With this it will be convenient to discuss the following:
That schedule 3 be the Third schedule to the Bill.
Clause 16 stand part.
That schedule 4 be the Fourth schedule to the Bill.
Clause 19 stand part.
Amendment 19, in clause 20, page 12, line 26, at end insert—
“(8) The Chancellor of the Exchequer must, no later than six months after the passing of this Act, lay before the House of Commons a review of the effects of the changes to the controlled foreign companies regime made by this section.
(9) In circumstances in which the United Kingdom has left the European Union without a negotiated withdrawal agreement, the review in subsection (8) must consider the impact of this on those changes.”
Clause 20 stand part.
Clauses 21 and 22 stand part.
Amendment 3, in schedule 7, page 223, line 27, in schedule 7, at end insert—
“(5) The Treasury shall by regulations require that a CGT exit charge payment plan be published on a public register.”
This amendment would require the beneficiary of a trust entering a CGT exit charge payment plan to provide information about the source of its income on a public register.
Amendment 4, page 227, line 13, at end insert—
“(2B) The Treasury shall by regulations prescribe a CGT exit charge payment plan be published on a public register.”
This amendment would require the beneficiary of a trust entering a CGT exit charge payment plan to provide information about the source of its income on a public register.
That schedule 7 be the Seventh schedule to the Bill.
Clause 23 stand part.
That schedule 8 be the Eighth schedule to the Bill.
Clauses 46 and 47 stand part.
Amendment 23, in clause 83, page 60, line 8, at end insert—
“(8) No regulations made be made under this section unless the Chancellor of the Exchequer has laid before the House of Commons a report on how the powers in this section are to be exercised in each of the scenarios in subsection (9).
(9) The scenarios to be considered in the report under subsection (8) are—
(a) if either of a—
(i) negotiated withdrawal agreement, or
(ii) framework for the future relationship with the European Union have not been ratified under section 13 of the European Union (Withdrawal) Act at the time of the United Kingdom ceasing to the a member of the European Union, and
(b) if both of a—
(i) negotiated withdrawal agreement, or
(ii) framework for the future relationship with the European Union have been ratified under section 13 of the European Union (Withdrawal) Act at the time of the United Kingdom ceasing to the a member of the European Union.”
Clause 83 stand part.
New clause 5—Impact analyses of the anti-avoidance provisions of this Act—
“(1) The Chancellor of the Exchequer must review the impact of—
(a) section 15 and Schedule 3,
(b) section 16 and Schedule 4,
(c) sections 19 and 20,
(d) section 22 and Schedule 7,
(e) section 23 and Schedule 8,
(f) sections 46 and 47, and
(g) section 83 of this Act in accordance with this section and lay a report of that review before the House of Commons within six months of the passing of this Act.
(2) A review under this section must consider—
(a) the impact of those provisions on child poverty,
(b) households at different levels of income,
(c) the impact of those provisions on people with protected characteristics (within the meaning of the Equality Act 2010), and
(d) the impact of those provisions on different parts of the United Kingdom and different regions of England.
(3) In this section—
“parts of the United Kingdom” means—
(c) Wales, and
(d) Northern Ireland.
“regions of England” has the same meaning as that used by the Office for National Statistics.”
This new clause requires the Chancellor of the Exchequer to carry out and publish a review of the effects of the tax avoidance provisions of the Bill on households with different levels of income, on child poverty, people with protected characteristics and on a regional basis.
New clause 6—Analysis of effectiveness of provisions on tax avoidance and evasion—
“(1) The Chancellor of the Exchequer must review the effectiveness of—
(a) section 15 and Schedule 3,
(b) section 16 and Schedule 4,
(c) sections 19 and 20,
(d) section 22 and Schedule 7,
(e) section 23 and Schedule 8,
(f) sections 46 and 47, and
(g) section 83 of this Act in accordance with this section and lay a report of that review before the House of Commons within six months of the passing of this Act.
(2) A review under this section must consider—
(a) the effects of the provisions in reducing levels of artificial tax avoidance,
(b) the effects of the provisions in combating tax evasion, and
(c) estimates of the role of the provisions of this Act in reducing the tax gap in each tax year from 2019 to 2022.”
This new clause requires the Chancellor of the Exchequer to carry out and publish a review of the effectiveness of the provisions of the Bill in tackling artificial tax avoidance and tax evasion, and in reducing the tax gap.
New clause 14—Review of effectiveness of provisions on tax avoidance—
“(1) The Chancellor of the Exchequer must review the effectiveness of the provisions of this Act relating to tax avoidance and lay a report of that review before the House of Commons within six months of the passing of this Act.
(2) In this section, “the provisions of this Act relating to tax avoidance” means—
(a) section 15 and Schedule 3,
(b) section 16 and Schedule 4,
(c) sections 19 and 20,
(d) section 22 and Schedule 7,
(e) section 23 and Schedule 8,
(f) sections 46 and 47,
(g) section 83.
(3) A review under this section must consider in particular—
(a) the effects of those provisions in reducing tax avoidance and evasion,
(b) the effect of those provisions in inducing new tax avoidance measures unanticipated by the Act, and
(c) estimates of the efficacy of the provisions in reducing the tax gap in each tax year from 2018-19 to 2028-29.”
This new clause would require a review of the effectiveness of provisions on tax avoidance.
New clause 15—Report on consultation on certain provisions of this Act (No. 4)—
“(1) No later than two months after the passing of this Act, the Chancellor of the Exchequer must lay before the House of Commons a report on the consultation undertaken on the provisions in subsection (2).
(2) Those provisions are—
(a) section 15 and Schedule 3,
(b) section 16 and Schedule 4,
(c) sections 19 and 20,
(d) section 22 and Schedule 7,
(e) section 23 and Schedule 8,
(f) sections 46 and 47,
(g) section 83.
(3) A report under this section must specify in respect of each provision listed in subsection (2)—
(a) whether a version of the provision was published in draft,
(b) if so, whether changes were made as a result of consultation on the draft,
(c) if not, the reasons why the provision was not published in draft and any consultation which took place on the proposed provision in the absence of such a draft.”
This amendment would require a report on consultation undertaken on certain provisions of this Act – alongside new clauses 9, 11 and 13.
It is a great pleasure, again, to serve under your chairmanship, Dame Eleanor. The Government have always been clear that while taxes should be low, they must be paid, and that is exactly what we have delivered. Since 2010, we have secured and protected over £200 billion by clamping down on tax avoidance, evasion and non-compliance, and we have reduced the UK’s tax gap to less than 6%, which is one of the world’s lowest. In fact, if we were running at the level of the figures achieved under the last Labour Government in 2005-06, we would be deprived of sufficient income to employ every policeman and policewoman in England and Wales, so bringing in tax most certainly does matter.
We have led the way internationally in this respect, playing a leading role in the OECD’s base erosion and profit shifting project, and taking unprecedented action to secure funding for our vital public services and to ensure that everyone pays their fair share. It is worth reflecting on the fact that we do not just collect tax for the sake of collecting tax, because very few people enjoy paying tax. We do it for a purpose, which is to keep our financial affairs in good order and to fund the doctors and nurses in our national health service, and so on.
Does the Minister agree that we sometimes use tax to alter behaviour—for example, on tobacco and alcohol—as well as purely for funding? That is why measures to prevent the evasion of those duties are so vital to achieving public health gains, in addition to the obvious points in terms of the Treasury.
My hon. Friend is entirely right. One thinks, for example, of the sugar levy to improve public health and to make sure that our young people, in particular, move towards a healthier diet. Tax can certainly have an effect in that respect. As my hon. Friend said, there is also the duty on cigarettes, tobacco, hand-rolling tobacco, and alcohol to make sure that as well as just raising revenues, we change behaviour in a way that is conducive to the public good.
My right hon. Friend has not mentioned fairness in taxation. That is another principle that we must use for taxation. Fairness implies that the people who have the least pay the least and that those who can afford it pay more. I am quite sure that the Government are fully aware of that point when raising taxation.
I thank my hon. Friend for that important intervention. He is absolutely right: fairness has to be the heart and soul of any progressive taxation system, along with competitiveness—we want to keep rates down—and the importance of tax being paid, as I have been elaborating on. On his specific point, we were of course able to announce in the recent Budget—this forms part of the Bill—the increase in the personal allowance, which is now up to £12,500. Bear in mind that in 2010, the personal allowance was about £6,500. The personal allowance is, of course, the amount that an individual can receive by way of earnings without those earnings falling due to income tax. Any increase in the personal allowance does indeed have a disproportionately beneficial impact on the lowest-paid in our country. Since 2010, in fact, we have now removed some 4 million people in total from tax altogether.
Whatever the merits or otherwise of increasing the personal allowance, which we support in the Bill, surely the Minister recognises that the gain for every person taken out of the bottom rate of income tax in the personal allowance is worth double to people paying the top rate of income tax. Clearly, if someone is paying the top rate of income tax, every £1 of the personal allowance is a greater saving than at the basic rate.
The hon. Gentleman says he supports our changes to the personal allowance in the Budget, but that was not reflected on Second Reading, when the Labour party voted to reject our tax measures. Indeed, it has been widely critical of our measures to reduce taxation for some 32 million people up and down the country. He will probably be tired of my rehearsing the very important fact that the wealthiest 1% are paying 28% of income tax—a far higher proportion than when Labour was in power, when the figure was 24%.
Is it not a fact that everyone in the Chamber, because they pay the top rate of income tax, will disproportionately benefit from the rise in the personal allowance, because every pound of it will be taken out of income on which we pay that top rate? Clearly, then, the gain to all of us as top rate taxpayers will be greater than for people paying only the bottom rate of income tax.
As I have already said, not only do the wealthiest in our society pay a very large proportion of all tax, but under this Government we have seen significant increases in the national living wage. It rose by 4.4% last April, and through the Bill—I am proud to say—we are putting on to the statute book an increase next April of 4.9%. That is well in excess of inflation and will help the very people that both our parties are committed, in our different ways, to assisting—although our measures are more practical than those suggested by the Labour party.
On the point about the higher rate, it was my experience as an employer that if, say, a member of sales staff paying basic rate tax did very well in a given month, got commission or a bonus and as a result experienced a sudden, sharp increase in their tax that month, it reduced the incentive on them next time. I welcome the changes to the higher rate because of the impact on incentives and therefore on productivity and so on.
My hon. Friend makes an important general point about taxation. As we know, very high taxation has a number of undesirable impacts, not just on individuals and businesses, but on the economy and, through that, the general tax take and our ability as a society to fund our public services, and one of those impacts is that which he rightly raises: the disincentive to go out and produce and create the wealth upon which we all depend. It is the duty and mission of this Government, generally across the piece, to keep taxes as low as possible.
Since 2010, the Government have introduced more than 100 measures to combat avoidance, evasion and non-compliance, but this alone is not enough. To support these measures, it is vital that HMRC be well funded and well staffed. That is why we have invested an extra £2 billion since 2010 in HMRC and why we have 24,000 members of HMRC staff dedicated to tackling avoidance, evasion and non-compliance.
It is one of the key drivers in tackling tax avoidance and the tax gap—the tax gap occurs not just with individuals but with large corporations and small businesses. I do not have the precise number, but I am happy to write to the hon. Gentleman with that information. What I can tell him is that, at any one time, about 50% of the largest 200 businesses in the country are under investigation, not necessarily because they have done anything wrong but because, logically, HMRC should be looking particularly carefully at the businesses that are making the largest profits and generating the most.
This investment is paying off. In 2017-18 alone, HMRC secured and protected more than £30 billion in additional tax revenues which otherwise would have gone unpaid. That was a year-on-year increase of £1.4 billion.
We know that some large multinationals have been able to avoid tax by exploiting gaps and mismatches in the international tax system. International leadership was required to address the situation, and that is exactly what the Government have provided. We were at the forefront of the OECD’s base erosion and profit shifting project, which agreed major reforms to the international tax system, and we have taken the lead in implementing these recommendations in domestic legislation. We have also been a strong supporter of the EU anti-tax avoidance directive, and we have helped to shape the common approach that it provides for tackling avoidance in the European Union.
I thank my right hon. Friend for giving way to me again. For the sake of fairness, we must of course ensure that multinational companies making profits in our country contribute properly to the economy of the country. I hope very much that we can somehow link the profits made in the United Kingdom very closely to the amount of tax that is paid. At the moment some international companies are behaving appallingly in the way in which they handle their tax affairs, and we must sort that out.
As always, my hon. Friend has made a critical and important point. I took him to be alluding, at least, to the issue of technology businesses—typically, social media businesses, search engines and certain online marketplaces—which, while making substantial profits in our country as a consequence of the interaction of UK users with the digital platforms that they host, are not paying a commensurate level of tax. That led the Chancellor, in the recent Budget, to announce our move towards a digital services tax, whereby we will not be addressing a question of avoidance—it is important to make that point—but will be bringing the international tax regime into the 21st century, so that we can tax profits not just on the basis of where the bricks and mortar may be, where the staff may be, where the intellectual property may reside or where the commercial risks and decisions are being taken, but on the basis of where this particular type of value generation is occurring.
While we have said that we will seek to move forward in a multilateral manner, because we recognise the dangers of double taxation in the event that we move unilaterally, we have made it very clear that we will introduce this measure ourselves as a first mover, or one of the first movers, of the leading countries in the world. We think that it is only right, and we believe that the public feel that it is only right, for these very large businesses to pay an appropriate level of tax.
That is a very good question. In the case of the digital services tax, we are no so much talking about intangible assets, although elements of the Bill—indeed, clauses in this group—relate to ensuring that profits are not artificially shifted as a result of money being moved around in respect of such assets. Here we are talking more about digital platforms, and a particular method of value creation that results from the interaction of UK users with those platforms. However, in terms of intangible assets and intellectual property we might think, for example, of the rights of a particular business based in the UK to carry on business using the branding, know-how and knowledge of a particular piece of intellectual property held in a low or no tax jurisdiction. Any royalties moved from the UK out to that low or no tax jurisdiction will be a form of profit shifting that might be artificial and simply designed to reduce a corporation’s tax bill, which is why we have particular measures in this Bill to address exactly that situation.
As I have said, this investment is paying off. In 2017-18 alone, we raised an additional £30 billion. When individuals have engaged in tax avoidance, we have brought in a variety of important measures, including to tackle the way in which some people structure their affairs for the purpose of avoiding tax, and to deal with cases of aggressive tax avoidance, such as disguised remuneration, which is being addressed by the loan charge.
Along with effective collection, we are determined that taxes themselves should be as low as possible, and the House will note the reduction in corporation tax and income tax that this Government have delivered. Our increases to the personal allowance took 4 million of the lowest paid out of income tax entirely between 2010 and 2015, and a further 1.74 million people will be taken out of tax by 2019-20.
