With this it will be convenient to discuss the following:
Amendment 19, page 53, line 29, at end insert—
“(2) Any review made under (1) must include an assessment of the effect of the DST on tax revenues.”
This amendment would require any report on the DST to include an assessment of the effect of the DST on tax revenues.
New clause 5—Digital Services Tax: review of effect on tax revenues—
“(1) The Chancellor of the Exchequer must make an assessment of the net effect on tax revenues of the introduction of the Digital Services Tax and lay a report of that assessment before the House of Commons within six months of the passing of this Act.
2) This review must also include an assessment of the revenue effect of the Digital Services Tax on tax payable by the owners and employees of Scottish Limited Partnerships.”
This new clause would require a Government assessment of the effect on tax revenues of the DST, and in particular the change in revenues associated with Scottish Limited Partnerships.
New clause 33—Requirement on groups to publish a group tax strategy including a country-by-country report—
“(1) A group which is not required to publish a tax strategy in compliance with Schedule 19 of the Finance Act 2016 shall be deemed to be so required.
(2) Any tax strategy published by a group in compliance with that Schedule must include any relevant country-by-country report.
(3) “Country-by-country report” has the meaning given by the Taxes (Base Erosion and Profit Shifting) (Country-by-Country Reporting) Regulations 2016.
(4) A country-by-country report is relevant if it—
(a) was filed or required to be filed by the group in compliance with those Regulations on or before the date of publication of the tax strategy, or would have been so required if the head of the group were resident in the United Kingdom for tax purposes, and
(b) has not already been included in a tax strategy published by the group.”
(5) The Treasury must make regulations to bring this section into operation no later than
This new clause would require all groups subject to the DST to publish a group tax strategy, including a country-by-country report. Such a report would include information about the group’s global activities, profits and taxes.
I should draw the attention of the House to the fact that a corrected text of new clause 33 has been published this morning. The version that was initially published inadvertently omitted the concluding subsection.
Amendments 18 and 19 would require the Treasury to conduct a review of the digital services tax within a year of Royal Assent and to report to Parliament on the tax annually thereafter with a specific consideration of the effect of this measure on taxation revenue.
We welcome the introduction of the digital services tax, although this support is qualified. The Minister will be well aware that we like to be thorough even with proposals that we broadly welcome. It is deeply disappointing that it has not been possible to reach multinational international agreement, hence the need for this unilateral approach. This Government should demonstrate much more leadership in pressing for international efforts to tackle this scourge. Ensuring that companies that operate across national borders pay the tax that they should requires us to co-operate, to lead, to persuade, to negotiate and to set an example.
More troubling is the fact that, in the crisis we are living through today, when ambitious and decisive action is demanded of Government, Ministers have only managed to put forward such a modest measure, when other countries are willing to go further. Many of the companies that will be affected by this tax are the same ones that will have benefited from the impact of covid-19. Before the pandemic struck, they were the beneficiaries of an uneven playing field, while much loved high street businesses struggled.
Local firms and UK chains have faced a real battle competing with companies that base themselves overseas, do not have the same overheads as physical shops and go to great lengths to minimise their tax liabilities. The impact of lockdown has only exacerbated this tension. It has provided an unexpected boon to tech giants, which have managed to rake it in as demand soars and business is directed online. Meanwhile, our high street businesses, which were already struggling, have only seen their worries increase as footfall has understandably plummeted.
Even with the easing of lockdown, there is a real challenge ahead in ensuring the continued success of our bricks-and-mortar retail sector. If shoppers will not venture on to our high streets and the Government fail to provide an effective test, track and isolate system, many businesses that are just starting to open up will soon be forced to close their doors again, perhaps even permanently. These businesses are the bedrock of our communities. They help create a sense of place, and are often a lifeline for older and vulnerable residents and for those in more isolated communities. Government must do more to ensure that there is a level playing field, and that those who have benefited the most from this situation—as I have noted, those that have not exactly paid their fair share in the past—make more of a contribution to the national effort.
Does the hon. Member accept that not only is it right that the Government intervene to ensure that taxes are paid on a level playing field, but that, at a time when public finances are under pressure, we should not be allowing large firms to escape paying the tax revenue that is due and should be paid?
The right hon. Gentleman is absolutely right, and I sincerely hope that the Minister will respond to that point, because we have seen this unfairness built into our system. We recognise that this measure takes some steps towards levelling the playing field, but we need to see much more from Government in clamping down on the kind of tax avoidance that we have seen far too often in recent years, because it is not right.
Can I say how much I support the argument the hon. Lady is making? Does she agree with me that the Government’s digital services tax measure is actually a mouse of a measure compared with the huge profits made by American big tech? Does she also agree with me that the Government need to co-operate very closely with the European Union, which is devising an international tax with much greater teeth, so that these big tech companies do pay their fair share of tax?
Yes, I support the point the right hon. Gentleman makes, and I will come on to say more in my contribution both about how those companies need to contribute more and how it is essential that we see international consensus on this issue. The measure the Government have put forward today is necessarily time-limited, and we will need to see a much more sustainable, long-term solution with a broader international base.
It is not right that British bookstores and other businesses face a higher tax rate than Amazon. Unfortunately, this measure does not go far enough to address this fundamental unfairness, nor does it really get to the heart of the tax avoidance strategies some of these tech companies have used in recent years. As the Chartered Institute of Taxation points out, this measure is not aimed at stopping profits arising in the UK being shifted by multinationals out of the UK to tax havens. However, for far too long the companies that make the modern economy work have got away with complex ways of moving and hiding the money we pay them.
I agree with many of the points the hon. Member makes, and certainly about making sure that we have a fair and level playing field for small businesses. I am certainly a supporter of new clause 33 in principle, which is trying to see these multinationals disclose profits on a country-by-country basis. However, to be fair, does she accept that the Government have gone further than previous Governments, with measures such as the diverted profits tax and now the digital services tax?
We welcome all measures and will support any proposals to tackle tax avoidance, whether it is in terms of tech giants or more broadly, but we still face a big gap in this country, and we are urging the Government to do much more. I am sure the hon. Member would agree that it is vital that we see greater action, because we have seen this unfairness, particularly during the pandemic. He, like me, will have many wonderful local businesses in his constituency that pay their taxes and are trying to come through this crisis, and they want to ensure that there is a level playing field between the bricks-and-mortar businesses and online businesses. I am sure that we all want to get behind that endeavour.
For too long, companies have moved and hidden the money we pay them. Research by TaxWatch UK estimates that we are losing £1.3 billion in corporation tax from five of the biggest firms each year. In comparison, the Government’s own estimate is that the digital services tax is only set to produce £280 million this financial year. The modest nature of this measure becomes clear when we consider what some of the tech giants might actually have to pay under the tax. I will highlight again for the benefit of the House, as I did in Committee, research by TaxWatch UK which predicts that Facebook would face an increased tax bill of £39 million, despite estimated UK revenues of almost £2.3 billion. Google would pay slightly more—around £168 million—based on estimated UK tax revenues of £9.3 billion. Many businesses, such as Amazon, that blend their activities will be unaffected by the measure.
The Government will be aware of our concerns that streaming services are not included at all, which we discussed in Committee. The Financial Secretary to the Treasury said then that
“it would not be appropriate to implement a temporary tax on a broader basis.”––[Official Report, Finance Public Bill Committee,
He will doubtless be aware that taxes introduced on a temporary basis have ended up becoming permanent fixtures, including income tax, introduced to fund war with Napoleon. With little evidence that the Government are working to secure international agreement on a replacement for this tax, temporary could end up being for a very long time. Her Majesty’s Revenue and Customs employs many extremely capable people, and I am sure that it is not beyond their wit to develop a way of taxing streaming services too.
New clause 33, which was tabled by my right hon. Friend Dame Margaret Hodge and has many cross-party supporters, would require those liable for the digital services tax to publish a country-by-country tax report. My right hon. Friend has campaigned tirelessly and incredibly effectively on this issue, and I wish it were possible for us to hear from her directly today. Sadly, the way in which we now conduct our proceedings makes it impossible for her to contribute, which is a real shame, given the expertise and insight she brings, but I am aware that the cross-party support of the new clause will allow other speakers to raise the points that she might have sought to make.
For years, the Opposition have urged the Government to commit to country-by-country reporting on a public basis. Their reticence to do so, and the way in which they have held up progress at an international level, has been a source of deep frustration to those of us who want to see far greater transparency around the taxation of multinational companies. This new clause would not only be of practical use, so that we can see whether those liable to the digital services tax are paying an appropriate amount. It would also help to address the concerns I have outlined that the measure as it stands does little to address the tax avoidance practices by digital multinational companies. It would end the secrecy around such practices and pave the way for public country-by-country reporting at a wider level. The Government have been fond in recent months of saying that they wish to be a world leader—well, here is the opportunity to become a world leader in tax transparency, and I urge the Minister to listen to the arguments being made and take urgent action to address them.
The pressure on our public finances and vital frontline services means that we should be doing far more to ensure that those tech companies that have benefited from the lockdown are contributing more. We need a level playing field between our high streets and the tech giants. We need to build a society where everyone—individuals and businesses alike—pays their fair share. A digital services tax must be part of that, but the Government simply are not going far enough. A bolder approach on a digital services tax would not only help to address this unfairness; it would help to deliver a sustainable recovery from the economic crisis we are facing.
