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Tax Avoidance and Evasion

Part of the debate – in the House of Commons at 12:44 pm on 25th February 2020.

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Photo of John Martin McDonnell John Martin McDonnell Shadow Chancellor of the Exchequer 12:44 pm, 25th February 2020

May I thank my hon. Friend for that wonderful speech?

Whoever is in government needs to accept that this is an issue that we have to address, because there is now an increasing lack of confidence in the tax system, and I know from meeting companies, including some in the City, that fulfil their obligations that they feel anger towards those that do not; so this anger is felt within the wider community, but also within the business community. It destabilises the whole process of tax collection and undermines confidence in the system, and also undermines confidence in Government overall.

As I have said, some have suggested that the tax gap could be as high as £90 billion. Let us look at who is not paying: it is the rich corporations, and in particular the multinationals. Successive Conservative Governments have been, I have to say, weak on multi- nationals. According to analysis by Tax Watch UK the top five tech companies alone avoided around £5 billion in UK tax over the last five years. We need to recognise that this is money that could be used by whichever Government for useful purposes. That sum is enough to reverse the cuts to homelessness services—we should remember that 700 of our fellow citizens died on the streets last year. It is enough to provide support for families to prevent children from being taken into care, and Members will recall that when we had a debate not long ago we had the report that there are record numbers of children coming into care because of the cuts in early interventions to support families.

We have had discussions in the House about this, therefore. Recent years have seen secret sweetheart deals between HMRC and tech giants, and they have only been made public as a result of the tireless work of tax justice campaigners. The Government have trumpeted their digital services tax. It was trumpeted before the election, but that tax has been widely criticised. It is aimed only at digitalised business models, and many have said—and I agree—that it is hard to administer and becoming impractical. It creates a pitiful 2% tax on the revenues of a very small group of businesses and is predicted to raise £5 million only this coming year —and that is if it is brought into force on 1 April. Now there is talk of the Government dropping even that hollow half-measure. So let us be clear: if the Government drop or delay the digital services tax, as is rumoured, it will effectively be another tax giveaway to powerful multinationals.

Let us look at non-doms again. Non-dom status is another tax giveaway. My right hon. Friend Dame Margaret Hodge has been raising this issue consistently for quite a while. This is just another area where the Tories have said a great deal but have not had an effective clampdown. It is a colonial hangover from 1799 that allowed colonists to shelter their property from tax—a carve-out from the general rule that UK tax residents pay tax on income wherever it is earned. It is a carve-out that applies only to some who might have their domicile outside the UK.

George Osborne, one of the many Chancellors I have dealt with over the years, tinkered with the process and introduced an annual charge of £30,000 to be paid by some non-doms and £60,000 by others. The Government now will claim they are abolishing non-dom status, but actually it is being kept intact for a significant number of years despite the evidence that those who use this status are the wealthiest individuals, able to pay, able to contribute to the funding of our public services, and able to contribute to our society, which they enjoy living in for long periods. Previous estimates have said that fully abolishing now the status of non-doms could raise £1 billion for our public services—think what that could do now to assist families whose homes are flooded.

There are many other ingredients; non-dom status is just part of an array of ingredients that enable abuse of our tax system. Secrecy is at its core; it is financial secrecy, and especially the exploitation of overseas territories and Crown dependencies to avoid tax.

Last week, to this Government’s shame, the Tax Justice Network judged that the UK had increased its secrecy score by more than any other country since it last measured financial secrecy. It said that the UK had been backsliding in recent years by building its “spider web” of satellite tax havens. Some of us were in this House when the Panama papers were exposed. They revealed that the most popular haven in the world is the Virgin Islands, which is a British overseas territory.

A lot of words have been said about enablers, but there has been a history of failure to clamp down on the enablers of avoidance and evasion, including the auditors and, yes, the lawyers. One recent paper said—my hon. Friend Ms Eagle made this point—that

“the tax services industry, propagated by the Big Four—” the big four accountants—

“is essentially the apex of this pyramid of factors that helps build, manage and maintain” the tax havens, but the Government have said and done little to crack down effectively on the tax services industry.

There has also been a history of failure to recognise how the City of London is complicit in the financial misconduct affecting the global south when it comes to tax collection and the hiding of taxation. According to Oxfam, the global south is losing £170 billion in tax revenue due to the wealth of individuals and corporations hidden in tax havens associated with this country. Surely it is our responsibility to ensure that London is not used as a global laundromat for washing dirty money. It is the Government’s duty to protect our citizens by stopping that dirty money undermining the rule of law internationally and undermining international stability. What goes around comes around, and allowing the City of London to be used in that way will have its consequences in the long term for all of us. To collect taxes we need tax collectors, yet Her Majesty’s Revenue and Customs has seen its staff numbers plummet from 105,000 in 2006 to 65,000 in 2019.

