Finance Bill

Rob Marris Excerpts

Monday 5th September 2016 Commons Chamber

[Kirsty Blackman]

Indeed. Brexit compounds the issues that we have seen in the oil and gas industry, particularly in the North sea, and affects investment. This year we are expecting less than £1 billion-worth of new capital projects to be agreed. In each of the past five years we have seen an average spend of £8 billion. There has been a massive drop-off. Much of that is linked to the global oil price, but the Government have not done enough to increase investor confidence, especially in the light of Brexit. New projects are not being sanctioned because of companies’ negative cash flow. Jobs are consequently being lost all the way along the supply chain. We are losing contracts, expertise and people working in the industry in and around Aberdeen, Scotland and the UK.

Exploration and development activity is at an all-time low. Oil and Gas UK produced a report in February this year which predicted that if the current trajectory of low investment and new projects not being approved continues, we will see a fall in production in 2020. We are not ready for that. Our strategy has been to maximise income and recovery, and the Oil and Gas Authority’s main aim is to ensure that we get as much out of the North sea as we can. Because of the lack of investor confidence and the inability to sanction new capital projects, that is becoming increasingly difficult.

I have asked various Ministers about the Government’s intentions. We are not seeing investor confidence. We are seeing a major drop-off in investment, as the figures show. I welcome some of the changes that the Oil and Gas Authority has made. It is working on making it easier to transfer assets that have reached the end of their life. We do not want decommissioning to take place now. I understand entirely that if there is sufficient UK spend, there will be a financial benefit to UK companies from decommissioning, as long as we can ensure that the supply chain for decommissioning is based in the UK.

However, some of the assets that have been in the North sea for 30 years are at the end of their useful life and need to be decommissioned. I welcome the OGA’s push to ensure that as much of that spend as possible is in the UK, and I welcome its efforts to ensure that assets can be transferred so that as much oil as possible can be recovered from each of those fields. The OGA has been focusing on enhanced oil recovery, but the Government have not done enough in that respect. Changes are necessary to the tax regime to encourage companies to undertake enhanced oil recovery.

[Rob Marris (Wolverhampton South West) (Lab)]

I hear the hon. Lady standing up doughtily for her constituency and for the oil and gas industry in Scotland. What bemuses me is that if the independence vote had gone through, in spring 2016, Scotland would have had income of £100 billion and expenditure of £120 billion— a structural deficit of 20%. Now the hon. Lady is advocating increasing that black hole. How would she bridge that gap?

[Kirsty Blackman]

We are under a Westminster Government; we do not have full control of our own economy. That is a damning indictment of the way that the Westminster Government are running the economy of Scotland. It is incredibly important that we get independence and that we are therefore able to make decisions, particularly in the oil and gas industry, where the Government have not moved quickly enough or been flexible enough in the changes they have made. It is important that we make the decisions and grow our economy, because the Westminster Government are failing to do so.

On the future for energy and for the North sea, Statoil produced a report entitled “Energy Perspectives”. It is important to consider the future for the North sea and the UK continental shelf in that context. Statoil predicts that up to 2040, total primary energy demand will grow between 5% and 35%. That is a wide range because a number of different scenarios have been analysed. In all scenarios there is an increase in total energy demand. Statoil predicts that energy demand in 2040 will be between 78 million barrels a day and 116 million barrels a day. We currently use over 90 million barrels a day. It is important to note that as we think about the move towards renewables and different forms of energy generation, but by 2040, even if we have a huge number of renewables, we will still see a massive demand for oil and gas across the world. Oil and gas will still need to be produced in order to support the economies of the world. It is vital that we ensure that the UK continues to be involved in that and to benefit financially from it.

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[Rob Marris]

Is the hon. Lady saying to the House, then, that the Scottish National party’s position is to export the expertise of the Scottish hydrocarbon industry so that we can have more and more carbon dioxide going into the environment from fossil fuels because, for example, the Gulf of Mexico is producing more with Scottish expertise? If so, she is running counter to the direction of the world in the Paris talks.

