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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.]
Order. I cannot believe that I cannot hear the Minister. Please let him finish.
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.
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.]
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.”
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 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, 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.]
Order. I am struggling to hear the Minister. I think it is beneficial for the Chamber that we all hear the Minister.
The essence of the charge is that not enough has been done to address tax evasion or tax avoidance, but the reality is that this Government have consistently cleared up the mess that we inherited. It was the case that wealthy people could avoid paying stamp duty land tax—we have sorted that problem. It used to be the case that aggressive tax avoidance schemes were prevalent, meaning that people could sit on the cash for years while cases dragged through the courts—that has now been addressed through accelerated payments. It used to be the case that remuneration could be disguised through loans and other instruments and that no income tax would be paid—we have fixed that, although the Labour party voted against it.
This Government have enabled HMRC to increase yields from £17 billion in 2010 to £26 billion this year, which is dramatic progress. Just as we have dealt with tax avoidance, we are dealing with tax evasion—we are seeing progress on the exchange of information—and that is a very big improvement on everything we inherited.
Is this not further proof that Labour’s fundamental changes to banking regulation at the beginning of its period in government did a lot of damage and meant that banks could not be regulated properly—most notably, they led to the collapse of a number of HSBC’s important competitors—and further evidence that Labour Members are blaming this Government for things that went wrong on their watch?
My right hon. Friend makes a very good point. There are many issues that Labour Members should apologise for, but the one issue that they have apologised for was their failures in bank regulation, and this is further evidence of that.
Is the Minister aware that on his watch, as opposed to any other, there are currently about 3,250 people examining benefit fraud while only 300 HMRC people are examining fraud by wealthy tax dodgers, many of whom give a lot of money to the Tory party? Why is there one law for the rich and one for the poor? It is time he answered.
I am afraid that the hon. Gentleman’s numbers are wrong. The biggest department in HMRC deals with enforcement and compliance. He may be referring specifically to the affluent unit or the high net worth unit, both of which are raising substantially more money now than under the previous Government. Again and again, the reality is that HMRC is now more successful in raising money from the wealthy and anyone else who tries to avoid their taxes.
The Parliamentary Commission on Banking Standards spent the thick end of 18 months looking into the activities and standards of banks, as well as the abject failure of regulation under the Financial Services and Markets Act 2000. Does my hon. Friend agree that had the system in its report, which resulted in the Financial Services (Banking Reform) Act 2013, been in place, this would not have happened in the first place?
My hon. Friend makes an important point. One element of this is that we have to look at the regulation of banks, and there were clearly weaknesses in the system that we inherited. Just as we have addressed weaknesses in the way that tax was collected, we have addressed weaknesses in the way that banks were regulated.
As I outlined in my remarks, the main focus for HMRC has been the use of civil penalties. That approach has been followed consistently under Governments of all colours. There has been one prosecution in respect of this evidence. It is worth pointing out that prosecutions as a whole are on course to increase fivefold in this Parliament.
Successive Governments have incentivised particular investments using tax inducements, only to be surprised when things are taken too far. Will my hon. Friend publish a report that shows the extent to which this debacle was created by tax inducements introduced by the Labour party?
There clearly have been issues with some tax inducements being used for avoidance purposes. To be fair, this matter relates more to tax evasion. None the less, it is important that legislation is tested and it is important that we now have a general anti-abuse rule, which we did not have in 2010, to ensure that reliefs and exemptions are not exploited in a way that is contrary to Parliament’s intention.
In March 2012, a protocol was signed between the UK and Swiss Governments, changing the previous tax agreement. It included the provision for a one-off payment to cover past misdeeds and tax rates of up to 41%. Given the revelations from HSBC, is it the Government’s intention to look again at the protocol, or does the Minister believe that it is robust enough for what we are seeing?
The Swiss deal is on course to bring in £1.2 billion that would not otherwise have been brought in. Since the agreement was signed, we have made much further progress, with 90 countries, including Switzerland, signing up to the automatic exchange of information, which means that the era of bank secrecy is over and that it will not be possible to hide assets in the way that it was in the past. That is a consequence of the UK’s leadership on this front.
While we are pursuing those who have benefited from the HSBC tax evasion scheme, what is being done to pursue those who designed and offered the scheme in the first place, and what questions are being asked of the auditors of the bank, such as why they do not appear to have blown the whistle on the scheme?
One challenge in this case is that the behaviour was carried out by a Swiss subsidiary in Switzerland. It is for the prosecuting authorities in this country and HMRC to decide whether any action can be taken against that HSBC entity. To make a wider point, the Government have taken a lot of action to strengthen the powers against those who promote tax avoidance schemes. Indeed, we are implementing reforms to tighten those powers, making it much harder for people to promote tax avoidance schemes.