Collectively, our approach and the measures set out in the Bill ensure that taxation in our country is competitive, fair and paid. The Bill shows our continuing commitment to crack down on tax avoidance and evasion wherever we find it.
The Minister gave me a written answer yesterday to a parliamentary question about higher rate Scottish taxpayers who register themselves elsewhere in the United Kingdom. He responded by saying that Her Majesty’s Revenue and Customs holds no data on that. On reflection, does he not think that HMRC should be tackling those trying to avoid tax, specifically the higher rate tax in Scotland?
The hon. Gentleman will, of course, be very aware of the devolution of various elements of our tax system to Scotland, and the issue he identifies is fundamentally driven by the different relative rates of taxation in Scotland and in the rest of the United Kingdom. I would argue that it is incumbent upon the Scottish Government to do as the UK Government do where these matters are reserved, which is to keep taxes as low as possible. I know that Conservative Members representing Scottish constituencies are most keen to deliver that for their constituents.
As we announced at the autumn Budget in 2017, the Government are legislating in this Bill to tax income from intangible property held in low-tax jurisdictions to the extent that it is income that relates to UK sales. Today some large multinationals are able to unfairly reduce their tax bill by arranging to hold their intangible property in offshore entities. That is unacceptable, and we are now going further to level the playing field. Clause 15 requires multinationals that continue to earn intangible property income in low-tax jurisdictions to pay UK income tax on the proportion of that income that relates to UK sales.
Tax avoidance is not limited to large multinationals of course; businesses of all shapes and sizes attempt to unfairly shift UK profits to jurisdictions where they expect to pay less tax or perhaps no tax at all, so clause 16 introduces carefully targeted anti-avoidance rules to prevent these UK businesses from avoiding UK tax by shifting their profits to lower-tax jurisdictions. The clause targets contrived arrangements that, in broad terms, aim to avoid tax by transferring the profits of a UK’s business offshore in a way that would not be agreed between independent parties.
I very much agree with my right hon. Friend on this point. Is it not also true that our small and medium-sized enterprises, particularly those that are currently struggling, perhaps including high street businesses, do not have a cat in hell’s chance of running such schemes? They do not hide their profits and they do not mix and match around territories, so we need a level playing field.
My hon. Friend is absolutely right. The tax avoidance activities that I am describing are way beyond the reach of many businesses of a certain size up and down the country. Thinking particularly of our high street businesses, we have a duty to ensure that fixed costs in the form of taxes represented by business rates are reduced to the extent that they can be, and the Chancellor was able to announce a 30% reduction in business rates for those smaller retailers that typically populate our high streets. That was an extremely important move as we work, through our future high streets fund and other approaches, to enable our high streets to transition and become more vibrant and successful places.
The Minister is talking about business rates. As a result of the Government’s action, Scotland should receive about £43 million in additional Barnettised revenues. What work will he be doing with the devolved Administration to ensure that that will help high streets in Scotland as much as the Government are helping high streets elsewhere in the UK?
As a UK Government, we are always happy, and indeed keen, to work co-operatively with the devolved Administrations, including the Scottish Government, as my hon. Friend suggests. Ultimately, however, these will be decisions for the Scottish Government to make. It will be for them to decide how to spend the revenues that will come through by way of additional funding via the Barnett formula. I can only suggest once again—I think this echoes my hon. Friend’s thoughts—that the best way forward is to keep taxes down and, in the case of Scotland, to have a country that is known for low taxation, rather than gaining a reputation for higher taxation.
Clauses 46 and 47 address the use of contrived arrangements that seek to avoid stamp duty on shares. The Government are aware that some corporate groups are transferring shares to connected companies for an artificially low consideration. The clauses create a targeted marketed value rule for transfers of listed shares to connected companies. This rule will prevent the use of artificially low consideration by charging stamp taxes on shares on the higher of the market value of, or the sum paid for, the shares transferred.
The Bill also re-emphasises our commitment to leading the way in implementing internationally agreed initiatives to combat tax avoidance. Clauses 19, 20 and 23 make changes to the UK’s rules on controlled foreign companies, hybrid mismatches and corporation tax exit charges to ensure that they comply with the EU’s anti-tax avoidance directive. The UK is a strong supporter of the objectives of the directive, as it will ensure that member states take a common approach to tackling tax avoidance. The UK’s rules are already comprehensive, and they already meet or exceed most of the requirements set out by the directive, but some limited changes are needed to ensure that we are fully compliant in all areas.
On a point of clarity, the Minister has said that stamp duty on shares will be charged at either the market rate or the actual rate, whichever is higher. Will he confirm that shares will still be able to be sold below the market rate so long as the tax is paid on a marked market basis? Is that correct?
The Bill will ensure that businesses that typically trade in and acquire shares pay the correct level of stamp duty on those shares, rather than paying a certain market rate having transferred the shares, perhaps internally to another company in the same group, in return for shares from that other company that had been valued at a lower level compared with the original purchase price of the original shares. By doing that, some companies have been exploiting a loophole and paying less stamp duty than they would otherwise have done. In case the hon. Gentleman is wondering, the distinction between the two clauses relating to this matter is that one relates to paper shares and the other to the electronic trading of shares in that manner.
Amendment 19 would provide for a review of the changes required to the controlled foreign company rules, which protect against the artificial diversion of profits from UK companies to low-tax jurisdictions, including with regard to the impact of a no-deal scenario. While the Government always keep the general tax system under review, a specific review of those provisions would be disproportionate. They are minor changes to ensure that the UK’s anti-avoidance rules on controlled foreign companies are fully aligned with the direction with which the UK agreed during negotiations on the anti-tax avoidance directive, and there is no need for a review.
Clause 83 enables the introduction of new international rules requiring tax advisers to report to HMRC certain cross-border arrangements that could be used to avoid or evade tax. That information will allow HMRC to build up the full picture of such arrangements. Following a consultation next year, the Government will introduce secondary legislation containing further details of the rules. We have played a leading role in designing that approach, which forms part of our ongoing work to champion international tax transparency and to tackle offshore tax avoidance and evasion.
Amendment 23 would require the Government to publish a report on how clause 83 will be exercised under various EU exit scenarios before making the proposed regulations. However, the Government are already committed to a formal consultation on the proposed regulations, and all practical aspects of implementing the regulations and EU exit will be taken into consideration as part of that consultation.
As we depart from the EU, we must continue to honour existing commitments. That is why we are allowing capital gains tax in respect of exit charges to be paid in instalments. Exit charges can arise on unrealised capital gains when a trust ceases to be UK resident, or if a non-resident individual either ceases to trade through a UK branch or agency or moves trading assets abroad. Exit charges ensure that tax cannot be avoided by moving assets overseas. Clause 22 retains those rules. However, when such entities choose to move their place of residence within the European economic area, they will now be given the option to defer the payment of tax, paying in six equal annual instalments with interest, which will not reduce the amount of tax that is due.
Opposition amendments 3 and 4 would require the beneficiary of a trust that pays capital gains tax on an instalment basis to provide information about the source of its income in a public register. That requirement is disproportionate and unnecessary. Migrating trusts seeking to use the scheme will have paid UK tax, so their income sources will have been declared to HMRC. Information about the nature of the trust’s assets will also be held on the trust register, which applies to trusts with a UK tax liability and is available to law enforcement agencies. Consequently, there is no need for further reporting.
New clause 5 would require the Government to carry out a review of the equality impact of some of the Bill’s anti-avoidance provisions. The tax information and impact notes published alongside the measures already set out the impact of anti-avoidance measures in the Bill on those sharing protected characteristics. In general, they show that HMRC does not expect the measures to have notably different impacts on people according to their protected characteristics.
New clauses 6 and 14 would require the Government to publish a review of the effectiveness of the Bill’s provisions to tackle tax avoidance and tax evasion, and to reduce the tax gap. Such a review is unnecessary. The Government keep all taxes under review and will continue to measure and publish annual statistics on the tax gap. I have little doubt that those statistics will continue to show that the tax gap is lower than at any time under the previous Labour Government.
New clause 15 would require the Government to publish a report on the consultation that we have undertaken on some of the measures in the Bill. The Government are committed to creating a more predictable and stable tax system. Our move to a single fiscal event timetable and the new tax policy-making process ensure that there is more time available to consult on new tax changes. In July, we published draft legislation or detailed technical notes on the majority of the measures covered by the clauses in this group to allow for consultation with interested parties. However, that approach is simply not appropriate for all tax avoidance and evasion measures. Publishing draft legislation can give those targeted by legislation the opportunity to make provision to sidestep it. Although I agree with SNP Members that consulting on tax legislation is important, I do not agree that it is necessary for us to produce a report.
Conservative Members will continue to be ever mindful of the simple fact that wealth and money do not belong to the Government. In fact, there is no Government money, only that which is generated by hard-working people right across our country. As such, we recognise that we have a duty to keep tax as low as possible to reduce its burden, most especially on the poorest in our society, and so protect living standards and nurture a thriving economy.
That is our way, but the way of the Labour party is horribly different: hiking taxes; cutting net incomes; stunting entrepreneurship and growth; and killing the goose that laid the golden egg. Along with keeping taxes low, we have a duty to collect that which is due, for the taxes that are collected fund the public services that are so needed. Our record speaks for itself: a tax authority tirelessly clamping down on those who seek to avoid and evade; a country with one of the lowest tax gaps in the world; and a Government raising ever more money for our vital public services which, in turn, are the hallmark of a civilised society. The Bill carries on in that spirit—in that great Conservative tradition—and I commend these clauses to the Committee.
It is a pleasure to participate in this debate and to follow the Financial Secretary to the Treasury. I will speak to Labour amendments 3, 4, 19 and 23 and to new clauses 5 and 6.
As other Opposition Members have noted, it is disappointing, to say the least, that the Government have been unwilling to allow proper scrutiny and challenge of their proposals in this Finance Bill, as they have failed to introduce an amendment to the law resolution. Members will be aware that this approach has been used six times in the past century, each time necessitated by Budget provisions needing to be passed quickly.
Indeed. When we are unable to table amendments on provisions within a Budget, it is a severe restriction on the House’s ability appropriately to challenge the Government’s policies. In any case, if the Government can muster backing for their approach to prevent a change in policy, they can do so.
The hon. Gentleman has made the point for himself. It is precisely because we do not have the ability to table meaningful amendments that we are in this position. I am sure that he is aware that, when it was possible for Labour Members, often with other Members, to table meaningful amendments to Finance Bills, there was a huge amount of participation, such as when amendments were tabled on country-by-country reporting. Sadly, despite those amendments, we have not yet seen the change in Government policy that we would have liked. When the House is given the power, we exercise it; when we are not given the power, we are unable to exercise it.
As “Erskine May” sets out very clearly, in these circumstances, the only permissible amendments are
“strictly limited to what is authorized by the specific resolutions on which the bill is founded.”
Because of those restrictions, the Opposition cannot expand the scope of measures against tax avoidance and evasion beyond the very limited scope presented in the Bill.
There is a whole host of areas in which the Government should be taking action but where the Bill is completely silent. There has been no new approach from the Conservative Government on the verification of information supplied by companies when they register, despite widespread evidence of tax avoidance and money laundering being facilitated through the registration of fake companies via Companies House.
On shell companies, the Government have provided only a consultation on partnerships rather than action, and they have failed to use to any great extent their legal ability to impose fines on partnerships that fail to provide beneficial ownership information. Despite their consultation on a new failure to prevent economic crime offence finishing more than a year ago, we still appear to have no more progress on that. Although our Government now have, as I mentioned, the legal means to require country-by-country reporting wholesale, following that amendment to a Finance Bill two years ago, when we were able properly to amend the Bill, they have refused to take up that option.
Despite this catalogue of failure, the Government continue to talk up their record. We saw this elevated to the level of farce last night, when Conservative central office—I assume—released a graphic on Facebook with the laughable claim that Labour had just voted against cracking down on tax avoidance. Labour has consistently advocated much stronger measures on tax avoidance than this Government have done. Indeed, the weakness of measures in the Bill is one of many reasons why we oppose it. The graphic included a background of palm trees, presumably a bizarre reference to our overseas territories. It is bizarre, given the woeful lack of action by our Government in this regard.
I will go on to talk about the assumptions that the Government currently use to calculate that tax gap, and the hon. Gentleman will learn that their claims to have massively reduced the amount of tax avoidance through that measure are potentially questionable, to say the least. Perhaps after we have had that discussion, we will see whether he still holds to that assessment.
While we wait for the hon. Lady to congratulate the Government on closing the tax gap, will she recognise that many of the steps taken in the Bill have to be taken in a way that is mindful of how international tax systems work and how we need to ensure that the tax we are gathering does not lead to companies leaving the UK and trading to it from international jurisdictions?
Of course we need a business-friendly tax environment, but we should also recognise, just as I find when I talk to many international businesses, as I do in my shadow ministerial position, that the vast majority of businesses want to be compliant. Sadly, a small number of firms are not necessarily complying with the letter of the law and some are also not complying with the spirit of the law. That is leading to a situation where our public services are starved of the funding we need, which has a huge impact on business, as I am sure the hon. Gentleman is aware through his discussions with businesses in his constituency.
Let me return to the matter of overseas territories, which strangely appear to be referred to in pictorial form in material released by Conservative central office. This Government were forced kicking and screaming by this House to require our overseas territories to produce public registers of beneficial ownership, but I understand that all that has happened since the vote that forced that change in policy is one conference call, leading to a vague commitment to convene a technical working group—but it is not going to meet until 2019. So we have had many months since that vote in this House but almost no action. In addition, rather than fulfil the commitments the Opposition were given that our Government would work with Crown dependencies towards transparency, tax treaties were presented to this House last week that included no such provisions whatsoever.
The Minister has, as ever, opined that his Government have reduced the tax gap, and indeed other Members have just referred to that. I am sure, however, that he will not illuminate us with the fact that his Government’s tax gap measure excludes the costs of profit shifting and that it starts from the assumption that companies are declaring the correct amount of tax, which surely begs the question. The tax gap for this Government is assessed on the basis of whether Her Majesty’s Revenue and Customs has found errors or evidence of avoidance on tax returns, an approach that has rightly been criticised by the Public Accounts Committee, given that it leads to a situation where much of the tax lost through avoidance simply does not count as part of the tax gap. The Government’s tax gap does not appear to include cases of avoidance or evasion that do not fall under existing legislation, so it fails to capture numerous loopholes that continue to be exploited simply because they are exactly that: loopholes.
Did I detect a sigh when the hon. Lady gave way? She is questioning the basis of the tax gap as a sign of progress, so let me try a different statistic that she might feel better about. The amount of corporation tax collected has gone up from £35 billion a year to £55 billion a year; is that not evidence that these tax-raising measures are effective?