As we have raised before, there is a litany of legal loop- holes that the Tories have not acted on or have actively created. The general anti-abuse rule that many of us argued for has proved to be toothless—far weaker than anti-avoidance rules in other legislations. The use of legal professional privilege in tax avoidance cases is little short of a disgrace. George Osborne promised the “march of the makers”, but Nicholas Shaxson has said that the Tories have only created the “march of the takers”. I concur. A number of us have been working with a range of tax experts, accountants, the Public and Commercial Services Union, the HMRC staff union, tax justice campaigns and corporate reform groups. Labour has developed a plan to tackle each of those issues, and there is a range of expertise in this House on all sides arguing for more action.

On secrecy, we believe, as others have said, that we need a stronger public register of trusts and beneficial ownership of companies. We need to put an end to financial secrecy, because the current register of trusts, so often a vehicle of tax avoidance, is not truly public and the penalties for non-compliance are pathetic. The current register of who controls companies is not being verified properly and has a high threshold for disclosure. We have a plan for working with overseas territories and Crown dependencies to accelerate their move towards tax transparency. It is just not good enough that the deadline for establishing public registers of company controls has slipped to 2023 at the earliest.

We believe there should be a clampdown on enablers through the introduction of stronger laws on facilitating tax evasion and, yes, harsher penalties for those who promote schemes. The current law has a wide defence for those accused of facilitation, and penalties for promoters of tax avoidance and evasion are just too weak. We urge the Government to introduce an overseas loan transparency register. That would tackle injustices of the kind that we have seen in, for example, Mozambique. We met a group of women from Mozambique, who told us what had happened in their country. Some of their politicians had undertaken secret lending using UK law and had ripped billions from the budget of Mozambique. Then, when the effects of climate change were felt through flooding following a major cyclone, Mozambique did not have the resources it needed to protect its own people.

We urge the Government to introduce a plan to increase targeted audits undertaken by HMRC to raise the nearly £3 billion owed by self-assessment taxpayers. The majority of the self-assessment tax gap is owed by a small number of self-assessment taxpayers, who could be effectively targeted by such audits.

Our concern is that far from moving forward on tackling tax avoidance in the coming Budget, the Government are opening up the opportunity for more abuse, specifically with their proposals for freeports. The evidence suggests that freeports simply relocate jobs and investment, rather than creating new jobs and investment. Far too often, they become hubs for the abuse of workers’ rights and tax evasion.

Let me be straight with the Conservative party. There is a concern about why the Tories will not tackle tax evasion and avoidance effectively. It is argued by some that they are in the pockets of the City, and in the pockets of the avoiders, the evaders and the enablers. It is hardly surprising that some will be able to level that charge. For example, they could come to that conclusion when only this month we discovered that Lycamobile, which donated £2.1 million to the Conservative party, is embroiled in three tax disputes with HMRC over £60 million in unpaid tax. Indeed, the French auditors were blocked from accessing that company’s records in this country. The problem, however, may also lie closer to home: not just with donors, but with the Chancellor himself.

I put it on the record that there are questions I believe the Chancellor himself, given his past associations, has to answer about his own attitude to tax avoidance. I have written to the Chancellor with a series of questions on this matter. In recent weeks, it has become clear that the Chancellor of the Exchequer, the right hon. Member for Richmond (Yorks) (Rishi Sunak), has had close associations with tax avoiders and tax havens. If people are expected to have any confidence in this Government’s commitment to tackling tax avoidance, it is critical that the Chancellor is fully open and transparent about his own past activities. A former close business associate in two companies in which the Chancellor held senior positions was ordered to repay £8 million after engaging in an unlawful tax avoidance scheme. Two of the firms in which the Chancellor held senior positions have made use of the notorious tax haven of the Cayman Islands.

On our side, we will continue to press the case for a fair taxation system. To do that we need first of all to close the loopholes that allow tax avoidance and evasion to flourish. However, we also need to deal with the overall regulatory architecture of finance, a challenge raised by a report published this morning by the True & Fair Campaign. Let me quote from that report:

“the last four years have seen a multiple pile-up of mis-selling scandals and incidents of regulatory failure. It has witnessed the repeated and wanton abdication of responsibility by leading market participants...Worst of all, it has demonstrated a breathtaking betrayal of the trust...rightly owed by so-called financial services professionals to their investors and employees.”

That report is called “Asleep at the Wheel”. It singles out for criticism the Financial Conduct Authority, and in particular Andrew Bailey, appointed by the Government to be the next Bank of England Governor. On several occasions I urged the previous Chancellor, in this House and by correspondence, to delay the appointment and installation in office of Mr Bailey until there has been an independent review of his role at the FCA. This report adds urgency to that recommendation. I urge the new Chancellor to act on it now.

In conclusion, the forthcoming Budget will be a test of whether the Tory party has, as it claims, turned a page. From the evidence so far it looks like a bit more Johnsonian bluster. There is nothing on the scale needed to address in any serious way the damage Conservative Governments have inflicted on our community over the past decade, and certainly nothing on the scale needed to tackle the climate crisis. Any realistic policy to end and reverse austerity and invest for the future needs, at its base, a fair taxation system. We will wait, therefore, to see whether in this Budget, the Government will at long last effectively confront the scandal of tax evasion and avoidance. All I can say is that judging on past form, I am not holding my breath, and I do not think many others are either.