Corporate Tax Avoidance

Debate between Simon Hughes and Michael Meacher

Monday 7th January 2013 Commons Chamber

[Mr Michael Meacher (Oldham West and Royton) (Lab)]

I sincerely congratulate the hon. Member for Redcar (Ian Swales) on securing this debate, which has been much needed for a very long time. He raised a series of important issues and I strongly endorse the gist of his recommendations. I shall explore a little further the reasons why the tax system has been corrupted in the way that he suggested, and therefore what needs to be done.

A conventional view and a charitable view is that the Government do the best they can, but are outgunned and outmanoeuvred by all those smart tycoons and multinationals who employ an army of accountants and lawyers to run rings round the flat-footed regulators and tax inspectors who are always behind the curve. That is, in my view, a pastiche of the truth. The reality is that Government, as I will show, far from cracking down on tax dodgers, not only turn a blind eye to all but the most egregious examples of tax misfeasance, but actually promote some of the most brazen examples of tax avoidance. I will come on to that.

This is scarcely surprising when the whole apparatus of tax policy has been captured by the corporate interest. The so-called clamp-down which the Government are promising will be run by the former City corporate tax lawyer and former Tory special adviser, Edward Troup, who is now in charge of tax at HMRC. It will be overseen by the HMRC chairman, Ian Barlow, who ran the most aggressive tax avoidance schemes for KPMG. Even the HMRC’s ethics committee is chaired by Phil Hodkinson, who is a director of the Resolution insurance company based in a tax haven. All that tells a pretty clear story.

As we all know, corporation tax avoidance has become a hot political issue only as a result of the relentless highlighting of it by analysts such as Richard Murphy of Tax Justice Network and journalists such as Tom Bergin of Thomson Reuters and Richard Brooks of Private Eye, as well as campaigners such as UK Uncut. Why is it left to voluntary campaigners to nail the tax dodgers who are cheating honest taxpayers and the Revenue out of, according to the Government, £35 billion to £40 billion a year? That is equal to about a third of the total deficit and the sum is probably a considerable underestimate.

One answer might be that the banks, which are by far the biggest tax dodgers, pay half the Tory party funds every year. [Interruption.] The Minister should not just shake his head. These are facts which are highly relevant. The multinational companies, which are the second biggest tax dodgers, pay most of the rest. If, instead of all the rhetoric that we get from the Prime Minister and Chancellor about moral repugnance and abhorrence, the Government were seriously concerned about stopping industrial-scale tax avoidance, let them answer three questions. If the Minister wants to answer them in my time, he is very welcome to do so.

First, since we all know that the really big numbers are not the tiddly Jimmy Carrs of this world but the transfer pricing by multinationals, why do the Government not bring in country-by-country reporting, which at a stroke would put a stop to the artificial switching of tax liability to low tax jurisdictions for no other reason than simply to avoid tax? I do not know whether the Minister wants to answer. Perhaps he will.

Secondly, since many, if not a majority, of the world’s most used tax havens are UK-controlled overseas territories and Crown dependencies, why do the Government not close them down? Why are not all such countries and territories—the Cayman Islands, the British Virgin Islands, Bermuda, Jersey and so on—required automatically to hand over details of income, assets and finance structures such as trusts to the UK authorities? This is the point that the hon. Member for Redcar made. If territories fail to comply, why do the Government not refuse to recognise the validity of any financial transactions emanating from them, as well as through domestic tax law, making it far harder, which the Government could well do, to get money into the recalcitrant tax havens in the first place?

The simple answer is that the Government could do that perfectly well and very effectively, but they will not do so because they do not want to, because their corporate and financial backers would scream blue murder if they ever tried to do so, and this is a very feeble Government, who are quite willing to bash the weak through benefit cuts but are not prepared to stand up to the strong.

[Simon Hughes (Bermondsey and Old Southwark) (LD)]

I have great respect for the right hon. Gentleman, who has been consistent in pursuing the issue, but his last criticism is completely ill-founded. I do not speak as somebody who backed the previous Tory Governments or the previous Labour Governments when they failed to deal with the issue for years and years. Looking objectively, I have seen far more action from the Treasury under this Government than I saw under 13 years of the Labour Government whom he supported.

[Mr Meacher]

The right hon. Gentleman, whom I respect, wishes to raise a partisan issue when we are discussing something of much greater importance. Perhaps I can satisfy him by saying that I entirely agree with him. New Labour was just as bad as the Tories and I fully recognise that, but let us turn to where we are and what we ought to do about it.

The third question is this: if the Government are serious about tackling tax avoidance, why are they cutting the number of tax inspectors, many of whom recover more than 100 times the cost of their salary? In 2010 there were 68,000 of them. There are now far fewer. The problem is that when the Chancellor gives his dog-whistle that Britain is open for business, part of that coded message is that Britain is open for tax avoidance, and there will be far fewer tax inspectors nosing about and prying into shady practices.

While the Government have ostentatiously avoided all the actions that will end the transfer of tax avoidance, the truth is even worse. They are now drawing up measures which, frankly, will rip the guts out of the laws that safeguard the nation’s corporate tax base. They have exempted from tax multinationals’ foreign profits, but allow tax relief for the costs of funding them. In effect, that turns the UK itself into a corporate tax haven, which incentivises multinationals to shelter income offshore and to place real business overseas, using the UK as a worldwide platform for tax avoidance.

The Government are now going even further with the CFC—controlled foreign companies—rules. From January 2014, multinationals that open a finance subsidiary in a tax haven will have their corporation tax, as staggering as it may seem, reduced from the current 23% to 5.5%. In future, therefore, multinational companies really need not bother with tax avoidance any more, because the Government are serving it up to them on a plate.

The latest wheeze that the Government have come up with is the patent box. If a company has a product with a small patented component, it will qualify for a 50% cut in its corporation tax—that is 10% from April 2017—not only on that product but on the whole of its profits.

A third example is the general anti-avoidance rule, which the Government portray as their flagship measure against tax avoidance. Actually, it is the reverse. By being narrowly drawn it will block the worst kinds of tax avoidance, but by the same token—