I am always delighted to hear from the hon. Gentleman, but when he talks about the tax-gap measurement, he is talking about his Government’s tax-gap measurement, not one that is universally accepted. In fact, it is quite the opposite, and many alternative measures suggest that much larger amounts of tax are being avoided and, indeed, that larger sums could be rectified if tax evasion was dealt with. Yet again, we hear this comment about the cut to the corporation tax rate. I am sorry to sound like a stuck record, but I have to remind the hon. Gentleman that every expert commentator on this matter has intimated that the rise in the corporation tax take is not because of the cut to the rate and that, in fact, had the rate not been cut, more revenue would have accrued to the Treasury. As I will go on to discuss, that revenue could have been used to support public services and social security for our constituents.
The hon. Lady will be sighing a bit more when I point this one out. It is very kind of her to give way. She said that the tax take has not gone up because of the rate cut, and she is absolutely right: above all, the reason the tax take has gone up is that the economy has been growing very strongly.
I am sorry that the hon. Gentleman views as a badge of pride the recent growth statistics. I would never talk down the British economy—it has a huge amount of promise—but I am deeply concerned about the fact that our growth statistics, particularly for the future, have been revised down. For next year and the following year, I believe that they are 1.6% and 1.4%, so they have been revised down. In the past, in normal times, we would have viewed growth statistics of that kind as a failure. Of course I am pleased that our economy is finally growing again—it was, of course, growing when Labour left office—but I am none the less deeply disappointed that we are not reaching the same levels of growth as many of our competitor countries.
With the House’s permission, I shall continue with my comments.
We need a far more serious and engaged approach to countering tax avoidance and evasion. Our amendments are an attempt to provide that—at least within the scope of the limited measures in the Bill. First, with amendments 3 and 4, we are calling for public registers for beneficiaries of trusts who have relocated or plan to relocate to other EEA countries and who seek to defer their corporation tax exit charges, or those relating to capital gains tax, through a payment plan, as the Minister intimated. The Government’s action in this policy area has been necessitated by recent decisions of the European Court of Justice, which considered the compatibility of member state exit charges with article 49 of the treaty on the functioning of the European Union.
As the Minister intimated, the measures in the Bill will enable those who adopt an exit charge payment plan to pay in six equal instalments, albeit with interest. Given that this approach is necessitated by EU law and applies to individuals and trustees who move to another EU or EEA country, and given that some Government Members sadly flirt recklessly with the prospect of a no-deal Brexit, I would have expected the Government to explain what might happen in this policy area as our relationship with the EU changes. That was not the case in respect of the information about these measures that we were given; nor does anything in the Bill lead us towards greater transparency for trusts, which is desperately needed.
As of January this year, all trusts that pay beyond a very modest level of tax have had to register with HMRC through its trust registration service, but that is a private register, not a public one. The new iteration of the EU’s anti-money laundering legislation will require changes in the UK approach. First, it makes business-like trusts and those managed in the EU subject to reporting requirements, so potentially enlarging the category of trusts that have to register. Secondly, it enables parties with a legitimate interest to access information about those trusts—not just law enforcement agencies as currently—although the decision on who qualifies as having such a legitimate interest will be under the discretion of member states. Finally, this new legislation requires trusts owning EU companies to disclose full information about trustees, settlors and beneficiaries.
The Conservative Government are shifting policy on exit charge payment plans in the interests of the firms and individuals who benefit from that deferral of tax, but they are not changing policy to make trusts more transparent, which will soon be required by the EU. That amounts to yet another contradiction within the Government’s proposed relationship with the EU, but perhaps that was predictable, given the Conservatives’ long-term determination to protect trusts from scrutiny by tax authorities and those with a legitimate interest in their beneficial ownership. It is most explicit in David Cameron’s personal intervention to try to block EU action in this area.
My hon. Friend is making a fantastically good forensic case this afternoon, but I am still not sure whether I fully grasp the point. Is she saying that the Government have still not set out how they intend to collaborate with the European Union on information sharing for tax purposes, and/or is she saying that this will be an excuse for a lighter tax regime in this country and in the other EU member states, which will no doubt be taken into account when the future framework is being negotiated?
I am very grateful to my hon. Friend for her comments. In fact, I will go on to say both, because that is precisely our concern. So far, the Government have been incredibly vague about what commitments they will make on tax matters in relation to preventing avoidance and evasion. Furthermore, we have had some very, very unhelpful comments—to put it extremely mildly—from the Government about whether they might seek to undercut the rest of the EU on tax matters. I know that my hon. Friend follows these matters very closely, as she does money laundering matters, where I argue that we have not been clear enough about how we will collaborate with others into the future.
Our new clause 5 is directed at another Government blank spot: the distributional impact of their tax measures. It would require an equality impact assessment of the Government’s tax avoidance measures in relation to child poverty, household income levels, people with protected characteristics, and our nations and regions. That assessment is necessary because of the continuing leakage from our tax system owing to avoidance as well as evasion. Failure to deal with avoidance has put pressure on the rest of the tax system, which, as I have just mentioned, has been exacerbated by unnecessary tax cuts to the very best-off people and to profitable corporations. As many independent observers have noted, these tax cuts have tended to benefit the very best-off people and often men rather than women, while £4 out of every £5 cut from Government budgets has fallen on women’s shoulders. The Women’s Budget Group has shown how, out of all household types, lone mothers have been the hardest hit by cuts to services and tax and benefit changes, followed by lone fathers and single female pensioners. Among lone mothers, it is black and minority ethnic women who have lost the most.
I am grateful for the intervention, because it enables me to make the answer clear. Absolutely not. We are asking for something very simple. Sadly, it is something that this Government have not been willing to provide, which is the information about tax incidence. We do not have that information to the extent that the House needs. The process of analysis has been left to bodies such as the Women’s Budget Group and the Child Poverty Action Group. They have to crunch the data. That is an activity that should be carried out by Government, so that we as Members are able appropriately to scrutinise their policy and practice. We do not have that information at the moment.
The hon. Lady is being very generous in giving way. As a rejoinder and as a follow-up to the intervention by my hon. Friend Bim Afolami, that is not the point he was making. He is saying that the implication is that, to change the system, we would need to have discriminatory tax policies to effect a different impact. We cannot just assess it; for it to be different in practice, the measures, by definition, would also have to be discriminatory.
I fear that the hon. Gentleman has yet again made the point for himself. This Government’s approach to taxation so far has affected different groups disproportionately. We can call that discrimination, unequal impact or whatever we like. The fact is that we found out about that not through Government figures, but due to analysis conducted by other bodies. We had a lengthy debate about this during the last Finance Bill, and I am very happy to run through all the arguments again. I suggest, however, that it might be easier for him to read analysis by those expert bodies, which will make the point more eloquently than I could.
The hon. Lady is extremely generous in giving way. I wonder whether she will accept a point made by a member of one of the groups about which she is speaking—that is, by a woman. Does she accept that there are more women in work now due to this Government’s measures, making women better off compared with the legacy left by her party’s Government, of which I accept she was not a member?
I appreciate the hon. Lady’s comments, but is she aware that under her party’s Government, moving into work is sadly no longer the route out of poverty for huge numbers of working women? For example, two thirds of children living in poverty are in working households. Previously, someone who could obtain a job with enough hours would be able to climb out of poverty. That is no longer the case in the UK. Furthermore, as I just mentioned, those who have analysed the impact of tax and benefit changes on different genders have shown very clearly—it is simple to look at the statistics—that £4 out of every £5 cut by this Government have been cut from the pockets of women and from the services that women use.
On seriously tackling the tax gap and the lack of analysis that the hon. Lady is identifying, could one of the reasons possibly be the meat cleaver that was taken to the HMRC office network, meaning that there is now a lack of local knowledge? Also, should not the Government employ as many people to tackle tax avoidance as they do for Department for Work and Pensions social security fraud?
I know that the hon. Gentleman has worked on the issue of cuts to HMRC’s capacity, as have many Members across the House. I will return to that important issue soon, because sadly the reality does not reflect the rather rosy picture that we were provided with by the Minister on that subject.
I return to the distributional impact of this Government’s tax measures. We had an interesting discussion about fairness following some comments by Bob Stewart, who is no longer in his place. The Minister intimated that he was in favour of a fair tax system and said that the wealthiest people pay a large proportion of all tax. He is absolutely right: the wealthiest people do pay a large proportion of income tax. That is because of how wealthy they are. However, if we look at the impact of the tax system on different income groups, we find—I should not say “we” because it is the Office for National Statistics that has discovered this—that the best-off 10% of people pay less of their income in tax than the worst-off 10%. I note that the Conservatives did not contest this statistic when it was mentioned in the House yesterday. Surely that is a ringing indictment of their approach to taxation.
I am delighted that the shadow Minister has given way once again, without sighing this time. The poorest in society are not in tax at all thanks to the increase in the threshold. The richest 1% do indeed pay 28% of tax, but they only earn about 12% of all income, so she will see that the amount of tax they pay is a great deal higher than their share of income.
It is always a pleasure to hear from the hon. Gentleman, who is always a very friendly face. Sadly, however—I feel bad doing this—I do have to correct him on two of the points that he mentioned. He stated that the poorest people will not pay any tax at all. That is simply not the case. Of course, they will pay—[Interruption.] No, no—he said “any tax”. Let us be clear: of course, large numbers of very badly off people pay a lot of value added tax, which is a regressive tax, even with the exemptions that apply to it.
In addition to that, increasing numbers of low-income people across this country are now paying council tax, many of them for the first time, because of the swingeing cuts that the hon. Gentleman’s Government have delivered to local authorities’ budgets for council tax relief. So we now have very large numbers of very-low-income people being taken to court because they are unable to pay their council tax. That situation is novel in our country but some might say it approximates things that happened back in the 1980s, which I am sure that the hon. Gentleman is too young to remember but which the history books have certainly not forgotten.
We also need a thorough understanding of how the failure to tackle tax avoidance affects our different regions, given that austerity’s impact on incomes has been strongest in areas that were already struggling economically. We need a thorough impact assessment of the impact that the failure to deal with tax avoidance is having on child poverty. Yesterday Ministers tried to deflect attention from their record on poverty by using only figures on absolute poverty. They never speak about the measure that is instead used by most academics and experts—relative poverty—because they know that more children are now living in relative poverty under their watch: almost a third of children, in fact. The problem is such that the chief executive of the Child Poverty Action Group has described the Conservative Government as being “in denial” on child poverty.
I will explain why we need to look at relative poverty. We should not look simply at whether people are destitute, as measured by absolute poverty, even though, sadly, many are having to resort to food banks for bare necessities; we also need to look at what people’s incomes are in relation to the living standards that everyone else enjoys. That is why the concept of relative poverty measures whether people are poor in relation to median-income people. Relative poverty matters because it shows whether people can afford to live a decent life.
No, it does not. Absolute poverty measures whether people can afford the bare necessities of life. To be able to participate in society—in their communities—they cannot fall so massively behind the median income. We are talking about families whose children cannot go to birthday parties for their friends because they cannot afford a card and a present. For me, that is a failure of our society, and it is to do with relative poverty, not absolute poverty. Over 4 million children in this country are classified as living in relative poverty, and that number is rising, not diminishing.
I will press on for now.
Labour’s new clause 6 would require a review of the Government’s measures presented in this Finance Bill on tackling avoidance, evasion and the tax gap. It would enable us to consider whether the Government’s reactive approach is sufficient, when many of us suspect that it is anything but. Here we are reminded of one of the biggest gaps in this Bill. Despite much fanfare in the Budget, and indeed in the Minister’s comments just now, there is no digital services tax presented in this Finance Bill. Instead, there will be a consultation on the Government’s approach. Of course, even what is in that consultation is less stringent than European-level proposals, and it includes giant loopholes in its safe harbour and double threshold elements.
Eddie Hughes—who is still in his place, which is fantastic—talked about the regime for intangible assets. He is absolutely right that we need tax authorities to deal with these issues more appropriately. When I think about the major strides that have been made on taxing profits arising out of those intangible assets, I think of the cases that have been taken by the European Commissioner for Competition against Starbucks and others. She showed, for example, that Starbucks’ intellectual property relating to its roasting processes was not based in the Netherlands, as it claimed, and that that was just a ruse to avoid tax.
The Government have not shown in this Finance Bill—or, indeed, anywhere else—how they will deal with very large multinational companies that have previously had their tax affairs challenged through the action of the Competition Commissioner when we are outside the EU. We still have a lack of clarity on our competition policy following the transition period and sadly, that is not dealt with in the Bill. I agree with the hon. Member for Walsall North that we should look at that significant problem.
Does the hon. Lady accept that, when we are dealing with the complexity of international tax treaties, judicial precedent and the rule of law, and given that those treaties and lots of judicial precedent were established at a time when we did not have multinationals in the way we do now, it is only prudent to consult properly before we put measures in place? Does she also accept that this Government have been a leader, according to the OECD and the IMF, in dealing with the problem that she outlines, and that she is not being fair at all?
I am grateful for the hon. Gentleman’s intervention. However, I am sorry to point out that he is slightly behind the times when it comes to the operation of tax treaties. Those are now multilateral, following the development of the OECD’s multilateral instrument, which aims to amend tax treaties for all signatories, including the UK, in a thorough manner.
That appears to be a slightly different point from the one the hon. Gentleman was making a moment ago. None the less, I agree that this is a work in progress. Sadly, our Government and Conservative Members in other jurisdictions have not always been promoting that process. I gently remind him that his colleagues in the European Parliament have consistently voted against measures that would increase tax transparency and have consistently not supported attempts to hold inquiries into, for example, the Panama papers and the Luxembourg leaks. I hope that, at some point, they will catch up with the need for more tax transparency and enforcement. Perhaps he could encourage them; that would be enormously helpful.
It is positive to see in this Finance Bill that the Government have adopted some of Labour’s proposed measures in our tax transparency and enforcement programme. They have finally seen the light on giving HMRC back preferred creditor status. They appear to be undertaking some action against umbrella agencies exploiting the employment allowance. They also appear to be looking towards creating an offshore property levy, although it is unclear to me, even following the Minister’s comments, how appropriately that will be targeted, given that it lacks the precision of Labour’s proposed oligarch property levy. But there are few additional measures in the Bill beyond what is already required by either the EU or the OECD, showing an abject lack of ambition and commitment from this Conservative Government.