Labour has called for a back-to-work Budget—one that focuses on retaining jobs, sustaining jobs and creating jobs; a full Budget that invests in our young people, who are facing the worst employment prospects for a generation, and helps to secure a future that they can look to with hope. An effective digital services tax would go some way to supporting that goal. As I have indicated, this measure is expected to generate a fairly limited amount when compared with the extent of the tax avoidance practices we have seen from some of these companies in recent years and the profits they have made in recent months. Therein lies the principal reason for our amendments: we need to understand as soon as possible how effectively the measure is working and what more can be done to ensure that such companies are paying an appropriate amount of tax.
The Government’s unwillingness to conduct a review earlier than 2025 means that the opportunity for Parliament to properly scrutinise the measure will be hugely limited. I know that the Minister hopes that a multilateral approach will be in place by then; we on the Opposition Benches hope that that will be the case, too. A comprehensive multilateral agreement, based on a lasting international settlement, is the only long-term solution, but until that happens, the Opposition will continue to push for a more ambitious approach, to which our European neighbours are looking as well. The times that we are living through demand such an approach.
We need to ensure that those with the broadest shoulders help to bear the cost of the recovery that the Government need to secure for our country. It is more important than ever to make sure that the big players that have benefited greatly from this crisis are taxed properly, reasonably and fairly and do not simply continue to shift around their sizeable profits. That is why we have tabled our amendments so that we can be sure that this is the right approach to digital taxation in these times of crisis and so that we can continue to consider what more can be done, not just in five years, but next year and every year.
I draw the House’s attention to interests, which are set out clearly in the Register of Members’ Financial Interests.
I rise to speak to new clause 33, which was tabled by Dame Margaret Hodge who, alas, for the reasons set out by Bridget Phillipson from the Opposition Front Bench, cannot be here today. The House may rest assured that she will be watching every word of this debate from where she is.
The House will notice that not one but three former and current Chairs of the Public Accounts Committee—Meg Hillier and my right hon. Friend Mr Davis, as well as the right hon. Member for Barking—have signed the new clause. In addition, my hon. Friend Nigel Mills, who is unavoidably locked down with his two adorable new children and who has great expertise in this policy area, has also signed it
New clause 33 makes a number of points. The first is that any company that is subject to the new digital services tax, which came into force this April, must publish transparently and publicly a country-by-country report. Although as it stands in the amendment paper the new clause does not include a starting date, that was rectified this morning and the starting date would be April 2021.
The new clause is targeted at international technology giants—that is Google, Facebook and Amazon. These huge businesses are well known for using corporate structures deliberately designed to shield them from the payment of tax. The new clause would allow Parliament, journalists, campaigners and civil society to see clearly whether these businesses are paying their fair share of taxation. If the Government accept the new clause, that would, as the hon. Member for Houghton and Sunderland South suggested, make the UK a world leader in financial transparency. It would give a major boost to country-by-country reporting for all corporations, so that everyone can see that tax is paid on profits in the locations where those profits are earned.
Let me be clear at the outset that it is not our intention to divide the House on the new clause today—subject to the Minister, who is a very clever fellow, showing due respect for advancing this agenda and for the importance of making progress on this issue in due course.
In my submission, there are three reasons why the new clause really matters. The first is that its logic sits four-square behind the priorities of the Conservative-led coalition—I thought the hon. Member for Houghton and Sunderland South could perhaps have given a little more attention and, indeed, support in this respect—who wanted to inject greater transparency and openness into the financial system, in the first instance by championing open registers of beneficial ownership, which were introduced in the UK in 2016.
The open-registers process has been enhanced over the past two years, during which the right hon. Member for Barking and I persuaded the House that open registers should be embraced by the overseas territories and subsequently secured agreement that the Crown dependencies would also implement them. Such progress is a huge advance in tackling money laundering and financial corruption, and it bears down heavily on tax evasion as well. It also makes it more difficult for bent politicians and corrupt businesspeople to steal money from poor countries and their citizens. The new clause builds on that whole approach.
Secondly, at this dreadful time in our country, when our constituents are suffering financially so severely and our Government are rightly seeking to help every family as we combat the economic effects of this crisis, it is frankly obscene and very offensive that some major corporations who rely on UK customers and make huge profits in our country should not pay their fair share of tax. The public and the public finances cry out for fairness and equity, particularly at a time like this, when some companies have benefited from taxpayer-funded rescue packages organised by the Government while not contributing equitably to the public purse. Public expenditure is now at an all-time high. This borrowing will have to be paid for and it is simply not right or fair that while most taxpayers will have to pay more tax—85% of us pay taxation through PAYE—some multinational companies deliberately create financial structures to avoid paying tax.
I also point out to right hon. and hon. Members that those same multinationals are undermining British business by undercutting them on price. They can do that because they do not pay tax at anything like the same rate. In Sutton Coldfield, we are struggling to make a success of our town centre and high street, to renew it and reinvigorate it, but Amazon undercuts bookshops in our high streets and stores such as John Lewis in our shopping centres because it can avoid paying its fair share of tax.
Thirdly—this is of particular importance to developing countries—credible research shows that developing countries lose three times as much each year from tax avoidance as they gain from development aid. The OECD has been pressing for international reform in tax rules for decades. Those countries with the most to lose have been most resistance, so the OECD compromise was that information should be provided confidentially to the tax authorities. While that is progress of a sort, it does not really help developing countries, for obvious reasons to do with cost and with complexity. Clearly, it would be better, as with open registers, for all the data simply to be placed in the public domain so that there is a level playing field and public accountability for the tax conduct of multinational enterprises worldwide.
The right hon. Gentleman may remember that during the coalition Government, we put measures through, agreed at European level, for a directive on transparency on payments made by the extractive industries across the developing world because of concerns about corruption with respect to mining in particular. That created greater transparency. The same approach could be taken on the tax issues that he is raising.
Yes, the extractive industry transparency initiative, which has been led by a former Member of this House, Clare Short, for some time, did a huge amount of good as, of course, have open registers, because open registers have continued that agenda of transparency. As I said at the outset, this agenda was championed and driven forward internationally through the British at the G8.
I agree with all the points that the right hon. Gentleman has been making. Does he accept that unless we can dig behind the accounts to see where companies, for example, inflate costs in countries where they can get lower tax rates and deflate costs in countries with higher tax rates, a tax strategy in itself is simply not going to ensure that we get behind how companies avoid paying tax in the countries where they earn the profits?
There is an important principle: while commercial confidentiality should not be compromised, we should move to greater transparency to tackle the problems that lie behind what the right hon. Gentleman is saying. I agree with that and I think that there is common cause across the House that that is what we want to do. Clearly, getting a multinational standard will be the right result, but these things have to be led.
In summary, the new clause is part of the noble campaign that is supported across the House, to shine a light on the profit shifting, transfer pricing and tax haven abuse that is used to minimise tax liabilities. The House has already voted in favour of public country-by-country reporting through an amendment to the Finance Bill in 2016, which gave the Treasury the power to make the information public. My right hon. Friend the Financial Secretary will no doubt rely on the prayer of St Augustine, “O Lord, make me chaste, but not yet,” and argue that the UK would not want to implement this reform unilaterally, and he has already acknowledged, in a letter to Dame Margaret Hodge dated
As we contemplate Britain’s role post Brexit and we set out what we mean by global Britain, let my right hon. Friend stand tall, show leadership internationally, and follow the proud, confident example of David Cameron and George Osborne. Let global Britain lead by example, to the huge benefit of our domestic taxpayers and taxes, and for those in the poorest countries, whose mineral wealth is so often developed without their citizens reaping the benefits they should receive and that they deserve. This reform would be in the finest traditions of Britain’s past international development leadership, and I commend the new clause to the House.
We support a fit-for-purpose digital services tax. Our new clause 5 seeks a review of how effective the Treasury plan is. It would force the Government to assess the digital services tax’s effectiveness and draw conclusions on that information within six months.
It is unfair that multinational online firms pay less tax than small high street shops, and the SNP has long said that we would support a fit-for-purpose tax, but during the lockdown many people have become adept at finding what they need online, from replacement parts for the oven and a tablet and macaroon subscription in my case, to clothes, trampolines, desks, chairs, food and drink, and this period may well have a permanent effect on how people do their messages.
The high street has been facing difficulties for many years now, under fierce competition from digital competitors. Retailers including Intu, Debenhams, Oasis and Warehouse have gone into administration, and job losses were announced today at Harrods, John Lewis and Arcadia Group—all while online retailers are booming. It is not a level playing field, and it seems only fair that the taxation system catches up and seeks to level it out. I agree with Bridget Phillipson that streaming services are also a huge money-spinner, and I do not see why the UK Government would not want to get in on that action. Taxes going uncollected in an area that is growing would be useful to Treasury coffers right now.
As the digital services tax is a new measure, it is vital that we try to capture how effective it is. By their very nature, online companies can be nimbler than their bricks-and-mortar counterparts, and it is always possible to find loopholes. We will wait to see how successful the policy is, but it is regrettable that the UK failed to implement it alongside international partners, despite countries such as France, Spain and Italy seeking to introduce similar measures. I appreciate the difficulties and limitations of work in the OECD, but co-operation is all the more important in the face of the US attempting to apply pressure to shut down the measure. Steve Mnuchin, the US Treasury Secretary, has stated:
“The United States remains opposed to digital services taxes and similar unilateral measures…
As we have repeatedly said, if countries choose to collect or adopt such taxes, the United States will respond with appropriate commensurate measures.”
