Corporation Tax (Northern Ireland) Bill

Shabana Mahmood Excerpts

Wednesday 4th March 2015 Commons Chamber

[Shabana Mahmood (Birmingham, Ladywood) (Lab)]

I would like to associate myself with the Minister’s comments about the quality of our debate thus far on the Bill. We have had a thorough discussion. It has been shorter than originally anticipated, but that is because the Bill has wide-ranging support across the House, and it is a pleasure to rise, once again, to support the measures in it.

We are committed, as are Members across the House, to supporting measures to increase inward investment into Northern Ireland and support the much-needed rebalancing of its economy. We have all recognised that Northern Ireland has lagged behind the rest of the UK on productivity and prosperity. Over the years, measures have been implemented to boost the Northern Ireland economy, including through increased levels of investment and job creation programmes, but few have met with long-term success. It is important to consider a measure that would put a rocket-booster under the approaches taken so far to rebalancing and strengthening Northern Ireland’s economy. In that spirit, we have supported the Bill.

As I noted in Committee, the Bill is both straightforward and complicated. It is short in respect of the number of clauses, but those clauses include a huge amount of detail, some of which has still to be worked out. The Minister alluded to that in his comments. It is important to recognise that we are at the start-point rather than the end stage of the process.

Let me draw out a couple of issues that will be the subject of live discussions between the UK Government and the Northern Ireland Executive. Before I do so, however, let me reinforce a point made in the intervention by the hon. Member for North Down (Lady Hermon)—that it would be a mistake to think that corporation tax devolution will, in and of itself, do what is needed to rebalance Northern Ireland’s economy. It has to be part of a much wider picture that includes other policy drivers to help make this measure a success. That is certainly the experience of the Republic of Ireland, whose extremely low corporation tax does not sit alone; it is supported by other policy measures, particularly on skills and infrastructure. If this Bill is to be a success in Northern Ireland, it will be important for all parties to work together to ensure that the rest of the policy framework is in place to allow the rebalancing that we all want to happen.

[Ian Paisley]

I welcome the shadow Minister’s comments, but does she accept that much of this is about perception and the business-friendly nature of our economy, which will allow it to grow? It is about offering investors incentives to come in by providing good profit returns for their hard-earned labour. If we continue to build up and push that perception, does she agree that opportunities will flow from it and that this Bill now offers the best way forward in the current economic climate?

[Shabana Mahmood]

The hon. Gentleman is right to say that the perception of business is really important, but he will recognise, I think, a point that businesses often make to Members of all parties—that headline rates of corporation tax are extremely important for decisions about where to locate businesses, but that they are not the only factor that businesses take into account. I recognise the importance of this Bill for Northern Ireland, given the unique situation in which Northern Ireland finds itself. As I say, it is putting a rocket-booster under the approach taken so far to try to rebalance the Northern Ireland economy, but it will not succeed on its own—it has to be part of a wider policy framework. Despite recognition of the importance of a wider policy framework, we have not yet heard a huge amount of detail about what it will look like on the ground in Northern Ireland. These are matters largely for the Northern Ireland Executive, but they need to know and to hear that the Opposition support them in having a wider framework of policy measures around skills and infrastructure that will help to make all this a success, which we all want to see.

[Lady Hermon]

rose—

[Mr Redwood]

Will the hon. Lady give way?

[Shabana Mahmood]

I give way first to the hon. Lady.

[Lady Hermon]

I am grateful. I am curious to know what reassurances a future Labour Government would give, if they were in office after the general election of 7 May—none of us has a crystal ball, so we do not know—to credit unions and the Progressive building society, which we debated earlier?

[Shabana Mahmood]

I am grateful for the hon. Lady’s intervention, but I am afraid that I am going to disappoint her a little because my reading of the Bill, what it is intended to achieve and of the agreement that has been struck is very similar to that of the Minister. I agree with him that a deliberate part of the agreement relates to trading profits. Under the new Northern Ireland regime, corporation tax is to be devolved only in so far as it relates to trading profits rather than other aspects of business. That part of the policy is designed to make it successful and ensure that this devolution results in a genuine rebalancing of Northern Ireland’s economy. With respect, I feel that takes care of the point about the credit unions.

I have some sympathy with the argument when it comes to the Progressive building society. I have received communication from it about how it feels it will be caught unfairly by these provisions. I felt that the amendment tabled by the hon. Member for Foyle (Mark Durkan) did not take care of the scope for profit shifting within the financial services sector. We are all alive to that threat, but I am afraid that the amendment did not deal satisfactorily with the problem that the good work of the Progressive in Northern Ireland could slip through and be accounted for, whereas everything else that could result in profit shifting would be excluded. To that extent, my reading is similar to that of the Minister, and that will certainly be our approach. I am happy to give an undertaking—dependent on the outcome of the general election—to continue a debate with Members who feel strongly about this point, as did the Minister.

[Lady Hermon]

rose—

[Shabana Mahmood]

I do not want to repeat a lengthy debate on credit unions, but I will give way to the hon. Lady one final time.

[Lady Hermon]

I am extremely grateful, but we need some clarity on this. There is potential for the Labour party to be in government after the general election of 7 May, so I have to ask on behalf of all the people we on the Northern Ireland Benches represent whether the Labour party is ruling out any flexibility, as the hon. Lady seems to have done this afternoon. She has said that there will be no flexibility for credit unions, whereas I think the Minister said there could be at least some flexibility to look at back-office activities and excluded trades. Is the hon. Lady ruling that out for the Labour party?

[Shabana Mahmood]

With respect to the hon. Lady, the whole scope of the Northern Ireland regime under the Bill relates to trading profits. Credit unions do not pay corporation tax on their trading profits, so this Bill does not impact on them. I am not sure how many ways there are of saying that; I feel that the different formulations of the point have probably been covered. If the credit unions did pay corporation tax on their trading profits, we would be having a different discussion. If Members wish to see a devolution regime for Northern Ireland that includes activities other than trading profits, so that corporation tax would be paid on investments, income and so forth, that is a big call to make. If provisions were to be applied but limited to credit unions alone, it would mean carving out an exception to the regime. Let me say that that goes beyond the context of the agreement struck between this Government and the Northern Ireland Executive—the agreement that we have supported and the agreement that is the subject matter of the Bill. I would have a huge amount of sympathy if credit unions found themselves caught because they did pay corporation tax on their trading profits, but that is not the case, so—

[Madam Deputy Speaker (Mrs Eleanor Laing)]

Order. The amendment has been discussed and withdrawn. We had a lengthy debate on it and we do not have a lot of time for this part of the debate, so we must stick to what exactly is in the Bill—and nothing more.

[Shabana Mahmood]

I am grateful, Madam Deputy Speaker, and I will move on to the rest of my remarks.

[Mr Redwood]

Will the hon. Lady give way?

[Shabana Mahmood]

Forgive me, but because of time considerations, I will not.

Let me raise a couple of issues that received lengthy debate in Committee and will be important aspects of the work needed to take the Bill forward. I speak particularly of the block grant. I am grateful for the letter that the Minister sent to the Public Bill Committee, further setting out the Government’s approach to calculating the element of the block grant that the Northern Ireland Executive will have to pay back to the UK Government. We are still a long way from a nail-down formula, as it were, for how the block grant reduction will be calculated, particularly in respect of measuring and calculating behavioural effects that will need to be taken into account.

I note the indication in one of the appendices to the letter that the devolution of corporation tax to the Northern Ireland Executive in 2019-20 is expected to cost about £325 million if Northern Ireland opts for a 12.5% rate rather than the United Kingdom’s 20% rate, but much more work will need to be done on that, and an agreement will need to be struck with the Northern Ireland Executive.

[Mr Redwood]

Will the hon. Lady give way?

[Shabana Mahmood]

The right hon. Gentleman is persistent. I will give way to him very briefly.

[Mr Redwood]

When will the Labour party give justice to England? Surely, given the devolution of tax matters to Northern Ireland and Scotland—which we welcome—there needs to be a voice for England, and an ability for England to make her decisions on those matters as well.

[Shabana Mahmood]

With respect, responding to the right hon. Gentleman’s intervention would lead me into a much lengthier discussion on a matter that is not directly relevant to the Bill. However, he has put his point on the record once again, and I am sure that he is pleased about that.

As I was saying, it is clear that the methodology for calculating behavioural changes in particular will require detailed work between the United Kingdom Government and the Northern Ireland Executive.

The Minister said in Committee that there would be pressure on the Executive to take account of any profit shifting that might occur. Indeed, it is in their interest to limit profit shifting in order not to increase the amount that they must pay back to the Treasury. The Minister said that a memorandum of understanding would be drawn up between the UK Government and the Northern Ireland Executive in respect of the costs of policing the limitation of profit shifting, and the processes, governance and accountability that would be needed for assessment of the activity. That is an important part of the framework, but we have not been given many details so far.

We all hope that the devolution will go ahead in 2017, but a potential stumbling block is the condition that Northern Ireland’s finances must be put on a stable footing before that can happen. We have still not been told exactly what that will mean, and what threshold the Executive will have to cross in order to prove that they have met the condition. I hoped that the Minister might give some idea of the timetable agreed between the UK Government and the Executive in relation to when some of the key decisions will have to be made. I trust that they will be made well before 2017, although the Minister said in Committee that that was the deadline, because there is a great deal to be done between now and then. I think that we shall all have to return to the issue of conditionality after the general election.

We are in favour of all measures that will assist the people of Northern Ireland and their economy. It is in the interests of the whole United Kingdom for Northern Ireland’s economy to be rebalanced and strengthened. We therefore support the Bill, and will continue to support it.

Bankers’ Bonuses and the Banking Industry

Shabana Mahmood Excerpts

Wednesday 25th February 2015 Commons Chamber

[Shabana Mahmood (Birmingham, Ladywood) (Lab)]

It is a pleasure to wind up the debate and speak in favour of the Opposition’s motion. We have had a very good debate and heard some excellent contributions. My hon. Friend the Member for Glasgow North East (Mr Bain) spoke powerfully about youth unemployment and the danger of insecure employment. I think that Government Members are too often unwilling to engage with the difficulties posed by insecure employment, and not only for those individuals working on zero-hours contracts, but for the economy as a whole.

My hon. Friend the Member for Heywood and Middleton (Liz McInnes) made an interesting point about the experiences of members of her family who have worked in banks and the pressures put on ordinary bank workers to meet selling targets. It is the ordinary workers in banks who are often first in line for abuse when a scandal hits, rather than the small number of individuals at the top of those institutions who might have engaged in the reckless behaviour.

My hon. Friend the Member for Bishop Auckland (Helen Goodman) made a speech that was a tour de force. She spoke about how banking has not served her region, the north-east, particularly well. She made an interesting point about the dangers of crowdfunding, which the hon. Member for Redcar (Ian Swales) also mentioned. Her points about financial exclusion and the failures of regular banking to serve all our communities, particularly those at the lower end of the economic spectrum, were very well made, and they had not been picked up by others in the debate.

As my hon. Friend the shadow Financial Secretary set out in her opening remarks, the time has come for bonuses to be a reward for exceptional performance, not compensation for failure. With the bonus season upon us, this debate is a timely reminder that the public remain rightly angry about the many banking scandals we have seen and that they will be astonished if they see failure continue to be rewarded with sums of money so far out of the reach of working people on lower and middle incomes.

Our banking sector is vital to the UK economy. Banking and insurance make up 8% of the UK economy and provide employment for up to 2 million people. Without the banks, individual consumers would be unable to save and borrow and businesses would not have access to the finance they need in order to grow and create high-quality, well-paid jobs. The importance of banking for individuals, businesses and UK plc means that it is vital that our banking system is underpinned by the principles of fairness, trust and transparency. The next Labour Government will restore those principles to the banking sector.