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[Rob Marris]

Thank you for your indulgence, Madam Deputy Speaker. I will seek to be brief. On new clause 10, I am in favour of evidence-based policy making. The right hon. Member for Cities of London and Westminster (Mark Field) says that the patent box legislation and tax break have been helpful. That may be true, but we do not know. What we do know is that the National Audit Office looked at something like 1,200 tax reliefs and found that the Treasury was only monitoring the efficaciousness of fewer than 300 of them. I do not think that the patent box was part of that, so I support new clause 10 because it might tease out the evidence.

[Mark Field]

I think there has been some misunderstanding about exactly what the patent box was designed to do. It was not designed solely to promote research and development, as many similar incentives that come through, year on year, in Budgets are designed to do. It was very much an attempt to incentivise companies at the second stage—in other words, companies that already had some intellectual property that was difficult to quantify—as opposed to directly at the research and development side. I think it is slightly unfair to suggest that there is no evidence that that has worked, and I think that the patent box is being looked at in a different light to that which was intended by those who put it into play.

[Rob Marris]

I agree that it is designed to help some companies in their early stages, but with the effluxion of time, those companies should pass through the pipeline and we should see the fruit of their endeavours, helped indirectly by taxpayer support. The evidence should be coming through now. We could not have looked after one year to see whether it had been effective, but now that it has been around for a few years, we can.

I move on to amendment 177. I was amazed to hear the right hon. Gentleman say that he would be prepared to examine the question of having a turnover tax instead of corporation tax. The hon. Member for Leeds North West (Greg Mulholland) said the same thing. I absolutely agree, and I have long advocated looking at that, precisely because of tax avoidance. If it turns out to be the case that Apple has been avoiding tax in the United Kingdom, it would not have been able to do that so successfully if we had had a turnover tax rather than a corporation tax.

I have to say to the hon. Member for Leeds North West that I am a bit bemused. He said tonight that the leader of his party had set up a review of corporation tax, but the leader of his party has also tabled amendment 177 —supported, as far as I can tell, by the hon. Gentleman—which would abolish corporation tax completely for the financial year 2017, without bringing in a turnover tax instead. It seems a very strange amendment to table.

[Greg Mulholland]

As I think I made clear, amendment 177 is a probing amendment, which is designed entirely to make that point. We share the view that the reduction of corporation tax is flawed, but through this amendment we are saying that it needs to be done in a better way. It is a probing amendment and we will not be voting on it, but it is time that we had that debate and put something better in place.

[Rob Marris]

It is a strange way to do a probing amendment. I am not saying that it is wrong; that is not for me to say. However, it is common for the Opposition to table new clauses or amendments—as with those that we are considering tonight, such as new clause 10—that are designed to produce evidence. Presumably, the hon. Gentleman’s party will be looking at such evidence in its review. If the House could produce that evidence, it would speed up the process and help all of us towards evidence-based policy making.

On new clause 5, interestingly, I think that the Scottish National party reveals its hand; it is not much concerned about greenhouse gas emissions from oil production, let alone from burning oil. We saw the same thing last year in the debate on air passenger duty, when the SNP was all in favour of loads more people flying, despite what it does to the environment. The tenor of the remarks made by the hon. Member for Aberdeen North (Kirsty Blackman) was that she wants the taxation of oil and gas cut. Essentially, she is advocating indirectly, yet again, for another bung for Scotland from English taxpayers. The SNP Government have the power to put up taxes in Scotland and fail to do so, but they want English taxpayers to give them a bigger bung.

[Kirsty Blackman]

The hon. Gentleman may have heard my hon. Friend the Member for East Lothian (George Kerevan) say that 50% of the supply chain companies that would be affected are actually based south of the border. This would benefit companies across the UK. The Scottish Government have been incredibly good at reaching their climate change targets. They have worked very hard on renewable electricity. The only problem is that the Conservative Government are getting in our way.

[Rob Marris]

I did hear the hon. Gentleman say that, and I also heard the hon. Lady say, when she was moving new clause 5, that she did not even realise that that was the case. Paradoxically for them, I support the new clause and I hope it is agreed to. It looks attractive to me because such a review could lead to a situation in which taxation on oil and gas is increased appropriately. We will not know until we have the evidence, so let us have the review.