I wish the UK Government all the best in that fight, but it would surely be wise to enlist other countries for hauners, rather than taking the UK through this alone. I would be grateful if the Financial Secretary to the Treasury updated us on the progress of international co-operation.
On the subject of loopholes, I share the concerns that my hon. Friend Stephen Flynn made clear in our amendment in Committee on the significance of Scottish limited partnerships. SLPs have been used for a huge and well documented range of nefarious ends, including money laundering, arms running and undermining democracy, yet they are still being advertised as an ideal way to avoid paying tax and hide under a veneer of respectability. It is entirely conceivable that online companies could use SLPs or other such vehicles to avoid their obligations and shift their profits, and we in the SNP want to ensure that the Government are aware of this, and to encourage them to act. The abuse of SLPs has gone on for far too long.
The SNP supports the cross-party new clause 33, led by Dame Margaret Hodge, whose cross-party group on anti-corruption and responsible tax continues to do excellent work. We miss her insight today. I thank Mr Mitchell for his thoughtful observations on the role the UK should play. After all, what country would not want to lead in global transparency? Requiring companies subject to the digital services tax to publish a group strategy, including a country-by-country report, would add a great deal to tax transparency, as such a report could include information about the group’s global activities, profits and taxes. Parliament, in the Finance Act 2016, obliged the UK Government to adhere to country-by-country reporting, but that is yet to be implemented. We all have a duty to pay our fair share, and that mechanism would help ensure that that applies to the tech giants, as well as to each one of us.
We support Labour’s amendment 18, which would force the Tories to report annually on the digital services tax. The Bill states that the Government must conduct a review of the digital services tax and, prepare a report of the review before the end of 2025. The end of 2025 is a long time away; it is far too long. Governments may come and go in that time, or new technology be developed. Indeed, for our purposes we might also have independence, and be able to do these things for ourselves. This is a new tax and, as with all taxes, we must measure it carefully, assess it properly, and ensure that the intention behind it is reflected in the outcomes from levying it.
I rise to support amendment 18 on the digital services tax, and I will focus my comments on the pressures faced by businesses on high streets. The coronavirus crisis has brought into sharp focus the issues that high street businesses have faced over the past decade. Primarily, those include outdated and confusing business rates, sky-rocketing rent costs, and competition from the internet and out-of-town shopping centres.
Last year I visited Tidal’s Store, a furniture retailer located on Blackwood high street in my constituency. It told me that shops at the top of the high street are charged business rates at £300 per square metre, those in the middle are charged £310, while further down the rate is £320. Ironically, those charged the highest rate overlook a business park that contains many large chains that are charged only £60 per square metre. The council agrees that is unfair, but it cannot do anything because it only collects the rates. When queried, the Valuation Office Agency hides behind byzantine rules that it says are set by central Government and are completely in order.
Since lockdown, the high street has been on life support. Independent businesses have faced uncertainty, and despite help with the furlough scheme and support grants, they have had to find innovative ways to stay afloat amid the pandemic. Household names such as Cath Kidston, Oasis and Warehouse have announced the permanent closure of their stores, and Debenhams, once a staple of every major town centre, has announced a string of further store closures as it enters administration.
The pandemic has changed the shopping habits of Britain, with supermarkets and in particular online retailers being the biggest beneficiaries of lockdown. However, when the supermarket shelves were empty, and when online retailers sold out of basic essentials and items such as hand sanitisers, the local corner and high street shops came to the rescue. Local restaurants and cafes helped to feed those in need in the community, and provided food and discounts for key workers during the pandemic. Those businesses stepped up to the plate for us, and the Government have a duty to step up for them.
Many of those businesses are family-owned and run, and employ local people. They pay rent, meet their business rates, and play by the rules. All they ask for is a level playing field. The question that must be asked—this goes to the heart of the amendment—is why large multinational companies such as Amazon, which often undercut our independent shops, are allowed to pay lower tax rates than the stores on our high streets.
Online businesses have lower property costs, due to being based out of single warehouses or offices. They are also able to domicile their businesses in tax havens. Meanwhile, our struggling local businesses have to pay extortionate business rates and rents for a spot on the local high street. In many cases that is more than businesses can afford, and thus they find themselves in debt and facing closure. How are small and medium-sized businesses expected to compete with large, multinational retailers or the online behemoths of fast fashion brands, when the financial odds are so stacked against them?
Large multinational conglomerates pay very little corporation tax in the UK. Research conducted by TaxWatch UK suggests that the UK is losing up to £1.3 billion in corporation tax from five of the biggest US technology firms each year. This is not only an issue for the UK. Across the world, these corporations are exploiting gaps in countries’ tax laws to avoid paying more tax. Worst of all, this base erosion and profit shifting has the most detrimental impact on developing countries, which rely on corporate tax more heavily than others to sustain their economies.
Although the digital services tax would go some way to making up for that £1.3 billion loss in corporation tax, it is not anywhere near enough. As my hon. Friend Bridget Phillipson said from the Front Bench, it is estimated that the digital services tax will produce only £440 million annually. That is why it needs to be reviewed every year. That is what amendment 18 would do, and I hope that the Government adopt it.
However, like my hon. Friend, my support for the tax is qualified. My concern is that it will be the consumer who ultimately pays it. What measures will be put in place to ensure that companies do not offload the tax on to shoppers in order to avoid paying it from their own profits? Amazon has already been open about this matter and increased its costs for the small online businesses that sell and deliver through its platform. That means that the customer, in turn, pays more, with Amazon seeing no difference in its profits as a result of the tax. It is time that those who operate in this country paid their fair share of tax in this country.
The amendment for a fair taxation system in regard to the digital services tax is welcome. The data could be provided by businesses subject to the tax, and country-by-country reporting would better equip Governments who want to identify and tackle tax avoidance schemes in their country. The OECD worked with the G20 to develop this, and it is high time that the Government implemented this measure right here in the UK.
That said, the belief that imposing this tax is some sort of silver bullet to cure the high street of all its ills is misguided. If we are serious about rejuvenating our high streets, particularly after the coronavirus pandemic, alongside this tax there needs to be a clear, coherent strategy to save our high streets. That must include immediate reform of business rates that is fair, transparent and open to appeal. I also urge the Government to devolve business rates to local government so that it can set rates according to local economic conditions. Equally, we need to address parking, although I think that is a matter for another day.
In essence, the reason I support amendment 18 and urge the House to do the same is that the lockdown and the closure of non-essential shops has allowed online retailers to make hay while British businesses in our town centres and on our high streets face grave uncertainly. There is still no vaccine for covid-19, which means that those businesses that can open will be able to operate only in a limited manner, impacting sales and profits, and many more businesses will have to stay shut indefinitely. Without help, this nation’s once proud boast that Britain is a nation of shopkeepers will become, like many of our big-name stores, a thing of the past.
One of the features of the lockdown economy has been the march of online retail, as evidenced by the prominence of delivery vehicles on all our streets, but the growth of the digital economy is actually deeper.
The Federation of Small Businesses in North Yorkshire tells me that one of the major concerns among its members is the extent of the digital skills that they have in their businesses. I have spent a significant amount of time listening to business—I know that is something we all do as Members of Parliament, but I have also done so as a Minister and as someone with specific responsibility for this for my party—and one of the messages from that engagement was to focus on digital. That means different things for different companies. It could be the new channels to market and the need to ensure that they are able to reach their customers in the most appropriate way. It could simply be the opportunities to enhance productivity by digitising processes. My point, really, is that the digital economy is the future.
From a Treasury perspective, that is quite difficult. It presents it with hard challenges. The international nature of this economy makes it hard to collect tax—a point already made by colleagues in the debate.
I note that the hon. Member said that digital was the future. Would it not be fair to suggest that digital is not only the future but the present—the here and now—and that that is why the Government’s proposals should go further?
It has been the past, the present and the future. My point is about scale. I am not suggesting that the economy will be all digital in the future and that it has been all analogue in the past. That is perhaps a misunderstanding of what I have been saying.
Returning to the point that the digital economy presents challenges for the Treasury in raising taxation, I know that the Treasury is making good progress in working with other countries on developing a multinational response, but that could take a significant amount of time. It is therefore right to take appropriate action now. The direction of travel is a positive one, particularly building on the points made by my right hon. Friend Mr Mitchell earlier in the debate. The evolving nature of the economy—how we work and how we consume—means that tax has to evolve too. Traditional routes for collection are becoming more difficult, and the Bill is a response to that.
I am not normally keen on finding new ways to tax people. We are already quite a highly taxed country, but we need to raise revenue to fund our vital public services. In Committee, we discussed the fact that this tax could raise up to £2 billion, but there is also something unusual about it, in that it is a tax on revenues. In this case, I think that that is a positive thing, because we are talking about very large companies. The thresholds mean that we are dealing with the largest players in the online marketplace, such as social media platforms and search engines. Basically, I am pleased to see efforts to make tax fairer between offline and online—or bricks and clicks, as it is sometimes referred to.
