Tax Avoidance and Evasion

Vince Cable Excerpts

Tuesday 14th November 2017 Commons Chamber

[Sir Vince Cable (Twickenham) (LD)]

I congratulate the right hon. Member for Barking (Dame Margaret Hodge) on introducing the debate, and I agree with very much of what she said.

It will be useful to go over a little the chronology of how tax avoidance measures have evolved in recent years. If we go back to 2010, the main source of industrial-scale tax avoidance was not in the British Virgin Islands or the Cayman Islands. It was a few miles down the road in the City of London, where industrial-scale activity was taking place in the big banks such as Barclays. There was a man called Jenkins, who was the head of the tax department in Barclays and was paid £40 million in one year for his contribution to avoiding tax that should have gone to the Treasury. The agreement that the Government then had with the banks was so loose that they perpetuated it indefinitely until there was a change in Government. My Lib Dem colleagues and I pressed the then Chancellor very hard and such activity was made illegal and, as far as I am aware, has largely stopped.

The next big step was the introduction of the general anti-avoidance principle, which was important in clarifying the murky area between avoidance and evasion. It is now clear that if individuals or their advisers engage in activity that is specifically designed to circumvent the intentions of Parliament, they can be pursued. Many of us have constituents who are being pursued, rightly, by HMRC and who are in substantial arrears. I hope that one of the good things that comes out of the Paradise papers is that HMRC has a substantial list of names and can now investigate whether those names have subscribed to the law as it is now redefined. As I understand it, HMRC pursued 65 individuals for £100 million a year after the Panama papers. That is a positive step and something to build on.

The third step in the evolution of tax avoidance measures was the introduction of the open register of beneficial ownership, to which various Members have referred. I know a little bit about it, since I was the Secretary of State who brought it here and took it through Parliament, together with the abolition of bearer bonds. It is fair to say that David Cameron was supportive of that at the time, but that he was slightly less impressive when it came to standing up to lobbying from the Crown dependencies and overseas territories.

[Dr Rupa Huq (Ealing Central and Acton) (Lab)]

The right hon. Gentleman mentioned David Cameron. Does he agree that much was promised after the flourish of the anti-corruption summit in May 2016—how long ago it all feels—and none of it seems to have been delivered. The anti-corruption champion, Eric Pickles, stood down and it seems that the Government have completely forgotten that the post existed at all. We were promised a strategy in 2016, but we are now being told that that will be in 2018.

[Sir Vince Cable]

I think I was in political exile at that time so I cannot testify one way or the other, but I was in government when we introduced much stronger anti-corruption measures in 2011.

As far as the register is concerned, the argument that the overseas territories and Crown dependencies advanced was that they had to keep information secret because of privacy concerns, but precisely those same privacy concerns applied to the UK. Where there was a genuine concern about privacy—for example, when people were worried about being pursued by animal rights terrorists—that has been protected, so that was a transparent and weak defence. Many things that the overseas territories do are, in fact, perfectly reasonable. There is no reason why people should pay double taxation, but serious anti-avoidance activity should be pursued.

I hope that the Government will now be much more aggressive in pursuing the issue of the open register. They could give the overseas territories a deadline for the introduction of an open register. If the overseas territories do not comply, a series of sanctions could be introduced—for example, initially stopping companies registered there bidding for public contracts. Of course, the ultimate sanction is what happened in the Turks and Caicos Islands in 2009, when there was direct rule. If overseas territories egregiously avoid taxation in a way that seriously damages the UK, that is the kind of measure that should be introduced.

Much of the discussion we have had—the right hon. Member for Barking said this in her introduction—is not about individuals but about companies, because the scale of avoidance is much greater.

[Bambos Charalambous (Enfield, Southgate) (Lab)]

Will the right hon. Gentleman give way?

[Sir Vince Cable]

I have limited time.

We are all familiar with the way in which some of the big internet platforms avoid large amounts of taxation simply by manipulating prices and by the way they account for intellectual property liabilities. The Government’s response has, frankly, been very weak, and it is significant, in the light of the current Brexit debate, that the one institution that is seriously going after those companies is the European Commission. Margrethe Vestager’s actions in the Competition Commission are highly competent and effective, and many of us worry that, if Brexit happens, all that energy will disappear.

I have one practical suggestion—a very simple thing the Government could do—to deal with corporate tax avoidance. It is a simple regulation that would require large companies registered here to declare, first, their total UK revenues and then their total UK expenses. It would then be immediately apparent whether there was a tax liability that had not been met, and a simple levy in lieu of tax payment would bring some of those companies to book in a reasonable way.

Let me make one final point. The reason there is so much indignation about this question is not simply that tax is being avoided, but that many of our constituents are being aggressively pursued for tax avoidance at a much pettier level. At present, a big crackdown is taking place on what are called IR35 companies. These are contractors for the health service, and they are often software specialists. There is undoubtedly a certain amount of tax avoidance in relation to national insurance, but these companies are being pursued in a highly aggressive way that the Government do not use in pursuing much bigger fish. We are now being told that the VAT tax threshold could be considerably lowered in the Budget to stop tax avoidance, but that would effectively draw a large number of small companies into the tax net. It is the pettiness of such measures, contrasted with what happens on large-scale avoidance, that attracts so much ire and anger from the public.