Too often fundamental trust in the system has been shaken by behaviour that has been unfair, reckless, unethical or a combination of all three, and 2014 was a record year for fines in the City of London. The FCA levied £1.1 billion on five banks, including HSBC and RBS, for their part in the forex fixing scandal, and four UK banks—Barclays, HSBC, RBS and Lloyds—have paid £1.5 billion in compensation for mis-selling interest rate hedging products, which we have debated on a number of occasions in the Chamber. We have also had the LIBOR and PPI mis-selling scandals. Trust and confidence have been fundamentally shaken by the recent revelations about the Swiss arm of HSBC helping its customers to avoid and evade tax. On the one hand customers have been exploited, and on the other hand the taxpayer has been ripped off.

That unacceptable state of affairs is made worse by the fact that the sector has not fulfilled some of its core functions. Banks must provide basic borrowing and saving facilities for consumers and finance for businesses so that they can either start up or grow. However, we know that net lending to business has fallen by over £55 billion since 2010. A couple of Government Members made the point that of course we do not want to see irresponsible lending and suggested that businesses are actually sitting on large cash reserves and somehow the lack of lending from banks is not a big problem.

That is clearly not the Government’s view, because they keep coming up with different schemes to try and encourage lending by banks—schemes which have, unfortunately, failed to turn the situation around in any meaningful way. I am sure Members across the House regularly meet business people in their constituency advice surgeries, who come to us with complaints that they have viable businesses looking to grow and employ more people, but they cannot get access to finance from banks. This remains a key problem, which the Government’s various schemes to try to get net lending up have unfortunately failed to resolve.

So there are huge fines for breaking rules and a failure to fulfil the core functions of the sector. Despite all this, senior employees continue to receive huge bonuses. We can all see that the current state of affairs is difficult to justify. We know that last year’s bonus round exposed the gap between pay and performance. Barclays and RBS increased their bonus pool, despite falling profits. Indeed, at Barclays we saw a fall in profits of 32%, yet the bonus pool increased by 10%. We now learn that at HSBC the chief executive will receive £7.6 million and 330 staff will receive more than €1 million each, at a time when profits are down and the tax avoidance and evasion scandal continues to rage. What are the public supposed to make of all this? Not much, I would say.

The Government for their part have failed to act fully on proposals for reform and have failed to provide answers on HSBC—

[Ian Swales]

Will the hon. Lady give way?

[Shabana Mahmood]

I am sorry, I will not because of time.

The Government have failed to provide answers on HSBC in a way that would inspire confidence and they have wasted money challenging the EU bank bonus cap. What can we do to turn this situation around? It is clear that we need to reconnect the level of pay and bonuses of some highly paid bankers with the wider performance of the banks and their wider economic contribution.

A Labour Government would repeat the tax on bankers’ bonuses, which we introduced in 2009, to raise £1.5 billion to £2 billion. This tax—[Interruption.] I will come to that point in a moment for Government Members. This tax, alongside a restriction on—[Interruption.]

[Madam Deputy Speaker (Mrs Eleanor Laing)]

Order. The hon. Lady must be allowed to finish her speech.

[Shabana Mahmood]

Thank you, Madam Deputy Speaker.

This tax, alongside a restriction on pension tax relief, would fund a compulsory jobs guarantee. Let me deal with the point made by hon. Members chuntering from a sedentary position. The tax would be spent only once and only for one measure—that is, our compulsory jobs guarantee. That has been the case for as long as we have had our compulsory jobs guarantee policy. I find it interesting that the only line of attack that Government Members have on the compulsory jobs guarantee is to imply, incorrectly, that the bank bonus tax is being spent more than once. It is a weak line of attack from Government Members who do not want to engage with the substance of the policy—a compulsory jobs guarantee for the long-term youth unemployed.

Only one point was made about the substance of our policy, which was about the potential scope for tax avoidance. The first outing of the bank bonus tax introduced by the Labour Government had stringent anti-avoidance measures attached to it, and we would repeat those measures to make sure that the tax was not aggressively avoided and that all the revenue that we expect to be raised will be realised in order to fund our proposals for a compulsory jobs guarantee.

[Mr Graham Stuart (Beverley and Holderness) (Con)]

Will the hon. Lady give way?

[Shabana Mahmood]

Certainly not to a Member who has just come in for the winding-up speeches, if I may say so.

A measure such as I have described is clearly needed because we know that the latest labour force survey data show that youth unemployment was at 740,000 in the three months to December 2014. To Government Members who try to take comfort from some of the welcome decreases that we have seen in constituencies across the country, as though that means that everything is hunky-dory, I would say that 740,000 young people unemployed are 740,000 too many. There is nothing to be complacent about. We need a rocket booster under our approach to long-term youth unemployment. That rocket booster will be provided by a tax on bank bonuses to fund a compulsory jobs guarantee. Government Members should examine their consciences to decide whether they think that we do in fact need strong measures to tackle the scourge of youth unemployment, and join us in the Lobby to support our motion.

We need to restore trust and accountability to the sector. I call on the House to support the motion and the need to take meaningful action to ensure that bonuses reward exceptional performance, and that where bonuses are given, they are taxed and the revenue is used to deliver the much-needed compulsory jobs guarantee.

Tax Avoidance

Shabana Mahmood Excerpts

Wednesday 11th February 2015 Commons Chamber

[Shabana Mahmood (Birmingham, Ladywood) (Lab)]

I beg to move,

That this House notes with concern that following the revelations of malpractice at HSBC bank, which were first given to the Government in May 2010, just one out of 1,100 people who have avoided or evaded tax have been prosecuted; calls upon Lord Green and the Prime Minister to make a full statement about Lord Green’s role at HSBC and his appointment as a Minister; regrets the failure of the Government’s deal on tax disclosure with Switzerland, which has raised less than a third of the amount promised by Ministers; welcomes the proposals of charities and campaigning organisations for an anti-tax dodging Bill; and further calls on the Government to clamp down on tax avoidance by introducing a penalty regime for the general anti-abuse rule, which is currently too weak to be effective, closing the Quoted Eurobonds exemption loophole, ensuring that hedge funds trading shares pay the same amount of tax as other investors, introducing deeming criteria to restrict false self-employment in the construction industry, and scrapping the shares for rights scheme, which the Office for Budget Responsibility has warned could cost £1 billion in avoidance.

When citizens hand over their hard-earned cash to the Government in the form of taxation, they do so on the basis that at some level they have faith in our system of democratic governance—a system in which the Government are entrusted to make decisions about how to use that money in the best interests of all their people, and to keep them safe. The collection of tax is a core responsibility, and trust underpins the whole structure—trust that if I pay my fair share, so will my neighbour, and trust that the rules are applied as vigorously to the sole trader as to the huge multinational, and as fairly to the basic rate taxpayer as to those in the higher band. However, that foundation has been profoundly shaken.

The global crisis, austerity and a series of media disclosures about the low tax bills and complex avoidance schemes of multinationals and high net worth individuals have led members of the public to question like never before whether, when they pay their tax, their neighbour is doing the same. This week’s revelation that an arm of a leading high street bank, HSBC, helped clients to evade and avoid tax using Swiss bank accounts has simply added fuel to an already roaring fire. It seems that the Government have neither the will nor the ability to get a grip on the situation, which is fast spiralling out of control.

[Mark Garnier (Wyre Forest) (Con)]

The hon. Lady is quite right that the news is coming out this week, but is it not fair to say that the crime, if you like, happened in 2007 during the lead-up to the financial crisis? This is old news being brought out today, not new news.

[Shabana Mahmood]

I am grateful to the hon. Gentleman for his intervention. He and I have had a number of discussions on the airwaves about these issues, given that the Government have failed to field any Ministers to debate on those media channels. He has been doing a grand job of trying to defend the indefensible, but he is quite wrong. The central point in what we have discovered about HSBC this week is that the data with evidence of what had happened with tax avoidance and tax evasion were handed over by the French authorities to this Government in May 2010. That is the central point: that is the point at which we had evidence of wrongdoing that needed to be acted on, but that is not what happened.

[Charlie Elphicke (Dover) (Con)]

Is the hon. Lady’s case that Ministers should have direct and executive responsibility and decision-making powers over how and when Her Majesty’s Revenue and Customs should prosecute and collect taxes in specific taxpayers’ cases? Yes or no?

[Shabana Mahmood]

The hon. Gentleman is completely missing the point about the debate we have been having this week about the HSBC affair. As I said in answer to the intervention from the hon. Member for Wyre Forest (Mark Garnier), we know that data with evidence of tax avoidance and tax evasion were handed over to the Government in May 2010. That raises serious questions about due diligence and the appointment of Lord Green, the man in charge of the bank at the time, as a Minister in this Government only eight months after the data were handed over. Nobody on the Government Benches has answered the point about why that happened, and I hope that the Minister might try to answer some of those questions today.

[Steve McCabe (Birmingham, Selly Oak) (Lab)]

When David Hartnett said that the whole nation knows we had our disc from the Swiss, is it conceivable that he meant that everybody but the Prime Minister? Or is it the case that rather than sunlight being the best disinfectant, the stench from Downing street would knock over a horse?

[Shabana Mahmood]

My hon. Friend makes a powerful point. I agree and I shall come on to that a little later in my speech. We have had an ever-moving, ever-changing story about what the Government or members of the Government knew or did not know and the questions that they asked or did not ask about HSBC. That goes to my central issue of trust: trust is being undermined in our tax system, which absolutely depends on it.

The Government have tried to trumpet their record in recent days, but I am afraid that it is not the great source of pride that they have been trying to pretend it is. We know that the tax gap—that is, the difference between how much tax should be collected and how much is collected—rose from £31 billion in 2009-10 to £33 billion in 2011-12 and now to £34 billion in 2012-13, which is the information available for the latest year.

[Toby Perkins (Chesterfield) (Lab)]

Alongside the appalling impact of the tax gap on our public services and the public finances, does my hon. Friend agree that it has a massive impact on the businesses that are playing by the rules and paying their taxes? To stand up for law-abiding businesses and say that everyone should pay their taxes is not an anti-business argument but a profoundly pro-business one.

[Shabana Mahmood]

My hon. Friend makes an incredibly powerful point. All businesses and all individual taxpayers need to know that the tax system is based on a level playing field, that nobody is getting away with gaming the system, and that when the system is being gamed we have robust measures to deal with it. That is profoundly pro-business and it is also in the interests of individual taxpayers, UK plc and our economy as a whole.

[Several hon. Members]

rose—

[Shabana Mahmood]

I am going to make a little progress; then I shall give way again.

The famous Swiss deal between the UK and Swiss Governments in 2011 came into force on 1 January 2013. Ministers told us it would mean that British domiciles would start to be taxed on their banking deposits in Swiss institutions and raise £3.12 billion. We are now told that this has raised just a fraction of that amount—just £873 million, or a shortfall of £2.247 billion.

The Government have increased opportunities for tax avoidance. We know that the Office for Budget Responsibility has warned that the Government’s shares for rights scheme could open a tax avoidance loophole costing hundreds of millions of pounds. On page 52 of the policy costings section of the 2012 autumn statement, the OBR states:

“It is hard to predict how quickly the increased scope for tax planning will be exploited...this could be quantitatively significant as a quarter of the costing already arises from tax planning”.

I have to say to the Minister that it is one thing to have to close loopholes that have been an unforeseen consequence of legislative change, but quite another to make changes in the full knowledge that they will lead to a loss in the tax take.