I am listening carefully to what my hon. Friend is saying. The more we debate this, the more time moves on. Does he agree that non- domestic rates—business rates—are looking increasingly dated, and that while we welcome the rates holiday that the Government have given to so many businesses in our constituencies until next year, the cliff edge that they will face next year, having been able to take it out of their cash flow this year, will be a real problem for them? Does he therefore agree that the manifesto promise of a long-term review of non-domestic rates is becoming more important and pertinent than ever?
My hon. Friend makes a valuable point, and I agree with him entirely. It is an analogue tax in an increasingly digital world, and it will need to evolve and be replaced. However, to build on the point made by Chris Evans earlier, many companies operate in both spheres. I know that from my own commercial experience prior to coming here. The key thing is to be available through the channels that your customers want; otherwise, they will not buy from you.
Equally, I have been talking to high street retailers, especially some of the smaller independents in my constituency, and they do not see a level playing field. High streets and town centres have been under significant pressure for many years. This is not new, but the trend is being compounded by the coronavirus crisis. Some sectors have been incredibly badly hit over the years. Bookshops are particular example. High streets have a role beyond the purely economic. They have a social role, in that they bring people together and create hubs for communities, so the work that the Treasury is doing to create a more level playing field is welcome. This is not to deny the digital market; is about giving high streets and the businesses on our high streets more time to respond to the evolving nature of competition. We must not be in denial about the march of digital. We must embrace it, and the UK has a good record of doing so, but we must recognise that we need more digital connectivity and more emphasis on digital skills.
My hon. Friend is raising some important points about the level playing field. Does he accept that, although introducing the digital services tax is the right thing to do, it does nothing to rebalance online versus the high street because the money is not coming off business rates? The £30 billion is still going to be coming from business rates, and if we lose that system, we will have to find another system to replace it that will raise £30 billion. The research we have done in the various Select Committees shows that there is no consensus around what could replace business rates in a fair way.
My hon. Friend makes a really interesting point. It is hard to create new taxes and the reform of certain parts of our taxation has been put into the bottom drawer marked “too tricky” by successive Governments over many years. Perhaps business rates are a part of that. It is clearly going to have to evolve, and it is evolving, but it is also hard to create a new and entirely fair system, particularly as the economy is changing so rapidly that we are in danger of creating a system that solves yesterday’s problem.
I will conclude by saying that this positive measure creates a more level playing field, but not an absolutely level playing field. The digital economy is critical to us. I am very keen to see more digital start-ups across the country, greater digital connectivity and more emphasis on skills and start-ups. None of that is compromised by the digital services tax. It is about bringing more fairness into the tax system, but it will also give us some valuable insights into how tax may be raised in the future, because one thing we do know is that there will be a new normal after the crisis, and the digital economy will be at its heart.
I rise to echo some of the points that Mr Mitchell opposite made about new clause 33. Although it is not being pressed to a vote today, I hope that the Government will bow to the inevitable before long and will heed our calls. A few of us on the Opposition Benches will be talking about that.
I echo the disappointment of my right hon. Friend Dame Margaret Hodge and Nigel Mills, with whom I co-chair the all-party parliamentary group on anti-corruption, that they could not be here. We have had the rug pulled from under our feet with the hybrid Parliament, but let us not get into that; that is another debate for another day.
If we are talking build, build, build, the new clause would help towards rebuilding our economy post-coronavirus and rejuvenating our high streets, which have long felt clobbered by online competitors even before all this crisis. The new clause would do that by creating tax transparency for multinational giants, responsible investment and the closure of loopholes that enable financial flows that may not quite be illegal, but many would call pretty immoral.
The principle of country-by-country reporting, whereby multinational monster companies file public reports on their dealings country by country and then pay their dues, getting rid of the secrecy around their affairs and ensuring that tax is paid at the right time and in the right place—where the profits were made—has already been adopted by the OECD as an ambition. If that idea brings on a sense of déjà vu, it was passed by this House back in 2016 as the “show me the money” amendment tabled by Caroline Flint.
The issue is about fundamental fairness. When considering what the state of our public finances will be post-pandemic, we should be careful not to burden ordinary taxpayers with the whole tab, particularly when the tech giants have enjoyed state bail-outs. We have heard about high street decline, and the fact that the measure would rake in billions means it is needed now more than ever.
It cannot be one rule for hard-working UK businesses that play by the rules and pay into our Exchequer, and another for multinationals that can pretty much pick and choose what they do and pay minimal tax by shifting—sorry, “reallocating”— profits around the globe to low-tax dominions, where they might effectively just have a PO box to demonstrate a presence, all to save themselves cash that could be spent on our public services.
New clause 33 would mean that companies would have to publish how many employees they have, how much profit they make and their assets in each dominion. How is it, for example, that we have Amazon employees in warehouses here—some of them are our constituents—but its UK subsidiaries paid just £5 million of tax in the UK last year? We know that Amazon makes billions and billions. My small businesses in Acton, Ealing and Chiswick do not have the option of routing things through the Cayman Islands under the practice of tax haven abuse.
Since 2016, sadly there seems to have been a kind of stalemate. The principle is well-established and agreed, even back to David Cameron’s crusade for anti-corruption at the G8 in 2013, but there has been complete timidity from Government to act. A series of replies to written questions discuss how multilateral action is needed. The Government are basically saying, “I will move if you do”, but what good is having something on the statute book if it is not enacted? People will remember the Marcus Rashford affair the other day and they will see another U-turn here. I am hoping the Government can prove them wrong.
The new clause would make the principle a reality in relation to the digital services tax applying to the Facebooks, Googles and Amazons of this world. It is wrong that pound-for-pound, relative to what they make, they pay less tax than any of our constituents or we do. No market-sensitive data is included in the reporting format, so tech giants have nothing to fear.
The world has moved on from 2016, which was two Parliaments or three elections ago, although elections take place every other year now—I have had three in my short time here. Although the coronavirus rescue packages were entirely the right thing to do, it looks at the moment like the bill is going to have be footed by our children’s children’s children, who will still be paying it off. If we are serious about levelling up, this new clause would provide a level playing field for honest British businesses with the multinationals that can bypass proper procedures with their tentacles spreading everywhere around the world.
The hon. Lady has said that the Government are being timid. Does she accept that it is not timid to introduce a digital services tax in the teeth of opposition from our largest trading partner, the United States? Much as I support new clause 33 in principle, the digital services tax is a very bold move.
The hon. Gentleman is on the all-party parliamentary group and I know that he secretly agrees. Perhaps he is not saying so because his Whips are listening. The EU is our biggest trading partner. For many years before I came here, I used to teach and would sometimes say, “Could do better.” Yes, we support the measure, but we could do better, and this is a glaring example of an issue that is in need of urgent rectification.
The covid-19 crisis necessitating Government help for industry has, I hope, reversed the trend towards laissez-faire economics. It has been remarked by many people that we are missing a trick. We could bring some of these unscrupulous companies—we can call them companies with clever accountants, if Members prefer—to heel. It seems wrong that the Bank of England has made £1 billion of loans available to the German chemicals giant BASF, which has transferred profits to Malta, the Netherlands and Switzerland in order to avoid tax. There are countless other examples, but because these things are shrouded in secrecy, that is the example I am able to give. The easiest way to do it is by enacting what is already agreed, and we do that via the digital services tax, which Kevin Hollinrake hails. These companies could be given time to make adjustments, and the very fact of transparency, rather than overly punitive measures at the start, could shame them into action and make them see sense.
We face a double whammy of the covid financial crisis and uncertainty outside the EU. The Chancellor said, “Whatever it takes”. Those headquartered in the UK already submit all this information to HMRC and to other relevant tax authorities. All we are asking is that we can all see it and that there is full and frank disclosure—including for investors and other stakeholders, who increasingly want to know these things—and then we can see where each company has its economic bulk or footprint. Making public what already exists would be low cost and straightforward. I see no downsides to this. The only people who oppose the proposal are those who usually abuse the rules. I understand that the tax havens of Jersey and Luxembourg are not too keen on it.
We keep being told that, post-virus, things cannot go on as before and, “We shouldn’t waste a good crisis, should we?” Ensuring that very large companies publicly reveal revenue and tax information could be something on which we lead the world, and we can still apply pressure on the OECD and G20—the two are not mutually exclusive. We cannot wait forever for action from the EU, because we are no longer a member of that organisation. Time and again, we were told by the leavers that we could be an independent nation and we were reminded of the sovereignty of Parliament. This proposal has wide cross-party support.
Does the hon. Lady not think it would be right for the Minister to say from the Dispatch Box that the UK Government will work closely with the European Union as it develops its digital services tax, and should not the Opposition parties be calling on the Government to make it very clear that European co-operation on this issue is vital?
Yes, I think we should be working closely with the EU, but we can even beat them to it. Already on the EU Council there are countries such as France—which was called “cheese-eating surrender monkeys” on “The Simpsons”—that have agreed to it. This could be a bit of a trick for our Government if they pipped them to the post—I think we abstained when it last came up in the European Council. Yes, I completely agree that we should be in harmony with those countries, but this is an opportunity to beat them. By the way, not that I endorse “The Simpsons”, obviously—I do not want to cause a scandal—but, for those who are insistent, this presents opportunities. We have now left, after all.
The measure has cross-party support, and Oxfam, Christian Aid, CAFOD, the Churches and a list of development charities as long as your arm are all for it. They are spurred on by the fact that, as has been said, developing countries lose three times as much as they gain from development aid due to tax avoidance.