Part of the issue is that, as I have said, HMRC has consistently used civil penalties as the most cost-effective way of collecting the revenue and changing behaviour. When these cases have been taken to the Crown Prosecution Service, it has taken the view that a successful prosecution would be unlikely without corroborating or additional evidence and just on the basis of the data from the leaks.
The last Government presided over an unsustainable boom in the financial services sector and, at that time, aggressive tax avoidance flourished. What steps has my hon. Friend taken to close the tax loopholes that were left wide open by the last Government?
My hon. Friend raises a good question, and this Government have closed 42 loopholes. We inherited a tax system in which not enough had been done to tackle tax evasion or avoidance, and we have addressed that over the past four and a half years. That is partly why the yield from HMRC’s activities has risen from £17 billion in 2010 to a forecast £26 billion this year.
This information about HSBC has been in the public domain since 2007—that is when the leaks occurred. The whole story may have come as a surprise to the hon. Lady, but it should not have done.
It is profoundly depressing that there is yet another scandal on the front pages to do with one of our banks, given the importance of a functioning banking system to our whole economy. It is also a bit depressing to watch people with the benefit of hindsight suggesting that they would have acted differently when in government. Will the Minister say how we can work across Parliament and all parties, to ensure a banking system that works for all small and medium-sized businesses that desperately require money to ensure ongoing economic growth?
I refer back to the point made by my hon. Friend Mark Garnier about the work undertaken by the Banking Commission. I hope we have built a consensus around the significant reforms that occurred under this Government, which have put our banking sector on a much firmer footing.
Small businesses, which are the life blood of our economy, often complain to me about the lack of flexibility they receive when dealing with HMRC. How can the Minister justify promoting the former chief executive of a bank that was actively promoting tax evasion and avoidance to Ministers? What sort of message does that send to small businesses and wealth creators in my constituency?
HMRC has successfully run the time to pay arrangements over a number of years, which has provided support to a large number of small businesses up and down the country. Lord Green was a very good trade Minister—[Interruption.] Yes, “was”, because he is no longer a Minister, which may have escaped the notice of some Opposition Members. He was qualified to perform the role of trade Minister, and there is no evidence to suggest that he was involved in any of these activities.
Will my hon. Friend clarify the fact that the previous Government introduced stamp duty intermediary relief in autumn 1997, and that the shadow Chancellor, who was then City Minister, extended that relief in 2007—relief that Labour now attacks? Is that a further example of confusion on the Opposition Benches about how to deal with tax avoidance?
My right hon. Friend makes a good point. That confusion was followed by the weekend’s confusion whereby countries that do not have a public central register—as opposed to other territories that do not have a public central register—are on a blacklist. Clearly the Labour party desires to say something about tax, but it is a pity that the bar is not set a little higher for it to say something sensible about tax.
The thing about the Prime Minister’s appointment of Stephen Green as trade Minister is that unfortunately the Prime Minister has got form on appointments—we have only to think of Andy Coulson. Somebody comes along from a company that has been up to no good, and the Prime Minister does not ask the important questions; he does not carry out due diligence but just goes, “Oh, you’re rich, you’re powerful. Come on in, no questions asked.” Does the Minister feel any element of shame that instead of tackling tax evasion and tax avoidance, this Government have effectively promoted it by putting it in the Government?
I have to say to the hon. Gentleman that that is pretty desperate. He says we have not dealt with tax avoidance and tax evasion. Look at the record. Look at the way the yield has increased. Look at the rules that have been changed. Look at HMRC’s additional powers. Look at the culture change we are seeing in this country, in terms of tax evasion and tax avoidance. I just regret that 10 years ago there was such a lax attitude to these things. The Government of the time have to accept some responsibility for that.
Does my hon. Friend agree that the failure of the previous Government to act on this matter fits with a pattern of inactivity on the deficit, on banking regulation and, again, on tax avoidance?
I think that is right. I suspect that the reason why the previous Government had a lack of grip and focus on tax evasion and tax avoidance was that there was simply the view that the public finances were going to be fine whatever, and that they did not really need the money and did not need to strain in this area. That is why there was a lack of progress. I am pleased that we are making that progress now.
I do not want to personalise this; I have always rather admired Stephen Green for very many reasons. What I dislike is the culture that this HSBC scandal represents. The ordinary people in my constituency work hard and pay their taxes. They would get into terrible trouble if they tried to get away with anything. The fact is that those like PricewaterhouseCoopers, Grant Thornton and the banks, who have done these dodgy deals for years, have never had to pay.