[Charlie Elphicke]

Not so long ago, the Opposition opposed the Government measure on disguised remuneration, effectively a tax anti-avoidance measure taken by this Government in relation to hedge funds. Why did the Opposition do that?

[Shabana Mahmood]

I am surprised the hon. Gentleman has not done his homework. If he were to read the debate on that measure in the Finance Bill Committee, he would know that concerns were raised about the effectiveness of the initial draft legislation put forward by the Government. In fact, the Government had to table 100 amendments to their own legislation at the last moment on Report before the Bill became law. At the time, the concern was that nobody even understood what the impact of those 100 amendments would be. That is why the Opposition took that view at that time. If all the issues relating to the 100 amendments were remedied, of course we would support the thrust of that measure, but that was a technical issue discussed in Committee. The hon. Gentleman does himself no favours by not knowing the detail, given how much of an interest he takes in Finance Bill Committees and how much I have enjoyed debating with him in those Committees.

[Mr Jim Cunningham (Coventry South) (Lab)]

I thank my hon. Friend for giving way. Has she thought that had the Government collected all the taxes due to them, rather than protecting their friends, they might not have needed to inflict cuts and could have paid off a good bit of the national debt?

[Shabana Mahmood]

I am grateful to my hon. Friend for his intervention, which goes to the central point: we need to make sure we are collecting all the tax that is owed. That is fundamental not just for trust in the system for our taxpayers and businesses, but for our public services that depend on that tax take.

[Sir Oliver Heald (North East Hertfordshire) (Con)]

Does the hon. Lady not accept that Labour was lax on tax? Look at the arrangements for hedge fund managers paying 18% tax, when their cleaners were paying a lot more. It is quite wrong for her to take this high position. When was the Lagarde list from? It was from 2007, when the shadow Chancellor was City Minister.

[Shabana Mahmood]

The hon. and learned Gentleman should look at last week’s Financial Times report on tax avoidance and tax collection. It compared the Government’s anti-avoidance measures for companies with the measures Labour put in place to tackle corporate tax avoidance during its time in office. It found that the tax collected by the Government’s measures was going to be 90% lower than under measures introduced by the previous Labour Government:

“Measures put in place by Labour during its 13 years in power to counter corporate tax avoidance are projected to raise ten times as much over the next four years as those introduced by the current coalition government.”

[Andrew Gwynne (Denton and Reddish) (Lab)]

Does this not come down to a question of priorities? In the current economic climate, money for public services is very tight. We need to really clamp down on tax avoidance measures that have been abused for far too long—for example, by closing the tax loopholes that allow hedge funds to avoid paying stamp duty. That money, which we have identified, will go towards paying Labour’s £2.5 billion time to care fund to save our national health service.

[Shabana Mahmood]

My hon. Friend makes a powerful point. I entirely agree with him, and it is something I shall come to later.

[Richard Graham (Gloucester) (Con)]

I am grateful to the shadow Minister for giving way; she has been generous in taking interventions.

I think that everyone in the House agrees that every company should pay the tax it owes. The hon. Member for Chesterfield (Toby Perkins) is right that it is not encouraging for companies that pay the right amount of tax when others do not, but Labour first talked about introducing a general anti-abuse rule in 1997. It has taken 16 years and this Government to introduce one. Does she not agree that it is this Government who are implementing steps to prevent serious avoidance?

[Shabana Mahmood]

I shall deal with the substantive thrust of that intervention when I come to the general anti-abuse rule later.

In the context of what has been happening on the Government’s watch in revelations to tax avoidance, we have now had the shocking revelations about HSBC. We now learn that the Government were handed information about malpractice at HSBC, and that one of their first acts was to make the then boss of the bank, Stephen Green, a lord and then a trade Minister. Richard Brooks, a former HMRC tax inspector and BBC reporter, has said that the Treasury and HMRC

“knew that there was a mass of evidence of tax evasion at the heart of HSBC”

in 2011, but that they

“simply washed their hands of it”—

a damning indictment, if ever there was one.

The consequences are clear. More than 1,100 individuals were identified as allegedly guilty of tax avoidance or evasion, but we are led to believe that in only one case was there sufficient evidence to prosecute. In November 2012, a senior HMRC official told The Times that the Government had adopted “a selective prosecution policy” towards cases related to HSBC. Later that month, HMRC told the Public Accounts Committee that another dozen criminal prosecutions were to follow. However, there have been none since. It seems that HMRC adopted a deliberate strategy to minimise the number of prosecutions, rather than pursue them, which explains why just £135 million has been recouped, which contrasts unfavourably with France, for example, which has prosecuted more cases and raised more money on the basis of fewer account files being handed over.

[Chi Onwurah (Newcastle upon Tyne Central) (Lab)]

My hon. Friend is making some excellent points. Has she contrasted this Government’s aggressive sanctioning and demonisation of benefit claimants with their lax approach to those who avoid tax, and does she think it might be because they know far more tax avoiders than benefits claimants?

[Shabana Mahmood]

My hon. Friend makes a powerful point. We should pursue with equal vigour all those who game the rules in our country, whether it be benefit fraud or tax avoidance and evasion.

There remain serious questions for the Government to answer. I hope we hear some answers from the Financial Secretary to the Treasury to these pressing questions. Did he ever speak to Lord Green about tax avoidance and evasion at HSBC? If not, why not? I am happy to give way to him, if he wants to clarify those matters now, but it does not seem as though he is willing to take up that offer. I hope he will see fit to answer some of those questions in his speech. The Prime Minister was asked about conversations with Lord Green four times during Prime Minister’s questions today, but he failed to answer each time.

It has been difficult to keep up with the conflicting reports about who knew what and when, but today the Government have claimed they knew that HSBC customers were in the frame for tax avoidance and evasion but not about any possible culpability by the bank itself. It is ridiculous to suggest that, despite having files showing that 1,100 customers of a bank possibly avoided or evaded tax, Ministers did not consider the possibility that perhaps the bank itself had a hand in it and did not bother to ask any questions of a ministerial colleague they knew was head of the bank over the period in question.

The Government were given the data in May 2010; Lord Green took office in January 2011; and the Swiss tax deal was signed in August 2011. In fact, the Minister and David Hartnett, the senior tax official, started negotiating the Swiss tax deal straight after the data on HSBC were received from the French authorities, so at a time when the Government knew, or should have known, that serious wrongdoing had been going on.

I think we need some answers from the Minister about whether he ever discussed the Swiss tax deal with Lord Green, who was, after all, a colleague who had run an organisation with a Swiss banking arm. We need the Minister to explain the conversations he had—or the conversations that, on reflection, he now feels he should have had—with colleagues in government, and to clarify whether he has any regrets.

We also need to hear explicitly from Lord Green—our motion calls for this—with a full and frank statement about what he knew and what discussions he had with those in government about his knowledge of what was going on in the Swiss arm of HSBC. I also think it is about time we heard from the Chancellor. He has been quiet since Sunday, when all this started to come to light, so we need to hear from him as the head of the Treasury what he knew.

[Paul Farrelly (Newcastle-under-Lyme) (Lab)]

Richard Brooks is a fine journalist for Private Eye, not the BBC, and has done seminal work in investigating tax avoidance and evasion. Does my hon. Friend agree that the fact that neither HSBC nor any of the individuals involved are being prosecuted shows that HMRC is still a pussycat when it comes to big tax avoiders, yet will eagerly go after the small fry and small businesses?

[Shabana Mahmood]

There are real questions to be answered about how HMRC conducts its investigations and the rigour with which it pursues its different investigations. These take place, of course, within the context of legislation set by this Government, so ultimately these are matters for the Government. It is also the Government who decide on the amount of resources HMRC gets to do its job—an issue that I have discussed with the Minister on a number of occasions.

Fundamentally, the failure to act is symptomatic of the Government’s failure to tackle abuse within the tax system. That is why people are losing faith in it. Our motion sets out what we would do to restore that faith in the system. First, we have said that we will introduce penalties for those caught by the general anti-abuse rule, which is supposed to catch those who set up abusive schemes—the most egregious forms of abuse. However, there is currently no penalty scheme association with the so-called GAAR, which lacks teeth.

A Labour Government would introduce a tough penalty regime with fines of up to 100% of the value of the tax avoided. That will provide a tough and genuine deterrent to those who try to abuse the system and avoid paying their fair share of tax. [Interruption.] The Minister says from a sedentary position that the Government are now consulting on whether to have a penalties regime for the GAAR—but only after we announced our policy that we would have such a regime.

The truth is that when the GAAR was introduced, there was a huge amount of discussion and a review was carried out for the Government, with lots of academic work done on whether or not we should have a general anti-abuse rule in this country. The Government could and should have introduced penalties immediately. Where they have failed to act, we will act.

Secondly, the quoted eurobond exemption is used legitimately by many companies to raise finance on the international bond market, but it is also abused by some companies to shift profits out of the UK into tax havens, and so reduce the amount of corporation tax they pay. HMRC itself identified the problem, but the Government failed to act. Again, where they failed to act, we will act.

[Charlie Elphicke]

rose—

[Shabana Mahmood]

I will not give way; I want to make some progress. Thirdly, we have had much discussion relating to—

[The Financial Secretary to the Treasury (Mr David Gauke)]

Will the hon. Lady give way?

[Shabana Mahmood]

Of course.

[Mr Gauke]

On the quoted eurobond exemption, the hon. Lady will be aware—we have debated the issue on a number of occasions, and it is a quite technical matter—that I made available Treasury and HMRC officials to talk through with her the reasons why it would be ill advised to pursue this policy; it would not raise any significant sums of money, but would just create an administrative burden. I made that offer over a year ago, and the offer still stands. Will she take me up on it?

[Shabana Mahmood]

At the risk of repeating our previous debate about the quoted eurobond exemption, I said at the time that I was fearful that the Minister was patronising me. He assured me then that he was not, and I take that point on board again. I have not taken the Minister up on his offer of a meeting and I have no intention of doing so. The HMRC’s proposal for closing down the exemption on which the Treasury consulted involved instances in which there was no regular or substantial trading of the bonds in question.

We all accept that there is limited liquidity for many legitimate eurobond issues, so such a criterion would be difficult to put into operation. However, we propose to explore the possibility of removing the exemption when bonds are issued to connected persons. We are making a substantially different offer with the aim of closing a loophole that everyone knows is being abused, and on which the Government have failed to act. I should be happy to meet the Minister and talk to him about how we propose to close down the eurobond exemption. I do not have access to the same officials as he does, but I do have another way of closing down that exemption.

[Charlie Elphicke]

Will the hon. Gentleman give way?

[Shabana Mahmood]

I will not, because I am going to make some more progress.

Thirdly, we have said that we will prevent hedge funds that are avoiding stamp duty on shares from being able to do so. Hedge funds currently avoid stamp duty by not buying the shares directly; instead, they get intermediaries to buy them on their behalf. Those intermediaries are investment banks, which benefit from tax relief on stamp duty. The hedge funds then enter into a contract for difference with the banks, which means that they benefit from changes in the share prices without holding the shares directly. That is an exploitation of intermediaries’ relief by hedge funds.

We have had a great deal of discussion about hedge funds in the past few days. I note, in particular, that during Prime Minister’s Question Time today, the Prime Minister did not address the point of the relief that is being abused. He wanted to get involved in a debate about who had introduced the relief, rather than about the fact that it is currently being abused by hedge funds. We have said that we will stop the practice, but we hear nothing from the Government about what they intend to do about an issue of which they too are fully aware.