Underlying all this, as Chris Stephens said, is the Government’s failure to appropriately staff HMRC to deal with tax avoidance and evasion and their determination to press ahead with its reorganisation, despite evidence that it is haemorrhaging experienced staff. Some additional money has been provided, which the Minister referred to in his speech. However, we still lack clarity on exactly where that money will go. The Government have committed to provide 5,000 additional customs staff. I still do not know where they will go. We are looking at a situation where, due to the regional reorganisation, there will not be a single HMRC hub along any of the south coast or beyond the central belt. Where customs officials will go is very unclear.
In addition, any additional money that is being provided by the Government, or at least much of it, will in any case just backfill what has been sucked out through the recruitment costs necessitated by the need to replace staff who have been lost due to the reorganisation process.
The hon. Lady is painting a very negative picture, which I think is a shame. She should give this Government some credit for the fact that they have collected £71 billion more tax than would have been the case, given the tax regime, under Labour. That is £71 billion that has been collected. We all want to go further, but will she not welcome that money, which has gone into our public services?
I discussed a few moments ago how many of those measures are in fact disputed. It would be interesting if the hon. Lady could break down that figure. I suspect many of us would not agree that it reflects an accurate representation of the tax lost. In fact, as I mentioned, when profit shifting is taken into account, that figure is likely to be much larger.
I am very positive about the potential of our economy, and the potential of our tax officers, but I think they are being presented with an impossible task. I have talked to many of them—dozens of them—and they are very concerned about the future. They want to do a decent job, but they are being prevented from doing so a lot of the time, sadly, due to the Government’s determination to press ahead with this reorganisation programme.
Is the hon. Lady aware that, following the Government’s consultation on their intentions for an increased tax take on intangible assets, they have introduced an allowance of £4 million to make amendments to computer systems and to employ more staff so that they can monitor compliance with these new tax regimes? Will she welcome that?
I am grateful to the hon. Gentleman for his intervention but, as I have said, some of the new staff coming in are replacing other staff who have been lost. In fact, when we look at those data, we see that over 17,000 staff years of experience in HMRC have been lost through redundancy. I find that many more experienced specialised staff are talking about leaving our Revenue in the future if the Government press ahead with their reorganisation scheme.
We have raised this many times and Chris Stephens has raised it as well. The Government are reducing the number of tax offices, in actual fact. They are closing the offices in Coventry. I do not know about the constituency of Eddie Hughes, but people are having to go a long distance—16 miles to Birmingham—to deal with their tax problems.
As always, my hon. Friend has made an important point. We are seeing the loss of many experienced staff in these offices, which is not only a problem for HMRC, but an enormous problem for local economies.
Over the past couple of months, I have visited 10 of the locations where HMRC offices have either already closed or are set to close, and I must say that there is huge concern about the implications for those local areas. They are often ones where it takes a long time to travel to other destinations and where it is impossible to travel to work to the new regional centres. As a result, we are losing much expertise within our Revenue service.
That is reflected in the statistics from surveys of HMRC staff. We see that HMRC staff morale is incredibly low, but we have no recognition of that by the Government or any understanding of the implications of that for the services that HMRC provides. Indeed, as Members have mentioned, that would become even more of a problem if HMRC had to attempt to sort out the customs and VAT chaos that would be caused by a no-deal Brexit.
Our uncertain future relations with the EU are at the root of the penultimate Opposition amendment that I will speak to, amendment 23. The amendment requires a consideration of the implications for cross-border tax information sharing of no deal and of the Government’s withdrawal Bill arrangements. The European Scrutiny Committee asked for
“the Government’s view on the value of continued UK participation in the wider system of exchange of information created by the DAC Directive”— the directive on administrative co-operation—
“after the post-Brexit transition period ends, and how it will seek to secure the desired level of cooperation when it becomes a third country for the purposes of EU law.”
“the Government recognises the value of the exchange of information in tackling tax avoidance and evasion and will address procedures for ongoing administrative cooperation, including the exchange of information framework set up—” under the directive—
“within the scope of the wider EU exit negotiations.”
It is one thing recognising the value of information exchange, but it is quite another ensuring that it will continue. We really need clarity from the Government, not only about administrative co-operation but about other forms of information exchange.
For example, will the Government continue to participate in the code of conduct group, potentially with observer status? I have asked about that repeatedly, but as of yet I have received no answer. Will we participate in the pan-EU database including information about trusts, which I referred to and which is due to be created as a result of the new iteration of the anti-money laundering directive? Will we continue to share information about tax rulings, those sweetheart deals concluded between HMRC and large taxpayers, which are not available to smaller taxpayers and which in some cases have rightly caused uproar when details of their provisions have leaked out?
James Cartlidge referred to the need for a level playing field. Surely that applies in spades when it comes to transparency on tax rulings, so I am very disappointed that his Government have not yet provided that transparency. It is not clear how they will share that data with the EU27 in the future.
The Conservatives’ mood music on this issue so far has been worrying. Not only has the Chancellor damaged relations with the EU27 by threatening to turn our country into a tax haven, but his party’s MEPs—[Interruption.] He has. A number of Government Members are claiming, from a sedentary position, that that never happened, but many Opposition Members will recall precisely when he made those kinds of threats. I have talked to many colleagues from different political parties in EU27 countries who viewed those comments—
I will give way when I have finished my sentence. I am so pleased that the right hon. Gentleman is so excited about participating in this debate. As I have said, I have talked to many politicians in EU27 countries who interpreted those comments—discussing a shift towards a Singapore-style model—as a threat. Of course, often when Government Members talk about a Singapore-style model, they omit to mention the huge amount of social housing, for example, in that nation, and other aspects of its business model. I suspect they have a rather different approach in mind when they talk about it.
I would be more than happy to look up that reference and send it to the right hon. Gentleman immediately. I regret that he cannot remember his own Chancellor’s words and that he is unaware that there have ever been comments from his Government suggesting that the UK may at some point shift towards a Singapore-style model. I regret that he is unaware of the comments that have so soured our relationship with the EU27, because I know that they have caused enormous problems for us. They have presented a picture of our country as seeking to undermine and undercut tax arrangements in the rest of the EU27. For that reason, it is enormously important that those comments should be counted.
If the right hon. Gentleman believes that his Government will no longer use that threat, I will be very pleased to hear it, and I would suggest that he perhaps has conversations with those members of his Government who have advocated that point of view.
I will not give way, because I fear that the Committee is losing patience with the length of my comments. [Hon. Members: “More!] It is wonderful to see so much interest in the topic of taxation; I only wish that were always the case.
The Conservatives’ mood music on this issue has been worrying, as I have said. As I have referred to previously, the Conservatives’ MEPs have consistently either voted against or abstained on EU-level measures to promote tax transparency, and the Conservative Government were, sadly, unwilling to meet representatives from the European Parliament’s Panama papers investigative committee when they came to the UK.
Our amendment 23 would force these issues into the open and require a proper consideration by Government of how they could act to ensure proper data sharing, in order to combat tax avoidance and evasion. It is paralleled by our amendment 19, which would require the Government to undertake a review of our controlled foreign companies regime, with particular consideration of how it would be affected in the event of a no-deal Brexit.
The Conservative Government appear to treat countering tax avoidance as a game of whack-a-mole, rather than the long-term strategic approach that is surely required. As a result, we wish to press new clause 5 and amendment 23 to Divisions.
In conclusion, the Government have no long-term plan for protecting the revenue on which our public services rely and appear to have no clear idea of how they will co-ordinate, or otherwise, our measures on tax avoidance with the EU27. A different approach is needed and my party stands ready to implement it as soon as we get the chance.
It is a pleasure to speak in this debate, which is not the first I have ever taken part in on tax avoidance. We have all had some enjoyable banter across the Chamber, but I think it is worth paying tribute to Anneliese Dodds for the sheer number of interventions she was prepared to take when she knew they would be challenging. Not many Front Benchers are happy to do that, so it is worth putting it on record.
I spent two years as a member of the Public Accounts Committee, which looked at the details of HMRC’s performance and in particular what work was being done to ensure that the taxes we set by law in this Parliament are collected. We need to be clear about what we are talking about when we talk about tax avoidance. In theory, someone who has an ISA savings account avoids some tax. That is not what we are talking about. What we are talking about is those who seek to use lawful methods, but stretch them to the point of incredulity.
The hon. Gentleman has just made the absolutely ludicrous and childish suggestion that buying an ISA is engaging in tax avoidance. For the avoidance of doubt, does he believe that HMRC includes ISAs in its calculation of the tax gap?
Normally I thank Opposition Members for their interventions, but that really was quite churlish. My point was that when people transfer their money from an ordinary savings account to an ISA they do not pay tax on the income from their savings, so guess what? They avoid a level of income tax. That is something we all think is right. It is how we incentivise saving and how many millions of people in this country save. So yes, tax is avoided but perfectly legitimately. That is not the point I am making, as the hon. Lady full well knows.
My hon. Friend is spot on: an ISA is technically a form of tax avoidance. The point, however, is that what irks our constituents is when international companies and others take advantage of avoidance schemes that may be lawful at the time, but which no normal citizen could in any way take advantage of—unlike an ISA, which is commonly available.
I thank my hon. Friend for that intervention, which gets to the point of the debate. Tax avoidance is when people create a very complex legal structure, for example having something offshore and routing it through a shell company. That is what we are targeting. People will look to minimise their tax liability; that is natural. I am talking about when it is clear that fictional legal companies are being created that do pointless activity or pretend to do something that is not being done, or when a value transaction is actually nothing more than just a wooden dollars transaction made with the intention of avoiding stamp duty or a liability. That is the point being made. We could go through the record of the Opposition before 2010 if we really wanted to, but we should focus on the issue itself. Tax havens did not just appear the day David Cameron walked into Downing Street—far from it.
The PAC looked at Google’s affairs. Before I sat on the PAC, I thought that a double Irish might be a drink and that a Dutch sandwich might be something involving Edam cheese. Actually, they were both ways in which corporations sought to avoid tax and route their profits into tax haven jurisdictions where the level of tax paid versus GDP was rather suspicious, or into islands, particularly Bermuda, where the amount being declared versus what the real economic activity was likely to be was rather suspicious. I will talk more about intangible property areas in a minute. The Dutch sandwich was an idea created by the Dutch Government to try to get IT firms to invest in the Netherlands. That was perfectly reasonable as something that they would look to do, but courtesy of some loopholes, people were allowed to transfer profits through from activity elsewhere. The result was not investment and jobs in the Netherlands, but significant levels of tax avoidance.
In the Public Accounts Committee, we used to be very keen on hearing more details about and having more of a focus in HMRC on where genuine tax evasion had taken place—where people had lied and hidden assets in offshore jurisdictions and not declared them. That is not about people using some clever trick; they had just lied to evade tax. It was vital that penalties followed on from that once it was discovered. If people constantly avoided prosecution, it almost sent a message that if someone is caught, they can just pay up. However, I am conscious that we are not discussing that area of the law today.
It was interesting to go through the House of Commons Library report on today’s debate and particularly to look at some statistics on where the tax gap comes from. The report mentions that in 2016-17, small businesses were part of the tax gap. However, there were also large businesses, and criminals were in third place—depriving us of billions of pounds of taxation revenue—which is why I welcome some of the measures that the Government are looking to bring in as part of the Bill.
For me, the big one is the provisions on intangible property. Clause 15 looks really simple—it is two lines—but schedule 3, which is the meat of the proposal, really starts to get into some of the detail. How the provision is enforced and how it works will be interesting, but I welcome the fact that we are moving to bring it in. As my hon. Friend Eddie Hughes said, it is worth making a point about what intangible properties we are talking about. We are certainly talking about things such as adverts on Facebook and adverts on a search engine being pushed to the top, when someone searches for a particular brand or product. In the debate on the previous of group on amendments, there was an example where someone looking for help with gambling found that—guess what?—“How to help you gamble” was boosted to the top of a search engine’s results, because a particularly company had paid for that to happen. That is the type of intangible asset that we will look to target.
My hon. Friend has considerable expertise in this area and I welcome him updating the House. He mentioned some unintended and wholly undesirable consequences of this type of intangible property. Will he enlighten us on whether there are also some beneficial aspects of intangible property, given that the UK is a centre for tech creativity and dynamism and that these are the industries of the future?
That is what we have to the balance in considering this new tax, because we do not want to shut down the entrepreneurial spirit in many companies and see such provision affecting those who are looking to set out for the first time to get a business going and perhaps to do something that changes the marketplace and really makes a difference. Some of the largest tech companies literally grew out of someone’s garage 10 or 20 years ago. Twitter did not exist when I joined the Conservative party. Facebook did not exist when I first stood for a local council back in 2002. We can see the way that those companies have grown and exploded. We do not want to set up a tax that knocks back genuine entrepreneurialism, but we also have to have a debate about how we ensure that there is a level and fair basis of taxation.
Reference was made earlier to high streets. The point is that a small shop in the centre of a town is paying business rates, collecting VAT, paying its staff and paying corporation tax, and we have to get to a point at which economic activities are fairly taxed. If a large online platform is taking millions of pounds in revenue and paying next to nothing, that is when the annoyance comes and there is a sense of unfairness.
We must have a mature debate on the future of tax in the online space, where activity is much more moveable. My hon. Friend was right to allude to that. These industries can shift much more easily than those that need a physical presence to trade and reach out to customers. A digital service company could be based in New Zealand, and we could all be using its services today from this building via smartphones, tablets or a standard internet link, in a way that would have been unimaginable 30 years ago.
We have to distinguish between genuine activity—for example, paying a company in New Zealand for a website design service—and a fake transaction or transfer of profits, where no one did anything other than raise an invoice in a convenient jurisdiction, into which the money was paid, even though all the economic activity was done elsewhere, the reason being there was an opportunity to avoid a layer of taxation. In such cases, one might see structures set up that link the corporate shell in that jurisdiction to another jurisdiction that is a tax haven or a place with a very low rate of taxation. The Dutch sandwich, which I mentioned earlier, started out as a good idea to encourage tech investment and ended up as a way to reroute profits and, when combined with the so-called double Irish, as a way of strongly minimising taxation liabilities.
My hon. Friend is making some extremely good points with which I agree, but it is not only online companies such as Amazon that we need to work out how best to tax, but others, such as offshore gambling companies, that retain huge revenues generated by doing things in this country. Is he convinced that the thinking is going on in the Treasury on a root-and-branch reform of all taxation? It seems to me we are trying to play catch-up but that the world is changing quicker than our ability to tax this changing economy.
I thank my right hon. Friend for his thoughtful intervention. Obviously, I cannot speak for the Treasury, as a mere Back Bencher—[Interruption.]. I appreciate the confidence that my hon. Friend the Member for Walsall North has in me, but I cannot speak for the Treasury. I do not want to say too much about gambling taxation, given that we have just debated it, but we do need to look at the situation in the round, so my right hon. Friend was right to mention it.