[The Financial Secretary to the Treasury (Jane Ellison)]

I will start by responding to the Opposition’s amendments and new clauses, before I turn briefly to those tabled by the Government.

Amendment 162 would require the Government to remove clause 45 from the Bill. That would stop the cut in corporation tax going ahead, because the clause will cut the rate of corporation tax to 17% with effect from 1 April 2020. Lower corporation tax rates enable businesses to increase investment. We cannot agree with the hon. Member for Salford and Eccles (Rebecca Long Bailey), who speaks for the Opposition on this matter. Lower rates enable businesses to take on new staff, increase wages or reduce prices. That is borne out by receipts data. The House may be interested to know that onshore corporation tax receipts have risen by more than 20% since 2010, despite the lowering of corporation tax rates. The Treasury and HMRC have modelled the economic impact of the corporation tax cuts delivered since 2010 and those announced at Budget 2016. The modelling suggests that the cuts could increase long-run GDP by more than 1%, or almost £24 billion in today’s prices.

The hon. Lady asked whether business investment has grown. It has increased by 30% since 2010. She mentioned foreign direct investment. In fact, only last week, the Department for International Trade reported a record number of inward investment projects in 2015-16, with over 80,000 new jobs created by more than 2,000 FDI projects. Again, we cannot agree with her criticism.

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[Roger Mullin]

To those with little knowledge of Scottish limited partnerships, it may seem strange that I rise in this House to move new clause 7 in my name and those of my colleagues, but, despite what the name suggests, Scottish limited partnerships have limited connection to Scotland, and none to the Scottish Parliament. They were introduced in 1907 by the Chancellor of day, Herbert Asquith; despite rumours to the contrary, I was not present at the debates at the time, but the regulation, operation and dissolution of SLPs remain the exclusive preserve of Westminster, hence our moving this new clause.

Scottish limited partnerships have their own distinct legal personality. As a result, SLPs can, for example, hold assets, borrow money and enter into contracts. However, Asquith could never have foreseen that they would become a financial vehicle abused by international criminals and tax dodgers.

Great credit must go to the journalists of The Herald newspaper, particularly David Leask, for doggedly uncovering the truth about SLPs—and isn’t it good that for once we can praise journalism of the highest order delving into important matters, rather than merely dealing in tittle-tattle? Although some users of SLPs no doubt operate appropriately and responsibly, it is claimed that up to 95% of SLPs are mere tax evasion vehicles, including for criminal assets.

While SLPs may be registered in Scotland, they are often owned by partners based in the Caribbean or other jurisdictions that ensure ownership secrecy and low, or no, tax regimes. People operating outside the UK are exploiting opaque ownership structures to hide their true ownership. As Oxfam, too, has recently pointed out, brokers in countries such as Ukraine and Belarus are specifically marketing SLPs as “Scottish zero per cent. tax firms.”

The number of SLPs is growing apace. Data from Companies House revealed by The Herald show 25,000 were in place by the autumn of 2015 and new registrations have been increasing by 40% year-on-year since 2008.

To give an example of what can happen, in 2014 allegations emerged that SLPs had been used to funnel $1 billion out of banks in the former Soviet Republic of Moldova. The use of an SLP and a bank account in an EU country allows dodgy groups, for example from the ex-Soviet Union, to move their ill-gotten gains to tax havens under the cloak of respectability.

I am aware that the Scottish Government’s Finance Secretary, Derek Mackay, has recently written to the UK Government about SLPs. He sensibly pointed out in his letter that

“it is critical that due diligence checks are able to be made when SLPs are initially registered and when there are changes in partners, and that penalties are imposed on partners where the SLP does not comply with the relevant legislation”.

He went on to point out:

“The threat of serious organised crime does not respect borders and with the significant increase in cyber crime, it is essential that we take every step open to us to reduce this threat as much as possible”.