Fourthly, we will take forward proposals that we were developing in government to deem construction workers to be employed for tax purposes if they meet criteria that most people would regard as obvious signs of employment. That would reverse the Government’s decision to abandon these measures, thereby dealing with a major cause of avoidance in the construction sector.

Finally, we would scrap the Government’s shares for rights scheme, which allows individuals to trade key employment rights for shares in a company. The policy has received widespread criticism. Writing in the Financial Times, Paul Johnson of the Institute for Fiscal Studies has said:

“just as concern over tax avoidance is at its highest in living memory, just as government ministers are falling over themselves to condemn such behaviour, that same government is trumpeting a new tax policy that looks like it will foster a whole new avoidance industry. Its own fiscal watchdog seems to suggest that the policy could cost a staggering £1 billion a year, and that a large portion of that could arise from ‘tax planning’.”

Labour will scrap the shares for rights scheme and redeploy HMRC resources to other areas where they are greatly needed.

[Caroline Lucas (Brighton, Pavilion) (Green)]

I welcome the proposal for an anti-tax-dodging Bill, to which the motion refers. Does the hon. Lady support the idea of country-by-country reporting requirements, which I proposed in a private Member’s Bill a few years ago? They could at least have helped to show just how dependent HSBC was on Switzerland, and begun to ring alarm bells for the tax authorities at a much earlier stage.

--- Later in debate ---

[Shabana Mahmood]

I agree that we need a public form of country-by-country reporting. In government, we would seek an international agreement, if possible, on public forms of such reporting. At present, the agreement arising from the base erosion and profit-shifting process is to make country-by-country reporting available to tax authorities, but we believe that there is a strong case for the information to be made public. We will seek a multilateral agreement, but if that is not possible, we will discuss with business in this country the best way to introduce a public country-by-country reporting format on a unilateral basis.

As I have said, we will take further action to stop umbrella companies exploiting tax relief, and to force the United Kingdom’s overseas territories and Crown dependencies to produce publicly available registers of beneficial ownership. [Interruption.] The Minister again chunters from a sedentary position. I note that there was no chuntering from him when it came to his record and the decisions that he made about Stephen Green, but he has suddenly come back to life. He says from a sedentary position, “How?” I say to him that the Prime Minister himself said this was a vitally important policy, which was desperately needed in order to open up the secrecy associated with the overseas territories and the Crown dependencies.

The Prime Minister has been writing increasingly shirty letters to the Crown dependencies and overseas territories, saying that they need to move forward with a publicly available register of beneficial ownership, and nothing has happened. Actually, since my right hon. Friend the Leader of the Opposition made his announcement at the weekend that we would seek a blacklisting of overseas territories and Crown dependencies if there was no movement on a public register of beneficial ownership within six months of the next Labour Government, today Gibraltar, for example, has said it will take very seriously our call for a public register. I think that turning up the heat on this issue and being serious about action can gain a lot more than the Government’s approach thus far.

As I said in response to the intervention by the hon. Member for Brighton, Pavilion (Caroline Lucas), we will make country-by-country reporting information publicly available. We will tackle the use of dormant companies to avoid tax by requiring them to report more frequently, and we will ensure stronger, independent scrutiny of the tax system, including reliefs, and the Government’s efforts to tackle tax avoidance.

The problem of tax avoidance and tax evasion is not new. For as long as the state has been levying tax, people have tried to avoid it—a fact that, rightly and understandably, is resented by those who do pay what they owe. Members on the Government Benches have failed to understand that those levels of resentment, frustration and mistrust have risen to critical levels. This is a problem that requires a new level of determination to fix. The problem corrodes the central tenet of the contract between the Government and their people. It is simply not okay to have one set of rules for those who have enough money to require a Swiss bank account and another set for those who do not, one set of rules for those with armies of accountants and another set for those who do not, and one set of rules for those who are well connected and another for those who are not. The Government have failed to rise to the enormity of the challenge; the motion I speak in favour of this evening shows how the next Labour Government will do so.

--- Later in debate ---

[Shabana Mahmood]

I am glad that the Financial Secretary to the Treasury is giving us some answers, although they are not shedding quite enough light on what actually happened. Let us look at the media reports. In September 2010, for example, everyone knew that The Daily Telegraph was talking about the number of HSBC customers who were involved. It therefore beggars belief that the matter was not raised with Stephen Green when he was appointed trade Minister just a few months later.

[Mr Gauke]

Let me put it this way. It was, and is, the case that UK residents can have bank accounts in Switzerland without committing any illegal acts. It is also the case that a Swiss bank can provide banking services to a UK resident without committing any wrongdoing. It was the case, in terms of what was known at that time, that a disc was acquired by HMRC relating to HSBC accounts. The question that HMRC was asking was whether the UK residents whose names were listed within those data had paid the tax they should have. Were they declaring their income as required under UK law? That was what the investigation was about. [Interruption.] I am afraid that the hon. Member for Birmingham, Ladywood (Shabana Mahmood) is making a non-point. It was known that there was an investigation into HSBC account holders—that was in the public domain. However, regarding the evidence we have seen of, for example, bricks of cash being handed out and advice being given to keep several steps ahead of the taxman who is dealing with tax evasion, that information has come to light in the public domain—and, indeed, to Ministers—in the past few days.

[Mr Gauke]

The position is this: Lord Green was appointed in January 2011 and at that point the information about the fact that there was an investigation into HSBC account holders was in the public domain. There was no big secret about that. Of course, I was not privy to the specific conversations that were held, but there is no suggestion that Lord Green had acted improperly, that he was complicit in tax evasion or that he was involved in this particular activity. That could not be clearer.

[Shabana Mahmood]

I am grateful to the Minister for giving way; he is being generous. Does he agree that Lord Green’s continued silence on what he knew about what was going on at HSBC is creating a climate in which more questions are being asked? Does he also agree that what we need—and what our motion calls for—is a full and frank statement from Lord Green about what he knew? Yes or no?

[Mr Gauke]

It is a matter for Lord Green as to what he says. It is clear that the Government have taken the strongest action to deal with tax avoidance and tax evasion. Ministers are responsible for tax law and for resourcing HMRC’s enforcement of that law, so I would suggest that questions about activities that took place between 2005 and 2007 should be directed to those who were Ministers at that time. They might be in a better position to answer them.

--- Later in debate ---

[Madam Deputy Speaker (Dame Dawn Primarolo)]

I agree with the hon. Gentleman. If the hon. Lady wishes to intervene, she should rise to the Dispatch Box and not shout across the Chamber.

[Shabana Mahmood]

I am sorry, Madam Deputy Speaker, you are quite right to admonish me. The policy of having a publicly available register of beneficial ownership is a policy of the hon. Gentleman’s own Prime Minister. Does the hon. Gentleman disagree with that policy?

[Robert Neill]

I am happy to quote the whole of the correspondence between the Labour Chief Minister of Gibraltar and the leader of the Labour party. I thought it amusing in this regard that the hon. Lady should claim that some success had been achieved. In fact, Gibraltar has already accepted the need to sign up for a register of beneficial ownership. There is an argument about the level of publicity, but this was conceded long before the cack-handed intervention of the Leader of the Opposition. Fortunately, the Chief Minister of Gibraltar was able to set the Leader of the Opposition right on a number of his other factual errors—never mind the fact that the OECD is not in a position to create a blacklist in itself. That is a pretty basic level of ineptitude in terms of policy, but it goes a little further than that.

This issue is important. Overseas territories Ministers were in London in December for the joint ministerial conference. Gibraltar’s Minister of Financial Services was meeting officials at the Treasury to progress the arrangements we need to make around tax transparency and a register of beneficial ownership. All the leaders of the overseas territories wrote to the Leader of the Opposition, asking if they could meet him to discuss this important matter. What did the Chief Minister of Gibraltar have to say? He said:

“We are unfortunately still awaiting a response.”

The Leader of the Opposition did not even have the courtesy to reply to the leaders of Britain’s Crown dependencies and overseas territories. What does that say about this man’s level of policy co-operation?

Let me turn to the matter that the hon. Member for Birmingham, Ladywood prayed in aid. She is quite right that the Chief Minister said that Gibraltar is

“specifically…committed to implement a Central Register deriving from the forthcoming adoption of the fourth Anti Money Laundering Directive...along with all Member States of the EU because, as you are aware”—

perhaps it was a mistake on the Chief Minister’s part to assume that the Leader of the Opposition was aware of something as basic as this—

the Treaties that form the EU apply to Gibraltar. As those advising you should be aware, we are unique in this regard when compared”

with other territories. He continued:

“only last week my Minister for Financial Services was at HM Treasury discussing”

this. The Chief Minister rightly went on to point out that this was important in Gibraltar’s case because we have responsibility for the defence of Gibraltar overseas. I shall come on in a moment to deal with the damage done by the Labour party in that respect.

The Chief Minister pointed out, too, that Gibraltar has

“a tax information exchange agreement…with the UK that is fully operational. Gibraltar has a further 26 TIEAs with other countries”

and that

“under Directive 2011/16/EU…Gibraltar has tax information exchange arrangements to the OECD standard”

with OECD countries, and

“132…exchange agreements with some 75 countries around the world…This was confirmed by the…Phase 2 report”,

and Gibraltar was given

“the second highest rating possible”

in its compliance, along with that well-known tax haven, Germany.

It is quite extraordinary that the Leader of the Opposition goes rushing forth into print without having checked facts as basic as that. He also forgot that

“Gibraltar has signed an automatic exchange of information agreement with the UK and the USA as well as its global counterpart being the Common Reporting Standard”,

along with some other 90 countries. The Chief Minister signed this in Berlin in October, together with our Chancellor of the Exchequer. I do not suppose that Google worked too well in the Leader of the Opposition’s office there.

Finally, the Chief Minister wrote:

“you should know that your remarks…have already been picked up by the Spanish press and are being used as a rod with which to beat us.”

The fact that the Leader of the Opposition, through a mixture of ignorance, bad manners and ineptitude, gave comfort to people who were persecuting the British citizens of Gibraltar economically in order to make a cheapskate and inaccurate political point is nothing short of a scandal, and is contemptible.

--- Later in debate ---

[The Exchequer Secretary to the Treasury (Priti Patel)]

Like my hon. Friend the Financial Secretary to the Treasury, I shall begin by highlighting the fact that tackling tax avoidance and tax evasion has been a key priority for this Government, and we will take no lessons from the Opposition on that issue. At every opportunity, this Government have introduced measures to clamp down on this corrosive practice. It is this Government who, over the course of this Parliament, have secured £85 billion in compliance yield, £31 billion of which came from large businesses. We are the Government who have abolished the shocking loopholes in the tax system that we inherited in 2010—loopholes that the Labour party chose to ignore when in office for 13 years, turning a blind eye when it could have acted. Now, belatedly, Labour Members lecture Government Members on their new-found wisdom in this area.

We have introduced groundbreaking measures to clamp down on tax avoidance schemes. Internationally we have led the world in this very area, as my hon. Friends rightly highlighted during the debate—for example, my hon. Friends the Members for Cities of London and Westminster (Mark Field), for Dover (Charlie Elphicke) and for Bromley and Chislehurst (Robert Neill), who spoke so robustly about Britain leading the way internationally and the work we have been undertaking in the Crown dependencies and overseas territories, which are all supportive of transparency and have been signing up as early adopters of common reporting standards. Everyone in the House should welcome that and support those measures, rather than belittling the actions of those territories and Crown dependencies. They have led the way.