Regaining the respect of the aid sector, after the cruel surprise of the DFID merger was sprung on it the other day; delivering progressive taxation to ensure that corporations pay their fair share; rebalancing towards ordinary people; levelling up, so that our high street traders are not undercut by online giants with lax morals; levelling the playing field with multinationals, which is good for British business; bringing in billions and leading the way to be genuinely world-beating, which sadly the track and trace app was not; and beating the EU to it, when we have got Brexit done, and reinforcing the role of our sovereign Parliament—what is not to like?
The Nobel prize-winning economist Professor Joseph Stiglitz has remarked:
“It is time for countries to take both unilateral and multilateral actions to tax multinationals.”
Let the UK not drag its feet any more, but be a leader. It was David Cameron who said that sunlight was “the best disinfectant”, and the Conservative West Midlands Metro Mayor said when he was managing director of John Lewis:
“If you think of two companies making the same profit, one of them pays corporation tax at the UK rate, one does not because it claims to be headquartered somewhere else—that is not fair.”
Anyway, that is enough Conservative quotes in a Rupa speech—this is quite unusual for me. The Government should now set a date.
I think that is the point. The Minister should recognise that this has cross-party support. I started by praising the right hon. Member for Sutton Coldfield; I am ending with the Metro Mayor, the John Lewis man. These are all reasons why the Minister should adopt this measure forthwith. It is time to act. The time is now.
I just want to get that image of “The Simpsons” out of my head.
As a new MP, I was very grateful for the opportunity to sit on the Finance Public Bill Committee. It was a fascinating experience, during which I learned a great deal, including how the progress of a Public Bill Committee can be compared so poetically to the stages of “The Pilgrim’s Progress”.
I would like to speak briefly about the amendments tabled to part 2 of the Bill, namely new clauses 5 and 33, and amendments 18 and 19, all of which pertain to the new digital services tax. I very much welcome the introduction of the new tax on some of the world’s largest digital service companies. Economies evolve, and it is right that from time to time we act to address imbalances and unfairnesses that arise as a result of that evolution. Over the last few years, and particularly the last few months, we have become more and more reliant on social media companies and online marketplaces. Many of us now use these services every day of our lives, sometimes against our own better judgment. I have no interest in condemning the success of these companies. The reason why they have been so successful is that they have harnessed technology to provide something that consumers want. Surely that is the aim of every business in a free market economy where there is healthy competition.
However, multinational companies have grown rapidly in recent years and tax systems around the world have not caught up. As has been said, many digital service companies now enjoy unfair advantages when it comes to competing with traditional, offline businesses. They usually face lower property costs and business rates, and their multinational nature means that they can move profits around the world to reduce the burden of taxation. That is unjust. This new tax seeks to address this unfairness.
The introduction of the digital services tax is especially timely as we emerge from the coronavirus pandemic, during which offline businesses have been even more disadvantaged and many consumers have made the switch—perhaps permanently—to online shopping. I note that the digital services tax generally has cross-party support, as it did in Committee, with Members on both sides of the House welcoming this new measure to address unfairness in our tax system and generate revenues for the Exchequer, which will, of course, be used to strengthen our public services. The amendments therefore do not aim to alter the tax in itself and how it is applied or collected. Rather, they seek to force through a reporting regime that I believe could be counterproductive or futile.
New clause 5 would require the Government to make an assessment of tax revenues following the introduction of the DST and lay it before the House within six months of Royal Assent. Similarly, amendments 18 and 19 seek to press the Government to report on the DST within 12 months and annually thereafter. The amendments do not take into account the fact that there will be little data of any value to report within that short timeframe. Clause 51 states:
“Digital services tax in respect of an accounting period is due and payable on the day following the end of 9 months from the end of the accounting period.”
This means that many companies that become liable for DST following the passage of the Bill may have a significant proportion of their financial year remaining, and then another nine months following that, before DST contributions become payable.
The hon. Lady is making a fantastic speech; she is a lot more confident than I was when I entered the House. I have a word of warning for her: she said that she enjoyed the Finance Bill Committee. I was like her once—I said that, and I ended up sitting on six in a row. Even the most enthusiastic Member can get weighed down after a while. The real concern for the digital high street is how we can ensure that the burden of the digital tax bill is not being rested on the shoulders of the millions upon millions of small digital traders. How does she think the Government can guard against that happening?
I did not enjoy the Committee that much; I want to put that on record. The hon. Gentleman makes a good point, but I will say two things. First, we are only talking about the very largest businesses here—those with £25 million of UK revenues, though I appreciate that for some companies that may be split. Secondly, we are one of the first countries in the world to introduce a tax such as this, and it will take time to record, report and analyse its exact effects. As a number of Members have said, we are hoping for international co-operation in the long term, and hopefully this is a short-term measure where the UK is acting alone. I think things will become clear over time.
For companies that do become liable for the tax following the passage of the Bill, it may be some time after the 12-month period following Royal Assent before they actually pay the levy, and some businesses will only be paying the amount due during the part of the year that the Bill was enacted. That means that there will be little, if any, meaningful data within six months or even 12 months of the Bill being enacted, so the amendments add little value to the Bill.
New clause 33 would require all groups subject to the DST to publish a group tax strategy with a country-by-country report, including information about the group’s global activities. While I have no doubt that this is a well-intentioned amendment, I fear that it may have some unintended negative consequences. We need to remember that the DST will affect only the very largest companies—those with over £500 million of international revenues and over £25 million of revenues from UK-based activities. Companies like this will think nothing of rearranging their activities to avoid this kind of enforcement, so UK mandation alone could push businesses offshore. We want to encourage voluntary compliance, and I know that my right hon. Friend the Financial Secretary to the Treasury and his colleagues have worked hard to ensure that this new tax will not deter UK trade. At this point, especially given that the UK is one of the first nations in the world to introduce such a tax, and given how mobile these companies are, it is prudent to ensure that the administrative burden is as light-touch as possible.
It has been a great opportunity to serve on the Finance Bill Committee. My hon. Friend Robin Millar said how much fun it was. I am not sure that I would go so far as to say that it was fun, but it has been a privilege, particularly given the opportunity to discuss a groundbreaking new measure that will level up our tax system and help to restore a level playing field in our UK economy.
It is a pleasure to follow my hon. Friend Miriam Cates, who made some very important points. She made the critical point that the digital services tax is a temporary, short-term measure, and we need something more encompassing to replace it. That is why I want to speak to new clause 33, which proposes a radical reshaping of how tax affairs would be disclosed. If we are going to tackle this fundamental problem, it is essential that we have country-by-country reporting. I therefore do not secretly support this new clause; I openly support it, even though it is not going to be pushed to a vote today. The principle behind the clause is absolutely right, and I pay tribute to my right hon. Friend Mr Mitchell and Dame Margaret Hodge for their work on it and in many other areas to tackle tax avoidance and corruption.
The other key element of the digital services tax is that it tries to level the playing field in corporation tax, but it does not level the playing field for business rates. That is a completely different discussion and it is one that we definitely need to have.
When I first came to the House, I attended one of those breakfasts; I think it was run by the Industry and Parliament Trust, of which I am a trustee. The subject of that seminar was the values of business—I have been in business for 30 years, and in my view business is a force for good in the vast majority of cases—and it was addressed by a vice-president of Kellogg’s, who talked about the values of business to the economy and the inherent values of some businesses. As examples, he talked about the great values and corporate social responsibility of businesses such as Facebook, Google and Amazon.
While the speaker was addressing us I googled, “Do Kellogg’s pay corporation tax in the UK?” My search came up with a Daily Mail article saying that Kellogg’s turns over £650 million in the UK and does not pay any corporation tax. When he got to the end of his comments, I asked him, “How can you square the circle—saying that you have great corporate social responsibility policies and put money into good causes in the UK, which might cost you a few pence or percentage points in terms of cost and contribution, when you are not paying corporation tax? Your customers are taxpayers. You are trading and turning over a significant amount of money in the UK. And yet you are not contributing back to the bills and the vital public services that your customers rely on. I think it is a cynical approach.”
This Kellogg’s vice-president was clearly quite stunned by my question. I quoted to him that Kellogg’s is one of those companies that does not pay corporation tax. When pressed for an answer, the only one that he could come up with was, “Well, we’ve got a duty to shareholders to minimise our tax burden.” That is an old chestnut. I hear lots of big shareholders of big companies in the US—people such as Warren Buffett—absolutely reject that notion. In my mind it cannot be right that businesses seek to avoid fair taxation rates in this world and, as many hon. Members have said, we have a duty to stand up for small and medium-sized enterprises that cannot benefit from these kinds of devices. The vast majority of us pay tax through pay-as-you-earn anyway, so we pay our fair share of tax—and most people do so willingly.
My hon. Friend raises an interesting point. Does he share my view—I think it is also the view of the people who really know the law in this area—that in Britain a corporation exists to maximise the interests of all its members, rather than merely the shareholders, and that the shareholder entitlement is to the residual that is left after satisfying other claims on the company?
I absolutely agree. Any businessperson starts off on the premise that they have responsibilities not just to their shareholders, but to their customers and other stakeholders.
