Tax Avoidance (Offshore Trusts)

– in the House of Commons at 10:54 am on 21st January 1998.

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Photo of David Maclean David Maclean Conservative, Penrith and The Border

While it is always a delight to see the Financial Secretary in her place, I regret that the Paymaster General is not here to listen to the debate and reply to it. In accordance with the conventions, and out of courtesy, I dropped him a note on Monday saying that I intended to refer to him in my speech today. So it is an additional source of regret that he has not seen fit to be here in person and is letting the Financial Secretary answer questions on his behalf. We also saw that last week in Treasury questions.

I am delighted to have this opportunity to debate tax avoidance and offshore trusts. It is timely for three reasons. First, the Budget is less than two months away and we can soon expect to hear what progress has been made on the Government's plans for a general anti-avoidance law. Secondly, the taxation of offshore trusts is under review. Thirdly, that review has been steered by a Minister who is closely linked with a Guernsey-based offshore trust. Some might say that that makes the Paymaster General uniquely well qualified to conduct a review of offshore trusts. Others might say that he has a severe conflict of interest and that, for that reason and for others which I shall explain later, his position has become untenable.

No one likes to pay more tax than he has to. So I make no criticism of anyone who takes legitimate and legal steps to minimise his tax liability. However, where genuine loopholes exist, where unforeseen gaps in the tax system allow people who clearly should be paying to avoid tax altogether, the Government should act. Blocking loopholes helps to keep tax rates low for everyone. That is a principle which guided the previous Government. Our last Budget stepped up the campaign against people who cheated the system. We wanted to protect genuine taxpayers who paid their fair share.

The Inland Revenue was given extra funds to step up its work on the black economy, on income tax compliance and on corporate tax avoidance. Her Majesty's Customs and Excise received an extra £88 million to boost its campaign against excise fraud and VAT evasion.

Of course, there are other ways to prevent tax avoidance. More intensive policing of the system is not the only way. The best way is to keep the system simple in the first place. The fewer taxes there are, the fewer reliefs, exemptions and allowances are available, the less potential there is for tax experts to work the system to their advantage. That is one reason why we were working steadily towards the abolition of inheritance tax and capital gains tax. Both are surrounded by a thriving industry of accountants and lawyers specialising in tax avoidance. When my right hon. Friend the Member for Charnwood (Mr. Dorrell) was Financial Secretary, he made the Conservative Government's position on tax evasion clear. He said: The Government remain determined to prevent the growth of tax avoidance to the level that existed before 1979. And over the last 14 years a large number of measures has been introduced to counter avoidance, including some in the present Finance Bill. … But there is a point where avoidance can be regarded as improper and unacceptable, deserving to be looked at critically, and deserving to be stopped."—[Official Report, 18 June 1983; Vol. 226, c. 761.] That is what he said, but what about the present Chancellor of the Exchequer? In Treasury questions last week, he said from the Dispatch Box that when my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley) was Financial Secretary to the Treasury and was asked to take action on offshore trusts, he said that:'It would impose a substantial and unreasonable burden on business.—[Official Report, 15 January 1997; Vol. 304, c. 482.] So there we apparently have it. The Chancellor gave the House the impression that the previous Government, when asked to take action in 1990, did nothing.

Naturally, I looked up the quotation that the Chancellor used. I can only assume that it is because of what No. 10 calls deep psychological flaws in his character that his imagination has run wild with the actuality. The shadow Chancellor, my right hon. Friend the Member for Hitchin and Harpenden, was asked a question by the then Member of Parliament, Mr. David Shaw. It will enrage the Prime Minister when he discovers that his Chancellor has been using with approbation answers inspired by David Shaw. David Shaw asked my right hon. Friend to consider a complicated system of prior notification whereby all companies, all trusts and individuals would have to inform the Inland Revenue of any proposed transactions between themselves and a tax haven. My right hon. Friend said in reply: The Inland Revenue devotes substantial resources to countering tax avoidance and evasion, including the kind of offshore transactions involving tax havens to which the questions refer. Where appropriate, the Government would not hesitate to bring forward such further legislation as was found to be necessary. To require general notifications of business transactions with tax havens would, however, impose a substantial and unreasonable burden on business."—[Official Report, 10 January 1990; Vol. 164, c. 705–06.] There is the true and accurate quotation. We can all now see why the No. 10 spin doctors are so keen to correct the Chancellor's perceived version of events in everything that he says and does.

Photo of Mr Peter Snape Mr Peter Snape Labour, West Bromwich East

We are all following what the right hon. Gentleman has to say with interest. Will he comment on the reports that a donor to the Conservative party based in Hong Kong had an offshore trust in Taiwan? This donor was known as White Powder Ma for some reason about which I am not too sure. He wanted back the £1 million that he had donated to the Conservative party because the previous Government failed to spring his father from gaol. I hope that the right hon. Gentleman will mention that as he goes through.

Photo of David Maclean David Maclean Conservative, Penrith and The Border

That is nothing to do with this debate. The one thing that occurs to me is that that donor apparently gave £1 million to the Conservative party and the policy did not change. Bernie Ecclestone gave £1 million to the Labour party and got the policy changed.

Photo of David Maclean David Maclean Conservative, Penrith and The Border

The hon. Gentleman is an experienced hand. He has been here slightly longer than I have. He knows that I will not be deflected this early in the debate.

When my right hon. Friend the Member for Hitchin and Harpenden was Financial Secretary, he said that further legislation would be introduced if necessary. Indeed, further legislation was introduced. The most important change in the way in which individuals are taxed on their holdings and offshore trusts was introduced by the Conservative Government in 1991. In his 1991 Budget speech, the then Chancellor, Norman Lamont, argued: I do not think that it is right for a relatively small number of wealthy people to shift very large assets into offshore trusts simply in order to avoid United Kingdom tax."—[Official Report, 19 March 1991; Vol. 188, c. 174.] As a consequence of the Conservative legislation in 1991, United Kingdom residents transferring assets to an offshore trust for the benefit of themselves or their family are now liable for capital gains tax. It is notable that in a recent article in Accountancy Age on the possibility of a Labour Government cracking down on offshore tax avoidance via trusts, the chairman of the Jersey Fund Managers Association was quoted as saying: The Conservative Government already levelled up the playing field. I don't think a Labour Government holds any particular worries for us. So while the Chancellor huffs and puffs in the House trying to pretend that the previous Government did not take action on offshore trusts, the view of the operators of the trusts is that the legislation passed by the Conservative Government removed so many tax advantages that they have no fear that Labour can make it much tighter.

However, the present Government have a long record of commitment to tighten up on offshore trusts. Back in 1993 the Chancellor published a Tribune pamphlet entitled "How to tackle tax abuse". His argument was simple. He argued that £10 billion could be raised by a combination of a windfall tax on the privatised utilities and the closing of tax loopholes. As he wrote at the time: The Chancellor should end the tax abuses which reach to the heart of our public finances by indulging the super rich at the expense of all the rest of us". On offshore trusts, the Chancellor wrote: As the law stands, offshore owners of UK assets, including companies, shares and land, pay no CGT when they trade in these assets. A UK resident can transfer assets to an offshore trust and the trustees can then make payments to beneficiaries in the UK, avoiding much tax liability. That was in his pamphlet "How to tackle tax abuse." I am sure that the Paymaster General can confirm the accuracy of the Chancellor's account of how one avoids paying tax.