My hon. Friend the Member for Newark (Robert Jenrick) was clear about the standards we have set, and I deny absolutely the bluster and assertion from Labour Members. To claim, as they have, that Lord Green was at fault with regard to what has happened with the Swiss subsidiary of HSBC when there is no suggestion from anybody, and certainly not from the regulators, that that was the case is quite disgraceful. It is a fact that Ministers and the general public knew about the release of information about individual HSBC account holders, and it is also a fact, as my hon. Friend the Financial Secretary highlighted, that it is a long-standing legal requirement for taxpayer confidentiality that Ministers cannot, under any circumstance, be made aware of individual cases.

[Shabana Mahmood]

We have been calling for Lord Green to make a full and frank statement. No allegations have been made, but he needs to explain what he knew about what was going on at HSBC. The Exchequer Secretary should correct the record on what we have been requesting from the Government and from Lord Green and say whether she agrees that he should make a full and frank statement.

[Priti Patel]

Let us be quite clear on the point regarding Lord Green: that is now a matter for him. He is also not a Minister. We should be very clear about that.

When it comes to tax in particular, let us focus on the facts here. We have specifically taken action to get back money lost in Swiss bank accounts. Our agreement has so far raised more than £1.2 billion that would otherwise have remained beyond our reach, which is almost two thirds of the £1.9 billion that the latest forecasts expect it to raise. That is more than 22,000—[Interruption.] The hon. Member for Birmingham, Selly Oak (Steve McCabe) sits there laughing. It was his Government who did absolutely nothing in this area, despite having the opportunity to close down loopholes. Labour Members do not like hearing it, but these are facts.

Tax Avoidance (HSBC)

Shabana Mahmood Excerpts

Monday 9th February 2015 Commons Chamber

[Shabana Mahmood (Birmingham, Ladywood) (Lab)]

(Urgent Question): To ask the Chancellor of the Exchequer if he will make a statement on tax avoidance and evasion by HSBC.

[The Financial Secretary to the Treasury (Mr David Gauke)]

I welcome the opportunity to respond to this question and to the information released today in respect of an HSBC subsidiary’s involvement in facilitating tax evasion during the course of the previous Parliament.

Her Majesty’s Revenue and Customs has a long-standing approach to tax evasion that is based on collecting the tax and interest due, changing taxpayers’ behaviour to discourage them from evading in future, and enforcing the most appropriate and effective penalties. Overwhelmingly, this means providing disclosure facilities to encourage tax evaders to sort out their affairs, backed by civil penalties to fine them for the offence. This has been the consistent approach under Governments of all parties. This Government have supported HMRC’s approach by increasing investment in its enforcement capacity and by strengthening its powers, including increasing the maximum fines for hiding money in tax havens to 200% of the tax evaded.

This approach has been very successful in tackling tax evasion, whether by plumbers, barristers and medics in the UK or by the wealthy hiding money in offshore accounts. HMRC has collected more than £1.6 billion from 57,000 disclosures as a result of a wide range of UK and international initiatives. Internationally, since 2010, HMRC has brought in about £2 billion in previously unpaid tax as a result of the UK’s agreement with Switzerland on a withholding tax on Swiss bank accounts, and the international Liechtenstein disclosure facility. In a small number of cases, HMRC will institute criminal investigations into serial tax evaders and those who deliberately conceal information from it, but in most cases disclosure and civil fines are the most appropriate and effective intervention. That is how HMRC has approached the receipt of data from leaks and whistleblowers, including the Swiss HSBC data that were shared with the department in May 2010.

Using the civil disclosure approach, HMRC has systematically worked through all the HSBC data that it has received and has brought in more than £135 million in tax, interest and penalties from tax evaders who hid their assets in Swiss HSBC accounts. HMRC received data from about 6,800 entities, and that, after removing duplication, resulted in information on 3,600 businesses and individuals. Of those cases, over 1,000 were challenged and the cases were settled. HMRC believes that the remainder are compliant but continues to monitor their activities.

HMRC is examining whether it has all the same data that the International Consortium of Investigative Journalists has, and that we have seen reported today, and it will be asking the ICIJ for any data that we have not already been given. HMRC received the HSBC data under very strict conditions that limited the department’s use of it to pursuing offshore tax evasion and prevented HMRC from sharing the data with other law enforcement authorities. Under these restrictions, HMRC has not been able to seek prosecution for other potential offences such as money laundering. However, the French authorities have today confirmed that they will provide all assistance necessary to allow HMRC to exploit the data to their fullest.

HMRC’s powers to crack down on international evasion are being further strengthened by the new international common reporting standards, which more than 90 countries have agreed to as an extra tool for closing down the options for tax cheats to pursue this increasingly high-risk practice. This has been as a consequence, in part, of the leadership shown by the Prime Minister and the Chancellor of the Exchequer at the G8. This is further evidence of progress made by this Government—[Interruption.]

[Mr Gauke]

Thank you, Mr Deputy Speaker.

This is further evidence of progress made by this Government in tackling tax evasion and, indeed, tax avoidance—progress that was sadly lacking under the previous Government.

[Shabana Mahmood]

The Financial Secretary’s remarks simply do not go far enough. We need much more detail from him as to what the Government have been up to since they were made aware of this information and why they have apparently failed to act over such serious allegations.

First, when the French authorities passed this information to HMRC, who saw it and what was done with it? Were Ministers informed and what communications did HMRC have with the Treasury and No. 10? If there was no communication, why not, given the seriousness of the issue?

Secondly, what information did the Government seek from Lord Green about the allegations of malpractice at HSBC and his involvement in them prior to his appointment as a trade Minister? The Financial Secretary said this morning that the information was in the public domain before 2010. What information was sought and received? Any failure by this Government to question Stephen Green before his appointment would be an inexplicable and inexcusable abdication of responsibility, and the Government must address that point.

Does the Financial Secretary agree that the minimum to be expected now must be an immediate statement by Lord Green, with a full explanation of his role in these allegations while at HSBC; his knowledge of them while he was a Government Minister; and all communication he has had on these issues with Government Ministers?

Thirdly, at any point during Lord Green’s stint in government, did the Financial Secretary or any other member of the Government discuss allegations of tax avoidance and evasion at HSBC with Lord Green? In 2011, HMRC was open about conducting investigations into the UK individuals on the so-called Falciani list. Can the Financial Secretary give a categorical statement about what discussions have been had between May 2010 and now between HMRC and members of the Government about such investigations?

This Government have failed to back Labour in our calls to crack down on tax avoidance, whether on stopping hedge funds avoiding hundreds of millions—[Interruption.]

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. I want to hear the end of this and I want the shadow Minister to be given the same courtesy as the Financial Secretary.

[Shabana Mahmood]

Thank you, Mr Deputy Speaker.

This Government have failed to back Labour in our calls to crack down on tax avoidance, whether on stopping hedge funds avoiding hundreds of millions in tax on shares or on closing the eurobonds loophole, and now it seems that wrongdoing may have been overlooked on their watch. As Richard Brooks, a former HMRC tax inspector, has said, the Treasury and HMRC

“knew that there was a mass of evidence of tax evasion at the heart of HSBC”

in 2011, but they

“simply washed their hands of it.”

[Mr Gauke]

The essence of the hon. Lady’s speech was the accusation that wrongdoing has been overlooked on this Government’s watch, but events between 2005 and 2007 did not take place under our watch—the Labour party was in government between 2005 and 2007. The allegations relate to activity between 2005 and 2007.

The hon. Lady’s first question was on what was done with the information. I almost feel like apologising to the House for going through this information in such excruciating detail. A total of 6,800 cases were looked at and it was discovered that there were a number of duplications within those data: they were not clean data. That left 3,600 and there has been a full investigation of more than 1,000 of them—the remainder appear to have no case to answer—and a settlement has been reached. As a consequence, £135 million has been raised for the Exchequer that would not previously have been raised. If we put that in the context of the very many other measures that this Government have taken to deal with the problem, we will see that it demonstrates a Government willing to address it.

Let me turn to Lord Green. He was a very successful trade Minister and there is no evidence to suggest that he was involved in or complicit with tax evasion activities. If we are talking about complicity and asking about what happened on someone’s watch, what about the City Minister at the time, the right hon. Member for Morley and Outwood (Ed Balls)? Sadly, he is not in the Chamber today. Indeed, let us look at the failure of the previous Government to address issues of tax evasion and tax avoidance. [Interruption.]

National Insurance Contributions Bill

Shabana Mahmood Excerpts

Tuesday 3rd February 2015 Commons Chamber

[The Financial Secretary to the Treasury (Mr David Gauke)]

I beg to move, That this House agrees with Lords amendment 1.

Some right hon. and hon. Members may recall the important initiative on apprentices announced by my right hon. Friend the Chancellor of the Exchequer in his autumn statement on 3 December. The Chancellor announced that the Government will abolish employer class 1 national insurance contributions for apprentices under the age of 25 from April 2016, building on the removal of employer class 1 national insurance contributions for all under 21-year-olds from April 2015.

Amendments to section 9 and new section 9B of the Social Security Contributions and Benefits Act 1992 and the Social Security Contributions and Benefits (Northern Ireland) Act 1992 give effect to the Government’s intention to abolish employer class 1 NICs for apprentices under the age of 25. From April 2016, employers of apprentices under the age of 25 will pay a zero rate of secondary class 1 NICs on the earnings of those employees, and that zero rate will apply to earnings below the upper earnings limit.

As my right hon. Friend the Chancellor made clear, apprenticeships are at the heart of the Government’s drive to equip people of all ages with the skills valued by employers. This measure is intended to support employers who provide apprenticeships to young people by removing the requirement that they pay secondary class 1 NICs on earnings up to the upper earnings limit for those employees. The measure is also intended to support youth employment. Under this Government, employment is at its highest ever level while unemployment is now lower than when the Government came to power. However, there is more to do to tackle youth unemployment and ensure that no one is left behind.

The amendment provides a zero rate of employer class 1 national insurance contributions on the earnings of apprentices under the age of 25 from 6 April 2016. The measure will apply to both new and existing apprentices aged under 25 and is not time limited.

The main features of the clause are, first, that there is a regulation-making power to define “apprentice”. There are existing statutory definitions relating to apprenticeships. For example, in England and Wales, the Apprenticeships, Skills, Children and Learning Act 2009 introduced the concept of an apprenticeship agreement, which is defined in part with reference to “an apprentice”. Because education and training is a devolved matter, and because not all apprentices are employed under apprenticeship agreements, we will need to look at the approaches taken towards apprenticeships in the different devolved Administrations. The power will allow time to discuss the definition with interested parties such as the Skills Funding Agency and their devolved equivalents. The power will also enable us to respond simply to changing statutory definitions and requirements in future.

Secondly, there are regulation-making powers to vary the age group to which the zero rate of secondary class 1 NICs for apprentices applies. For example, the Government could in future allow for an increase in the age bracket of apprentices falling into the zero rate earnings band of secondary class 1 NICs.

Thirdly, there is a regulation-making power to ensure that the benefit of the zero rate of secondary class 1 NICs for apprentices can be enjoyed only in respect of earnings below a certain level. In other words, the power will provide a means to introduce an upper secondary threshold for apprentices in the same way as we are doing for under 21s. That threshold will be set at the level of the upper earnings limit in the 2016-17 tax year.

The Government’s objective is to make all apprenticeships world class. Around £1.5 billion is spent annually to support apprenticeship training, and the Government are committed to driving up the quality of apprenticeships. We are currently taking forward a number of reforms that will have a positive impact. The Government believe that the measure will, alongside other initiatives on apprenticeships and the abolition of employer’s NICs for under 21s from April 2015, help to address the problem of youth unemployment in the UK.

I hope that, with that explanation, the House will accept the amendment made in the other place.