My right hon. Friend is a distinguished Member of the House. He has been here for I think 17 years, during which time the economy has changed remarkably. Who would have thought back then that companies such as Woolworths would have faced a challenge from online competitors? Who would have thought that every one of us would be sat in this Chamber with a device that would allow us to buy the entire contents of a department store, order virtually anything we want, and access casino-like gambling opportunities for which not that long ago we would have had to make a trip to Monaco? We now have that all in our pockets—we can literally walk out of the Chamber and do it.
I share my right hon. Friend’s concern, but the economy is moving on. As I said in response to my hon. Friend Rachel Maclean, we must not destroy the good, and we have to be careful not to chuck out the baby with the bathwater. The Treasury will have to look at that. The nature of work is changing, too, and that raises not only challenges for employment rights, but questions of how we tax fairly, given that it will be less and less the case that there is a big employer with lots of staff who are paid regularly, to which it is easier to apply restrictions.
I was waiting patiently for my hon. Friend to get back to what he thought intangible property was. Is he aware that proposed new section 608H(1) in schedule 3 to the Bill states:
“In this Chapter ‘intangible property’
means any property except…tangible property”?
The idea is that something intangible is something that we cannot see and cannot hold, whereas something tangible is something that we can literally have in our hands, such as a phone or the copy of the Bill that I am holding now, or something that we can wear. Something that is intangible can be something that we own and to which we have a right. A classic argument about something intangible once concerned a Star Wars computer game, of all things: if I busily bought lots of things in that game using money, and someone else playing the game then sent their forces, which they had bought, to raid that property, would my property be being stolen? That is an interesting legal argument, although it must be said that some people might have a little too much time on their hands if they can become so involved in a discussion of a Star Wars computer game.
There are things that we own but, of course, there are also our own identities and profiles. You probably do not want me to go too far down this path, Ms Dorries, but we have previously had debates about information that is created online, and a data trail can become an asset that is worth money.
I am in danger of making one intervention in three—or three interventions in one—but let me develop the theological point raised by my hon. Friend. Steam, ice and water are, of course, all the same: they are three in one, and one in three. I hope that that clarifies his point.
I am very grateful. I am sure that a student of divinity is about to fire off an email to me and my hon. Friend saying, “Actually, I am not quite sure that that is the case,” but it is great to hear my hon. Friend’s explanation of how the “three in one” in the case of water could apply to the Holy Trinity. Nevertheless, a detailed unpacking of the Holy Trinity is not listed for consideration on today’s Order Paper, and I should be talking about anti-avoidance measures—[Interruption.] I am glad to hear that Peter Dowd thinks that the former would be more interesting. I am sure that at some point he will accuse me of giving a sermon in this place, although I will probably not be covering that subject at the time.
My hon. Friend the Member for South Suffolk rightly pointed to the measure in which intangible property was defined. It is also worth while for us to consider some of the exemptions, and how their working will be monitored by the Treasury. I am conscious that the Minister is not present, but I am sure that those who are currently on the Treasury Bench will note my remarks.
Proposed new section 608J states:
“Section 608A does not apply in relation to a person for a tax year if the total value of the person’s UK sales in that tax year does not exceed £10,000,000.”
How will we make sure that we do not suddenly see lots of taxed persons with £9,999,999.99 who seem to know each other quite well, or at least seem to be engaging in similar activities? I understand that the provision is well intentioned, and I understand the need for a de minimis level so that we target the larger companies that are intended to be deal with. I also understand—this takes me back to the intervention from my hon. Friend the Member for Redditch—that smaller companies should not suddenly be burdened with having to deal with a very large piece of legislation. However, I should like to know how we can ensure that this does not become a way of avoiding tax.
Proposed new section 608L, which is on page 187 of the Bill, is entitled “Exemption where foreign tax at least half of UK tax”. Again, how can we be sure that that taxation provision is genuinely met so that it does not become an avoidance mechanism?
Most of the changes in the Bill are welcome, however. As we leave the European Union, I would expect that we will still seek to co-operate. I do not think any of us would argue that it would make sense for us not to ensure that we share information to prevent the excessive avoidance or evasion of taxation, just as we have sought to work with jurisdictions such as Liechtenstein, which is not in the EU but has a treaty agreement with us on sharing information to prevent tax avoidance. I am also interested in following the consultation on the digital services tax, which will consider how we can introduce it without snuffing out the entrepreneurialism that we wish to see.
I am conscious that I have detained the Committee for about 19 minutes—[Hon. Members: “More!”] I hear the requests from SNP Members, who are obviously keen to hear a lot more from me, but, sadly, I must disappoint them on this occasion.
This has been a worthwhile debate. Intangible property is a key area for the future, in terms of not just the straight issue of ensuring that one or two large corporations are not avoiding tax we might think that they are due to pay, but opening up the whole debate of how we arrange tax as we move into a digital economy, when we are less likely to have physical things we can put our hands on in respect of taxable activity.
I have certainly heard my right hon. Friend the Chancellor talking about ensuring that Britain has competitive tax rates, that Britain is a competitive and good place to do business, and that we have a fair balance between raising taxation to pay for our public services and also ensuring that our tax system encourages rather than stymies economic activity in this country.
We heard earlier about the reactions of the EU27. I would point to the Republic of Ireland, which has a lower corporation tax rate than us. If we were to move towards the Republic of Ireland’s rate, it would be somewhat strange for it to say, “How dare you copy us.” This is not about encouraging a tax competition. States in Europe, whether they are inside or outside the EU, will look to provide the conditions for growth in their countries, and it is absolutely right that that is what the Chancellor and Treasury team in this country are looking to do. I certainly praise them for that. This is not about becoming a tax haven, although we might reflect on the fact that, judging by the actions of the Scottish National party and the Scottish Government, they are trying to turn England into a tax haven by shoving up tax rates in Scotland.
With that, I will draw my remarks to a close. I welcome what I see in this Budget. I do not think that the Opposition amendments and new clauses are necessary, for the reasons the Minister outlined at the Dispatch Box. This welcome Bill will bring in more tax, deal with avoidance and, at the same time, help to push our economy forward.
The renowned Nobel laureate in economics Joseph Stiglitz has said that what we measure shapes what we strive to pursue. I tabled new clauses 14 and 15, in my name and the names of my hon. colleagues, to ensure that we are effectively striving to pursue the reduction in the tax gap and to consult fully on the provisions of this Bill. I support very much what Anneliese Dodds said and support her new clause 5 and amendment 23. She made some excellent points, most of which I fully agree with and endorse. I will not repeat what she said, however, as she made her points very clearly; she did a fantastic job in putting across the Labour party’s view.
It was bizarre to watch Government Back Benchers tie themselves in knots yesterday in opposing new clause 7, tabled by my hon. Friend Kirsty Blackman, in relation to entrepreneur’s relief. If the UK Government are confident that their policies are effective, they must not be afraid to review them. Indeed, reviewing them is all we can do under this Bill; as the hon. Member for Oxford East said, we are limited in what we can do here. So we do propose a review on that.
Likewise on the provisions on tax avoidance, we must gauge our progress by continually measuring the value and effectiveness of those policies. Kevin Foster mentioned the Dutch sandwich. I am sure that was sensible when proposed and I am sure that the Dutch Government then looked at it and decided that actually it was not working. They then will have reviewed the policy and looked at the detail and clamped down on that loophole; I am sure they must have done that as otherwise it would still be an issue. Likewise, this Government should do better at reviewing their policies, testing them, seeing how effective they are and making changes as a result.
Our proposal is in the spirit of achieving better, more robust policies in the future. We should also look to the world to see where the best polices are and see what we can do to adapt them, and we should collaborate with our near-neighbours in Europe, particularly to make sure we are not allowing companies to move around at will seeking the best policies to save money, rather than paying the taxes that they ought to.
There are many reasons why HMRC does not always collect the tax that it ought to be paid, whether through criminal activity, through evasion or avoidance or just through human error, and there is much more that can be done to address that. While a greater focus on the non-compliance of corporations is welcome, there is still ample opportunity to avoid paying into the system, and we need to look at that very seriously.
The SNP has long argued that the tax system is unnecessarily cumbersome and complicated. There are layers and layers of regulations and exemptions, which lead to loopholes appearing. The system seems to get more complex every year when we look at the Finance Bill, and there also appear to be armies of tax avoidance specialists seeking to exploit whatever gaps they can find.
That is indeed astonishing, and if it is a problem, the Government ought to be looking at it. People living in Scotland should pay the appropriate amount of tax, because that is the price we pay for living in a civilised society. That is what the Minister said in his speech earlier. We also have to look at what we get for our taxes in Scotland. We get a better, fairer society, which is good for us all. All the academics in this field recognise that a fair society is better for us all.
Last year, this Government opposed my amendment to the Sanctions and Anti-Money Laundering Bill that would have increased the transparency of Scottish limited partnerships by ensuring that those partnerships had bank accounts. We are still waiting for a response from the Department for Business, Energy and Industrial Strategy on the consultation that closed on
I served on that Bill Committee with my hon. Friend, and the work that she did was excellent. Does she share my concern about the damage being done to Scotland’s reputation by Scottish limited partnerships? The partnerships are nothing to do with the Scottish Government, they have not been legislated for in Scotland and we have no power over them there, but they are doing serious damage to Scotland’s reputation internationally, and the UK Government need to act.
This Government absolutely do need to act on this issue. It cannot be right that something we have no control over becomes a noose around our neck when it comes to our reputation internationally. I expect this Government to come forward with something on this soon, because their not doing so allows this to continue to happen. The Herald, whose journalist David Leask has been a constant campaigner on this issue, has reported that
“in the year to March 2016, 95% of SLPs were set up by offshore tax havens.”
That ought to ring alarm bells for this Government, given the likely sums of money involved in these tax havens. I have tabled more parliamentary questions on this today, but the last time I checked, no fines had been issued to those SLPs that have not yet registered a person of significant control. Even pursuing those fines against SLPs could have brought large sums of money into the strapped Treasury coffers, never mind dealing with the underlying lack of transparency surrounding SLPs.
It is no secret that SLPs are being abused to carry out crimes abroad and launder money and that the anonymity they provide enables all this, but this Government are simply not doing enough to stop it. There was some progress after the Salisbury attack, and there was talk of clamping down specifically on Russian dirty money, but we have not yet seen that happen. We need to know what the Government’s plans are, because we cannot allow this to continue. I commend to the Minister the investigation on Uzbekistan by David Leask and Richard Smith, because the sums of money and levels of corruption involved are absolutely hair-raising.
The SNP has put forward many sensible proposals to crack down on tax evasion and avoidance, but they have been rejected by this Government time after time. No action has been taken on enforcing the people of significant control rules governing SLPs. No action has been taken on the alternative investment market loophole that allows families to register homes as business properties, effectively overriding inheritance tax. No action has been taken to make online retailers liable for tax avoidance when they falsely classify their goods as gifts. And no action has been taken to create a legal framework to combat tech firms who avoid corporation tax by registering implausibly low profits in the UK.
On top of all that inaction, does my hon. Friend share my concern about the centralisation of HMRC offices? Highly skilled staff will lose their jobs because of this Government’s centralising agenda. In my constituency, more than 1,000 jobs are being moved from West Lothian to Edinburgh, which will create huge issues.
I agree that that loss of expertise is a huge issue. I have a constituency interest, because many of these centralised offices end up being in Glasgow Central, but this also comes at a significant cost to the taxpayer. It is no secret that city centre office space in Glasgow is expensive, and there would be greater benefits in keeping those services in areas such as the Clyde Gateway, which is also in my constituency but much cheaper, or in Livingston. That would provide better value for money for the taxpayer than having them all in city centre offices.
I thank the hon. Lady for giving way. She is making some good points about decentralisation. Would the SNP join me in looking at some of the Scottish Government’s new powers? Instead of basing offices in Dundee, offices should be located in more affordable areas, such as Clackmannanshire or Perth and Kinross.
Dundee is affordable. There is a balance—[Interruption.] The hon. Gentleman is not listening, but there is a balance here. We need local infrastructure, transport and so on to support such things, but there is an argument for doing all that. It used to be UK Government policy to decentralise large office blocks, but they have cut that back over the years, and offices are now disappearing. He can give me no lectures about that. There are countless examples of the UK Government cutting offices. So many jobcentres in the city of Glasgow have been cut that my constituents now have to take two buses just to get to one, and I do not see any Scottish Conservatives standing up for that.
To get back on to topic, it is time for a root-and-branch review of the UK’s massively over-complicated tax system and to close for good the tax loopholes that the Tories are happy to keep open. As well as making it more difficult to avoid or evade tax, a simplification of the tax system could help those who are inclined to pay but find negotiating the system confusing. By HMRC’s own estimates, more than £6 billion a year is lost through simple errors when completing tax forms. The fact that people are ready and willing to pay tax and have such trouble doing so suggests that the current system is not fit for purpose.
That complexity can even have an impact on people’s immigration status. After making entirely legitimate corrections to tax returns, something which I am sure the Minister would encourage, the highly skilled migrants currently fighting their case with the Home Office—they are outside today for their sixth protest—found that they had been accused of dishonesty and that their applications for leave to remain had been refused. It is a scandal that makes absolutely no sense. As a result of Government policy, there is effectively no incentive for highly skilled migrants to make corrections to their tax returns lest they find themselves falling foul of the Home Office. What kind of system is that? Things are not joined up across the Government.
The Chancellor’s announcement of a digital sales tax will be welcomed by many people, not least the many people in my constituency who have contacted me about it. I am encouraged by the Chancellor’s willingness to take action, but, as always, the devil is in the detail. The Chancellor expects to raise £400 million from this tax, but for companies such as Facebook, which had global revenues last year of £1.27 billion, their share will be no particular hardship. We may be better served focusing efforts to ensure that online giants are declaring a share of profits in the UK that reflects reality. Loopholes still exist that make it relatively straightforward to depress profits in one country to avoid paying tax, and that is still perfectly legal. There are some encouraging noises from the Government, but they fall woefully short of the meaningful, comprehensive action that SNP Members have been calling for.
The powers to tackle avoidance and evasion in Scotland lie here at Westminster. Where the Scottish Government do have limited powers, they have acted to tackle avoidance, introducing a general anti-avoidance rule that goes much further than the UK equivalent UK. They have also taken steps to ensure that companies that have benefited from evasion and avoidance do not benefit from public procurement schemes, which is crucial. If the UK Government are unwilling to close tax loopholes, they should devolve the powers to Scotland and allow us to get on with the job. An independent Scotland would, I am sure, seek to simplify and improve the tax system to the benefit of all those living and doing business in Scotland.
