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Tax Avoidance and Evasion

Part of the debate – in the House of Commons at 3:39 pm on 25th February 2020.

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Photo of Anneliese Dodds Anneliese Dodds Shadow Minister (Treasury) 3:39 pm, 25th February 2020

It is a real privilege to be winding up today’s important debate. We have a heard a number of excellent speeches, including two maiden speeches. I found the comments from Nicola Richards very interesting, and we all enjoyed her warm and affectionate portrayal of her constituency. She joins many people in Parliament, certainly on the Opposition side of the House, who have been committed to levelling up for many decades, as well as people who have been very committed to beer. I welcome her to the House. I also welcome Suzanne Webb, who also gave an accomplished speech. I am very pleased to welcome a fellow rail enthusiast to the Chamber, but I have to say—I am very sorry—that I am sure that my granny, not her nan, made the best lemon meringue pie. It is very nice to welcome them both.

This debate comes at a very important time, after last week’s news that the UK has shot up the ranks of the Tax Justice Network’s financial secrecy index. The UK rose 11 places and we stand as the 12th worst jurisdiction for financial secrecy, so rather than moving forward in the fight against tax avoidance and financial crime, we are moving backwards. I very much agree with the comments from my hon. Friend Matt Western in that regard.

My right hon. Friend John McDonnell quite rightly talked about the impact of the failure to tackle tax dodging on the availability of funds for public services, as did my hon. Friend Zarah Sultana. We should focus on the impact of the failure to deal with these measures because they restrict overall the funds available for public services. Mr Bacon talked about honesty in the debate. Surely he must be aware that the reason why the Opposition have opposed some of his Government’s measures is precisely that they have not gone far enough, as we saw from last week’s news. In the time I have left, I will talk about some areas in which they have not gone far enough.

Many colleagues have focused on the lack of tax compliance and the creative compliance from multi- nationals. Research suggests that the UK is losing £25 billion each year in tax revenue as a result of profit shifting by multinational companies. A number of Members referred to research produced recently that suggested that just five tech giants were costing the Exchequer about £1.3 billion a year. We were told that the digital services tax would deal with these issues, but as Opposition Members repeatedly mentioned, that tax will generate, at most, £440 million each year—less than half of what is being dodged by just those five firms. That does not even take into account the amount lost as a result of avoidance by other tech giants such as Amazon and a plethora of other less well-known firms.

My right hon. Friend Dame Margaret Hodge quite rightly referred to the case of Netflix. Her pressure on that, as on so many other issues, has been incredibly important in advancing this debate. She rightly pointed out that that firm has benefited from tax relief at the same time as it has not been making the contribution that we would expect. I also mention the case of Rockstar Games, which has not paid corporation tax for 10 years while it has benefited from tax breaks.

We also need to seriously consider our relationship with our overseas territories and Crown dependencies. I found the discussion about this in the House today quite peculiar. Some welcomed the fact that there will be a public register of beneficial ownership, but the timetable for that has slipped enormously since what was initially suggested. It must be accelerated. I also found it strange that we heard nothing from the Chief Secretary to the Treasury, in introducing the debate, about the UK’s approach to current OECD-level discussions about the future for formula apportionment for corporate tax. That is an absolutely enormous gap and we need to know what the UK Government are promoting at that level. A big discussion is going on between the US and the EU. What are the UK Government calling for? Sadly, we have no indication of that at the moment and we really need it. Otherwise, we are not going to deal with the fundamental issues that Nigel Mills quite rightly highlighted.

We also need to focus on enablers, which have been mentioned frequently on the Opposition Benches during this debate. An HMRC study in 2005—I think it needs to do another one—concluded that the big four accountancy companies alone were responsible for about half of all known avoidance schemes. I share the concerns of my right hon. Friend the Member for Barking about the lack of action, including on the loan charge process.

We also need to look at corporate criminal liability. I found the exchange on this quite interesting. Kevin Hollinrake asked the Government whether they had thought about putting a failure to prevent economic crime on the statute book, and the Secretary of State seemed to intimate he might think about it, but in 2016 a Conservative Government actually said they would look to introduce this—perhaps he is not aware of that. The Government ran a consultation, and many of us have been asking what has happened to it. Well, it has been kicked into the long grass, never to be seen again, which is not acceptable.

We also need more transparency. We need a genuinely publicly accessible register of trusts, with an appropriate definition of “legitimate interest”. The Government have chosen to adopt the most restrictive definition they could. As has been repeatedly mentioned, we need proper country- by-country reporting, and we need it to be public. It only needs to be switched on. The House passed it back in 2016. What are the Government waiting for? They need to put it into action.

We also need action on shell companies. I was pleased to hear the comments from SNP speakers in this regard. Labour has said that the Government could have raised £8.4 million each day in fines on Scottish limited partnerships if they had done what they said they would do, which was to force the publication of persons with significant control of those companies. They did not levy those fines and have not taken action, and we are seeing the same things happening with other limited partnerships that we saw with SLPs.

We have not had the reform of Companies House that we need, and we have delays with the introduction of the property register. We need proper enforcement in this area. Conservative Members have trumpeted the fact that the maximum prison term will be doubled, which is right, but when the Secretary of State was talking about convictions, he talked about all convictions in the area of duty as well. He mentioned the figure of 650. Let’s have a reality check on how many of those relate to complex tax crime. In 2017-18, only 88 criminal investigations were opened into serious and complex tax crime, and the number of criminal convictions since 2015 is 22, which is rather different from that 600-plus figure trumpeted earlier.

We also need an appropriately funded HMRC. I am rather less blasé about the reductions in headcount in HMRC than Government Members appear to be. That those numbers are falling faster in this country than in any other European country aside from Greece is something we should be worried about, particularly in relation to the size of the wealthy unit, as was appropriately mentioned by Chris Stephens. Even aside from those numbers, the staff turnover at HMRC is one of the highest worldwide and morale has dropped precipitously. I encourage those on the Government Front Bench to get a grip of the contract that is driving the changing nature of the HMRC estate and see whether it is delivering value for money. It is not; all the upheaval is costing money. HMRC has lost 17,000 years of staff experience in the last year alone through redundancies and departures.

We are told continually that the tax gap has been dropping, but as many speakers have said, the definition of “tax gap” is highly contested and does not include many different aspects of profit shifting. Groups such as Tax Watch UK have adopted a much more sensible approach that looks at overall profits, and of course if we had CBCR, we could assess that even better. We also need to interrogate the 100 additional measures mentioned by the Government. I encourage Conservative Members to look at the difference in those measures between what the Government initially proposed and what happened after consultation. The kinds of processes rightly mentioned by my hon. Friend the Member for Coventry South were evident. Measures are being watered down time and again.

Overall, we know from the evidence that people feel that the Government are not doing enough to tackle tax avoidance and evasion. We know that from the figures, and also from people’s experience of the tax system. If we took the money that is owed by some of those tech companies alone, we would have the funds that we need to, for example, almost double school funding in the north-east.

The Government have a decision to make. They can keep cutting services, or they can generate the funds that are needed from a fair tax system. I hope that they will finally step up to the plate.