[Shabana Mahmood (Birmingham, Ladywood) (Lab)]

I am grateful to the Minister for introducing Lords amendment 1, which was the main amendment made in the other place. As he said, it enacts the announcement made in the autumn statement that employer national insurance contributions for apprentices aged under 25 will be abolished from April 2016. The Opposition support the measure. There is agreement on both sides of the House and across party political boundaries that we need more apprenticeships; and that youth unemployment, and long-term youth unemployment, remain a problem not only for the individuals involved, but for the economy as a whole. We hope the measure helps to alleviate that somewhat.

The Minister said that there is a regulation-making power within the measure for the definition of “apprentice” and referenced the 2009 Act definition, which relates to an apprenticeship contract. That concern was raised in the other place when the measure was debated. Will he give the House more information about progress in discussions with the devolved legislatures about the definition to be applied? How confident is he that the provision will not be manipulated in a way that enables a reduction by companies of their tax liabilities? The lack of a definition of “apprentice” causes concern that that might arise.

The current quality of apprenticeships has come under scrutiny in this Parliament. A recent report from the Department for Business, Innovation and Skills showed that 15% of apprentices are paid below the national minimum wage, and that 28% of level 2 and level 3 apprentices who do not have a written contract are paid below the national minimum wage. We also know that one in five apprentices receive no formal training. Will the Minister consider a stipulation on quality when he looks at the definition of apprentice? That would go some way to alleviating some of the concerns raised about potential gaps in the measure that could lead to abuse, or to a proliferation of apprenticeships that are not of a high quality and that do not add too much to the future prospects of the young people engaged in them. It would be helpful to hear the Minister’s further comments on those points.

[Mr Gauke]

I welcome the hon. Lady’s support for the measures. It is worth noting the considerable progress made on apprenticeships under this Government. We have created 2 million apprenticeships during this Parliament; they are giving young people the skills they need to succeed in the global race and get on in life. That is significant progress—progress on the number of apprenticeships has been considerably faster than was previously expected. For example, the previous Prime Minister, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), said in 2008 that he intended to have 90,000 more young people taking part in apprenticeships by 2013. He said that, together with opportunities for those in their 20s and older, that would mean 220,000 people starting an apprenticeship each year overall. In 2011-12, 520,000 people started an apprenticeship, so we can see that there has been dramatic progress. The measure helps us to pursue that policy yet further.

Oral Answers to Questions

Shabana Mahmood Excerpts

Tuesday 27th January 2015 Commons Chamber

[Danny Alexander]

It is very important to note all three of those facts, but it is also important not to be complacent. There is a lot more to do to ensure that we continue to deliver the successful growing economy that is creating jobs, because ultimately getting into work is the best route out of poverty for families.

[Shabana Mahmood (Birmingham, Ladywood) (Lab)]

I am not surprised that the Chief Secretary to the Treasury does not want to acknowledge the full truth unveiled last week by the Institute for Fiscal Studies’ figures. Its report shows clearly that tax and benefit changes under this Government have left households £1,127 a year worse off on average, and that families with children have been hardest hit of all. Does that not make a complete mockery of the Government’s claims that they would be the most family-friendly Government ever?

[Danny Alexander]

As I said, the published analysis is incomplete because it ignores public expenditure. Public expenditure is a very important part of fiscal consolidation, but it is the shift in public expenditure, towards such things as early years education, the pupil premium and supporting disadvantaged young people through the education system, that is a vital part of improving life chances. I hope the hon. Lady will want to recognise that the measures the Government have taken have been aimed at improving the life chances of people. That is why we are making so much progress on attainment in schools, reducing child poverty and so on.

Stamp Duty Land Tax Bill

Shabana Mahmood Excerpts

Monday 12th January 2015 Commons Chamber

[Mr Gauke]

I am grateful for that observation from my right hon. Friend and constituency neighbour. I know well how the issue of SDLT in general must be relevant to many of her constituents. On the specific point about HS2, the Government remain to be persuaded that SDLT is necessarily the right measure for addressing the concerns that she identifies and on which she provides an articulate voice in defence of her constituents and others affected by the project. We remain to be convinced, but I know that she will continue to make her argument, and we will continue to look at it carefully. As I said, however, we are not yet convinced that reform of SDLT, or an exemption or relief, would necessarily provide the right support for those with properties affected by HS2.

Clause 1 substitutes a new table A setting out the new tax rates and bands applying to a transaction consisting wholly of residential property and amends the calculation rules for these transactions so that each rate of tax applies only to that part of the consideration that falls within the relevant band. The total tax due is then the sum of the amounts for each band. The new calculation rules extend to linked transactions—those that form part of a scheme arrangement or a series of transactions between the same buyer and seller. In this case, SDLT applies to the aggregate consideration for all the linked transactions.

The new rules do not apply to transactions to which table B in section 55 of the 2003 Act applies—transactions or linked transactions consisting wholly of non-residential or a mixture of residential and non-residential property. The clause introduces the schedule, which makes consequential amendments to SDLT legislation to take account of the reform. The main changes are to the method of calculating the tax due under certain SDLT reliefs. The first relief is for statutory leasehold enfranchisement, where leaseholders of flats club together to buy the freehold of their block. This relief formerly operated by setting the rate of SDLT according to the amount paid for the freehold, divided by the number of qualifying flats. Under the new arrangements, first we divide the amount paid for the freehold by the number of qualifying flats and calculate the amount of tax due on that sum. We then multiply that amount of tax by the number of qualifying flats in order to arrive at the total tax due.

Secondly, a similar change is made to relief for purchasers of multiple crofts from a landlord by a crofting community body under the crofting community right to buy scheme. This relief only applies in Scotland so will only be relevant until 1 April 2015, when SDLT in Scotland is replaced by the devolved land and buildings transaction tax.

Finally, a similar change is made to multiple dwellings relief, which applies to purchasers of more than one dwelling in either a single transaction or linked transactions. This relief was previously subject to a minimum rate of 1%. Under the new rules, the amount will be equivalent to 1% of the chargeable consideration given for the dwellings, which in practice gives the same result.

Right hon. and hon. Members raised several important points on Second Reading. I would like to take this opportunity to explain in a little more detail the Government’s position on some of those issues. First, it has been asked why we have chosen not to apply the new rules to non-residential—commercial and agricultural —property as well as to residential property. That point was raised just now by my hon. Friend the Member for St Albans (Mrs Main). As I said, the market for non-residential property is very different from the market for residential property. For example, non-residential properties have a higher value on average and many are held on market rent leases granted for a small or no premium. At this time, the Government do not feel it appropriate to make changes to non-residential SDLT, although all taxes are kept under review as part of the policy making process. Any change to non-residential SDLT would have to be considered very carefully.

Some concern has been expressed about the possibility of purchasers avoiding SDLT by designating the property as either residential or non-residential in order to obtain a more favourable result. What constitutes residential property is set out in the legislation. Property can be either residential or non-residential, which is a matter of fact. There is no option, as it is has been suggested there is, to flip property between one and the other. I can reassure the Committee on that.

Finally, it has been suggested that the highest rate of tax payable under the new rules might reduce the disincentive to envelope residential property provided by the 15% higher rate SDLT charge, which applies to purchasers of residential property by a company or other non-natural person. The highest marginal rate of SDLT for the purchase of residential properties above £1.5 million is now 12%. However, SDLT is charged at 15% on the whole value for residential properties bought through corporate envelopes for more than £500,000. We are not proposing to make any changes to the 15% higher rate charge. However, in the autumn statement, we announced that the annual charges of the annual tax on envelope dwellings—ATED—would increase by 50% above inflation for the chargeable period 1 April 2015 to 31 March 2016 in order further to discourage the use of enveloping. The Government keep all taxes under review where individuals continue to hold property within corporate wrappers. They should be prepared to pay their fair share of tax.

These reforms to SDLT will remove the previous economic distortions in the system, benefiting the housing market and improving the fairness and efficiency of the tax system. They will give another boost to people looking to fulfil their aspirations of owning the place they live in and will make a real tangible and positive difference to the lives of people up and down the country.

[Shabana Mahmood (Birmingham, Ladywood) (Lab)]

It is a pleasure to serve under your chairmanship, Mrs Riordan.

I thank the Minister for his introduction to clause 1 and schedule 1. Let me confirm from the outset that we support these measures, as we did in the previous two debates on the Bill. We will do so again today. As I say, we have already had a couple of debates and it is a small Bill, so many of the issues have been debated thoroughly before. I am grateful to the Minister for dealing with some of the questions that arose on Second Reading. I have just a couple of points on which I would like to press him, and I will be grateful to hear his response in his summing up.

First, can the Minister provide us with an update on HMRC’s handling of the queries that arose when these measures were announced? Can he confirm the number of queries that HMRC had to deal with, clarify the nature of the queries that the public or their advisers raised and confirm whether all outstanding queries have been dealt with?

Secondly, let me press the Minister a little further on the revenue. I put some points to him on Second Reading about the expectations of revenue, but that matter has not been fully covered by the responses we have received. The Minister knows that these measures are expected to cost £395 million in 2014-15, rising to £760 million in 2015-16. Research by Lonres and Dataloft has found that more homes changed hands on the day of the autumn statement than on any other day in the past decade, so one in six of all homes sold in London’s most expensive areas in the last three months of the year changed hands on 3 December. The research by Lonres and Dataloft estimates that, as a result, buyers saved £9.4 million in taxes. Is that in the order of the behavioural change that was expected, as modelled by the Treasury in its costings? I am sure the Minister will repeat that they have been independently certified by the Office for Budget Responsibility.

I should like to know whether the number of transactions and the cost in Exchequer revenue after the announcement of the measures in the autumn statement are along the lines that the Government were expecting. As the Minister knows, the Office for Budget Responsibility, which applies a rating system to the “certainty” of costings, has said that it considers the costings to be medium to high risk. How confident is he about the numbers, and about the extent of the behavioural change that is expected?

[Alok Sharma (Reading West) (Con)]

I am delighted that the hon. Lady and her party welcome measures that are intended to help people who aspire to own their homes. How does she think this policy contrasts with a policy of an annual property tax which may force some people out of their homes if they have to pay it?

[Shabana Mahmood]

I think that the Bill shows that the Government have accepted that properties with a very high value are under-taxed. The hon. Gentleman alluded to our proposals for a mansion tax, which would help to pay for our NHS commitments. Our measures will not force anyone out of their homes, because, as we have pointed out, a deferment option will be available to basic-rate payers. I am afraid that that was a bit of party political scaremongering on the hon. Gentleman’s part.

[Alok Sharma]

The hon. Lady mentioned the mansion tax. My constituents fear that the threshold might start at, say, £2 million, and then drop very quickly to levels applying to properties that ordinary hard-working taxpayers are aspiring to own. The Labour party has done that in the past. Will the hon. Lady tell us what would be the threshold for her so-called mansion tax?

[Shabana Mahmood]

I am delighted that the hon. Gentleman has given me an opportunity to tell his constituents that their fears are entirely misplaced. Anyone who publishes literature suggesting that the threshold will lower is doing nothing more than scaremongering. As we have made clear, the number of high-value properties will not increase, because the indexation of the threshold will be in line with the average rise in value for the highest-value properties. That means that the number of properties caught by the tax is not expected to increase. I am, as I say, delighted that the hon. Gentleman has given me an opportunity to reassure people who are currently living in properties that are below the £2 million threshold that they will not be caught by our proposed mansion tax.