To that end, our new clause seeks an urgent review of SLPs that would, importantly, include taking evidence from the Scottish Government, from HMRC and from interested charities. We have crafted the new clause in the hope it will attract cross-party support, and I see no reason why anyone, other than those interested in encouraging criminality and tax evasion, would wish to oppose a review of this nature. I therefore urge the Minster to accept our new clause.

[Rob Marris]

I hope that the hon. Gentleman will forgive me if I missed him saying this, but I do not think I did. Subsection (2) of his new clause states:

“The review must take into account the views of the Scottish Government, HMRC and interested charities.”

Is it because of the nature of SLPs that the new clause does not make reference to the Government of Wales and the Government of Northern Ireland?

[Roger Mullin]

I thank the hon. Gentleman for his intervention. Technically, the SLPs are registered in Scotland, but they have ownership in tax havens all over the world and will therefore operate differently, given the way in which they were set up in 1907. As far as I am aware, the arrangements have not been reviewed in any significant detail since then.

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[Caroline Flint]

My hon. friend is right about that. As the Parliament that represents the people of this country, we have a duty not to allow markets to be unfettered, but to provide a framework in which they should operate, work, be successful and do the right thing. I must say that there are companies doing the right thing. Increasingly, companies are volunteering to do the right thing by publishing the sort of information that I am asking to be made more public today.

[Rob Marris]

Will my right hon. Friend give way?

[Caroline Flint]

I will give way once more, but I am conscious that other people wish to speak.

[Rob Marris]

Can my right hon. Friend confirm my understanding, or correct me if I am wrong, that what she is seeking in this amendment would not cause any burden to business because the information is already being gathered and reported but is not then being published? Her amendment seeks merely to get that which is already gathered and reported to be published.

[Caroline Flint]

That is correct.

I was hopeful for my June amendment, because since the 2015 general election, the Government had, on a number of occasions indicated their support for public country-by-country reporting, and I welcome that. I am grateful to the former Financial Secretary, now Chief Secretary to the Treasury, as his approach was always constructive as we sought the best way to proceed.

At the debate in June, four days after the EU referendum, the Minister and others were concerned that introducing my amendment at that time might put UK multinationals at a competitive disadvantage for reputational reasons. I have no doubt that a number of the businesses to which my amendment would apply have already suffered reputational damage and more transparency could actually enhance their standing. To the Government’s credit, the UK was the first to introduce public registers of beneficial ownership, and others followed. Backing public country-by country reporting is an opportunity to show leadership again. Indeed, it is a pro-business measure. This kind of reporting already exists within the extractive sector and in financial services. Some companies are ahead of the curve and have started to publish this information. I am talking about companies such as SSE, the energy supplier, and the cosmetics retailer Lush, which operates in 49 different countries. The Government also said that, although they supported the principle, they would prefer to move ahead with others rather than alone.

As the Government make plans to leave the European Union, which may not be all smooth sailing, I do appreciate Ministers’ caution. I am grateful to the new Financial Secretary, the hon. Member for Battersea (Jane Ellison), for the constructive dialogue that we have had over the past two months. I am grateful, too, to my colleagues from the Public Accounts Committee—my hon. Friend the Member for Hackney South and Shoreditch (Meg Hillier), and the hon. Members for Berwick-upon-Tweed (Mrs Trevelyan), and for Amber Valley (Nigel Mills)— for their advice and support during the recess, and I thank all those who have signed amendment 145.

I hope that the Government will regard this amendment as a friendly proposal. If it is passed today, the Commons will enshrine in law support for the principle of public country-by-country reporting with the power for the Government to introduce when the time is most appropriate. That sends a very powerful message, confirming the UK’s leading role in addressing tax evasion and avoidance and providing the Government with the tools to move quickly, when the time is right, without the need for primary legislation.

Last week, the European Commission served a €13 billion tax bill on tech giant Apple. Although the rate of corporation tax in Ireland is low at 12.5%, the Commission concluded that Apple had, in effect, paid 1% corporation tax from 2003 and a tiny 0.005% in corporation tax since 2014. I am afraid that that implies that even low corporation tax rates are no guarantee that a country will collect its rightful share. In this case, €13 billion is equivalent to paying £50 of tax on every £1 million of profits. Apple is entitled to defend its position, but the case highlights the need for more transparency in multinational business affairs.