Just a year later, the then shadow Chancellor returned to the fray, publishing another paper, entitled "Tackling Tax Abuses, Tackling Unemployment". He noted: The abuse of offshore trusts and companies continues", and added: All Governments owe it to their people to take action against the persistent few who, at the expense of everyone else, shelter their wealth overseas whilst seeking to enjoy the benefits financed by those who pay their tax at home". In his speech to the Labour party conference, he pledged: A Labour Chancellor will not permit tax reliefs to millionaires in offshore tax havens. Therefore, it was no surprise when the Chancellor used last November's pre-Budget report to promise a general anti-avoidance measure on the ground that closing loopholes one by one is no longer a satisfactory response to the continual inventiveness of tax planners". That then seems to be the Chancellor's plan—a general anti-avoidance catch-all measure. I shall be interested to find out how the Government go about putting such a provision together, especially as one commentator said: As a matter of principle, we believe that the citizen is entitled to know where he or she stands before the tax law. A catch-all provision that came into play when all else fails, is unacceptable in a fair tax system. Who is that commentator? Why, it is the Chancellor himself, writing in 1994, but we all understand that much has changed for him since then. At that time, he thought that he would like to be the Prime Minister; now he thinks that he is the Prime Minister.

The Government's position on offshore trusts is clear. They want to tighten the tax rules, so how embarrassing it must have been when it began to leak out that the Paymaster General had his own offshore tax haven. Although he has been reluctant to give the full facts, which have been extracted from him painfully over the past six weeks, we know at least that he is a discretionary beneficiary of the Orion trust, a Guernsey-based fund which was established by his late Belgian friend and business associate Madame Joska Bourgeois.

Madame Bourgeois was a remarkable woman. She made a £30 million fortune selling Jaguars to the Belgians. How many Belgians were so keen to buy Jaguar cars in the early 1980s that that car dealer made a fortune out of it? I confess that I do not know of any other dealer who made money out of selling Jaguar cars, with their famous reliability in the early 1980s, before Edwardes turned the company around. This is a case for Hercules Poirot to investigate.

I have no objection to any individual benefiting from such a trust, provided that he complies with the law, but most decent people, including many of those who voted for the Labour party at the last election and who apparently are now deserting it in droves, cannot stomach the blatant double standards that this sorry affair has exposed.

The Government clearly oppose offshore trusts, yet the Minister in charge of the policy has such a trust himself. Even worse, his plans for individual savings accounts will cut tax relief for many thousands of savers with more than £50,000 in personal equity plans and tax-exempt special savings accounts, yet he has the benefit from at least £12 million that is stuffed into a secretive tax haven, avoiding tax all together. No wonder he has been accused of hypocrisy and by no less a person than the Deputy Prime Minister, who said on "Breakfast with Frost": You may argue that the politician"— the Paymaster General— has said one thing and perhaps done another. That seems to be the greatest charge against him. That charge is hypocrisy and how true it is. At least that was the greatest charge against the Paymaster General on 14 December.

To understand the complex web of dealings in which the Paymaster General has enmeshed himself, we must first understand the nature of the Orion trust. Gavin Lumsden, writing in The Times on 20 December, described various types of trusts and went on: The Orion Trust in Guernsey, of which Mr. Robinson is a potential beneficiary, does not conform to any of the tax rules, not because it is an offshore haven, but because the woman who set it up, Joska Bourgeois, was a non-UK resident and therefore outside the scope of UK tax law. Because she died in 1994, Madame Bourgeois, a Belgian national living in Switzerland, had effectively put Orion beyond the reaches of the UK taxman forever. Because of this, Orion can grow its assets tax-free and distribute the capital to beneficiaries in the UK who have no tax to pay. The implications of this for Mr. Robinson were enormous when last year he was given the right to buy shares in Trans Tec, a company he founded. Mr. Robinson could have subscribed to the shares but would have had to pay tax on any increase on their value whenever he came to sell them. He could also have sold his rights to a third party, but that would have denied him the benefit of growth in the shares' value. Instead, Mr. Robinson sold the right to buy the shares to Stenbell, another company he owned, which sold them on again to Orion. By transferring them to Orion he could be confident that a trust, of which he was a potential beneficiary, could benefit from the growth in the shares free of tax.According to Mr. Fitzpatrick of Chantrey Vellacot (accountants) it is 'a classic case study in how to use an offshore trust.' The effect of this could be dramatic if the Trans Tec shares continue to perform. In the past two years they have doubled in value. Orion now owns £13 million of the company shares. If they were to double again, the trust will have gained £13 million. Ordinarily, this would produce a £5 million Capital Gains Tax bill—but not for Orion or Mr. Robinson or any other beneficiary of the trust. That is the view of the experts: it is a classic case study into how to use an offshore trust for tax-avoidance purposes.

Photo of Mr Ian Bruce Mr Ian Bruce Conservative, South Dorset

Does my right hon. Friend agree that the one thing that should have happened is that all those transactions should have been totally at arm's length and done on the basis of true value? Are we to assume that the Paymaster General has extraordinarily short arms?

Photo of David Maclean David Maclean Conservative, Penrith and The Border

My hon. Friend makes an interesting point. I shall come to the arm's length attempt when I discuss Stenbell Ltd., but I must set out the chain of events if the House is to understand what has gone on. I have researched this in some detail, but I shall try to be as brief as possible. The House will find that the Paymaster General has attempted to put himself at arm's length from the Orion trust.

The Paymaster General has so far failed to answer several questions about the Orion trust. It was set up by the executors of Madam Bourgeois's will following a bequest in her will. The Paymaster General was one of her executors who had to set up the trust. He was the executor of her will from when she died in 1994, but he resigned abruptly in 1996, just a few months before the trust opened for business in Guernsey.

Who are the trustees? The Paymaster General will not tell us, except to say that they are independent. Offshore tax experts believe that they are professional trustees who manage various trust portfolios and that they are linked to a trust management company called Richmond Corporate Services. The first question that the Paymaster General has to answer is: did he, when he was executor of Madam Bourgeois's will, have any part in the selection of Richmond Corporate Services?

The Paymaster General and seven other family members are discretionary beneficiaries. The independent trustees advise the trust and decide when and how much to pay, but, as the settlor of the trust, Madam Bourgeois, is dead, the normal modus operandi is for trustees of discretionary trusts to have a so-called "letter of wishes" from the individual whom they regard as their client, so that they can administer the trust as required. The second question for the Paymaster General is: has he ever written a letter of wishes to the Orion trustees? If he has, he has been even more economical with the truth than we have believed so far.

In June 1996, TransTec, the Paymaster General's highly successful company, of which he is chairman, decided to raise £58 million by a rights issue of five new shares for every nine. The chairman of TransTec, the Paymaster, had the right to buy 9,805,550 shares at 103p each—a discount on the market price. But the Paymaster did not take up the shares personally. He sold the rights to buy them to a company called Stenbell Ltd. Stenbell Ltd. has two directors; the Paymaster General is one. He says that he did not take up the shares himself because he could not afford to. He was quoted as saying on weekend television: I didn't have the £10 million handy to do it but apparently his own company, Stenbell, did have the £10 million handy to do it.

I have obtained the notes to the Stenbell accounts for the period ended 31 May 1997. They make interesting reading: Stenbell has an authorised share capital of 1,000 ordinary shares of £1 each. It only has two ordinary shares of £1 each allotted, called up and fully paid, and guess whose they are?

So is Stenbell a going concern? The notes to the Stenbell accounts say: At the period end, the company had a deficit of assets over liabilities of £240,850. The continued trading of the company is dependent upon the continued support of its principal creditor, the Geoffrey Robinson Personal Settlement. In the opinion of the directors, this support is likely to be forthcoming for the foreseeable future, as evidenced by a further injection of loan capital since the year end. Accordingly, in the opinion of the directors, it is appropriate to prepare the statements on a going concern basis. That is pretty clear, is it not? Stenbell has no assets whatever except those that the "Geoffrey Robinson Personal Settlement" give it.