The Minister explained that the changes in the Bill would not apply to commercial property, and I am grateful for his clarification of the Government’s thinking. However, I should like to press him a little further on a couple of matters. First, one of the reasons why the Government were so keen to proceed with stamp duty changes applying to residential property was their anxiety about labour mobility. Has any thought been given to the impact on business mobility of maintaining the slab structure for commercial property transactions?

Secondly, changes will come into effect later this year in Scotland, where stamp duty is now a devolved matter. The Scottish Government will introduce a land and buildings transaction tax, which will apply to both residential and commercial properties. Have the Minister and the Treasury considered whether there is a risk that England might be disadvantaged, particularly in relation to business mobility? Does the Minister agree that the differential in the treatment of commercial property in Scotland and England is not ideal, and is the Treasury taking account of that aspect of the changes?

Finally, I want to raise a point that has been highlighted by the Chartered Institute of Taxation. It noted the different treatment given to definitions of residential dwellings, and observed that clause 1(3) inserts new subsection 1B:

“If the relevant land consists entirely of residential property and the transaction is not one of a number of linked transactions, the amount of tax chargeable is”,

and so on. The CIOT notes that various amendments to the tax system, including the introduction of the annual tax on enveloped dwellings, or ATED, have led to subtly different definitions of “residential” property for the purposes of SDLT. In schedule 29A to the Finance Act 2004 there is different treatment for investment-regulated pensions and potentially for capital gains tax, capital gains tax-related ATED, business investment relief for non-domiciliaries, capital allowances and VAT.

The Minister and I have had a number of debates when discussing other Bills about the different treatment given to particular phrases in employment law as against taxation law. There seems to be a nuanced difference in the way residential dwellings will be identified in these different elements of different taxes. I am concerned that inconsistencies are creeping in, which lead to complexity and create more work for lawyers. They will welcome that, of course, but ordinary taxpayers will not. It would be helpful if the Minister could give us his comments on those differences in definitions and say whether the Government are considering clarifying that.

[Ian Swales (Redcar) (LD)]

I will keep my remarks brief. I have spoken in each previous debate and do not have a great deal to add. My party very much supports these measures and, as I have said in previous debates, dealing with the slab system that we had and the consequent cliff edges and removing the incentives for strange behaviour and sub-optimal activity has to be the right thing to do.

I have only one point to add, which partly follows on from the remarks of the right hon. Member for Wokingham (Mr Redwood) and the assessments of the Office for Budget Responsibility. I would have thought that the taxation of a fixed asset transfer like this, with the certainty that that implies, would mean this is a very low risk method of changing a tax system, but if the OBR regards it as medium to high risk, and if the right hon. Gentleman is suggesting there may be more complex effects that I have not understood, I would like the Minister to clarify whether I am missing something. I would have thought this was a very straightforward way of raising taxes in a highly certain manner—and certainty is, of course, one of the hallmarks of a good tax system.

I will not detain the Committee any longer. Our party supports these measures. They affect 98% of the population favourably, and, broadly speaking, the other 2% are millionaires, and therefore those with the broadest shoulders. I am pleased that through this Bill this Government have found yet another way to help deliver a small amount of redistribution, with the pain felt by those with the broadest shoulders. The support for it is universal in my constituency, as I think everybody will be a winner. Overall, these measures will lead to a more liquid housing market and therefore a stronger economy, and they also make the system fairer.

--- Later in debate ---

[Shabana Mahmood]

I thank the Minister and echo his thanks to Members from both sides of the House for the efficient debates we have had on the Bill, which, as he noted, has had support from across the House. He is right that the slab structure of SDLT was very unpopular. It was subject to regular criticism, and Ministers and shadow Ministers have long been lobbied for change. The Institute for Fiscal Studies described it as

“one of the worst designed and most damaging of all taxes”,

so it is good to see some change, especially given the huge increase in house prices that led to the burden of stamp duty rising significantly.

I am grateful to the Minister for answering the questions I put to him, particularly those on dealing with the differential treatment of commercial and residential property. Sometimes the way in which the Minister says, “We keep all taxes under review,” hints that some change might be in the offing or that no change will happen at all on his watch. I could not work out which applied today, so at the very least I am sure he has made his officials very happy.

I welcome the measure. Notwithstanding the figures on house building that the Minister gave at the tail-end of his speech, I place on record our continuing concern that the Government have not done enough to deal with the biggest housing crisis for a generation. We need a much more active approach to housing supply, rather than dealing with demand-side issues, but those are debates for another day. The changes to stamp duty are welcome and we are happy to support them.

Diverted Profits Tax

Shabana Mahmood Excerpts

Wednesday 7th January 2015 Westminster Hall

[Shabana Mahmood (Birmingham, Ladywood) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Turner. I congratulate the hon. Member for Amber Valley (Nigel Mills) on securing the debate, and on his speech. He raised many points on which I, too, want to press the Minister. He was right to say that the issue has not received a huge amount of attention, and that there will not be a great deal of parliamentary time for detailed scrutiny of the Government’s proposals, given where we are in the parliamentary cycle.

The announcement of the proposals was of course rather trumped by the changes in stamp duty, which led the media coverage and debate. However, there has been a lot of coverage in the specialist taxation media, and that has helped to bring out some of the issues raised by the proposed diverted profits tax. I am grateful for this opportunity to press the Government further on their proposals. I will seek answers about technical detail— bearing in mind that there is currently a technical consultation, which will report on 4 February—as well as about practical elements and the Government’s emerging thinking about the impact on the OECD BEPS process. All three hon. Members who spoke mentioned that.

Our general approach is not dissimilar to the Government’s, and we recognise that there is a significant issue. All those who have spoken have referred to the public examples of large companies, with significant businesses that are doing very well, effectively gaming international tax rules to minimise their tax liabilities in this country. That significantly undermines public trust and confidence in the taxation system, particularly at a time of economic difficulty and stress. It is a real issue, and it is legitimate for all political parties to look for practical answers to alleviate such concerns.

As a general principle, economic activity should be taxed where it takes place. The question for all politicians to grapple with is finding an effective way to get to that point. For the Opposition—and for the Government, going by what they have said throughout this Parliament—the starting point is to try to work with international partners, notwithstanding the concerns raised by the hon. Member for Amber Valley about whether the US and other jurisdictions would be willing to play ball on co-ordinated international action to deal with gaming of the international tax rules. It is the right place to start, and that is why we have supported the OECD’s BEPS process. It is the right forum for seeking an international agreement on tax rules.

The Government have of course been much closer than the Opposition to that process, and we rely on publicly available information about its progress, and expert commentary from, and conversations with, some of the participants. From what the Government were saying up to the time of the autumn statement, we anticipated that their preferred way of proceeding on all the issues that form BEPS action points would be to await the final reporting in September before thinking how to go further. They have of course moved a little more quickly with the diverted profits tax, and I, like other hon. Members, would like to hear more about how that affects our role in the BEPS process.

We agree that a solution is needed and are keen for the issue to be dealt with, so we broadly welcome the Government’s proposed action. We will approach the diverted profits tax proposal in the Finance Bill in a supportive and constructive spirit, because we want a workable solution to reach the statute book; but I want to press the Minister further, particularly about the BEPS process. It would be helpful if she could tell us how those in the process have reacted to the DPT proposals, and why the Government felt it necessary to take unilateral action at this point, notwithstanding what many commentators have said about the looming general election. Was there a feeling that BEPS would not produce much of a result in relation to the relevant element of the international tax rules? Does the decision mean that BEPS will effectively be a failure? Is that the kind of world that we are looking at?

Some commentators have, as I am sure the Minister is aware, expressed cynicism about the motive for a unilateral move by the UK, and some have even suggested that it will torpedo the whole BEPS process, so that we get nowhere. I am interested to understand the conversations that the Government have had with people in the OECD and in the tax specialist community about where BEPS now stands.

[David Mowat]

I have been listening carefully to the hon. Lady’s points about international co-ordination. In the event of a Labour victory in the May election, what would its position be on UK tax havens such as Jersey, Guernsey and the Isle of Man? I thought that the hon. Member for Redcar (Ian Swales) made a powerful point about the 50% of schools in his constituency that are financed from Jersey. I would expect the Opposition to have developed some policy on that.

[Shabana Mahmood]

I am grateful to the hon. Gentleman for giving me the opportunity to highlight Labour policy in this debate. A few months ago, we published a paper on corporate taxation that included a section on the Crown dependencies and overseas territories. We have made the commitment that, if we win the general election, we will require the Crown dependencies and overseas territories to publish a public register of beneficial ownership. That is the key demand of all in the wider tax justice and fairness community, and it would shine a light on the true owners of businesses based in the Crown dependencies and overseas territories. The Government have spoken a great deal about doing something similar, but I think it is fair to say, without being party political, that progress has stalled. We have gone further by saying that we will ensure that that process happens. I have already taken the conversation forward with Ministers and other officials from the Crown dependencies and overseas territories.

[Ian Swales]

The hon. Lady makes an interesting point. Recently, I met officials from Jersey and Guernsey, and although transparency might be part of the issue, a lot of the arrangements that shift profit out of the UK are totally transparent. The issue is not transparency, but the arrangements themselves and, for example, the allowance of huge interest payments. I know that the debate is not about Labour party policy, but since we have strayed into that area, would her party do anything about such arrangements? A lot of them occurred under the Labour Government’s watch.

[Shabana Mahmood]

Of course we will look at particular arrangements, but transparency is the starting point. The Prime Minister famously said that

“sunlight is the best disinfectant”.

There has already been some opposition to our proposals, which suggests that there is real gain to be made from a much more transparent system for the Crown dependencies and overseas territories. That will be our start point, but we will continue to look at the other issues mentioned by the hon. Gentleman.

While we are on the subject, I would be interested to hear from the Minister about the Government’s approach to tax transparency policy with regard to the diverted profits tax. She will know that, in its paper on corporate taxation published a few months ago, the Labour party committed to going a little further on the broader issue of tax transparency and country-by-country reporting of business profits than the Government have done so far. We will support multilateral action, because we think that that is the right start point, but if multilateral agreement is not reached, we are prepared to take unilateral action on public tax transparency.

The Government have fully rejected that approach, saying that it will create too large a burden on business and that, were the UK to take unilateral action on tax transparency and country-by-country reporting, it would negatively affect the UK’s tax competitiveness. The Minister is well aware that both those arguments apply equally to unilateral action on the diverted profits tax. Will she explain why the Government have used those arguments to block potential unilateral action on country-by-country reporting in the form of a public register, but are dismissive of the same concerns when they are raised by others regarding unilateral action on the diverted profits tax?

It is important to understand why the Government think that those arguments do not apply, because although we may disagree with the criticisms made by business, in particular in relation to the diverted profits tax, it is important to understand the values and philosophical thinking behind the Government’s approach, because that will give us an indication of where policy is likely to go. I would appreciate the Minister’s detailed comments on that.

Other hon. Members expressed concerns about the potential for legal challenge. The Minister is aware that there is substantial scope for discretion in the application of the new rules. Although I was not a tax specialist, as a former lawyer, whenever I see the word “discretion” I know that for lawyers it basically means that there is lots of money to be made—a point also made by other hon. Members. What assessment have the Government made of the possibility of challenges within both EU law and the terms of the UK’s various double taxation treaties? My working assumption was that conversations have already been had, particularly in relation to the double taxation treaties. Nevertheless, it would be helpful if the Minister could update us and perhaps also give further details on HMRC resourcing, particularly for known areas of risk of legal challenge.

