condition in subsection (1)(l) or (2) is not met in relation to a body or person at any time, but the body or person expects it to be met at any time, the body or person may allow for the condition to be treated as being met until the body or person is not expected to make expenditure on construction operations exceeding £3 million.”

On the face of it, it does not look like a major change, but the amended wording is more in keeping with the spirit of the existing construction industry scheme. It allows, for example, for a de minimis amount of minor works to be disregarded in the operation of the scheme.

Amendment 73 seeks to remove paragraph 3 from schedule 6. I know that the Minister has spoken against this amendment and amendment 74, but we have seen no convincing argument that this change is necessary just now, and we believe that it would be much better for industry to be allowed to continue with the existing scheme for the current year rather than asking it to change the way of doing things. Let us face it, with its being a major part of our recovery from the covid recession, industry has far more important things to concentrate on.

A similar reasoning applies to amendment 74, which seeks to leave out paragraph 4 from schedule 6. That paragraph relates to the way in which the costs of materials purchased for a construction contract are taken into account for tax purposes. The construction industry has had to meet a number of challenges this year. We do not see how changing the way in which it has to account for tax on purchases by a subcontractor for another subcontractor, for example, during this current year will help. We do not see why it needs to be done just now.

New clause 14 requires the Chancellor to report back to Parliament on the impact that the changes proposed in clause 30 and in schedule 6 have had on key economic indicators. One would think that it would be automatic that, when a Government make changes to the tax system, they would go back a wee while later to see whether the changes have had the desired effect. This Government are perennially hopeless at doing that. We seldom if ever see a published assessment of what impact the new legislation or changes to the tax system had. That makes it much more difficult for MPs and the public to hold the Government to account. Even more importantly, it means that, when mistakes are made—that is when, not if—there is no reliable process to identify that and to put things right.

For this Committee sitting alone the Government have had to table no fewer than 22 amendments in order to correct mistakes or to remove inconsistencies and ambiguity from their own Bill which they themselves commended to the House only last week. We can only hope that they have spotted all the mistakes by now, but surely with such an important piece of legislation it makes sense to ask the Chancellor to report back to us to tell us whether it is working, or whether there have been unintended consequences that need to be addressed sooner rather than later.

New clause 15 again requires the Chancellor to report back to Parliament, but this time on the effectiveness of various anti-tax avoidance measures in clauses 117 to 121, and the follower notice penalties in clause 115. I note that the Opposition have tabled something similar, although a bit more restricted in scope.

We welcome the further measures included in this Bill, but they still do not go nearly far enough. Time and again, it has been pressure from SNP MPs that has forced the Government to take any action at all on the scandalous levels of tax avoidance that they continue to tolerate. We still do not have an overarching and workable general anti-avoidance rule. We have an inadequate system of company registration and regulation that makes it far too easy for companies to hide the truth about who really benefits from the profits that they make on the hard work of citizens of these islands and who is really in control of the company. For example, the SNP has highlighted over and over again the need for legislation to combat the abuses of so-called Scottish Limited Partnerships by money launderers and organised crime. As things stand, almost anybody in the world can set up one or several Scottish Limited Partnerships and then use them to get round even the inadequate regulatory and transparency requirements that apply to other companies.

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The measure in this Bill is very helpful. The key point is that it will stimulate demand, especially in the quieter winter season, and that demand will generate the cash flow that businesses need. It is not a cheap measure—it will cost nearly £5 billion—so it is a huge tax cut but, once we are through this pandemic, the sector will resume its central role in our national life, and generate the revenue and job opportunities that we need.

[Peter Grant [V]]

I seek leave to speak to amendment 64 and new clause 16, which stand in my name and the names of my hon. Friends. We support the cut in VAT to 5% for the hospitality and tourism sectors; in fact, it was pressure from the Scottish National party that initially forced the Government to accept that measure. However, as with much of the Government’s support for businesses during the past 13 months, it is not enough.

Although there has been a welcome easing of restrictions in all four UK nations—in Scotland, we are particularly looking forward to next Monday, when the most significant easing of restrictions since December will come into effect—it is unlikely, indeed impossible, that the tourism and hospitality sectors will get back to anything like normal immediately. It is impossible that we will be back to normal by the end of September, and it is therefore completely irrational for the Government to arbitrarily decide that the 5% VAT rate should end on 30 September, but that is exactly what they have decided. The SNP did, in fact, table an amendment seeking to extend that date to 31 December, but that amendment was deemed to be outside the scope of this Bill. I accept that ruling, but I still urge the Government to get real, not only about the difficulties that the tourism and hospitality sectors are facing but about how long those difficulties are going to last.

In new clause 16, we are asking for the Chancellor to report back to Parliament on the impacts that the 5% VAT rate has had, and—very importantly—to compare that with what would have happened if it had been extended, as we have asked. We know what the 5% VAT rate is supposed to achieve, supporting businesses in those sectors, so the Government should have no qualms about assessing whether or not they have achieved that. Nor should they have any qualms about having their decision compared on an empirical basis with alternatives that have been put forward by other MPs.

The Minister claimed earlier that it is technically impossible to comply with that new clause because the data just does not exist. I find that frankly astonishing. If the political will is there, the data can surely be made available, and if Parliament decides that it is going to pass into law a requirement for that to happen, the job of the Government is to comply with the will of Parliament.

Amendment 64 asks for a minor, but important, change to the wording of clause 93, dealing with the temporary 12.5% VAT rate. Clearly, as I said earlier, we would have preferred that to remain at 5%, but the Government have rejected that proposal and gone for a 12.5% rate until 31 March 2022, presumably with the full 20% rate coming in after that date.

Clause 93, as currently worded, would allow the Treasury by regulation to bring that date forward, so that the tourism and hospitality sector would go back to paying the full 20% VAT rate sooner than the date that this House has agreed. That is not acceptable. Our amendment would allow the March 2022 deadline to be extended if we found—as we may well find—that the sector was taking longer than expected to recover. The only reason for bringing the date forward would be if, by some miracle, the tourism and hospitality sector recovered quicker than expected. I can see no circumstances in which those businesses will have recovered sufficiently for the increase to 20% to be brought forward earlier than March 2022.

In his summing up, may I invite the Minister to contradict me and to tell me that he thinks that that will be possible—that it will be appropriate to bring forward that date? If he cannot see any circumstances in which it will be right for him to use the power to bring that tax increase forward, he should not be asking us to give him the power in the first place.

One consequence of the quaint way that the British Parliament does its business is that, if we want to support businesses by reducing VAT on corporation tax liabilities, it goes in a Finance Bill, but if we want to reduce the liability of other taxes such as non-domestic rates, it does not. The non-domestic rate system is one of the very few parts of the business taxation system that is devolved to the Scottish Parliament. The Scottish Government have used that devolved power to ensure that businesses in retail, tourism, hospitality, aviation and newspapers, all of which have been severely hit by covid, will pay no business rates at all during 2021-22. The small business bonus scheme takes around 100,000 businesses out of non-domestic rates altogether and, if the current Scottish Government are re-elected, that will continue for the lifetime of the next Parliament.

In Scotland, we have the lowest business rate poundage in the United Kingdom, the most generous relief schemes and, of course, we have the most progressive income tax system in the whole of the United Kingdom. When we see the benefits that come to the vast majority of people in Scotland from the different approach that our Government have taken using the limited taxation powers at their disposal, I hope the Government will look positively on any request by the new Scottish Government, whoever that might be, to further extend those powers.