Therefore the third question for the Paymaster General is: did the "Geoffrey Robinson Personal Settlement" finance or guarantee the money so that his company, Stenbell, could buy the £10.1 million of shares from his company, TransTec?

As we now know, Stenbell did not retain the shares. They were sold to the Orion trust, whose trustees are, supposedly, independent, and if tax is to be genuinely and legally avoided, those trustees must operate without any influence from the Paymaster General. Indeed, when this affair broke, the Paymaster General's solicitors confirmed the independence of the trustees. His solicitors, Titmuss Sainer Dechert, rushed out a letter to The Observer, on 8 December 1997, stating: Our client did not appoint the trustees of the Orion Trust, who act entirely independently of him and are not controlled, or their decisions influenced, by him in any way; the trustees of Orion make their own decisions. They threatened immediate libel proceedings if the newspaper continued to publish further reports—threats which were all bluff and have now been quietly dropped.

However, a few days later, the Paymaster General moved from threatening legal offensives to a charm offensive, when he gave extensive interviews to the Sunday media. Among other things, he told us that he did influence the Orion trust to buy the TransTec rights issue that he had sold to Stenbell. As the Paymaster General is an honourable man and a Member of the House, I believe him. He did influence the independent trustees, or as he says: I did suggest that they took up the rights issue and they did". I can only conclude that, as the Paymaster General is an honourable man, Titmuss Sainer Dechert have the psychological flaw that the Prime Minister sees in his Chancellor, and that they, his solicitors, lied, lied and lied again in their letter of 8 December when they said that the Orion trustees did not have their decisions influenced by Her Majesty's Paymaster General.

Later, the same independent trustees were to jump at the Paymaster's next "suggestion", to buy his shares in Coventry City football club, which they did. Why should those apparently independent, professional trustees, listen to the Paymaster's suggestions unless they had a letter of wishes from him, as their principal beneficiary, giving guidance on how they should act?

I must accept that the Paymaster has operated the rules cleverly and well. Indeed, he is a highly successful and clever business man. He is the only man in history to buy a company from Robert Maxwell and find that it actually has more assets than liabilities. It is not appropriate today, but the Paymaster General's earlier dealings with Robert Maxwell deserve a thorough investigation. However, as far as the Orion operation is concerned, he would no doubt have succeeded if it were not for his public position now and the investigations of the press.

Let us consider the chain of events in summary. The Paymaster is executor of Madam Bourgeois's will, but resigns just before the Orion trust is operative. At the same time, his company, TransTec, planned to have a rights issue which will gain him almost 10 million new shares. He sells the rights to those shares to his company, Stenbell, which buys the shares—presumably financed by the "Geoffrey Robinson Personal Settlement"—and sells them on to the offshore Orion trust, which just happens to have acted on his suggestion to buy them. Why involve Stenbell? That is simply to add another link to the chain and make it look more like an arm's-length operation. If Orion bought the shares directly from the Paymaster General, he could be deemed by the Inland Revenue to be the settlor of the shares, and full income tax liability would attach, as a result of legal changes made by the previous, Tory, Government.

It is a classic case of the use of intermediate companies and offshore trusts to avoid tax on a massive scale, perfectly legally. The Paymaster's dealings have been designed to persuade the Inland Revenue that he was acting at arm's length.

We need to consider two further curious little events. The first concerns an interesting note that I found in the Stenbell accounts. It says that for the period ending 31 May 1997, Stenbell sold on shares to the Orion trust: A Trust in which Mr G Robinson MP is a beneficiary". Note the wording "a beneficiary", not a discretionary beneficiary, as we had been told by the Paymaster.

Therefore, the fourth question for the Paymaster General is: are the Stenbell accounts, which he has produced, from a company that he controls, wrong? Have they misrepresented his actual position as a potential discretionary beneficiary, which he tells us that he is? We need to know.

Then there is what I call the "eve of poll affair." The eve of poll was not a happy night for me and many of my Conservative colleagues, who saw election defeat looming, but it was a great day for the Paymaster General. Not only did he sense victory on the morrow and a job in Government, but the Orion trust was suddenly informed that another 2.95 million TransTec shares were to be settled on it. The Paymaster General says that he knows nothing about it. He says: You'd have to ask the settlors that. I'm not briefed"— but apparently the settlor was the late Madame Bourgeois and, of course, the Paymaster General was the executor of her will before he resigned just before the Orion trust became operative and he could be a beneficiary.

Surely it is uncharacteristically careless of the Paymaster, the successful and clever business man, to have, shall we say, "mislaid" 2.95 million of his own company's shares, which he failed to settle on the Orion trust, of which he is a beneficiary, at the outset, but which was then settled by a deed of arrangement, completed on 30 April, the eve of the general election. And the Paymaster General says that he has no idea how that convoluted state of affairs and amazing coincidences came about. I am afraid he must tell us.

The next question to the Paymaster General is: who informed the Orion trust of the 2.95 million missing TransTec shares, and why were they not transferred with the original bequest?

The Paymaster says that we need to ask the settlors that. No we do not. We are asking the Paymaster that question. He is the one who needs to come clean. We have no influence on the settlors of the Orion trustees, but we know that the Paymaster has. If the Paymaster General can influence them to buy his TransTec and Coventry City shares, surely he can influence them to tell him the circumstances surrounding this extraordinary share transfer—and then he can tell the House of Commons. It is about time he said something in the House of Commons about his dealings.

The legal technicalities of offshore trusts have served the Paymaster well. Apart from the tax avoidance advantages, they have enabled him to shelter behind highly evasive answers to parliamentary questions. As the House can see, this is a complex matter which is difficult to set out simply. That has enabled the Paymaster General to hide behind arcane offshore trust law. But slowly and surely, the complex web of his transfers and share dealings has been untangled, and day by day his position becomes more untenable.

The latest ministerial code, revised and endorsed by the Prime Minister—the one I have still refers to Ministers' spouses, not their partners—states: Ministers must scrupulously avoid any danger of an actual or apparent conflict of interest between their ministerial position and their private financial interests". The Prime Minister says that the Paymaster General has followed the code—that he has avoided any apparent conflict of interest. But in his television interviews, the Paymaster General has admitted that on some issues he has given advice to the Chancellor of the Exchequer which goes against his own financial interests.

Thus if we take the Paymaster's version of events, which I believe to be true, as a Minister of the Crown he has looked at the policy options on tax evasion which his Treasury civil servants have provided, and he has advised the Chancellor to adopt an option or options disadvantageous to his personal financial interests. That is a noble thing for him to have done, but it is still a clear contravention of the ministerial code. That code, endorsed by the Prime Minister, does not advise Ministers to act against their personal interests when they face a conflict of interest. It tells them to avoid any "actual or apparent" conflict in the first place.

I must admit that the Prime Minister is showing more resolve in bluffing out this flouting of the code by the Paymaster General than the latter showed with his threat to sue the press for libel.

The Paymaster General is the Minister responsible for corporate taxation and general accounting issues in the Treasury. It is not possible for him to avoid any apparent conflict of interest so long as he is a discretionary beneficiary of an offshore tax haven. The ministerial code is quite specific: In some cases it may not be possible to devise such a mechanism … in such a case, it may be necessary for the Minister in question to cease to hold the office in question". The Prime Minister even states in the foreword: I will expect all Ministers to work within the letter and the spirit of the Code". If the Prime Minister is to follow his own code, he must immediately ask for the Paymaster General's resignation.