The Exchequer impact was also mentioned. Given that the draft legislation casts a broader net than was anticipated in the lead-up to the autumn statement, it is unclear why the revenue associated with the measure is quite so low, comparatively speaking. For example, we know that Google and Amazon alone generate somewhere in the region of £7.5 billion of UK revenue between them. A £360 million tax boost at a corporation tax rate of 20% would imply taxable profits of £1.8 billion, which an aggressive interpretation of the rules could attribute to those two companies alone. The projected yield therefore implies some combination of caution and, potentially, significant ongoing royalty deductions from UK corporation tax, behavioural change, and the anticipation of legal challenges. Again, it would be helpful if the Minister could explain exactly what the Government had in mind when modelling the Exchequer impact of the changes.

Avoidance is a continuing issue. Whenever new rules are introduced, one of the first things we must all look for is the potential for avoidance opportunities. One method for avoiding the rules might be the relocation of businesses where the business model does not require a physical footprint in the UK. Have the Government done any work in consideration of such issues? The new rules read much more like a TAAR—targeted anti-avoidance rule. In the past year, I have had a number of discussions in Committee with the Minister’s colleague, the Financial Secretary to the Treasury, the hon. Member for South West Hertfordshire (Mr Gauke), about the use of targeted anti-avoidance rules to support the tax avoidance measures that the Government have introduced, and I have wondered whether we might also end up discussing a TAAR for this particular TAAR. Again, it would be helpful if the Minister could explain where the Government are coming from on that.

Has the Treasury done any modelling to take account of copycat or so-called retaliatory legislation from other countries? Could the UK ultimately be a net loser? We have some intellectual property-heavy sectors in our country, particularly pharmaceuticals and media. If other countries introduce similar rules, that would affect the UK, potentially making us a net loser. I am sure that the Treasury has done some work on such issues; we should know more about them in order to illuminate the debate.

Finally, where does the Minister think the new measures leave the general anti-abuse rule—GAAR—for which the Government legislated earlier in this Parliament? Tax lawyers in particular have commented that we are seeing much more complicated new legislation, rather than better use of existing legislation, including the GAAR and, potentially, transfer pricing rules and other elements of the tax system that people feel are currently not necessarily enforced. The combination of those two measures could have dealt with many of the issues that have been raised. Instead, the Government have decided to introduce an entirely new tax. Where do they think that that leaves the wider legislative framework?

The Opposition’s general approach is supportive, and we will seek to be constructive as we debate these issues further ahead of the Finance Bill 2015.

Stamp Duty Land Tax Bill

Shabana Mahmood Excerpts

Wednesday 10th December 2014 Commons Chamber

[Shabana Mahmood (Birmingham, Ladywood) (Lab)]

I am grateful to the Minister for his introduction to this Bill—I am only sorry he was not breathless with excitement today as he was last week when we first debated the stamp duty changes. He is, however, right not to spoil us with a repeat performance, and I was amused to see that we all arrived super-early for this afternoon’s debate.

I wish to indicate, as I did at the outset of last week’s debate, that we support these measures, and will be supporting the Bill on Second Reading and during its remaining stages. The Minister mentioned the procedural mechanism adopted to give effect to these changes: the Government moved a resolution under the Provisional Collection of Taxes Act 1968, which was passed last week in order to give immediate effect to the stamp duty measures unveiled in the autumn statement. We debated that motion the day after the autumn statement and today we move on to the Bill’s Second Reading. The Government have proceeded with a stand-alone Bill rather than await the next Finance Bill in order to give immediate effect to the stamp duty changes and thereby prevent distortions within the housing market. We recognise the importance of that and support the mechanisms adopted to give effect to this measure.

As the Minister said, stamp duty has been charged at a single rate on the whole purchase price of a property, with different rates for different value bands. When a property exceeds the threshold for a higher rate of duty, tax is charged at the higher rate on the whole value of the sale—this is the so-called ‘slab basis’—rather than on the part of the price above the threshold, which is the so-called ‘slice basis’. The tax has been charged on the slab basis for more than 40 years, and the slab basis design has caused much consternation and complaint, with regular calls for reform.

In recent years, stamp duty has come under the spotlight much more because of the increasing burden the tax has placed on home buyers, especially first-time buyers, as a result of the huge increases in house prices. Between 1997 and 2005, house price inflation averaged more than 10% a year, and the proportion of property transactions attracting stamp duty rose from about half to more than three quarters during roughly the same period. In order to assist buyers, and first-time buyers in particular, we have seen a number of measures designed to alleviate some of the burden caused by stamp duty under its previous structure. They focused primarily on thresholds and stamp duty holidays: the threshold was doubled in 2005; it was temporarily increased by £50,000 for one year in 2008; and it was doubled again for first-time buyers for three years from March 2010.

The burden of stamp duty, however, has continued to be significant, increasing by 30% between 2009-10 and 2013-14. The continued growth in the housing market has been the reason for the increasing stamp duty burden. In that context, today’s reform is sensible and has attracted support from across the House. SDLT rates will now only apply to the part of the property’s selling price that falls within each value band, and new rates and thresholds have been introduced.

I have a number of questions on specific elements of the changes, and I hope that the Exchequer Secretary will deal with them when she responds to the debate. The changes came in with immediate effect on 4 December. The Government have explained that those who had exchanged contracts before 4 December but who were completing on or after that date will be able to choose whether the old or the new rules apply. Will the Minister update us on how many people she anticipates will opt for one or other of those options, and what impact the changes have had on property transactions in the period immediately following the autumn statement?

The Financial Secretary to the Treasury made it clear both last week and this afternoon how Her Majesty’s Revenue and Customs has been giving advice on the implications of this reform. I think he said that the calculator on the Government website had been used 500,000 times last week. That figure has now gone up to 880,000. He also told us that the HMRC call centre was manned until midnight on 3 December when the changes took effect, and that HMRC specialists responded to 250 inquiries by telephone, and all but 3% of them were resolved immediately. Will the Minister update us on whether the remaining handful of inquiries have been followed up, and on what points were members of the public or their advisers seeking clarification? It would be helpful for the House to understand how the public are responding to these changes.

I also wish to press the Minister on the revenue implications of the measures. It is estimated that, in 2014-15, the reform will cost £395 million, which rises to around £760 million in 2015-16. That is a significant amount of money at a time when the public finances remain challenging to say the least. How certain is the Minister that the other measures in the autumn statement, which the Government say will raise enough revenue to offset the cost of this measure, will in fact raise the amounts that they hope? Today, the Government have published the draft Bill for the new diverted profits tax, which they say will raise £1.3 billion over the scorecard period. However, the Office for Budget Responsibility says that those numbers are uncertain, and, in its fiscal outlook, gives a new rating system to reflect the degrees of uncertainty over some of the figures in the autumn statement. For the diverted profits tax and the SDLT numbers, for example, it gives a medium to high uncertainty rating. What impact will that have, and how confident is the Minister that we will not have future debates on the failure of some of these measures to live up to the Government’s claims?

We have just heard how these changes will apply only to residential properties. The Institute for Fiscal Studies and others have queried why the changes have not been extended to cover commercial property, too. When I raised that point last week, the Minister said that the Government were not persuaded of the case, but it does seem odd to be running two different systems for the same tax, especially when the Government have acknowledged, as we all have, that the slab structure has a very distorting effect.

The Government say that the slab stamp duty system had a negative impact on labour mobility. Why do they think that the same will not happen in relation to business mobility? Perhaps the Exchequer Secretary can give us some more detail on the Government’s thinking in that regard. Has any assessment been done on the impact of retaining the slab system for commercial property, and on how competitive a place this country is in which to do business? Are there any plans to look at this matter again ahead of the general election?

Last week, the Minister said that the changes will have a positive effect on labour mobility and productivity, but the OBR says that the effect will be limited and highly uncertain, because while

“higher rates of stamp duty reduce households’ propensity to move, the adverse effect was confined to short-distance and non-job related moves—an impact less likely to have direct implications for GDP.”

Why do Ministers think slightly differently on the matter of labour mobility?

As the Minister has explained, the measures apply to Scotland only until April next year, as responsibility for this tax was devolved to the Scottish Government in the Scotland Act 2012. The Scottish Government have announced details of their land and buildings transaction tax, which also has a slice structure. The Scottish LBTT will apply to both residential and commercial properties. I want to press the Minister on what impact that will have on the rest of the UK when it comes to the question of where businesses choose to buy commercial properties. Is there a risk that England may be disadvantaged? The more favourable regime in Scotland, with the slice structure for commercial property, might mean that businesses avoid buying commercial property in England where the less favourable slab structure applies. What impact will that differential treatment of commercial property have on business mobility? Although devolution is an important process, as it puts decision making closer to the people whom it affects, we all want to avoid unhealthy tax competition among the nations of the UK. Has any assessment been carried out to consider the implications of such competition?

Of course none of the measures that we are debating today deals with the main cause of the biggest housing crisis for a generation, which is the lack of supply. Last week, I asked the Minister about how the stamp duty changes will impact on house prices. He said that there would be some impact, but that house prices are affected by a number of factors. I wish to press him and the Exchequer Secretary on the assumptions that the Government have made, and what outcome they would like to see when it comes to the interaction between the stamp duty changes and house prices. It looks like we are seeing a 1.4% increase in prices against a 1% reduction in stamp duty at the lower end, and it seems also that the tax take from stamp duty will rely on a 5% annual increase in property prices.

The OBR says that house prices will continue to rise faster than incomes, which will risk pushing home ownership further out of reach for many more people. Have the Government assessed how many more people might be priced out of the property market?

Measures to alleviate the burden on buyers are welcome, but we are experiencing the worst housing crisis for a generation and need much more action on housing supply if we are to get our housing market into better shape and help more young people and families to realise their dream of home ownership. I note the comments that the Financial Secretary to the Treasury made in his opening speech, but the truth is that we need to build many more homes than this Government have managed in their term of office. At the moment, the Government are primarily focusing on the demand side of the housing equation, whereas we, on the Opposition Benches, think that they should have taken the opportunity to balance things up on the supply side, too.

However, the measures before us today are reasonable and sensible. We support them, and I look forward to further debate in Committee.

Oral Answers to Questions

Shabana Mahmood Excerpts

Tuesday 9th December 2014 Commons Chamber

[Mr Gauke]

As I said a moment or so ago, in the two years since the 50p rate was reduced to 45p, a greater share has come from the top 1% than in the previous three years. There is a lesson to be learned there. It is probably the reason why the previous Labour Government had a 50p rate for only 35 days out of their 4,758 days in office.

[Shabana Mahmood (Birmingham, Ladywood) (Lab)]

Will the Minister rule out a further cut to the additional rate of income tax for the top 1% of earners? Will he rule out another tax cut for millionaires?

[Mr Gauke]

The priority of the next Conservative Government will be increasing the personal allowance to £12,500, and the rate at which higher-rate taxpayers pay the 40p rate to £50,000 a year. The truth is that our focus is on ensuring that we can lift people out of income tax, which is not a record of which the previous Government can boast.

[Shabana Mahmood]

I will take that as a no. The Minister has failed to rule out another tax cut for the richest 1% of earners in our country. As he signalled in his answer, the Prime Minister has made £7 billion-worth of unfunded tax promises for the next Parliament. We did not find out in the autumn statement where the money is coming from to pay for these promises, so unless the Minister can stand at the Dispatch and categorically rule out raising VAT again, will not people just conclude that the only way the Chancellor can pay for his unfunded tax promises is with another Tory VAT rise?

[Mr Gauke]

Our plans do not require us to raise taxes. [Interruption.] The shadow Chief Secretary, the hon. Member for Nottingham East (Chris Leslie), is heckling, but I have to say that when he was asked that question on television last week, he refused to rule out raising VAT. Our plans do not require taxes to rise, unlike—I have to say—those of the Labour party.