Due to the scale of the problem and the lack of country-by-country reporting, it is difficult to establish exactly what some of these companies are making in the UK, but let us look at Google as an example. In 2018, Google turned over $137 billion and had net revenues— so a profit—of $31 billion. The whole organisation internationally works on a profit margin of about 22%. The company turned over around $10 billion in the UK in the same year, and makes about $2.2 billion of profit from UK activities each year. If we applied 19% corporation tax to that amount, we would come up with a figure of £420 million in corporation tax that Google should have paid. It actually paid £67 million that year. This is happening on a huge scale and is multiplied by many other companies.
I thank my good and hon. Friend for allowing me to speak. This confuses me. I would have thought that very clever tax inspectors could visit these international companies. Surely these companies cannot disguise the money that they are sending out of the country. Surely we have methods of checking that, and, from that, we can devise a way of actually taxing them. It seems to me, from what I can gather from this debate, that these companies seem able to spirit money away with magic dust or something, and I am sure that that cannot be so.
My hon. Friend makes a very good point. We have some very good people here in our tax authorities and in our ministerial team. The difficulty is, of course, that those companies have some very good advisers working for them, too. It is a case of “Catch me if you can”. That is why the Government have stepped in with a diverted profits tax and a digital services tax, neither of which existed before 2010. The Government have stepped forward to try to do this, but it is certainly not easy.
From the figures, Google should be contributing £420 million to the Exchequer. Of course, much of that money would have previously gone to the Exchequer through some of our own companies, but they no longer get that revenue. Regional media is a good example of that. As businesses, we used to spend our money in regional newspapers and regional radio. Now we put that money straight into Google and Facebook and other such places, so it is being shifted away from UK jobs and UK businesses and spirited away to different parts of the world.
I know the Minister will say that we are working with the OECD in terms of base erosion profit shifting, which is absolutely right. The difficulty, of course, is the lack of public scrutiny of that. That information is available only to tax authorities. The media play a hugely important role in highlighting the inappropriate shifting of profits internationally by companies, which therefore do not pay their fair share of tax. It is hugely important that we have publicly disclosed country-by-country reporting.
I very much support new clause 33. I hope that the Government will step forward with something similar in the very near future. The digital service tax is a great step forward and a very bold move in the teeth of international opposition, particularly from the USA, but it is a short-term measure. We need something much more important and much more fundamental. At a very minimum, that fundamental thing should be country-by-country reporting and I urge the Government to go further, continue with their great efforts to tackle tax avoidance, and bring in country-by-country reporting for all multinationals.
It is good to rise to speak in support of new clause 33. In doing so, I want to begin by thanking the right hon. Members for Sutton Coldfield (Mr Mitchell) and for Haltemprice and Howden (Mr Davis) for their leadership on this issue. They have been talking about this and pressing the Government on this for many years. Although this House is not always a model of cross-party decorum and high-mindedness, on this it certainly has been, and I pay tribute to their work. They have made compelling arguments, and I sincerely hope that the Minister will listen.
Other very good arguments have been made in this debate. Miriam Cates caused slight jocularity in the Chamber when she suggested this idea that Finance Bills are not fun. I do not know who she thinks thinks that, but, obviously, they are the best bit of Westminster.
Andrew Jones pointed out how difficult it is to introduce new taxes. He is right, and we are introducing a new tax here, so we should have a think about how the circumstances are different. Anybody who thinks that it is easy to introduce new taxes should offer George Osborne a trip to Greggs. He thought that the pasty tax would be a minor and uncontroversial measure—how wrong can you be?
Other Members have mentioned business rates. Speaking as a former member of the Treasury Committee, I can say that we investigated business rates extensively. I can see my hon. Friend Wes Streeting nodding. It is very complicated to reform them, and no surprise that it has been in the “too difficult” box, but we should not shy away from the things that are too difficult. In response to the Minister’s comments about fiduciary duties and shareholder responsibilities, he makes a good and interesting point, particularly coming from his Conservative perspective. He will understand, however, being of a philosophical persuasion, as I am, that there is a difference between justice de jure and justice de facto. It may be the case that businesses have a wider duty than is commonly interpreted; it is nevertheless commonly interpreted in that way. If we this House are not here to clarify what companies’ responsibilities are, what are we here for?
I support the arguments on new clause 33 that others have made. In doing so, I want to pay special tribute to my right hon. Friend Dame Margaret Hodge, who, as has been mentioned, cannot be here. I do not think she was ever a member of the Whips Office, but she should have been, because the fact that many of us are here, due to her influence and brilliance, is a tribute to her. I asked her if there was anything that she would particularly like said, and she gave me these words:
“This is the moment for the Government to show that it will act firmly on behalf of all hard-working taxpayers to ensure fair taxation. All we are asking for is public disclosure of where the tech giants make their profits and pay their taxes. We will then know once and for all if the Googles, Facebooks, and Amazons of this world are contributing properly to the common pot for the common good.”
It is as simple as that. Who would dare disagree?
In conclusion, I would like to make three points in support of this new clause that I think are unassailable and that the Government should pay attention to. We come to this House in the context of a global pandemic, which makes this issue all the more important. We are all wrestling not just with what Government resources can possibly be expended and what they should be expended on, but how we make sure that that money is also brought into the public coffers so that we can, as much as possible, get the Government on a decent footing for the near future.
Some 85% of us pay our tax without question through the PAYE system. HMRC is very, very tough on SMEs, and we just want to see exactly the same treatment for big corporations. That is only fair. As has been said, there are also tax avoiders who undermine British businesses by undercutting them on price. Other Members have made absolutely compelling points about the high street. That is interconnected with the online world—of course it is—but where businesses are not paying a fair whack, that will do unnecessary damage to our high street.
My next point about country-by-country reporting particularly relates to developing countries. Here I must return to the right hon. Member for Sutton Coldfield. For context, as you know, Madam Deputy Speaker, when I was first elected to this House I served on the International Development Committee, and the right hon. Gentleman was the International Development Secretary. It was a great pleasure and honour to visit some of his officials in some of the poorest parts of the world, where people faced challenges that we in this House can barely imagine. I well remember talking to officials who were advising state and city governments on tax collection. Some of the things this country has done in pursuit of the interests of the poorest people in the world are not the things that we see advertised in the newspapers or that get talked about on “Comic Relief”; some of the things DFID has done over the years that have been truly important to developing countries are the really boring things like tax collection.
In this House, it is not just aid that we should set our mind to if we want to have a more equal world. It is the things that we can do that are not about giving money, but about changing the rules of the game to make sure people in the poorest parts of the world can run their own Governments in pursuit of good public services, meaning that the poorest kids in the world get an education. That is what these taxes should pay for.
The hon. Member is absolutely right. I think two very good examples are Pakistan, where British techniques and expertise have helped the Pakistan authorities to raise more tax from their citizens, and Rwanda, where Britain helped the Rwandan Government set up a fair and equitable system of taxation that has worked and succeeded in helping that country to fund its expenditure. Back in 2007, the Rwandan Government raised only about 20% of their annual expenditure, and today they raise over 80%.
I know some people think that tax is boring, but how could we listen to that example, talking about one of the countries that has suffered worst in the world in my lifetime, and not think that this new clause—the issue of getting tax to the place where it belongs—is truly a great mission that we should all subscribe to? Forgive me for being passionate about it, Madam Deputy Speaker, but I think it is much more important than any of us ever properly give it credit for.
The DFID aspect of this is absolutely crucial. If we want to stop giving aid forever and a day—I personally think that that should be our objective in having a more equal world—we absolutely need to pull every other lever that we possibly can in this House to get developing countries and poor countries globally the tax they are due, and this is how we will do it. As has been mentioned, this House has already voted in favour of it. It is quite obvious from the debate today that there is cross-party support, and, given all the other controversies that we have to deal with, why we would not do something supported by all corners of the House, I do not know.
The Minister will forgive me for telling him that while accepting that the Government have gone so far and have made efforts and shown willing, there is an old trade union saying, “When you argue with the manager, never say that they have done nothing; always say that they have not yet done enough.” That is my message to the Minister: you need to go further.
It is a pleasure to be called to speak in this debate and make a few short comments. None of us can accept the argument that tax is boring, because it is not boring. Tax is a necessity: it is necessary for building a recovery and it is necessary for helping others. On the earlier earlier about the help we can give to other countries through DFID—and through the new Department and the new Minister who will have this responsibility—I am very much in support of helping out countries in other parts of the world where we need to be.
I want to speak to new clauses 5 and 33 and amendments 18 and 19 in relation to the digital services tax. I work with my local high street to attempt to see businesses reopen and not shut their doors, and a large part of my efforts over this last period of time as an elected representative, along with others, has been to help point them towards the dual concept of online sales as well as a high street presence. I suppose many of those shops have a small online presence but some do not, and I am very keen to work with the Government—here at Westminster, but also the Northern Ireland Assembly, including my own colleague and friend, the Economy Minister—to ensure that the opportunity of having an online business or increasing online business is there to help.
For many, the ability to make ends meet strictly on the high street has been curtailed owing to lack of footfall and to more people learning to shop online during the crisis, when that was all they could do. Others have referred to us—indeed, I think it was Margaret Thatcher who referred to us—as a nation of shopkeepers. I have to make a confession that my mum and dad were shopkeepers. From a very early age, I can recall that we owned a shop—the post office—in Clady outside Strabane.