That, of course, is not how this Government of pals and cronies act. We read that when the code was about to be flagrantly breached by the Foreign Secretary, the Prime Minister apparently revised it to accommodate his right hon. Friend's private arrangements.

The Prime Minister has stood loyally by his friend the Paymaster. We read that they are very good friends; indeed, on at least two occasions the Paymaster General has put his luxury villa in Tuscany at the disposal of the Prime Minister and his family. My reading of the press reports suggests that this is not a self-catering "bring your own sheets and flea powder" establishment. It is apparently a very high-class joint—the sort of place I am not allowed into. I have not tried to calculate how much more four weeks in Tuscany in a luxury villa in August might cost than, say, a few nights in the Ritz hotel in Paris. No doubt others will do the calculation for me.

There is also a new angle on which the Prime Minister must act—now. Because of revelations concerning the influence that the Paymaster General exerted on Orion to buy his TransTec shares, and the probability that he has therefore tainted the offshore trust and technically brought it onshore, it is said that the Inland Revenue is investigating his links with the Orion trust. Is that true? The normal rules ensuring strict client confidentiality for ordinary citizens in their tax affairs are absolutely right and proper. But this is no ordinary citizen: this is a senior Minister in Her Majesty's Treasury with special responsibility relating to taxation who may be under investigation for tax avoidance. He cannot therefore shelter behind the client confidentiality rule. He must answer the question, and answer it soon. Is the Paymaster aware of any Inland Revenue investigation into the TransTec shares transfer to the Orion trust, or into his influence on their purchase? On that he must come clean.

Furthermore, has the right hon. Gentleman now told the permanent secretary at the Treasury, Sir Terry Burns, the full facts? I feel sorry for the permanent secretary; like all good perm secs of my experience he will do his utmost to defend his Minister and protect him from his own folly. The Paymaster General said in a statement of 29 November: I informed him"— the permanent secretary— that I was a discretionary beneficiary under a trust established for my family. After advice from the Permanent Secretary and Titmuss Sainer and Dechert, I decided in accordance with their advice, that there was no need to include this in the blind trust arrangements, since I was a discretionary beneficiary. It is interesting that Sir Gordon Downey took a different view when he looked into the matter, but I shall not go into that today. I am concerned with the Paymaster General's dealings as a Minister of the Crown, not with any failure on his part to register his interests as a Member of Parliament.

What would the permanent secretary to the Treasury say now that more of the truth has come out? Wisely, like any great man who has been duped, he is saying very little. He has still not replied to the shadow Chancellor's letter of 12 December, in which he pointed out that the dealings of the Orion trust cannot be compared with a blind trust. That of course was the assumption on which the permanent secretary worked when the Paymaster General told him of his "beneficial family trust". In truth, the permanent secretary cannot reply, and I do not criticise him for that. Any reply that he could make would kill off his Minister.

The time has come for the Paymaster General to go. He has ducked and dived, he has threatened and charmed, but he has failed to answer the crucial questions on his business affairs. The Chancellor of the Exchequer is also guilty of hiding the facts from the House. My right hon. Friend the shadow Chancellor has repeatedly asked him for details of the Paymaster's dealings, yet the Chancellor relies for answer on the press statement issued by the Paymaster on 8 December. That press notice contains the infamous Titmuss Sainer Dechert letter stating that the Paymaster did not control or influence the Orion trust. We now know that assertion to be false; yet the Chancellor in his parliamentary answers merely refers to it for his defence. It is disgraceful and astonishing that the best defence the Second Lord of the Treasury can muster is based on a lawyers' letter which, as I said earlier, lied, lied and lied again.

It is time for the Paymaster to go, not just because he has been economical with the truth, as my detailed account today has revealed, but because of the apparent and obvious conflict of interest. Who in the country will believe that a man who benefits from at least £12 million in a tax haven has no conflict of interest when doing his job of clamping down on tax evasion? It beggars belief. And who will believe that the Inland Revenue will fearlessly investigate the status of the Orion trust and the supposed independence of its trustees when one of the principal beneficiaries includes the Revenue's own Minister at the Treasury?

It is time for the Paymaster to go because of the double standards that this case exposes. The Government are vitriolic about offshore trusts, yet one of their senior Ministers benefits enormously from such a trust. Here we have a Minister who presided at a press conference to launch the Government's new savings accounts, which clobber 300,000 middle-class savers, just 18 months after he suggested to Orion that it buy 10 million of his shares and then tuck them away in a tax haven for his and his family's use. If the right hon. Gentleman does not see the inconsistency or hypocrisy in that, he is the only one who does not. The Deputy Prime Minister sees it, but apparently our Prime Minister does not.

It is time for the Paymaster General to go because he has failed to answer any of the crucial questions that must be answered if he is to be left with any credibility or trust. So that the Minister answering today has a clear and concise list of them, let me summarise the questions that must be answered by the Paymaster. First, did he have any part in the selection of Richmond Corporate Services as trustees of the Orion trust? Secondly, has he ever written a letter of wishes to the Orion trustees?

Thirdly, did the "Geoffrey Robinson Personal Settlement" finance or guarantee the money so that Stenbell Ltd. could buy the TransTec shares? Fourthly, Stenbell Ltd., of which the Paymaster General was a director, has produced accounts describing him as a beneficiary, not a discretionary beneficiary, of the Orion trust. Are those accounts wrong?

Fifthly, who informed the Orion trust of the 2.95 million TransTec shares that were settled on 30 April? Sixthly, why were those TransTec shares not transferred with the original bequest to Orion? Seventhly, is the Paymaster aware of any Inland Revenue investigation of the TransTec shares transfer to the Orion trust, or his influence on their purchase?

Eighthly, has the Paymaster now told the permanent secretary at the Treasury, Sir Terry Burns, that he has influenced the Orion trust by suggesting that it buy his shares in TransTec and Coventry City football club, and is the permanent secretary still of the view that Orion is no different from a blind trust?

Ninthly, does the Paymaster General still believe that he is complying with the rules in the ministerial code that insist that there should be no apparent conflict of interest, when he benefits from £12 million in a tax haven, despite the fact that his ministerial responsibilities include closing tax loopholes? Finally, does he believe that full disclosure on all financial dealings is the only way to ensure that he has acted with due propriety and fairness? Those are important words.

I shall table all those questions today as official parliamentary questions. The Paymaster General must answer them. Indeed, the Chancellor of the Exchequer must answer them; no longer can he dodge them by hiding behind a lawyer's letter that we now know to be totally untrue. If the Paymaster General—or the Chancellor or the Financial Secretary today on his behalf—does not answer those questions, he must go, and go now, not just because of his conflict of interest, not just because of his economy with the truth, and not just because of the evident double standards. He must go because he has failed his own ethical test.

In a letter to The Times critical of the Conservative Government's handling of the sale of The Times and The Sunday Times to Rupert Murdoch, the Paymaster General wrote: What is required therefore is the full disclosure of all the financial documents and legal opinions. Only in this way can the public be satisfied that this important transaction has been handled with due propriety and fairness. He continued: It is an occasion where proper behaviour must be seen to have been observed and the public assured that the right judgment has been arrived at. Those are the Paymaster General's words, not mine. He has written his own political suicide note. He stands condemned in his own words. He has no credibility left. He must go.

