My Lords, the Government have taken a wide range of actions to tackle all forms of tax avoidance. The general anti-abuse rule, which this Government introduced, specifically seeks to tackle abusive tax-avoidance schemes. HMRC has provided examples of the arrangements that will be captured under this rule in its very detailed published guidance. A further example of aggressive tax avoidance is detailed on the front page of today’s Times.
My Lords, the reason that your Lordships are stuck with me and not my noble friend is that he is very ill indeed, and I know that all noble Lords will wish to send wishes that he recovers quickly.
In particular so that he can occupy his usual place and ask some really difficult questions.
In so far as I understand this subject at all, is it not the case that aggressive tax avoidance leaves companies making enormous sums of money and millionaires paying lower rates of tax than those with average or around average incomes? Does this not bring the whole tax system in our country into disrepute? How urgently are the Government trying to deal with aggressive tax avoidance, with a view to punishing those who do it?
My Lords, first of all I ask the noble Lord to pass on my good wishes and, I am sure, those of the whole House to his noble friend.
The Government take this issue extremely seriously. We have invested additionally in this area more than £1 billion over the spending review period, and taken on another 2,500 staff to work on it. The compliance yield that flowed from this work in the past year was £23.9 billion—the highest ever—and we have increased the number of people being prosecuted for tax crime to 2,600 in this Parliament, which has resulted in 2,700 years of jail sentences.
My Lords, at the G8 meeting last year—it is now the G7—the Prime Minister led on the question of tax avoidance by the multinational companies that we all know, such as Starbucks, Amazon and Google. They seem to do significant business in the UK but pay very little tax. What progress has been made in that area?
My Lords, the work in that area has been carried forward by the OECD, which produced a comprehensive 15-point action plan. Work on all those points is now under way. The first deliverables, on transport pricing, are due in September this year. At the EU level, noble Lords will have seen that the EU is currently investigating the tax position in Luxembourg, Ireland and the Netherlands, specifically with Amazon, Apple and Starbucks in mind.
I do not wish to be misunderstood, but is it not the case, generally speaking—there is evidence to support this—that when tax rates are lowered, more revenue flows into the Treasury?
My Lords, there is very extensive academic literature about the so-called Laffer curve, and I suspect there are very different views on it in your Lordships’ House. It is undoubtedly the case at the extreme ends of the curve that if you tax very highly the rate falls of because people find ways of avoiding it, and if the tax rate is very low the rate falls off simply because the rate per taxable unit is so much less.
My Lords, is it not correct that the principal weapon of aggressive tax avoidance is misuse of allowances that are permitted for various reasons? The complexity of that system is so great that it is extremely difficult to analyse transactions to see whether or not they comply with these particular conditions properly.
The noble and learned Lord points to a very important problem. There are over 1,000 tax allowances, all of which have been introduced individually for very good economic development reasons. The problem is that they are now very complicated. Some tax advisers have been extremely creative at finding ways to use these allowances, which were developed for perfectly good reasons, to enable people to avoid their tax.
My Lords, is the term “aggressive tax avoidance” not just semantics? Tax avoidance is tax avoidance, whether aggressive or not. By doing this we are encouraging complexity, which is to the benefit of sharp-witted accountants and lawyers. Tolley’s Tax Guide is now 20,000 pages long. I suggest that the Minister should have two ambitions: first, to have the tax book the same length as War and Peace at 1,200 pages. Secondly, he should take up the suggestion of the noble Lord who said that we need to ensure these tax-avoidance schemes are referred to the Treasury first of all to determine whether they are tax avoidance. That would eliminate the complexity.
My Lords, at the start of this Parliament, we established the Office of Tax Simplification. It has done useful work in reducing the body of tax law, although clearly it has a long way to go. On the work that has been going on to tackle tax avoidance schemes, I think that the tax avoidance industry has got the message; the number of potential avoidance schemes notified to HMRC fell by 75% in the two years from 2010.
My Lords, my noble and learned friend Lord Mackay is absolutely right, as is the noble Lord, Lord Rooker—the two things go together. When I was Chancellor some years back, I reduced tax rates substantially, eliminated a whole range of allowances and indeed abolished some stupid taxes altogether, and the result was a great increase in revenue. However, is there not another point? If, after you have done that that—which I commend it to the Government—there is still a real problem with avoidance of a particular tax, is there not a case for abolishing that tax and replacing it with another one that is less easy to avoid?
My Lords, I think that that is easier said than done.
My Lords, will my noble friend tell the House whether the Government refuse to grant contracts to the companies and individuals that are engaged in this ludicrous and anti-social avoidance?
My Lords, I think that there have been a number of cases in recent times where companies have lost contracts because they have been behaving in an unreasonable way, and that is a very good principle.