Looking to the future, the UK Government need to ensure that Brexit does not serve as a distraction from international efforts to tackle tax avoidance and evasion. I note that Estonia is clearly leading the charge on anti-money laundering action, with Prime Minister Jüri Ratas joining with the Bank of Estonia’s Ardo Hansson to call for the establishment of a European body to combat money laundering. Estonia has a population of 1.3 million and it is leading the charge here. Where are the UK Government on this? They are too busy arguing with themselves about how many letters they can count to get on with the job of tackling tax evasion and avoidance.
At a time of so much uncertainty in the UK economy, we cannot let the economic challenges that lie ahead prevent us from creating a fairer society when it is possible to do so. Our great fear is that the UK Government will begin a race to the bottom, so desperate will they be to attract funds here. The EU has long been a source of anti-money laundering regulation, and we must ensure that, whatever happens in the next few months, we do not take retrograde steps on the progress that has been made.
The SNP supports action and accountability on this. We need to make sure that all possible measures to review our tax system are taken so we know that the UK Government’s system is effective and doing what it is meant to do and that we close these loopholes, which allow people to get away with not paying the tax that is rightfully due.
I congratulate my hon. Friend Anneliese Dodds on a tour de force. I know she really is on top of this subject, having worked with her on the Sanctions and Anti-Money Laundering Act 2018. I thought her speech this afternoon was very impressive.
I will speak to new clauses 5 and 6, which stand in the name of my right hon. Friend the Leader of the Opposition and deal with tax avoidance and evasion. I am sure Members on both sides of the Committee recall what happened on
That is relevant to this tax debate because the OECD has estimated that, across the OECD countries, the tax lost to the secret jurisdictions is between $100 billion and $240 billion. An independent researcher, Tax Research LLP, has estimated that this country’s tax loss is £18.5 billion a year, which is a significant sum. I know the Treasury thinks everything is going well, but it is not so flush that it can just wave away £18.5 billion.
I thought I had better follow up with Ministers and ask what they were doing, so about three months later I asked the Foreign Office what discussions it was having with the Crown dependencies. This is the answer I received:
“The Foreign and Commonwealth Office is not responsible for UK engagement with the Crown Dependencies regarding existing beneficial ownership arrangements, and has therefore not had any discussions with the Crown Dependencies on this issue.
So obviously I asked the Ministry of Justice what it is doing to pursue public registers of beneficial ownership with the Crown dependencies. It said:
“The Crown Dependencies are not part of the UK.”
Okay, even I have latched on to that one. It continued by saying that they are self- governing and that:
“The Ministry of Justice manages the constitutional relationship between the UK and the Crown Dependencies. Ministers and officials routinely discuss a range of matters…but it is not my Department’s role to make specific recommendations” on company registers of beneficial ownership. It went on to say:
“The Ministry of Justice also liaises with the Home Office as the lead UK Department for arrangements on sharing beneficial ownership information”
Blah-de-blah. Finally, it said::
“The Government intends to use its best endeavours, diplomatically”
—by which is meant, “Let’s hit the ball back over to the Foreign Office”—
“and with international partners, to promote public registers of company beneficial ownership as the global standard.”
That will not do. We were made a promise by Ministers on
I also asked Ministers at Treasury oral questions what their estimate was of the amount of money that would flow in from the changes we had made on the overseas territories—this was the part where we had a consensus. I asked that because I could not see anything in the Red Book on it. The Minister said, “Oh well, this was all pie in the sky. We have not done any work on it.” This is why new clauses 5 and 6 are really sensible. The fact is that if Ministers stand up and offer legislation or make promises but do not follow through, there is no point in this House doing anything. That is why requiring impact assessments in the legislation will enable us to keep track of what Ministers are doing and where they have got to. That is why I urge them to do this. It is in their interests, as they will be able to use the impact assessments to keep track and to manage their officials, who are doubtless beavering away to the best of their ability, given the political direction that they are getting.
Earlier, we debated distribution and the impact of the Budget. It is disappointing not to get information about the distributional impact of the Chancellor’s measures. For many years, the Treasury Committee was instrumental in ensuring that distributional analyses were undertaken. I am not clear where we are on this, but I urge Ministers to publish the proper distributional analyses. That will facilitate informed public debate, rather than the exchange of prejudices. I am sure that that is ultimately what Ministers want.
It is a pleasure to follow Helen Goodman, although I have to say that the contribution from Alison Thewliss was the speech by an Opposition Member that most excited me, not least because I wrote a paper on blockchain for the think tank Freer, where I considered the merits of the technology and how it might help us to improve the efficiency of government. I am delighted to say that on Thursday I am going to have lunch with Dr Craig Wright, one of the people associated with the creation of bitcoin, which celebrated its 10th birthday recently. I understand that the Government and the Treasury Committee have given some consideration to the use of crypto-currencies and crypto-assets and how they might be appropriately governed in the future. That is the job of the Government. They have to keep pace with improvements and diversity in technology and understand where money is being used and created, to make sure that their tax take is optimised while observing the general principle of low taxation. The second Roman emperor, Tiberius, said that a good shepherd shears his sheep but does not skin them. I think that is an appropriate maxim for us to follow, but sometimes the Government’s problem is that they need to find the sheep in order to shear them.
The average income in my constituency is £27,000. People there do not employ complicated tax procedures, so as I speak in support of clause 15 and schedule 3 on offshore receipts from intangible assets, my constituents will be confused about what that means. To help us with the definition of intangible assets, my hon. Friend James Cartlidge referred to the Bill, which says that intangible assets are any assets that are not tangible. Clearly, we could do with a better definition than that, or at least a better understanding. My constituents in Bloxwich and Willenhall will be mildly confused by the idea that a company that generates sales and therefore profit in the UK would be able to offshore some element of that income and attribute it to intangible assets. I think they would consider inappropriate the idea that the copyright of a product could be used to take money offshore, thereby reducing the tax that a company incurs. That is why, even though they might not understand the complexity of it, my constituents will be delighted to tune in to this debate and see that the Government are taking action to clamp down on tax avoidance.
As I say, my constituents might not understand the complexity, but they do understand that a Conservative Government is generally on their side. My understanding is that in 2010 the threshold above which people paid tax was roughly £6,500; now, thanks to the benefits introduced recently by this Government, that threshold will rise to £12,500. People in my constituency will be £1,250 a year better off as a result of the measures taken by the Government. When they look at this debate, they will want to know what benefit will be provided by this new scheme to clamp down on tax avoidance. My understanding from the figures that have been produced is that in the first year, 2020-21, the Government hope to take £457 million more in tax. My constituents will be pleased about that, of course, but they will be delighted that the Government have already signalled a direction of travel, saying that they will put that money into things like additional spending on the NHS. My constituents might not understand the complexity of intangible assets, but they will know that, because the Government are clamping down on tax avoidance, they will have greater investment in the NHS.
My constituents will also know that the Government are keeping track of the way people buy houses. For example, there has been an increase in demand for shared ownership properties. People who have bought such properties recently will be delighted that the Government have announced that stamp duty relief for first-time buyers will be extended to those people who buy properties on a shared ownership basis. My constituents are seeing a Government who keep track of changing behaviours in the corporate and personal worlds—of how people live and work and of how corporations operate—and make sure that their approach to the tax system is appropriate in both cases.
Hard-working members of the public know that the Government are doing everything they can to take as little tax off them as possible, allowing people to make choices about how they spend their money, while making sure that they can maximise the tax take from big corporates that operate internationally in a fair and appropriate way. That will make sure that the Government continue to deliver for those people who continue to vote Conservative.
I rise to speak in support of new clauses 14 and 15. The need for improved transparency over UK public finances is urgent and the case is compelling, which is why I was keen to speak on those new clauses. I note the other provisions dealing with tax avoidance that have been put forward and about which much has been said today.
There has been far too little consultation on the Bill with stakeholders, but what we do know is that we desperately need greater transparency over the UK’s public finances. I am deeply disappointed that amendment 24 was not selected, as there are particular issues of transparency around those companies that deliver public buildings at public expense. Particularly those engaged in public-private partnership projects need to be more open. There would have been cross-party support for that amendment, but the SNP was not asked to support it, which is a shame.
PPP projects need to be transparent and more accountable to the public in order to protect the public finances. They are a perfect demonstration of why that accountability and openness are so essential. So I have concerns about what is not in the Bill. We cannot talk in any context about openness in public finances without talking about the private finance initiative, and I believe that there is cross-party support to have that conversation. This was a Tory policy embraced by Labour. Indeed, George Monbiot has called the PFI situation:
“A racket, the legacy of 13 years of New Labour appeasement, triangulation and false accounting.”
The scheme was so enthusiastically embraced by the previous Labour Administrations, it was like a grand love affair. Scotland was not just the testing ground for this disaster—the first PFI project in Britain was the Skye bridge project—it also has a far higher proportion of such projects than anywhere else. Writer Gerry Hassan has pointed out:
“Scotland has 40% of PFI schools with 8.5% of the population.”
Why is that? Could it be that, like the poll tax, Scotland became the testing ground for the PFI nightmare? It certainly looks that way, although if anybody wants to contradict that, I am quite happy to hear what they have to say.
It is unacceptable that PFI companies often inhabit the shadows. Their tax arrangements need to be sufficiently transparent and open so that we can have proper transparency in our public finances and we can be confident that those being paid very lucrative sums—way over the odds for public buildings—are in turn paying their due in taxes and have financial arrangements that are transparent and open to the public. That is why these new clauses are important and why they need to be included in the Bill.
Is the hon. Lady aware that, in England, PFI schools under the control of local authorities can be taken away from the local authority and forced to academise, but the debt—the liability—stays on the books of the local authority? Does she believe that that is transparent and fair?
It is absolutely not transparent and it is yet another example of how PFI has been nothing short of a disaster. It is our local authorities, our schools and our hospitals that are paying the price.
My hon. Friend, like me, is a teacher by profession and has had to deal with working in a PFI school. Often these schools have been developed by companies that have questionable tax policies and produce a substandard product that parents, pupils and teachers have to deal with, and local authorities are saddled with the debt for many years to come.
My hon. Friend makes an excellent point. I am just about to go on to talk about not only the crumbling PFI schools that we are now left with and which the local authorities are paying for—there is no transparency and accountability on these contracts—but alleged criminality that has taken place around these contracts in my constituency of North Ayrshire.
I share my hon. Friend’s frustration with this. When I was a councillor in Labour-run Glasgow City Council, if we wanted to see a contract, we had to go and sit in a room and read the contract; we could not even take it away. When the council discovered that the company had managed to build IT and home economics rooms without ventilation, it cost the council a fortune to reopen the contract and get those things put right.
Again, my hon. Friend points to the lack of accountability and the hotchpotch—the rushed contracts put together by PFI, which benefited somebody, but did not benefit our local authorities or our children, and they do not benefit the patients in hospitals.
There is no better example of the need for new clauses 14 and 15 than North Ayrshire Council in my constituency. This Labour-run council had a PFI process that was severely flawed and was uncovered by local journalist Campbell Martin. Some have even insisted that criminal activity was involved, since while the council appeared to have two bids for construction projects—therefore seeming to provide the genuine competition required by EU procurement rules—in fact, the evidence suggested that one of those bids was from a subsidiary of the other company submitting a bid, so there was actually no competition at all. The Labour council was made aware of this before the contracts were awarded, but awarded them regardless. In the opinion of one ex-detective, the evidence showed
“criminality from start to finish.”
Another former officer stated that a common law crime of forgery and uttering should have been pursued. Right there we see the need for more transparency. I for one would like to see more transparency on the tax arrangements of such companies, as this is very much in the interests of the UK’s public finances.
All this information relates to a public-private contract now costing taxpayers over £1 million every month in North Ayrshire. Add to that the schools that are crumbling across cities such as Edinburgh, and we have real questions about these PFI firms. For projects of a capital value of £4 billion in Scotland, we will repay £22 billion, with our schools spending 8% of their budgets on paying off these Labour PFI debts. Can we really allow any lack of transparency around the tax affairs of such companies?
It is absolutely essential that there is more transparency around how UK public finances finance public sector projects. The tax affairs of these companies and their wider financial affairs need to be open to scrutiny because they build or have built our public assets. I urge the Committee to support new clauses 14 and 15.
I want to discuss the clauses in the Bill that seek to tackle tax avoidance and evasion. Combined, these measures will seek to raise billions of pounds for our public services by further clamping down on this serious matter. My hon. Friend Eddie Hughes identified clearly that these measures will raise much needed extra money for our public services.
Rather than raising taxes for businesses, this Government are focusing on making sure that tax liabilities are paid. They have a strong track record of clamping down on those seeking to avoid paying their fair share. This Budget builds on that track record, with no fewer than 21 measures to protect revenue and bring in more tax by tackling fraud, avoidance and unfair outcomes.
On a related point, I very much support the introduction of a new digital services tax, which is not technically a measure designed to tackle tax avoidance, but which will nevertheless make our tax system more fair and fit for purpose in the digital age. The Chancellor is right to try to find a global solution, but in the meantime this measure is a step in the right direction that will make the tax system fairer for small businesses in high streets in my constituency in the Scottish borders that are struggling to compete with the likes of online giants such as Amazon. Of course, in Scotland, these businesses are also struggling with the high tax regime imposed on them by the SNP Scottish Government in Holyrood.
Other clauses in the Bill, such as those to ensure that the HMRC is a preferred creditor in business insolvencies, that more tax is paid to the public purse and that we crack down on insurance companies routing services through offshore territories, are certainly welcome.
Does the hon. Gentleman accept, though, that the trade-off with the digital sales tax and the relief being offered to some premises in town centres just is not enough? Take, for instance, the former Textiles Direct unit in my local shopping centre, which has been empty for some time, but has a rateable value of £500 per square metre. Compare that to the Amazon warehouse near Manchester airport that pays just £44 per square metre. How can it be right that the gap is so large?
Clearly, I cannot speak about the circumstances in the hon. Gentleman’s constituency, but these measures are clearly a step in the right direction. I know the number of businesses in my constituency that contact me. They are competing with online businesses and other digital platforms to provide the same or similar types of services. It is just not fair when businesses are able to run very profitably, making a big turnover from a garage or attic, when at the same time the same service or shop on the high street is paying significantly higher business rates. Of course, in Scotland, we have the additional challenge of the additional taxes that businesses are having to pay through the Scottish Government’s high-tax agenda.
The Opposition amendments that would compel the Government to evaluate and report on the impact of these measures may appear at first glance to be reasonable enough. However, HMRC already publishes annual data on the differences between what is theoretically due and the amount of tax actually collected—the so-called tax gap. It also provides an estimate of the tax gap by type of tax and by consumer group. That provides a historical trend, as well as the annual cost of tax avoidance, which can clearly be used to assess the impact and success of these measures. I know that Opposition Members are fond of these types of review provisions because they allow them to have a go at the Government when the reports are published, but I am not sure how useful the amendment will be in practice. Will these reports mean greater progress on tax avoidance, or will they just be a distraction for a Government with an already incredibly strong record in clamping down on this type of behaviour?