Photo of Professor Ross Cranston Professor Ross Cranston Labour, Dudley North 11:42 am, 21st January 1998

I would have congratulated the right hon. Member for Penrith and The Border (Mr. Maclean) on raising this serious subject, but unfortunately he has used the debate for an unjustified attack on my hon. Friend the Paymaster General. I shall not go into the details; I shall make just three observations.

First, the right hon. Gentleman misunderstands the nature of trusts, and the position of beneficiaries and discretionary beneficiaries. I suggest that he take instruction from some of his hon. Friends, who know more about such matters than he apparently does.

Secondly, the House, through its Committee, has cleared my hon. Friend the Paymaster General. Thirdly, for what it is worth, I have full confidence in my hon. Friend.

I shall address the serious matter of tax avoidance and offshore trusts. The right hon. Gentleman said that the previous Government had taken certain steps in relation to tax avoidance. He mentioned in particular the changes in 1991 to the Finance Act. There is no doubt that from time to time, the previous Government made amendments to close gaps in the tax legislation. Unfortunately, they failed to do so systematically. They were often motivated by the haemorrhaging of public finances, rather than by any strategic view of the need to deal with tax avoidance.

The Labour Government have said that tax avoidance stands at the top of their priorities in their plans to reform the tax system. My right hon. Friend the Chancellor of the Exchequer made that clear in his pre-Budget statement. He said, rightly, that tax avoidance harms those who pay their fair share of taxes.

There are various ways to deal with tax avoidance. The previous Government were fortunate because in the 1970s and 1980s the courts had taken a purposive view of tax legislation. In a number of decisions, in particular the Ramsay and the Furniss decisions, which were confirmed last year in the McGurkian decision, the courts said that they would not adopt a literal approach, and that they would look at a preordained series of transactions in accordance with their overall effect. If, for example, a trust were interposed, they would look at the overall effect of the interposition of a trust in a series of transactions and act accordingly.

To a considerable extent, therefore, the attitude of the courts saved the previous Government from a huge haemorrhage in the public finances. The present Government have taken a much more strategic approach to the issue. First, as announced by my right hon. Friend the Chancellor, a large number of specific anti-avoidance measures will be introduced. I understand that up to 200 specific changes may be made to deal with tax avoidance.

Photo of Nick Gibb Nick Gibb Conservative, Bognor Regis and Littlehampton

Will the hon. Gentleman inform the House where he got the information about the next Budget that he has just announced to the House?

Photo of Professor Ross Cranston Professor Ross Cranston Labour, Dudley North

I shall speak to the hon. Gentleman later about the specific measures contemplated.

Secondly, there have been changes in the administration. As the hon. Gentleman will know, the large business tax avoidance units have been centralised to target resources more effectively. In addition, the Inland Revenue has adopted a higher profile in dealing with tax avoidance. For example, there were well-publicised raids last year, when the Inland Revenue took advantage of its powers under the Taxes Management Act 1970.

Thirdly, the Government have initiated procedures to deal with multinational enterprises, in particular the transfer pricing regime. In the view of experts, the previous Government did not deal adequately with that regime. Our controls on transfer pricing lag behind those of other countries. Several consultation documents have been issued on the matter, and the Government will toughen up controls in the Finance Act later this year.

The Chancellor has initiated discussions on a general anti-avoidance provision. There has been a great debate about the matter. The right hon. Member for Penrith and The Border touched on it in his speech, but did not deal with it adequately. There is an active debate about whether the United Kingdom ought to have a general anti-avoidance provision. The distinguished Tax Law Review Committee concluded, contrary to what the right hon. Gentleman suggested, that there is a need for a general anti-avoidance provision. The advantage, of course, is that it sends a message to taxpayers that they must not design their arrangements to avoid tax, which is intended to be caught by the legislation.

Contrary to what the right hon. Member for Penrith and The Border suggested, there is a head of steam behind this general anti-avoidance provision, which I support. It will ensure a more strategic approach to dealing with tax avoidance.

The Government have adopted a series of provisions to deal with the problem systematically, dealing with both specific and general matters. I support those measures. This is a serious topic. It was not dealt with seriously by the right hon. Gentleman. I commend the steps that the Government have taken.

Photo of Mr John Burnett Mr John Burnett Liberal Democrat, Torridge and West Devon

I thank the hon. Gentleman for giving way. He listed the scrutiny that the Government are giving to tax-avoidance measures. If the Paymaster General himself is the beneficiary of what is considered to be an extremely lucrative tax-avoidance measure, how can he take part in those discussions and examinations without being the subject of a glaring conflict of interest?

Photo of Professor Ross Cranston Professor Ross Cranston Labour, Dudley North

My hon. Friend is one among a number of Ministers. These decisions are being made by the Government. The Government have made their commitment to deal with tax avoidance quite clear and have set out their proposals in a series of consultation documents. Obviously, right hon. and hon. Members on the Opposition Benches have not looked at those papers. The Government are dealing with the matter in a serious manner, and I support them full.

Photo of Alan Haselhurst Alan Haselhurst Deputy Speaker and Chairman of Ways and Means

Order. The hon. Member for Dudley, North (Mr. Cranston) has truly finished.

Photo of Vincent Cable Vincent Cable Shadow Spokesperson (Trade and Industry), Shadow Spokesperson (Treasury), Liberal Democrat Spokesperson (Treasury) (EMU and the City) 11:52 am, 21st January 1998

I came along to the debate imagining, perhaps rather naively, that we would debate tax avoidance. Instead, we have had a Hetty Wainthropp-type amateur sleuth exercise into the private finances of the Paymaster General.

Photo of Mr Ian Bruce Mr Ian Bruce Conservative, South Dorset

The hon. Gentleman will always have the support of the Liberal Democrats. They will look after him. Do not worry.

Photo of Vincent Cable Vincent Cable Shadow Spokesperson (Trade and Industry), Shadow Spokesperson (Treasury), Liberal Democrat Spokesperson (Treasury) (EMU and the City)

On this particular point, they do.

I ask a question that has persisted throughout the debate: why on earth was this matter not dealt with earlier? We were given the explanation that it was raised in the 1991 Budget, but we have had 18 years, several Chancellors and numerous Budgets in which to investigate avoidance. Why was not this loophole, which was so obvious to the Paymaster General and to numerous business men, detected? The reason was either incompetence or deliberate oversight—perhaps it was deliberate cynicism.

Photo of Mr Ian Bruce Mr Ian Bruce Conservative, South Dorset

If the hon. Gentleman had been listening to the speech of my right hon. Friend the Member for Penrith and The Border (Mr. Maclean), he would have heard clearly that the accusation was not one of using a loophole, and avoidance, but one of evasion.

Photo of Vincent Cable Vincent Cable Shadow Spokesperson (Trade and Industry), Shadow Spokesperson (Treasury), Liberal Democrat Spokesperson (Treasury) (EMU and the City)

The hon. Gentleman slipped from the word avoidance to evasion, and that is a crucial step in the argument, with which even public opinion and commentators outside have not caught up. Evasion is, of course, a legal matter. Perhaps I can return to the central issue.

We believe that tax avoidance is an important political issue. One reason why the Government were elected, and why we support their efforts in this respect, was to take a much tougher, less cynical approach to the whole issue of tax avoidance. As I understand it, the Treasury has a strong policy on tax avoidance, which was emphasised this morning with the announcement of the investigation into the conduct of the Channel Islands. We support the broad policy.

Photo of Nick Gibb Nick Gibb Conservative, Bognor Regis and Littlehampton

Will the hon. Gentleman state what anti-avoidance trust measures were included in the Government's July Budget, if they are so keen on the issue?