Finally, having listened to the Government’s concerns and shared with them my arguments for today’s amendment, I hope that the House can come together and make UK public country-by-country reporting a matter not of if, but when.

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[Mike Wood (Dudley South) (Con)]

As a Conservative, I believe that taxes, whether direct or indirect, need to be kept as low as possible, consistent with the need to raise finances for our vital public services and for our national security. Unnecessarily high taxation not only strangles growth and development but means Government taking from those who have earned money, whether through labour, innovation, or capital.

However, the flipside of keeping tax levels low is that everybody must pay their fair share. Aggressive tax avoidance, bending the rules of the tax system to gain an advantage that Parliament never intended, means that a heavier burden falls on others, who are able to keep less of the money that they have earned. This Government are rightly committed to supporting businesses through low taxes—that is why corporation tax is being cut again to 17%—but those taxes do have to be paid.

This Bill therefore addresses many of the ways that companies use to avoid paying their fair level of tax. That includes the amendments that we are debating, tabled by the Government, to reform hybrid mismatches. The amendments will reduce aggressive tax planning, typically involving a multinational group. The introduction of these rules will, in essence, remove the tax advantage arising from the use of hybrid entities and instruments, and ought to encourage more businesses to adopt less complicated, more transparent cross-border investment structures. I look forward to similar rules being introduced by other jurisdictions. However, in line with OECD regulations, the Bill contains provisions for counteraction in the UK where the other country does not counteract the mismatch within its own hybrid mismatch rules. The Bill introduces the new penalty of 60% of tax due that was announced in the Budget, to be charged in all cases successfully tackled by the general anti-avoidance rule.

Government amendments 136 and 137 help to ensure that the changes announced in the Budget work as intended, cracking down further on unscrupulous and aggressive tax avoidance. I agree with the comments made by my hon. Friend the Member for Dover (Charlie Elphicke) on country-by-country reporting, as well as those raised so regularly by the right hon. Member for Don Valley (Caroline Flint). There is widespread and growing agreement that there is a need to move to country-by-country reporting so that the information is out there and available both to national tax authorities and to the wider public. That brings us back to the question of whether the best way to achieve that is for individual countries to act unilaterally or for the UK to move in partnership with our international allies and through a range of international organisations both within and beyond Europe.

[Rob Marris]

Of course, the Opposition want international action, we want international co-operation and we want our international friends to copy the amendment tabled by my right hon. Friend the Member for Don Valley (Caroline Flint), which we hope will be successful tonight. However, we also need to bear it in mind that half the tax havens in the world are British overseas territories. We have a particular responsibility in this regard worldwide. It is not about some sort of moral responsibility—to use the old-fashioned phrase, the white man’s burden—or any of that nonsense. It is to do with the fact that British overseas territories are responsible for half of these shenanigans.

[Mike Wood]

The hon. Gentleman makes a valid point, but we should also recognise, as I am sure he will, the progress that has been made in recent years to insist on those overseas territories moving into the 21st century so that their tax arrangements comply with what we would expect for international standards. In a globalised world, we must be clear that concerted international effort is needed to stop continued cross-border tax avoidance, evasion or plain old-fashioned aggressive but unscrupulous planning.

The UK Government have done more than any previous Government and more than most of our international allies and competitors to eradicate these practices, and they continue to do so, but of course more must be done and I welcome the reassurances we have heard from the Government that this remains a priority. I am pleased that the Government are now pursuing country-by-country reporting and that it will be discussed at the forthcoming G20 Finance Ministers meeting. This measure will by itself help to increase transparency across multinationals, supporting not only our tax authorities but, perhaps more importantly, those of the developing countries of which we have heard, which are almost literally being robbed of vital sources of income.

In conclusion, the Finance Bill and the amendments tabled to it include both pioneering and bold measures. It will ensure that taxes are paid and that everybody pays their fair share, and I look forward to supporting it this evening.