On tax avoidance more generally, those who practise tax law may be happy enough with its complexity, but as politicians we should all strive to make good law, which means making the law as clear as possible. The complexity of our current tax system is making it easier to avoid paying tax, so simplification is necessary if the Government are going to make further progress in tackling tax avoidance. Much has been done to try to improve this whole process. More of the Finance Bill is now published months in advance, before the Budget, and there is extensive consultation with stakeholders before legislating. The Chancellor’s decision to replace the autumn statement and the spring Budget with a single autumn Budget ended the practice of major tax changes taking place twice a year outside of a general election year. I note that this announcement was welcomed last year by the Institute for Fiscal Studies, the Chartered Institute of Taxation and many other tax experts.
Last year’s Finance Bill ended permanent non-dom status, and this Bill adds to the track record of this Government in cutting down on tax avoidance. Conservative measures have seen £185 billion collected through anti-evasion and anti-avoidance since 2010. The difference between what should be collected and what is collected in taxation—the so-called tax gap—is now at a five-year low of 5.7%, one of the lowest in the world. These measures are more significant than anything the Opposition did on tax avoidance during their time in office, when the tax gap was about 10%. As always, Labour likes to talk the talk, but fails to act. By closing the tax gap further, we boost this nation’s tax revenues, not by putting up tax, as the Opposition want to do, but simply by ensuring that people pay the tax that they are expected to pay by law.
I refer the Committee to my entry in the Register of Members’ Financial Interests.
Several provisions in the Bill will help to deal with money laundering and tax avoidance, and I want to touch on a few of them, as well as on some of the comments that have been made by Labour and SNP Members, but first I would like to echo some of the Minister’s comments about tax in general. Conservative Members pride ourselves on having a low-tax but fair system that rewards work and enterprise, but ensures, in all things, that when someone has a tax liability, they should indeed pay it.
Tax should be low right across the United Kingdom. One of my Scottish colleagues referred to charges for higher-rate taxpayers in relation to the movement of residency between Scotland and England. As I am sure that SNP Members will appreciate, it is not just higher-rate taxpayers who are affected. As has been well documented over the past few months, anyone earning over £26,000 in Scotland is now worse off than if they were anywhere else in the United Kingdom. In fact, it had to be confirmed by one of the senior generals in the British military that because of the SNP’s changes, men and women in the British armed forces would pay more tax in Scotland than they would anywhere else in the world. These changes are disadvantaging my constituents and companies.
The counter-argument is that somehow those tax changes will make things fairer for my constituents, that they are providing huge opportunities, and that we should be ashamed of ourselves for not doing more. As my hon. Friend Eddie Hughes said, the tax changes introduced by this Conservative Government have increased constituents’ income by £1,250. The tax changes made by the SNP in Scotland have given my constituents 38p a week. That is it—all this change, all this cost and all this disadvantage for 38p a week. If the SNP Government are going to make changes, they must make real changes that make people’s lives better and follow some of our copybook.
A key point has been raised about Scottish limited partnerships. I sat on the Committee that considered last year’s Finance Bill, and when we discussed that matter with several Opposition Members, I voiced my support for changing these partnerships. We saw a change in the law in 2017, and there are now disclosure requirements for those in a limited partnership, but I want to ensure that the context of these partnerships is understood. They were originally enabled under the Partnership Act 1890, and then confirmed again in 1907 by Scottish, English, Welsh and Northern Irish MPs, so this measure was not somehow imposed in Scotland.
Does the hon. Gentleman acknowledge that the regime of persons with significant control has not been enforced to any extent? SLPs owe the UK Government £2 billion in fines. Would he not welcome that money for his constituents?
I thank the hon. Lady for her intervention. Whenever we have made a law, we should enforce it. I recognise the Government’s contribution through investing more money in HMRC, but another key area is Companies House, where a lot of this information is held. I would argue that it certainly could do with extra resources to ensure that things can be properly cross-referenced. A number of issues in my constituency have revolved around significant control and ownership of different corporate entities across the United Kingdom. Companies House would benefit from additional resourcing to help to tackle some of these issues.
Patricia Gibson talked about PFI schemes. She was very critical of Labour’s schemes when it was in administration in Edinburgh. It is important that the SNP takes some responsibility for the fact that it has been in power for over a decade, as the implementation and management of a number of these PFI schemes was overseen by the SNP. Although they have now converted to the PPP scheme, there are still a number of criticisms, including of the healthcare facility in North Ayrshire. It is right to be critical, but that criticism should be even-handed.
I will just make a bit more progress.
The successes that we have seen from this Government include lowering corporation tax, which has led to record income from corporation tax, and collecting an additional £185 billion of revenue since 2010, which we would not have been able to achieve were it not for the Government’s tightening of tax and tax avoidance measures.
The Conservative party prefers to have a low-tax and fair system. Some of the measures in the Bill are specifically fit for purpose in this more globalised and complicated economy. For example, schedule 4 is on profit fragmentation, which means that Government can focus on where profit is earned rather than getting caught between the different jurisdictions in which corporate bodies lie.
Clause 83, on international tax enforcement, is particularly important. Before I came to this place, I worked in international finance. With multinational companies, it is very difficult to track where income is earned and where it will finally end up, and that may not be due to deliberate action by such companies. New tax enforcement measures that give HMRC and the Treasury additional powers of disclosure will be very valuable and will increase transparency in our tax system.
I appreciate that; I am sure that it will be well recorded in Hansard.
I, too, was an active participant on the Sanctions and Anti-Money Laundering Bill, and I agreed with the hon. Member for Oxford East on many points, especially about looking at the actions taken on overseas territories and Crown territories. In accepting some of the amendments, the Government committed to a course of action, and I am sure they will be pushing that through.
Tax collection is one of the most important duties of the Government. Whether in central Government, the devolved Administrations among the nations or, indeed, down in local authorities within the devolved Administrations and right across the United Kingdom, tax collection and record keeping are incredibly important. I welcome some of the measures introduced by the Government to increase the resourcing to HMRC. I would hope to see from right hon. and hon. Members the sharing of best practice and that we ensure that some of the people working for our tax collection authorities around the United Kingdom are going right around the United Kingdom. A number of local authorities need additional support and help with tax collection, and the sharing of best practice in technology, to ensure that they are actually collecting the tax revenues they are due.
I have two local authorities in my constituency, Perth and Kinross Council and Clackmannanshire Council, both of which face very extreme council funding issues in terms of raising local funds and cuts imposed by Edinburgh. When we look at the local services that have had to be cut as a result of the reduction in funding from Edinburgh, despite the increase in the Scottish block grant, we see that it is having a significant impact on education services, health services and local street services in my constituency. I would hope that even SNP Members could put pressure on the devolved Administration to make sure that they focus on proper tax collection, and also on proper tax expenditure.
As I have said, action taken by this Government has helped to bring in over £185 billion of additional tax revenue that we would not otherwise have been able to collect. Corporate tax revenues have also increased.
A key point has been raised—many Labour Members have spoken about it—about inequality when talking about absolute and relative poverty. This is important to note, because I think that the House should look at more objective statistics. In last night’s debate, I talked about strengthening the OBR to make sure that we can have credible statistics that Members on both sides of the House recognise, acknowledge and accept.
One key aspect of that is to look at the Gini coefficient, which has been recognised as a measure of inequality for a long time. If we look at the Gini coefficient in 2010 compared with where we were in 2016-17, we see that there has been a reduction in the coefficient, which means an improvement in the living conditions of people in the United Kingdom. Inequality has actually reduced according to the Gini coefficient.
Statistics can always be massaged to fit the agenda of the person citing them, but what cannot be escaped is the fact that increasing numbers of people are queuing up to use food banks because they cannot afford to feed their families and put food on the table. That is my measure of whether this country is doing well. How does the hon. Gentleman respond to that?
I think the hon. Gentleman’s point has been proved by his intervention. He disregards an objective Gini coefficient statistic, which is accepted worldwide, and instead puts forward a subjective view on food banks that is widely contested across the House.
I would say that the increase of food banks is a major issue that we have covered extensively in debates in the House. However, taking those on the lowest incomes out of income tax altogether, getting more people into work and introducing the national living wage are the kind of measures that really do improve things for the poorest in society, and they are exactly what the Government are delivering. Our Budget has not only prioritised expenditure elements—I welcome a city deal in my region, the Tay region, with £150 million of extra expenditure—but focused on how to get more tax collected.
As I said at the outset, it is important that we have a low-tax system that is also a fair system, and that the people who should pay tax are paying the right amount.
I am listening to my hon. Friend’s speech with great interest. What are his thoughts about intangible assets, which we were talking about earlier? Does he agree that we really need to address such issues and to start considering how we can make sure that tax is both collected and fair?
I thank my hon. Friend for his intervention and I could not agree more. Intangible assets are becoming an increasing part of the global economy. Just a few years ago, I did a study in relation to the Prince’s Accounting for Sustainability project. When we looked at some of the figures, they clearly showed that up to 80% of the value of the Standard & Poor’s 500 index in the United States was being held in intangibles. In considering some of the accounting standards and taxation measures that we are introducing, we could be missing up to 80% of that value, which would not then be reflected in the share price or indeed in the tax revenues that could be captured. I agree with my hon. Friend that we should look at those measures.
Without giving the Prince’s Accounting for Sustainability project too much of a push here in the Chamber, I will say that a number of the reports that it has put forward, in partnership with businesses in the United Kingdom and internationally have been really positive. They look at how we can capture some of the value of intangibles, but they also consider human and social capital. The organisation has published a number of reports, and I encourage Members to read them, because they could help to inform our policy making not only on the digital services tax, but when it comes to evaluating the impact and true value of some of the companies and enterprises across our country. It does not matter whether it is the small enterprise on our high street or, indeed, the new multinational that is capturing funds from around the world. It is about our identifying value and then being able to show to shareholders, Government and the local community the social, human and physical capital contributions that are being made to our economy.
Some people find Budget debates dry, but I find them incredibly exciting. Kirsty Blackman said last night that she enjoyed a good read of the Budget documents at home—I could not agree more. This Budget gives us plenty to read and plenty of food for thought, which is why I will support the Bill today.
It is a huge pleasure to follow my hon. Friend Luke Graham, who is always an incredibly eloquent and articulate commentator on matters financial.
I am delighted to see that news of my speech has spread to the office of the shadow Chancellor, John McDonnell, and that he has come to the Front Bench especially to hear it. I am delighted that he has chosen to come to the Chamber for this purpose; I eagerly await the imminent arrival of the Chancellor as well.
I want to speak to new clauses 5 and 6, which were tabled by the shadow Minister, Anneliese Dodds. Their substance would require more analysis and reports on various aspects of the Government’s programme in the areas of avoidance and evasion. However, as so often in life, action and results speak much louder than reports and words. The Government’s actions and the results they have achieved are far more powerful than any call for evidence or any call for a report can demonstrate.
The hon. Lady posed some questions about whether the tax gap is the best measure. It is an internationally accepted measure and it provides for consistent comparison over time, so it is a good way of consistently comparing the record of one Government with that of another. There may be other measures, but it is at least a consistent measure and it is also a good way to compare different countries, as well as to make comparisons within a country over time.
The current tax gap in the United Kingdom is 5.7%, which is extraordinarily low by comparison with other major countries and significantly lower than it was when Labour was in office, when it was between 8% and 10%. Whatever quibbles the hon. Lady may have about the things that are included or excluded, what is clear is that the tax gap is low compared with what it was under Labour and low by comparison with other countries. That is not surprising.
My hon. Friend is making an excellent speech on what action is happening, but does he agree that one thing not captured in the statistics is what I would call positive inducement as opposed to avoidance? If there are competitive rates of tax, people are encouraged to avoid avoidance and conduct legitimate activity by paying a standard tax.
My hon. Friend is quite right. Having low and competitive rates of tax does attract people to this country, who then pay corporation tax they otherwise would not pay. I will come on to precisely that point in a few moments.
The reason I was explaining why it was not surprising that our tax gap has reduced is that the Government have taken quite a large number of measures to combat tax avoidance and tax evasion since 2010. In this Budget alone, there are 21 such measures. I was rather disappointed that by voting against the Budget on Second Reading, Opposition Front Benchers were expressing their disagreement with those 21 anti-avoidance and anti-evasion measures.
I fear, very sadly, that the hon. Member did not hear what I said on that point earlier. It is because those measures are far too weak and do not go far enough that we are voting against them. I set that out very clearly in my previous remarks.
I am not sure that that is a very good basis for voting against something. A move forward is a move forward. I have yet to hear a detailed and coherent set of proposals that would take these measures further forward. I am sure that those on the Treasury Bench are always eager to receive ideas on measures that would raise revenue. If the hon. Lady wanted to propose ideas on the Floor of the House, I am pretty sure she would find a ready audience. One such measure, the diverted profit tax, has directly raised £700 million since 2015. In addition, it is interesting that businesses talk about not just the direct effect of the diverted profit tax. Some companies, realising that they might be caught by the diverted profit tax, choose to change their behaviour and effectively choose to pay ordinary corporation tax in a more compliant way. That does not appear in the diverted profit tax figures, but it is none the less successful in changing behaviour.
I am very grateful to the hon. Member for giving way; he is being very generous. I would like to mention, however, that I did refer in my speech to Labour’s tax transparency and enforcement plan. In fact, I referred to three cases where the Government have rightly learned from that plan, which is fabulous, and are either completely or partially adopting some of our suggestions. There are, however, many other areas where they need to take action. They should look at our plan and learn.
The fact that the Government have adopted three measures shows that they are not only a Government who listen and adapt, but a Government who have taken more than 100 anti-avoidance and anti-evasion measures since 2010. That is a record the Government can be proud of, although there is always more that can be done. I will come on to one idea later.
The hon. Lady suggested in her very long and at times entertaining speech—perhaps inadvertently entertaining, but it was entertaining—that the Government had not shown leadership in the area of organising international co-operation to combat tax evasion. She also said it was a concern that we are leaving the European Union as we might lose that as a forum in which to combat tax evasion and tax avoidance. The most effective forum is the OECD’s BEPS initiative—the base erosion and profit shifting initiative. The UK Government have been a leader in this area—for example, on action five, which limited the deductibility of interest payments against corporation tax. That is another area where the UK Government have shown genuine global leadership.