Photo of Vincent Cable Vincent Cable Shadow Spokesperson (Trade and Industry), Shadow Spokesperson (Treasury), Liberal Democrat Spokesperson (Treasury) (EMU and the City)

We are waiting for the Budget in a few weeks' time to take action on that. Liberal Democrats, like Conservative Members, will be looking for tough action in that respect.

Let me return to the central issue, which is important. We are looking to the Government to take the tough anti-avoidance action that they promised. This issue is important not because of revenue raising, which is a red herring, but because of the cynicism of the public about tax payments. I give a simple example. There is a trading group known as LETS—local exchange trading schemes—in my constituency: people who carry out and exchange services for each other. They do not pay cash. Some baby-sit; others carry out car repairs. Those people are frightened of expanding their scheme because the Inland Revenue will descend on them for tax avoidance. That is why public credibility has to be restored and tax avoidance dealt with firmly. I share some of the concerns of Conservative Members about the Paymaster General, not because he has been behaving improperly—that is a matter for investigation—but because Treasury Ministers should set an example. That is the issue.

On the specific issue of the Paymaster General, in the run-up to the Budget, it is clearly difficult, if not impossible, for him to continue to work on the sensitive issue of tax avoidance. The timing of the Budget is crucial, and within it must be measures to eliminate that loophole. If not, the position of the Paymaster General and the Government will become impossible.

Photo of Liz Blackman Liz Blackman Labour, Erewash 11:57 am, 21st January 1998

This is the season of the pantomime dame, and Opposition Members' protestations have been perfectly in keeping with the time of year. My hon. Friend the Paymaster General answered the charges laid before Parliament. Sir Gordon Downey answered those charges and found that no parliamentary rule on registration had been broken.

Like so many other hon. Members, I came here this morning in the hope that I would hear a sensible debate about tax avoidance, but that has been far from the case. It could have been such a useful opportunity to explore sensibly the measures that the Government could take on tax avoidance, to bring in extra revenue for the Exchequer. I make the distinction, like the hon. Member for Twickenham (Dr. Cable), between evasion, which is illegal, and avoidance, which is legal until ruled otherwise. It is, as Opposition Members have said, perfectly proper to structure business affairs in a way that minimises tax liability. Indeed, a whole industry has grown up to support that practice, and many hon. Members seek its advice. However, it is also the Government's duty to ensure fairness in the tax system and to ensure that their tax intentions are translated into revenue for the Exchequer, for the proper funding of public services.

The Labour Government have clearly signalled their intention to act on tax avoidance. The Budget has signalled our intention to do just that, and future plans include a wide-ranging review of tax avoidance, involving the Inland Revenue and Customs and Excise. We are considering setting up a general anti-avoidance rule—avoidance is banned in many countries—which is welcomed by many, including the Institute for Fiscal Studies. We are serious about tackling avoidance and evasion. The record shows that the Opposition are not.

Photo of Liz Blackman Liz Blackman Labour, Erewash

No, I have nearly finished.

Photo of Liz Blackman Liz Blackman Labour, Erewash

No, I shall not give way. Opposition Members were on their feet for a long time.

Have not the Opposition come along to deflect attention from their own shameful record? Will not the proof of the pudding be in the eating, as to whether they support measures on tax avoidance when they come before the House?

Photo of Ms Jenny Jones Ms Jenny Jones Labour, Wolverhampton South West 11:59 am, 21st January 1998

The right hon. Member for Penrith and The Border (Mr. Maclean) made an extremely important remark when he said that this was a timely debate. He is right, not only for the reasons that he gave but for an additional one, with which I want to deal now.

Tax avoidance could be argued to be an anomalous feature of an increasingly complex tax system. It may be lawful, but the issue is whether it is fair. When the public who vote us into this place consider the intricacies of tax avoidance and the way in which tax havens are used lawfully to avoid tax, they rapidly discover that that particular device is available for only the wealthy few. Most British taxpayers cannot avail themselves of that particular mechanism, so it is intrinsically unfair.

When my right hon. Friend the Chancellor announced that the Inland Revenue would conduct a comprehensive review of tax avoidance, including tax havens, he was right. Many British people show varying degrees of enthusiasm for paying their taxes, but everyone accepts that public services, of which we all avail ourselves, have to be paid for somehow. Nevertheless, many people do not like to be parted from their hard-earned savings, so we must devise a tax system that is basically fair, equitable and transparent.

The right hon. Member for Penrith and The Border somewhat humorously took us through the intricacies of the Paymaster General's offshore trust, but he lost me halfway through. I have no experience of tax havens and I never will, but if he lost me, he will certainly have lost most of the public who were listening to him. He gave an admirable demonstration of the complexity of taxation law, which tax accountants earn an enormous amount of money trying to make work. That simply cannot be understood by the public.

While researching the subject last night, I found an article in the Financial Times in July 1997 congratulating the Chancellor on taking on a comprehensive review of tax avoidance, saying that it was a "sorely underdebated topic". Seeing the subject on the Order Paper today, I rather hoped that we would have a more comprehensive debate, but, understandably, the Conservative party wants to concentrate on a certain issue.

Last night, I also did some research in our excellent Library on the Conservative party's record on tax avoidance. In 1991, Norman Lamont took the significant step of introducing capital gains tax for offshore trusts. But that is about it—one significant change in 18 years. The Conservative party cannot lecture us about tax avoidance and the comprehensive review of tax avoidance law.

Photo of David Heathcoat-Amory David Heathcoat-Amory Conservative, Wells 12:02 pm, 21st January 1998

It has become obvious that we are not simply talking about tax avoidance this morning; we are also talking about how this morally superior new Labour Government are avoiding the truth. Until we have some straight answers to the questions posed by my right hon. Friend the Member for Penrith and The Border (Mr. Maclean), we shall continue to assert that they are covering up the truth and have something serious to hide.

This debate is about how a serving Minister of the Crown in the Treasury has a glaring and continuing conflict of interest between his public duties and his private interest, and how he is avoiding tax on a colossal scale. That has not been resolved by yesterday's statement by the Parliamentary Commissioner for Standards. That was a House of Commons matter and he goes out of his way to say that he has no jurisdiction over the Paymaster General in his duty as a Minister of the Crown. That latter issue is what we are debating this morning.

The Paymaster General's solicitor has issued a misleading and false statement which, because it was issued by press release from the Treasury, has the status of a Treasury and Government document and has been referred to in parliamentary answers. Therefore, the Government are also associated with that misleading statement.

It is a pity that the Paymaster General is not here to answer the debate, but it is always nice to have the Financial Secretary, who herself is no stranger to not paying her taxes. The House knows that in 1989 she pledged that she would not pay the poll tax. She has also been associated with the peace tax campaign, which persuaded people not to pay that part of their tax which would go to defence expenditure. Therefore, we have two Treasury Ministers, one who would not pay her tax because of what she called her socialist conscience, and the other who will not pay his tax because he has an offshore trust. No doubt the Paymaster General will read what we have to say and come to the House in due course to resign.

The Chancellor of the Exchequer and the Prime Minister attempt to hide behind the separate defence that the matter was all settled a long time ago when the permanent secretary to the Treasury, Sir Terry Burns, cleared the Paymaster General and said that there was no conflict of interest. That is false and it is also a fiction, as I shall touch on in a minute. But first I return briefly to the charge of hypocrisy: the huge and growing gap between what the Labour party in opposition said it would do and what it now does in government.