I thought it was Napoleon who said we were a nation of shopkeepers—or perhaps it was Hitler. It was one of those people. I am not sure it was the hon. Gentleman’s mum or dad, or uncle.
I think I said it was Margaret Thatcher—as far as I am aware, it was neither of the other two. It was said by our former Prime Minister, who led this country for a long period, and I am pleased to put that on the record.
When my family moved to the east of the Province, to Ballywalter, my mum and dad continued as shopkeepers. We were the first people to have one of the grocery stores in our village of Ballywalter, and this was at the start of the chain stores, the supermarket chains and so on. So, again, I am pleased to be associated with those comments.
As things stand, it is clear that although our online businesses will be paying the appropriate tax, it is not the case that there is regulation of all digital services globally. It is unfair that international firms benefit so vastly from reliefs that our own people are unable to access. As right hon. and hon. Members have said, it is time we made such firms accountable for their tax regimes and ensured that the money they earn in this country stays here, so that we can build our own economy and pay some of the debts that have been accumulated in these past few months.
For too long, we have been trying to reach an international reasoning on this, but that has not been accomplished. The Government have said that they would disapply the digital services tax if an appropriate global solution was successfully agreed and implemented. That remains their position, and it is a logical one. It is right that if we cannot get our internationally accepted, one-size-fits-all approach, we should cut our cloth to suit. The sheer scale of the possible income underlines the importance of putting measures in place. We must make sure we have accountability in the tax process, including for those who shift their money overseas, for whatever reasons and using whatever methods.
The House of Commons Library briefing outlined the Government’s belief that if they implemented the UK’s digital services tax, it could raise more than £400 million a year by 2021-22, which is not too far away. If that could be done, it would help balance the books and it would help our Government, who have allocated moneys during the covid-19 crisis, to ensure that we could pay back some of that debt. This is absolutely worthy of work and consideration in this place. Understandably, it is difficult to be accurate about the worth of this tax, but even half of that estimate, £200 million, could change policing in our communities, building relationships and confidence. Those moneys could be used for the purposes for which tax is used; they could make expensive, life-changing drugs, such as Orkambi, readily available at all trusts. Given my role as my party’s health spokesperson, and as someone who has been involved in the rare diseases groups here at Westminster and, in a former life, at the Northern Ireland Assembly, I know how just how important it is to have those drugs available for rare diseases, and revenue is the way that that happens. We can and should make the difference. This money can and will make a difference, and, in lieu of international agreement, it is right and proper that we go ahead with this legislation.
I welcome what the Government are putting in place to begin to ensure that international markets and our markets are paying what is due, and not using loopholes, while others throughout the UK slog their guts out, always paying their taxes and always paying their dues. There needs to be a balance. This Bill sends a message to the joiners, plumbers and carpenters who refuse to do cash-in-hand, tax-free jobs that the big corporations are paying what they should and that no one is exempt from reaping the benefit of this great nation, the United Kingdom of Great Britain and Northern Ireland—better, as always, together. Everyone needs to pay what is fair to build our economy back up to where it should be and where it needs to be.
It has been a fascinating and lively debate, and I am grateful to all Members who have taken part. As Members will be aware, this Finance Bill introduces legislation to enact the digital services tax and to set the scope of the tax.
I will talk about the various clauses and amendments in front of us, and then will turn to the contributions Members have made. I start with something that I think I caught Bridget Phillipson, the shadow Chief Secretary to the Treasury, say: “We support any proposals to combat tax avoidance.” I thought that was an important statement of principle, and I look forward to her exemplifying that view when we get to the loan charge. It bore out what Wes Streeting said in Committee:
“the Labour party takes a dim view of tax avoidance. We believe that tax is the price we pay for a civilised society…and that when people contrive to avoid their tax, they rob and short-change all of us of the revenues needed for the state to do the essential things it needs to do”.––[Official Report, Finance Public Bill Committee,
The hon. Gentleman is congratulating himself heartily from a sedentary position. I wish I had his self-confidence. I noted those comments because they help to shape this conversation, but it is important to be clear that the digital services tax is not an anti-avoidance measure, although there is a tendency to think of it in those terms. It is a new tax aimed at a new revenue base. It will levy a 2% charge on revenues that groups receive from providing specific digital services to UK users.
The services that are in scope of the charge are search engines, social media and online marketplaces. DST will apply only to groups with annual global revenues from these services of over £500 million, and it will be charged only on those revenues attributable to UK users, and only on amounts above £25 million. Additionally, online financial services marketplaces will be excluded from the definition of an online marketplace.
By seeking to tax UK user contributions, the charge breaks new ground in what a tax is. I very much share the views uttered by many of my colleagues, notably my hon. Friend Kevin Hollinrake, who described it as a pioneering tax. The same was rightly said by others, including my hon. Friend Andrew Jones.
The digital services tax was announced in Budget 2018 as a response to changes brought about by the rapid development of our digital economy, the many strengths and weaknesses of which have been noted in this debate. That digital economy brings many benefits, some of which we have seen on display during the covid crisis, but it has posed a significant challenge for international corporate tax rules. Chris Evans brought this out very well when he spoke about the contrast between the international bodies that we are seeking to tax through DST and what might be called the ordinary shopkeeper in his constituency.
Under current rules, digital businesses can derive significant value from UK users but pay little UK tax. That is because international corporate tax rules do not recognise this user-generated value when allocating the right to tax profits between jurisdictions. That undermines the fairness and sustainability of our tax system, and it is therefore widely accepted, certainly across this House, that the rules need to be updated.
As I have mentioned, the Government remain at the forefront of international efforts to secure a comprehensive, long-term solution to this issue, and we are absolutely serious about continued, detailed engagement with OECD and G20 partners, and of course the EU nations among them, on long-term solutions.
Alison Thewliss talked about the importance of international co-operation. She is absolutely right about that. As has been mentioned, we have been a leader on base erosion and profit shifting work. The same is true of diverted profits tax, and tax of intangible assets; it is important to recognise that, in the spirit of fairness that Members have shown in this debate. That is the basis for our saying that while we welcome recent progress towards global solutions, there are still a number of difficult and important issues that we need to resolve. That is what we are trying to do on UK user-generated value, but we are trying to do it in a fair and proportionate manner. We are introducing a new tax but we expect it to be only temporary, until appropriate global reform is in place.
Clause 71 already requires the Government to review the DST in 2025 and submit the review to Parliament. It is important to note that the review is intended to be broader than the narrow construction that would be placed on it by the proposed new clause. Should the DST remain in place in 2025, the review will consider whether it continues to meet all its objectives and whether international reform means that it is no longer required. Importantly, it will look not only at the net amount of cash brought in by the tax—although that is of course important—but at whether the tax continues to be necessary to ensure fairness across the UK tax system, in so far as it bears on that. As I have said, it is a Government priority to try to secure a global solution, but we do so not merely for the receipt of revenue but in the spirit of fairness. Once that solution is in place, the DST will be removed.
Amendment 18 would require the Government to produce a review of the DST annually rather than in 2025, and amendment 19 would require the review to include an assessment of the effect of the DST on tax revenues. A review in 2025 will ensure that, if the DST remains in place at that point, its continuing relevance will be given a full and proper consideration against the relevant circumstances at that time. It thereby underlines the fact that it is the Government’s strong preference to agree and implement an appropriate global solution—indeed, it places some impetus behind such an agreement—and, once that agreement is secured, to remove the DST as soon as possible, and certainly ideally before 2025.
As regards the need for amendment 19, it is important to note that Her Majesty’s Revenue and Customs already reports regularly on the taxes which it is responsible for collecting and the revenue they generate. The DST will be no exception to that. It goes without saying that, as with all taxes, the Government will keep the DST under review through the annual Budget processes and at other times. I suggest that the amendments are therefore not necessary.
New clause 5 would require the Government to report to the House, within six months of the Act’s passing, on the effect of the DST on tax revenues, and particularly on the effect on the tax payable by the owners and employees of Scottish limited partnerships. However—I think I am right in saying that my hon. Friend Miriam Cates picked this up very well—the report suggested by the new clause would not provide useful information, for several reasons. The first is that the DST is a tax on groups, not on individuals, whether those are individual employees or individual owners. Secondly, DST payments will not be required until after the end of the relevant accounting period of each liable group. For that reason, payments will not be required until 2021. Finally, the reporting deadlines in the legislation mean that very few groups will have needed to register, and no groups will have been required to send in their return, within six months, so such a report would not give useful information about DST receipts during the period.
I now come to the clause with which the House has been most preoccupied: new clause 33, tabled by Dame Margaret Hodge and my right hon. Friend Mr Mitchell. It would require all groups subject to the digital services tax to publish an annual group tax strategy and, alongside that, their country-by-country report.
As I have said, the DST is not an anti-avoidance measure; it is intended as a temporary response to concerns that the international corporate tax system has not adequately responded to digitisation. In other ways, as the House will be aware, the Government have already championed tax transparency, both at home and abroad. Some of those ways were highlighted by my right hon. Friend in his speech and have been previously by the right hon. Member for Barking in many other contexts. They are illustrated by the requirement, introduced in 2016, for large businesses to publish their annual tax strategy, containing detail on the business’s approach to tax and on how it works with Her Majesty’s Revenue and Customs. That requirement applies to UK companies with a turnover of more than £200 million or a balance sheet of more than £2 billion, and it is not limited to automated digital services businesses or to groups with a UK headquarters. UK subsidiaries of foreign headquartered groups can also be required to produce such a report if that group has revenues exceeding €750 million and reports under the OECD country-by-country reporting framework.