When it comes to feeling abhorrence at the culture of those who think that they can not pay their fair share and can avoid or evade their taxes, I agree with the hon. Gentleman; he is absolutely right. It is necessary to take that on—to make changes in the law where necessary and ensure that HMRC has the capability to address these matters. People in businesses should pay the tax that is due under the law.
Labour first talked about introducing a general anti-abuse tax rule in 1997, but in 13 years did absolutely nothing. Will my hon. Friend confirm that we have now introduced such rules to deter the creation of abusive tax avoidance schemes?
I can indeed. The previous Government looked at this and said it could not be done. We have looked at it, and have put rules in place. Indeed, we are looking at introducing penalties for breaches of them as well. I am grateful to my hon. Friend for raising that point.
On HSBC generally, there are clearly questions that need to be answered about what happened at HSBC between 2005 and 2007. HMRC has been taking action against about 1,000 people who were involved in this matter, where there is evidence that they have broken the UK law. HMRC will continue to take action in the event of any further evidence arising; I make that point about our approach. On Lord Green, what I would say is that he was a successful Trade Minister. There is no suggestion, and no regulator has suggested, that he was at fault with regard to what happened with the Swiss subsidiary.
The Government should be congratulated on the results they have achieved in collecting taxes that had been avoided and evaded because of a lax regime before they came to power. This is really two points. First, should blame be cast on this Government for something that happened, and does need investigating, when the previous Government were in power? Secondly, on the appointment of Lord Green, there was presumably at least the same level of due diligence as there was when the last Labour Prime Minister put him on his close business policy advisory committee.
My hon. Friend makes two good points. For the good of the public finances, we have taken tough action to deal with tax avoidance and evasion, and we will continue to do so, because that is what the British people expect of us.
Putting aside the paranoia and conspiracy theories, let us consider the Government’s record and the steps we have taken, time and again, to ensure that those who should pay more in tax do pay more in tax. That is the reality.
This is an artificially generated question, because there is a general election coming up. Everybody in the House is against evasion, which is illegal, and successive Governments have closed loopholes on avoidance. In fact, this Government have been rather good at that. Is this not just a general election question?
My hon. Friend is more worldly than I am, perhaps, but he raises an important point. We have tried to do many things to reduce tax avoidance and evasion, but I accept that we have not been able to go back in time and stop it happening before we came to office.
Ten years ago, when the Minister’s party was in opposition, Conservative Members, including the Chancellor, were calling for less, not more, regulation of the banks and the City. Will Lord Green be at the Tory party’s black and white ball tonight for the über-rich, and will the Minister advise Lord Green, if he has any spare cash, to donate it back to the taxpayer, instead of to the Tory party?
The restrictions were essentially that the information could be used only for pursuing tax evasion prosecutions, not for other matters, such as money laundering prosecutions, for example. On the precise arrangements and conditions, it is worth pointing out that the first request for information was made by HMRC in February 2010, under the previous Government. I am not sure what conditions Ministers were consulted on at that point.
On multinational companies, I would make three points. First, we are ensuring that HMRC’s large business unit has sufficient resources to monitor large businesses adequately. Secondly, we are leading on international reform through the base erosion and profit shifting project with the OECD. Thirdly, I would highlight the diverted profits tax measure announced at the last autumn statement, which has been consulted on in recent weeks, and for which we hope to legislate in the Finance Bill before the end of the Parliament.
HMRC is essentially performing the same process that has been undertaken for many years, including when the right hon. Gentleman’s party was in office. It is consistent, for example, with the Liechtenstein disclosure facility, which was agreed by the previous Government, the point being that it is the most effective way of getting the tax, the interest and the penalty; of getting the money into the Exchequer; and of changing behaviour. I make no apology for HMRC pursuing that route as the first line, because it has proven to be effective.
Three years ago, HSBC was fined $2 billion for acting as money launderers for Mexican drug cartels. Those transactions, and those that we are discussing today, both happened before 2010. Is the Financial Secretary confident that the measures we brought in subsequently will stop either case from happening again? Has he had a discussion with HSBC regarding continued transgressions of this type and its banking licence?
My hon. Friend makes an important point. When it comes to banking licences, politicians should perhaps not be directly involved; we have a regulator for that purpose. Ensuring a change of behaviour in our banks is important. We have all been appalled by this behaviour over the last few hours––for some of us, it has been longer. This occurred some years ago, at the same time as we saw banks acting recklessly in a number of ways. It is really important for the banking sector to get its house in order. We know that the reforms we have undertaken as a Government can play an important role in ensuring that happens.
I am not aware of whether interviews were held on Lord Green’s appointment, either as a lord or as a business adviser, under the previous Government.