My right hon. Friend the Member for Penrith and The Border, in his powerful and able speech, mentioned the Labour party document, "Tackling Tax Abuses". It could hardly be clearer. It is utterly explicit. It promises to take action against the persistent few who, at the expense of everyone else, shelter their wealth overseas". That was backed up by the Chancellor at the last Labour party conference before the election, when he said: A Labour Chancellor will not permit tax reliefs to millionaires in offshore tax havens. He is the Chancellor now, the Paymaster General is a millionaire, and Guernsey is an offshore tax haven, so why is the Chancellor permitting it? The answer is that they were all words before the election and the Paymaster General is no ordinary millionaire; he is a new Labour millionaire and a Minister.

Photo of David Heathcoat-Amory David Heathcoat-Amory Conservative, Wells

The hon. Gentleman has already spoken, and I shall touch on some of what he said.

Now that the Labour party is in a position to deliver on that windy rhetoric, it has done nothing except set up a review. The hon. Gentleman referred to some 200 measures planned by the Treasury. We shall be asking where that information comes from, because if it is another leak from the Treasury, about which the rest of us have not been told, that will also be the subject of an inquiry.

The hon. Gentleman and the hon. Members for Erewash (Liz Blackman) and for Wolverhampton, South-West (Ms Jones) were wrong about the previous Conservative Government and the one before that. We used every Finance Act to block up unjustified tax avoidance loopholes. My right hon. Friend the Member for Penrith and The Border gave examples of that. I do not think that those three Labour Members were in the House during those years, so they clearly know nothing about it.

We have nothing in principle against offshore trusts. We do not declare unrestricted warfare against overseas trusts in the way that the Labour party has. That would be stupid, unrealistic and wrong. However, we do take action when the wishes of the House of Commons are being circumvented, and we did so.

Contrast that with what the new Labour Government are doing. They are attacking not the big offshore fat cats, such as the Paymaster General, but the little man, the small savers. They used their first Budget last July, within weeks of taking office, to conduct a £5 billion raid on ordinary pension funds. It was the Paymaster General who announced the abolition of the most popular and successful savings vehicles of all time—TESSAs and PEPs. A £50,000 limit is good enough for small savers, but, meanwhile, those big offshore trusts about which we heard so much before the election are so far untouched. That is not because the Treasury does not know about the subject. The Paymaster General knows all about offshore trusts. There is a clear, continuing and glaring conflict between his private interests and his public duties.

Yesterday's report by the Parliamentary Commissioner for Standards observes that the existence of the Orion trust might 'reasonably be thought by others' to be a source of potential influence. That is the situation that paragraph 109 of the separate code of conduct for Ministers warns against. It says: Where there is any doubt it will almost always be better to relinquish or dispose of the interest but Ministers should submit any such case to the Prime Minister for his decision. The Paymaster General has not relinquished or disposed of his interest, as required by the code. He did not submit it to the Prime Minister for his decision. He has broken the ministerial code and should now resign.

There is another charge. Again, it was ably described by my right hon. Friend the Member for Penrith and The Border, so I shall merely summarise the facts rather than going into great detail. We have not been told the truth. The Paymaster General has a family trust in Guernsey. His family are the sole beneficiaries. It is called the Orion trust, but we now know that that is a short title for the Robinson Family No. 1 and No. 2 trust. We were not told that at the start, but the information has subsequently come out. The trust was founded in 1996 with money from the mysterious and generous Madame Bourgeois. Of course, she did not set up the trust, because she had died two years before. Her executors set it up. One of her executors was the Paymaster General.

The purpose of the trust in Guernsey is simple—to avoid tax. There is no other reason for setting up a family trust in Guernsey. To succeed in avoiding United Kingdom taxation, the trustees, who are professional appointees doing what they are told, have to be seen to be entirely independent. They are not. The Paymaster General has said—and we believe him—that he suggests investments to them from time to time, and they act on those suggestions. He suggested that they bought 12 million shares in his company, TransTec—and they did. He suggested that they bought the shares that he wanted in Coventry City football club—and they did. If that is not influence, what is?

That is why the link between the Paymaster General and his family trust is under investigation by the special compliance unit of the Inland Revenue. That is an awkward position for a Treasury Minister. How can the Inland Revenue do its job properly when the object of its investigation is serving in the Department to which it reports?

The Treasury made the problem a great deal worse in its press release dated 8 December 1997, which included the solicitor's letter asserting that the trustees of the Orion trust are not controlled, or their decisions influenced, by him in any way". That is not what the Paymaster General is now saying. That statement, issued on Treasury notepaper, is clearly untrue. A misleading statement from a Government Department must be corrected. We expect the Financial Secretary to correct it.

The Paymaster General threatened to sue the newspapers for making similar revelations. They have not retracted their statements. He did not sue. That was another bluff.

The Government's final throw is to claim that the issue does not matter, because it was all settled in a discussion between the Paymaster General and Sir Terry Burns. It was not. Sir Terry Burns was not told about the link between the Orion trust and the Paymaster General. He was not told that it buys shares on the Paymaster General's suggestion. My right hon. Friend the shadow Chancellor is awaiting a further letter from Sir Terry Burns to clear that up. In the meantime, perhaps the Financial Secretary will admit the truth about that interview.

In any case, as the ministerial code makes clear: It is in the end for Ministers to judge (subject to the Prime Minister's decision in cases of doubt) what action they need to take". The Government should stop hiding behind civil servants and face the fact that the Paymaster General broke the rules. He did not break the rules of the House—we are not asking him to resign as a Member of Parliament—but the ministerial code, which applies to all Ministers of the Crown. That is why he has to resign.

I am leaving the Financial Secretary plenty of time to answer the debate. If she has an alternative explanation, let us finally have a full disclosure of it. The Government have recently published a White Paper called, "Your Right to Know". It has the usual photograph of the Prime Minister and so on. The foreword says: Openness is fundamental to the political health of a modern state. I agree with that. If the White Paper is not to be yet another piece of breathless hypocrisy from the Government, let them deliver on their fine aspirations. Let us have a full disclosure of all the facts from the Financial Secretary now, a full admission of the hypocrisy, a full description of the conflict of interest—which undoubtedly exists and continues—and an admission that there is a central falsehood; a difference between what the Paymaster General is saying and what the Treasury press release of 8 December last year said. Finally, let us all agree that the issue can be settled only by the Paymaster General's immediate resignation from office.

Photo of Dawn Primarolo Dawn Primarolo The Financial Secretary to the Treasury 12:16 pm, 21st January 1998

This was supposed to be a debate on tax avoidance and offshore trusts. The right hon. Member for Penrith and The Border (Mr. Maclean) spent five minutes on tax avoidance and loopholes and 35 minutes restating the innuendo and the points that the Conservatives have already made against my hon. Friend the Paymaster General. The Opposition cannot stomach the fact that they made a complaint to Sir Gordon Downey—the complaint that they have outlined again this morning—and the report says: We agree that there is no case for saying that Mr. Robinson breached the rules of the House. No case—and yet still they persist with their allegations.

Then they make snide comments and direct us away from the debate by making points against other Ministers. I am surprised that the Conservatives want to bring up the poll tax again. I am happy for them to remind the country that they introduced that unfair tax, they wasted £14 billion and they had to change the legislation. They do not want scrutiny of that.

As the Minister responsible, I am replying to a debate on tax avoidance. [Interruption.] Conservative Members can laugh and ridicule as much as they like. The facts stand for themselves—let us move away from the innuendo. As my hon. Friend the Member for Dudley, North (Mr. Cranston) has said, the general anti-avoidance regulations, on which the Tax Law Review Committee has published an excellent report, could have stood some debate from Conservative Members—but they did not want to know. As the hon. Member for Twickenham (Dr. Cable) said, there are important discussions to be held about the difference between loopholes and evasions—something which the Conservatives do not apparently appreciate as they slip into continual allegations. As my hon. Friends the Members for Erewash (Liz Blackman) and for Wolverhampton, South-West (Ms Jones) have made clear, the Government are pursuing a coherent policy in this regard. It is quite simple: the official Opposition do not have a policy. They want to keep making personal attacks instead of dealing with the issues.