The effect is that many large businesses subject to the digital services tax will already be compliant with the UK requirement to publish an annual tax strategy. Therefore, this new requirement would in practice have little or no impact on them, at least. While thresholds may mean that some are not required to publish a strategy, that is an existing easement and it is unaffected by the digital services tax.
Currently, as has been highlighted by many hon. Members across the Chamber, we do not require large businesses to publish their country-by-country report alongside their tax strategy, but of course they can provide additional information, such as country-by-country reports, alongside that strategy on a voluntary basis. Nothing prevents them from doing that, and some have chosen to do so. It is notable that in this country, UK headquartered groups such as Shell and Vodafone have taken an important lead in this area.
I always pay very careful attention to what my right hon. Friend the Member for Sutton Coldfield says and I always pay careful attention to what the right hon. Member for Barking says. I have a great deal of respect for the principles that he and she have outlined through this new clause, but regarding the voluntary strategy, at least, I am actively exploring ways in which the Government can encourage other businesses, over and above Shell, Vodafone and the like to follow suit.
I am surprised that my right hon. Friend says that this is not a method to try to bring companies that are avoiding tax to the tax table. The previous Chancellor, Philip Hammond, said in a speech that these measures would effectively insist that,
“global internet giants…contribute fairly to funding our public services.”
Is that not reflective of a position where he felt those companies were avoiding tax?
I think one could put it a slightly different way, which is to say, “You do not have to take a position on avoiding tax to come to the view that this is a base of tax revenue that has not been adequately taxed and should be taxed, and if you do follow that approach,” —here I will defer to Alison McGovern—“ipso facto you are going to be levelling the playing field to a degree.” Anti-avoidance measures are measures used in separate contexts to level the playing field as well.
The Minister is getting to the meat of the matter in what he is saying now, but while he rightly extols the virtues of some very good companies that he has named, which voluntarily publish whereabouts in the world their activity is taking place, where their profits are declared and where they are paying tax, by definition, if it is voluntary, those who are up to no good probably will not comply. That is one of the reasons why publishing that information in the way I set out in my earlier remarks is so important, because there is greater pressure on them if they do not comply, including the sanction of the law.
My right hon. Friend is absolutely right. My point was a slightly different one. I have not yet come to the thrust of what he is suggesting about mandation, but in the first instance Government should be seeking to support, promote, energise and activate more voluntary compliance, precisely in order to increase a public norm of voluntary reporting, which then does a lot of the job and perhaps isolates the groups that decide not to do it. There are plenty of other contexts in which that approach of voluntary, then moving to mandatory, has been quite successful, including in tax.
The Minister talks about the voluntary nature of compliance, but it is my understanding that EU rules require some element to be reported. Could he clarify? Is that the position, or is reporting entirely voluntary?
The answer is that what I am talking about is a voluntary disclosure by those companies. I am not aware of a separate EU requirement for them to do so. Certainly, it is the voluntary disclosure that is the thrust of what I am talking about. Many other companies have the capacity to make voluntary declarations, and I am indicating in response to my right hon. Friend the Member for Sutton Coldfield my support for more of those companies doing that. I am only doing that, however, as a preliminary to coming to his point about mandation. We have taken the view that for the time being this approach should remain voluntary and that further legislation will not be needed until and unless we can get public country-by-country reporting agreed on a multilateral basis.
There is a specific set of reasons for that. First, we want—I am sure my right hon. Friend feels the same way—the measure to be effective in meeting the objective of improving tax transparency. A measure that had the effect of reducing tax transparency would be counterproductive. The worry is that only multilateral implementation will give the comprehensive information required on both UK-headquartered and foreign-headquartered multinationals required to deliver that. A unilateral approach risks being self-defeating and resulting in the publication of incomplete and potentially misleading information about the activities of multinationals. It might also allow requirements to be avoided through group restructuring. We do not want to promote firms undertaking group restructuring in order to avoid disclosure and increased transparency requirements. Adopting public country-by-country reporting unilaterally carries that risk and could result in groups moving their headquarters out of the UK to locations without a requirement to publish.
If I have given that impression, I have been misunderstood. We are pushing for a multilateral approach, as I have indicated, through the OECD and the G20, and also in consultation and collaboration with the EU. The purpose is to achieve a sustainable approach that does not run the risk of creating incentives to restructure out of this country and thereby reducing tax transparency and effectiveness. It might also reduce the impetus for tax transparency, because the more countries there are that require it and so have firms relocating or restructuring to avoid it, the less impetus there could be to secure a multilateral solution.
It is in the nature of these beasts that I cannot give a deadline, and I am not sure anyone can. It is a continuing debate. That does not mean, however, that progress cannot be made. As we have seen, for example in some of the work done with the OECD on minimum taxation levels, there has been clear evidence of progress in discussions within the OECD, which is a matter of public record.
Clearly, I meant to say “multilateral” in my last question. I know from having attended G7 and G20 summits in a health context, when I was in the Health Department, that the agenda for those meetings is decided by who has the chair at the time. Could the Minister give us any sense of optimism that it is even on the agenda of those meetings to make the progress I know he wants to see?
My hon. Friend will be aware that the different organisations have different ways of working—the G20 tends to work towards summits, and the OECD often has a more continuous process. The most important work is always done in between, in the official interactions that then set the terms. Often one does not know exactly what will be on the agenda until the last minute, so it is hard to give a specific undertaking. I am not avoiding that; I simply do not think it is possible to give that undertaking. I can tell him that we are extremely keen to promote voluntary compliance, and we continue to press for a multilateral approach.
I am most grateful to my right hon. Friend for giving way; he is being very generous. This is an ingenious argument that he is putting to the House about restructuring, and it might be helpful to flesh that out in correspondence. The argument about the unilateral and multilateral approach was clear in relation to open registers of beneficial ownership, when the House obliged the Government to accept that there was a case for going through the unilateral approach in order to get a multilateral approach. I understand what he is saying, but I think it would be helpful to flesh out the point about restructuring.
If my right hon. Friend wants to raise some specific questions, I would be delighted to respond to them. There is a slight tension in his argument, because it contains the following two claims: first, that these international organisations are shape-shifting amoebas that constantly mutate to avoid tax, and secondly, that that shape-shifting and amoebic quality will stop when it comes to thinking about how to react to a unilateral tax transparency initiative.
I am sorry, but I have been really generous in giving way. I have to allow Bridget Phillipson time to speak, and I have an awful lot of material remaining, including on new clauses and amendments and contributions made by colleagues. I do not know how many minutes she wants, but perhaps she could give me a bit more time.
The information is already collected—this is just about making it transparent, open and public. As I said in my speech, we could give companies time to readjust if they wanted to move things around. What is the incentive for any multinational through the voluntary approach?
We know that the incentive exists for all the reasons why we get voluntary compliance in a whole variety of areas—that is to say, groups with particular concerns, press organisations and companies. We know that there has been a revolution in corporate social responsibility, although it has not in many ways been an adequate revolution, because it does not extend in some respects to paying tax, as my hon. Friend Kevin Hollinrake highlighted. There is a role that Government can play, in terms of improving the norms and setting a bar. This is a reasonable, staged approach.
It is important to have a level playing field for the reasons that I have described, and that applies to tax transparency as it does elsewhere. If a multinational group exceeding the country-by-country reporting threshold operates in the UK, HMRC will, in the vast majority of cases, already receive the report and is already using it for risk assessment purposes. Given that, we do not believe that it is appropriate to introduce these new requirements at this stage, but I understand the principles set out by my right hon. Friend the Member for Sutton Coldfield and the right hon. Member for Barking, and the debate has shown that those are widely shared. The argument we are having is over the nature of the approach and the implementation of a broad set of principles with which Members across the House generally concur.
I will turn to the comments made by Members in the debate. The hon. Member for Houghton and Sunderland South has been very generous with her time, and I have covered most of her remarks. The debate rightly touched on the issue of business rates. My hon. Friend Andrew Jones will know that we are publishing a business rates review, which will specifically include online forms of taxation and invite public discussion on those. That is another part of the same process of trying to engage more widely and not just recruit information and knowledge but set expectations and norms about the way in which firms should be paying tax.
Dr Huq talked about sunlight being the best disinfectant. She is right, but she was quoting Louis Brandeis from 1914, who was dealing with forms of corporate thuggery that make what we see today modest by comparison.
The hon. Member for Wirral South talked about the distinction between justice in principle and justice in fact. Of course, she is absolutely right. There is a view at the moment of the nature of the corporation, and it is very widespread—more in America than in this country even—that companies are run in the exclusive interest of their shareholders. That is not true in the UK. That is not, as a matter of legal fact, true in this country. The shareholders are entitled to the residual proceeds but companies are run—it is in the Companies Act 2006—in the interest of their members.
I ask all hon. Members, other than Front Benchers and Tellers, to leave the Chamber by the doors behind me. Members should join the queues to vote in Westminster Hall. To vote, Members should enter the Lobby and swipe their pass on one of the pass readers. I remind Members that the Lobby doors will be locked after 12 minutes.