Is the Minister aware that in the years up to 2010, income tax receipts rose by 81%, while non-oil corporation tax receipts rose by 6%? Does he agree that an industrial-scale tax-avoidance culture arose, fanned by the prawn cocktail offensive, whereas this Government’s actions have helped to close the tax gap?
As a Government, we believe in low and competitive rates of corporation tax, but we also believe that those taxes should be paid. That is why we have strengthened the capacity of HMRC, why we are introducing the diverted profits tax, and why we are leading the way in international reforms of the corporate tax system.
The public are rightly concerned about the City financiers and hedge funds that donate large sums of money to the Conservative party, which is seemingly enriched by the tax avoiding and the dodgy dealings. The Minister says that it all happened on our watch. Why, then, in 2012, when this Government introduced the national loan guarantee scheme, did they not specifically exclude those companies that were based in foreign tax havens?
Let me address the issue of hedge funds. It was this Government who brought in some reforms to limited liability partnerships, which have resulted in a substantial increase in revenue from those partnerships, many of which are hedge funds.
Can my hon. Friend reassure those of my constituents who seek to reduce their tax liability by, for example, investing in individual savings accounts—whether it be through HSBC or anyone else for that matter—that they are doing nothing illegal, and that it is only those seeking to evade tax by deliberately concealing their income, thereby misleading HMRC, who are breaking the law and risking prosecution?
Tax evasion is a criminal offence, and action will be taken in that regard. I should add that we also take firm action against aggressive, contrived, artificial avoidance. Having an ISA does not fall into that category, which is consistent with what Parliament intended, but when people try to abuse the rules, we will take action.
The Minister cannot have it both ways. He has asserted several times today that Lord Green had no knowledge of, or involvement in, these issues as chairman of HSBC. That suggests to me that the Government asked those questions of Lord Green. In the interests of transparency, will the Minister now commit himself to placing in the Library all the information surrounding the questions that I assume have been asked, given his certainty in answering, so that we can be the judge?
I repeat that, as far as I am aware, no one has come forward with any evidence suggesting that Lord Green was involved in the activities of the Swiss subsidiary about which we have been talking today.
Of course it is right for us to do all that we can to recover taxes that have been either wrongly avoided or illegally evaded, but is it not just as great a scandal that the Labour Government allowed their friends in private equity—the same people to whom they tried to sell Royal Mail and the Post Office—to avoid tax legally by keeping capital gains tax so low that multi-millionaires paid less tax than their cleaners?
My hon. Friend has raised an important point. There was a problem with the way in which our system was working, and, as my hon. Friend says, the fact that cleaners paid a higher rate of tax than some people in private equity demonstrates how the last Government went awry.
The Minister spoke about the leadership that the Prime Minister had shown on the issue of tax and transparency, but let us not forget that this was the same Prime Minister who said that he was relaxed about publishing his own tax return, and we are still waiting. Can the Minister update the House on his progress, and success, in the Crown dependencies and overseas territories? How many of them have committed themselves to, or ruled out, a public register?
We are still putting pressure on overseas territories and Crown dependencies, but all of them have signed up to the automatic exchange of information, which is a substantial breakthrough. I do not agree with the idea of putting all of them on a blacklist when France, Germany and the United States—indeed, 33 out of 34 OECD countries—have still not signed up to a public register. They are signed up, by and large, to a central register, but not yet to publishing it.
Will my hon. Friend confirm that over the last four years, as a result of tighter regulation and the closing of loopholes, an additional £31 billion has been collected in taxes from large businesses, and that much of it can be used to fund public services or pay down the deficit? Will he confirm that none of that happened under Labour?
As my hon. Friend says, £31 billion has been raised from large businesses as a consequence of HMRC’s compliance activity. That underlines our determination, and HMRC’s determination, to collect the tax that is due under the law.
It was forecast that we would raise about £3 billion. The amount that we have raised so far is just short of £1 billion, and we expect that to rise to £1.2 billion. Other measures that we have introduced have raised more than the forecast amount, and that £1.2 billion would not have been raised had we not entered into the deal.
Does the Minister agree that it is Labour Members who have a record of avoidance? They avoid talking about the economy, they avoid talking about immigration, and after today’s debate, in which their disastrous record in government has been exposed, they will not be talking about tax evasion either.
The public are rightly disgusted by tax evasion and avoidance, but is not the simple truth of the matter that when we cut through all the bluster from the Labour party, this Government have raised billions of pounds more than the previous Government did in this area, and have collected a huge sum more than Labour ever did?
I think that is a very good point to end on. Despite all the bluster, the numbers point to the fact that this Government are more successful in dealing with these matters than the previous Government were. It is not about the heat and the noise; it is about delivery, and this Government are delivering.