Photo of Dawn Primarolo Dawn Primarolo The Financial Secretary to the Treasury

I shall finish this point, and then give way to the hon. Gentleman. It is encouraging that some Conservative Members have a new-found interest in tax loopholes, but it is regrettable that they did not take action to deal with them when they were in government. Perhaps the hon. Gentleman will explain why.

Photo of Julian Lewis Julian Lewis Conservative, New Forest East

The hon. Lady's line of defence seems to be that the Government are against tax avoidance in general, but in favour of it in this case.

Photo of Dawn Primarolo Dawn Primarolo The Financial Secretary to the Treasury

I have not started the line of defence yet; I have not started explaining all the action that the Government has taken to counter tax loopholes.

This debate, secured by the right hon. Member for Penrith and The Border, a former Conservative Minister, has initiated discussion of the Government's policies, how they have been implemented to tackle tax avoidance, and how we shall meet our manifesto commitments to close tax loopholes, as the hon. Member for Twickenham said. The debate allows me to set out what the Government have already done to root out tax loopholes, to explain why we have had to act as a result of the Conservatives' failure over 18 years, and to signal the direction in which the Government intend to go.

Photo of David Maclean David Maclean Conservative, Penrith and The Border

It is very courteous of the hon. Lady to give way. I understand that she will wish to do so rather than try to answer the questions that I have put to the Paymaster General. May I ask her for her personal opinion? She has furiously defended her role concerning the poll tax, and I admire her for saying so. Does she personally agree with the Deputy Prime Minister, when he said on "Breakfast with Frost": You may argue that the politician has said one thing and perhaps done another"? Does she share that view?

Photo of Dawn Primarolo Dawn Primarolo The Financial Secretary to the Treasury

Does the right hon. Gentleman agree with the chairman of the Conservative party, when he said on television: I'm sure that Geoffrey hasn't done anything illegal"? Perhaps Conservatives should make up their minds about the allegations. One Conservative Member has accused the Paymaster General of evasion. Evasion is illegal.

Photo of Dawn Primarolo Dawn Primarolo The Financial Secretary to the Treasury

The hon. Gentleman confirms it. He must substantiate it outside the Chamber and not seek protection in order to make an allegation without supplying the truth.

Photo of Mr Ian Bruce Mr Ian Bruce Conservative, South Dorset

The hon. Lady knows that I said that that charge had been made against the Paymaster General. Does she agree that, since we understand that he is being investigated by the Inland Revenue, he should resign from his job because, effectively, he is being investigated by his own Department?

Photo of Dawn Primarolo Dawn Primarolo The Financial Secretary to the Treasury

I caution the hon. Gentleman on two points. First, he should look up the difference between avoidance and evasion to ensure that he understands the seriousness of his allegation. Secondly, the allegation that the Inland Revenue is investigating the matter was made in the same newspaper article in which it was said that the Paymaster General had offshore trusts in Bermuda. Opposition Members should not believe everything that they read in the press. They should base their allegations on fact.

Photo of Dawn Primarolo Dawn Primarolo The Financial Secretary to the Treasury

I shall give way in a moment.

This debate is about Government policy. Conservative Members do not want to hear about Government policy because they know that they do not have a leg to stand on. I shall get it on the record.

Photo of Dawn Primarolo Dawn Primarolo The Financial Secretary to the Treasury

I shall not give way at this stage. I shall give way to the right hon. Gentleman before I conclude my remarks.

In July, we took action in a series of significant areas where we found exploitation of tax loopholes. In the Budget, we ended abuses of corporation tax, value added tax and the pay-as-you-earn scheme. That action will raise £1.5 billion over five years and relates to points that hon. Members have made about the importance of the security and integrity of the tax system.

Dividends on shares which are trading assets are now treated as part of the holder's trading profits. That will yield £500 million up to April 2001. Conservatives did not do anything about that when they were in government. They are telling us today that they are committed to such action, but they did not do anything about it. They were too busy trying to explain why their colleagues were taking cash for questions to look properly at the tax system.

On acceleration of capital allowances, finance lessors can no longer use subsidiaries to gain advantage. New rules counter arrangements under which unused past allowances were transferred to the lessor through a sale and leaseback, as was so under the previous Government. They did nothing about it, yet they now tell us that they have a new-found commitment to root out tax loopholes. I am glad that they are late converts. Perhaps we shall see much more committed support of the Government's policy.

Provisions on company purchase schemes counter certain company tax avoidance schemes where a company's owners sell the company to avoid paying accrued or anticipated corporation tax liabilities. That will yield £300 million before 2001. Conservatives did not do anything about that. They did not think that it was important. They were not committed then to rooting out tax loopholes, but, apparently, they are now.

The Government have moved on PAYE avoidance.

Photo of Dawn Primarolo Dawn Primarolo The Financial Secretary to the Treasury

I shall finish this point and then give way.

The Government have already acted on second-hand goods margin schemes, cash accounting schemes, capital goods schemes and scope of insurance premium tax, in their first Budget, and are now developing their policy.

Photo of David Heathcoat-Amory David Heathcoat-Amory Conservative, Wells

Will the Financial Secretary answer just one of the questions that we put to her, rather than trying to answer the questions that she would have liked to be asked? She has referred to our statement that the Paymaster General is under investigation by the Inland Revenue because of his link with his family trust in Guernsey. She obviously knows—because she has made reference to it—whether that is so. Will she tell the House whether the Paymaster General is being investigated? If he is, he must resign immediately. If he is not, will she assert that beyond doubt?

Photo of Dawn Primarolo Dawn Primarolo The Financial Secretary to the Treasury

The right hon. Gentleman knows that he is merely repeating press speculation. That is typical of Conservative Members' innuendo and allegations. They are interested only in smears.

I have described what the Government have done so far, but I want to talk about the work that we are developing. The Inland Revenue has been carrying out a wide-ranging review of tax loopholes, to which the hon. Member for Twickenham referred.

Photo of Dawn Primarolo Dawn Primarolo The Financial Secretary to the Treasury

I am short of time; I cannot give way.

Action in several such tax areas will be announced in the Budget. Customs and Excise are also re-examining and improving its procedures for finding, reporting, preventing and countering tax loopholes. We are also looking at the question of general anti-avoidance regulations, and draft regulations on this important issue will be published this year for consultation.

The Government have already said—most recently, the Chief Secretary to the Treasury said so in the House last week—that the present tax treatment of offshore trusts is being considered in a wide-ranging review of areas of tax, as the Chancellor announced in his Budget statement. Hon. Members will recall that a number of steps were taken in 1991 to deal with such issues. They were inadequate, delayed matters and did not work properly. It is regrettable, but that is the case. The Conservatives cannot wear the badge of honour as the party that reduces tax loopholes. They have never done that and they are not committed to it.

The Government are committed to detecting loopholes, to deterring people and to preventing them from using loopholes. Tax rates in the United Kingdom are now low in comparison with those in many other countries, and by curbing tax leakage we shall help to keep them that way.

Conservative Members do not want to engage in a proper debate about tax avoidance. They name a debate and then use it to smear. I hope that the next time they choose such a debate, they come here with information about what is possible, with a better understanding of their appalling record and with more support for the Government's action to close tax loopholes.