Listening to my hon. Friend’s speech, I can see exactly why the shadow Chancellor rushed to the Chamber to enjoy it. On global co-operation, what does he make of the many treaties we have signed with other jurisdictions, such as Liechtenstein, which have allowed us to get hold of tax information and ensure there cannot be places where British taxpayers hide?
That is an example of one of the many areas where we have taken action. Getting information from that jurisdiction and, I think, Switzerland has helped us to combat people who are not paying the tax they should. The proof of the pudding is ultimately—I can see the flood of hon. Members on to the Opposition Front Bench continuing—in the eating. The fact is that the amount of money collected in corporation tax has gone up from £35 billion to £55 billion.
Jonathan Reynolds, who was in his place earlier, shook his head when that point was made and referred to an IFS report, which he said made the point that if corporation tax rates were higher, they would raise more money. I have had the opportunity to look up that report since then. The article was in The Guardian, which is hardly a Conservative or right-wing newspaper—it may be too right wing for the shadow Chancellor, but it is not too right wing for me—and although any amount of money that might be raised in the short term is one thing, it goes on to say the IFS stated that “substantially less” will be raised in the medium term as companies respond by investing less.
The hon. Member for Oxford East asked what the intellectual backing was for suggesting that lowering tax rates increases revenue. That backing comes, of course, in the form of the Laffer curve, named after Professor Arthur Laffer, who made the case very coherently that lowering rates can increase the take—my hon. Friend Julian Knight made this point earlier—by encouraging investment and encouraging companies to relocate to a jurisdiction where there are lower rates of tax. That is no theoretical thing—[Interruption.] It is not only a theoretical thing, but a practical thing.
Since the Government introduced lower rates of corporation tax, a number of companies have chosen to take advantage of them by locating into the UK. Most recently, in August this year, Panasonic moved its European headquarters from Amsterdam into the United Kingdom, and clearly, competitive rates of tax were part of that. Back in 2012, when the former Chancellor, George Osborne, set this course, a whole number of companies announced that they were locating back into the UK, including Aon, which located here from the United States, Starbucks, which located its corporate HQ here from the Netherlands, and WPP, which located its corporate HQ here from the USA. More recently, Unilever considered moving its corporate HQ out of the UK to the Netherlands, but there was a huge shareholder revolt and it chose to stay here. Those are practical examples of a competitive tax system in action. That is part of the reason why the tax yield has gone up so considerably.
My hon. Friend is right to draw attention to the way in which very favourable tax systems can indeed attract companies to this country. We should be proud of the fact that we are attracting the world’s leading companies to the United Kingdom.
I am sorry to refer to the speech by the hon. Member for Oxford East so often, but it was a very full speech and there was a great deal to reply to. She suggested that the Chancellor of the Exchequer said that our plan was to become a tax haven. He never used the words “tax haven”, but he did say that we could be a tax competitive economy. There is nothing to apologise for in saying that we will be a tax competitive economy and attract companies to locate here. If there is a tax haven in Europe, it is Luxembourg, so the hon. Lady should reserve her ire for that jurisdiction.
I am very grateful to the hon. Gentleman for giving way; he is being very generous. I have not been reserved in showing my ire for Luxembourg; in fact, I have campaigned for a long time in relation to its tax practices. I am very glad that he has given me the opportunity to respond on this point, because I looked up exactly what the Chancellor did say. He was asked by the newspaper Die Welt in January 2017 whether the UK would become a “tax haven” for Europe, and he responded that the UK could be “forced” to abandon its European economy with European-style taxation. When the Prime Minister’s spokesperson was asked if she agreed with this assessment, she confirmed that the Prime Minister was in agreement and would stand by him.
The words “tax haven” were not his, and what he clearly confirmed in response was the he intended to create a tax competitive economy, which we can all be proud of, and I will certainly support him in creating it.
I feel that I should move on—although I will happily take more interventions—to new clauses 14 and 15, which were spoken to by Alison Thewliss, the SNP’s Front-Bench spokesman. In her speech, she drew attention to the importance of transparency, and she was right to do so. We have already made significant moves on limited companies and limited liability partnerships. Persons of significant control now have to be disclosed on the Companies House register, and I fully agree with her that that should be comprehensively enforced.
The problem is that it is not being comprehensively enforced. About £2 billion is due in fines from SLPs. If the Government are not going to collect £2 billion, why on earth are they putting forward austerity cuts? They could have that money easily.
It will not have escaped the hon. Lady’s notice that by the fifth year of the five-year period there is a fiscal loosening of £30 billion—that is hardly austerity—and that the NHS will receive a huge amount of extra money, including the NHS in Scotland via Barnett consequentials. I think that we can say very clearly that this was not an austerity Budget. I agree, however, with her more serious point. As my hon. Friend Luke Graham said, where a law is passed, it should be properly enforced, and if there is more scope to enforce this law, it should certainly be done.
A further legislative measure was announced over the summer in relation to transparency. By 2021, we will start recording the ultimate beneficial ownership of property owned by companies, which is an important measure, because some properties, particularly very expensive, high-end properties, are often owned in offshore companies, but there is currently no transparency in respect of who owns those companies. As of 2021, we will know who the ultimate beneficial owners are, and that will also create an interesting taxation opportunity that I strongly commend to the Financial Secretary.
At the moment, when an ordinary property is bought or sold by an individual, it triggers residential stamp duty, but when a transaction takes place whereby the company owning the property is sold, no residential stamp duty is paid, because, as far as the Land Registry is concerned, no change of ownership has taken place. At the moment, we have no visibility over any change of ultimate beneficial ownership, because it is not registered, but from 2021 we will, because that change will have to be registered. I suggest, for a future Budget, that a change of ultimate beneficial ownership should trigger a stamp duty charge as though for a direct change of ownership, as would happen if any of us bought a property. That would yield significant extra residential stamp duty.
I will give an example. I am aware of a transaction in Belgravia, not far from here, that took place two or three years ago. It was a collection of luxury houses developed by an offshore company—based in the Cayman Islands or British Virgin Islands—and sold to a Chinese gentleman for £110 million, but he did not buy the property and therefore no stamp duty was payable. He bought the offshore company and no stamp duty was paid. Had that change of ultimate beneficial ownership been registered and had stamp duty been payable, a stamp duty charge of about £16 million would have been crystalised for the Exchequer’s benefit.
I suggest we collect that sort of money in the future. Of course, that property is liable for annual taxation on envelope dwellings, because it is held in a company, but that only levies at a rate of £226,000 a year, so the payback period is 73 years, and most of these properties are traded more frequently than that. I challenged the hon. Member for Oxford East earlier to come up with some ideas for raising revenue and combating non-compliance. There is my idea. I hope that a future Budget adopts it and takes it forward.
I will conclude—I know the shadow Chancellor wants to hear more, but I have to disappoint him—by briefly addressing Government clauses 15 and 16 on intellectual property charges and charges in relation to fragmented profits. This is an extremely important area, because a number of large corporates are using intellectual property charges to spirit away profits attributable to UK operating activities.
Most notoriously, Starbucks used this about five or six years ago. It managed to extract almost all its UK profits by levying an intellectual property charge in relation to its beans. It said the beans were special beans and had a very high charge on them, and it managed to register pretty much zero UK profit. That is precisely the kind of intellectual property charge that these measures are designed to combat. An arm’s-length, third-party intellectual property charge cannot possibly result in zero profit for the company paying that charge, and it is right that the Government are taking further action.
Multinationals take their profits out of the UK and into, typically, the Luxembourg, Swiss or Caribbean jurisdictions, and intellectual property charges are more often than not the means by which they do so. I strongly commend clauses 15 and 16 for taking direct action to prevent avoidance measures that have undoubtedly cost the Exchequer. I think that I have spoken long enough about these clauses, which I shall be extremely happy to support if there are Divisions in 10 minutes’ time.
It is a pleasure to follow my hon. Friend Chris Philp, although, as ever, the problem with following him is that he has done such a thorough and detailed job of going through the minutiae of pretty much every single piece of the Bill that there is not a huge amount left for me to say. However, I will do my best and raise a few points that I know are particularly important to people and businesses—particularly small businesses—in East Renfrewshire.
One reason why these measures are so important comes back to the perception of fairness. Action to deal with tax avoidance and evasion is important because people often perceive that they are playing by the rules and doing everything right, while other guys—often the big guys with lots of money, who can afford to pay the “big four” huge sums—are able to find clever ways of reducing their tax liability.
There have been many examples of companies diverting profits, in a way that is not fair and is not right, to other jurisdictions with much lower tax levels to save themselves money. They are taking money that was produced when taxpayers in this country went into their shops and bought their goods, supporting them and their products, but that money is not being kept in our economy or reinvested in our economy. It is being shunted offshore to other jurisdictions, where it is swept up and often manoeuvred around other areas, particularly when a global business is moving it around to prop up less competitive and less successful parts of that business offshore.
Since 2010, an extra £180 billion or so has been brought in as a result of some of the measures that we have introduced. That is a huge amount, which is being reinvested in the country in which it was produced. It means more money for our schools, hospitals and small businesses—the sort of money that can give people a bit of a break.
I want to touch briefly on the new clause tabled by Alison Thewliss. She talks frequently, and with a great deal of knowledge, about Scottish limited partnerships—rightly, I think, because they are being increasingly scrutinised and are coming under the spotlight. They have been around for a long time, and previously no one paid much attention to them—no one really understood what they were being used for. They fall within a slightly odd grey area in terms of the Companies Act 2006. In my former job as a pensions lawyer, they were used as a vehicle to allow companies to put an extra step between them and an investment. They helped companies to reduce their tax in relation to employer contributions that they had made through the sweeping round of funds.
That was a legitimate funding mechanism, but there is no doubt that because of where Scottish limited partnerships sit in relation to the wider tax system, they are being used pretty unscrupulously. A lot more stuff has been coming out about them, and I think that the hon. Lady is right to go on probing and testing to establish whether their proper use is being properly enforced and checked.
I am glad that the hon. Gentleman agrees with me about Scottish limited partnerships. Does he also agree that the whole scope of the issue needs to be investigated, and that the Government need to bring their consultation report back? It is clear that when one loophole is closed another opens, and there seems to be some evidence that people are now moving to Northern Ireland to try to get around the rules. The Government must do something very soon before people jump over and do something else.
The hon. Lady has highlighted the key point that I made at the beginning of my speech about highly trained and well-paid accountants. The Government are always playing catch-up because she is right: what happens is that a loophole is identified, it takes quite a long time to get a measure to close it through the process, and by then everybody has already moved on to the next thing. We need to get better at pinpointing—almost like in a game of chess, thinking two moves ahead and saying, “If we close this down, where are they going to move next?” These people working in the private sector are able to find these money-saving methods, so there is no reason not to have people working in government thinking along the same lines.
I support what the Government are doing to reduce the tax gap. It is important to bring in the extra money that is properly due in this country by closing loopholes and stopping the feeling that the big corporate guy is getting away with something while I, the guy struggling with my own small business, am paying what is due. There is a real sense of unfairness in the practices that these measures are designed to tackle, and I look forward to supporting them in four and a half minutes’ time.
It is a pleasure to be called to speak on this important subject of anti-avoidance, and to follow my hon. Friend Paul Masterton. I will take up his underlying point about fairness. There are incredibly important measures in the Bill in relation to avoidance that also deliver other more positive outcomes. I am referring to the area of capital gains tax.
Earlier we discussed exit charges and CGT, but there is also an important measure in relation to foreign ownership of UK property. Non-residents will now have to pay CGT on the sales of UK commercial property, and under the way that property structures can operate, residential property could also be covered.
Anti-avoidance measures can have a positive impact. We should not underestimate the huge impact of inflows of foreign investment in pushing up property prices in this country, particularly in London, and thereby spreading out through the south-east and around the rest of the country.
Does my hon. Friend agree that this is not simply about pushing up the value of property, but about changing the nature of neighbourhoods, and that there is a social dynamic as well as a purely financial one?
My hon. Friend makes a good point, and there are stats to prove this. In March, King’s College London published statistics estimating that foreign investment into the UK housing market had driven up prices in London by 20% over the last five years. That is a huge impact.
My hon. Friend is making an important point. The measures in this clause are part of a suite of policies that allow us to deal with the abuse of international multinational monopoly capitalists, who are skewing our economy against the interests of our people and altering the character of both our economy and our society.
It is always interesting to hear attacks on capitalists from this side of the House. I simply say in terms of the way the property market has gone that we have often focused in the debate on housing on increasing the supply of homes—the statistics just published on new housing supply are incredibly positive—but I have been a mortgage broker and involved in the property sector, and I remember what happened in the wake of the crunch. The impact of fiscal and monetary policy and the stimulus we have had, and measures that have encouraged inward investment, have also been detrimental. We must not forget, as many people might, that in 2011-12 when the euro was facing an existential crisis—who knows, at some point in the future that might well return—huge inflows of capital came into UK residential property, particularly in London, pushing up prices and impacting on first-time buyers.
Having covered that specific point, I welcome anti-avoidance measures in this area. We need a level playing field, and not just in the same way that other anti-avoidance measures give a level playing field for small businesses; we need them for first-time buyers and those in Britain seeking to get on to the housing ladder. I support these measures and the others in the Bill.
We have had a good, rounded and full debate, and I thank all Members for their contributions. I wish to touch briefly on the amendments and new clauses moved this evening. New clause 5 calls for a review of the impact of the clauses in this group on child poverty, on households at different levels of income, on those with protected characteristics and on the different parts of the United Kingdom. As I have stated, the Government already provide impact and distribution assessments and analysis in the Budget, as well as tax impact information and notes on individual tax measures.
Amendment 23 calls for a report on how the power in clause 83 is to be exercised in the case of a negotiated withdrawal from the EU, and in the unlikely circumstances of a no-deal situation. That information would of course become known in time when precise details of our future partnership of the EU became known, or in the highly unlikely event of a no-deal situation occurring. New clause 14, proposed by the Scottish National party, calls for a review of the effect of the clauses in this group on reducing tax avoidance and evasion and on
“inducing new tax avoidance measures unanticipated by the Act”,
and for estimates of the impact of the clauses on the tax gap.
In the light of the Government’s desire to reinforce what we are doing already or what we will naturally provide in a timely manner as events unfold, the Government will not oppose new clause 5, amendment 23 or new clause 14. That is subject to the information that is being sought being available, in which case we will of course provide it.
Question put and agreed to.
Clause 15 accordingly ordered to stand part of the Bill.
Schedule 3 agreed to.
Clause 16 ordered to stand part of the Bill.
Schedule 4 agreed to.
Clauses 19, 20 and 22 ordered to stand part of the Bill.
Schedule 7 agreed to.
Clause 23 ordered to stand part of the Bill.
Schedule 8 agreed to.
Clauses 46 and 47 ordered to stand part of the Bill.