Tax Havens - Question

– in the House of Lords at 11:06 am on 6th April 2017.

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Photo of Lord Sharkey Lord Sharkey Liberal Democrat 11:06 am, 6th April 2017

To ask Her Majesty’s Government what steps they are taking to curb the use of tax havens.

Photo of Lord Young of Cookham Lord Young of Cookham Lord in Waiting (HM Household) (Whip), Lords Spokesperson (Cabinet Office)

My Lords, the Government are committed to a regime where tax is fair, competitive and paid. The UK is at the forefront of global action to tackle harmful tax practices through implementing the agreed base erosion and profit shifting project outcomes, the OECD’s new common reporting standard and the development of new beneficial ownership information standards.

Photo of Lord Sharkey Lord Sharkey Liberal Democrat

I thank the noble Lord for that Answer. Last week, Oxfam’s report revealed that last year five UK banks made £9 billion in profit in tax havens, which was 67% of their global profits. Half a billion pounds of this profit was made in UK-linked tax havens, where the banks paid just 7% in tax. What estimate have the Government made of the loss to the Exchequer of profit shifting by UK-based companies?

Photo of Lord Young of Cookham Lord Young of Cookham Lord in Waiting (HM Household) (Whip), Lords Spokesperson (Cabinet Office)

My Lords, I do not have the estimate of the amount lost but the noble Lord will know that we are taking steps to avoid the diversion of profits through country-by-country reporting. This means that we tend to tax the activity in the country where it takes place—so, if the activity takes place in the UK, companies will be taxed in the UK. We have also introduced a diverted profit tax, so if people seek to divert their profits to another country, a higher rate of tax can then be paid. Therefore, we are taking measures to plug the loopholes that the noble Lord has identified.

Photo of Lord Howarth of Newport Lord Howarth of Newport Labour

My Lords, why have the Government not used the leverage they undoubtedly have to require the British Overseas Territories and Crown dependencies to maintain publicly available registers of beneficial ownership? Will the noble Lord accept that the Government’s failure to do so has not only had bad reputational consequences for our country but impeded law enforcement here and in other countries, and it has allowed the huge inflation of house prices in London, which has had very damaging effects on the lives of Londoners who are not rich?

Photo of Lord Young of Cookham Lord Young of Cookham Lord in Waiting (HM Household) (Whip), Lords Spokesperson (Cabinet Office)

My Lords, we had an extensive debate on this subject on Monday on the Criminal Finances Bill, and I suspect that we will be returning to exactly the same subject on Report on, I believe, 25 April. In that debate, the Minister at the Home Office explained why we had encouraged the Commonwealth dependencies and overseas territories to produce central registers, and they will be doing that by June this year. We are not prepared to use the powers that the noble Lord has referred to, which we believe should be used in exceptional circumstances such as the abolition of capital punishment and rules relating to homosexuality. We do not believe it is appropriate to use those powers in this case.

Photo of Lord McConnell of Glenscorrodale Lord McConnell of Glenscorrodale Labour

My Lords, many of us were willing to give the previous Prime Minister and Chancellor the benefit of the doubt on this issue because they were legislating in the UK and were engaged in international negotiations. However, given that we are now leaving the top table of the European Union, where much of this action could have taken place, would it not be appropriate in the brave new world of new trade agreements and Britain becoming more global for this country to lead the way on this issue by legislating to ensure that all British companies operating around the world report on a country-by-country basis to ensure that countries across the world can tax those companies where they make their profits?

Photo of Lord Young of Cookham Lord Young of Cookham Lord in Waiting (HM Household) (Whip), Lords Spokesperson (Cabinet Office)

We already have country-by-country reporting in this country, and multinationals based in this country have to report to HMRC how much profit they make and how much tax they pay in each country. We are encouraging other countries to do this, so we have a multilateral approach, and the Chancellor raises this issue at the G20. In response to the first part of the noble Lord’s question, we have taken the lead on this as a result of our presidency of the G8, and more than 90 countries have agreed automatically to exchange taxpayer information under the common reporting standard. We are also taking initiatives on beneficial ownership and some of the other issues that we have already discussed.

Photo of Lord Forsyth of Drumlean Lord Forsyth of Drumlean Conservative

My Lords, given the widespread use of Luxembourg by large companies and multinationals to reduce their tax, will our exit from the European Union provide an opportunity to broaden our tax base?

Photo of Lord Young of Cookham Lord Young of Cookham Lord in Waiting (HM Household) (Whip), Lords Spokesperson (Cabinet Office)

The initiatives we are taking on tax evasion are independent of our membership of the EU, although we are pursuing some EU directives. As I said, this country is in the lead. I do not know whether my noble friend has seen page 9 of today’s Times, which says that:

“Oligarchs must disclose identity as home owners”,

with a register. That is a world first: the people behind anonymous companies that own billions of pounds-worth of property must reveal their identities under new anti-corruption rules. This shows that the country takes the matter very seriously.

Photo of Baroness Kramer Baroness Kramer Liberal Democrat Lords Spokesperson (Treasury and Economy)

My Lords, in arguing that they will not use the powers they have to require the overseas territories to make registers of beneficial ownership public, the Government say that they expect the overseas territories to do so when that becomes the international standard. Will the Minister tell me the timeframe within which he expects public registers to become the international standard—and will it be within my lifetime?

Photo of Lord Young of Cookham Lord Young of Cookham Lord in Waiting (HM Household) (Whip), Lords Spokesperson (Cabinet Office)

The noble Baroness looks younger every day, and so I will not go there.

Oh!

Photo of Lord Young of Cookham Lord Young of Cookham Lord in Waiting (HM Household) (Whip), Lords Spokesperson (Cabinet Office)

More seriously, we are going to return to this matter on 25 April. At the moment I do not know the timescale by which we hope all the other countries in the world will have signed up to these central registers. However, I will make sure that if there is another amendment along those lines on 25 April, we have the most up-to-date information.

Photo of Lord Foulkes of Cumnock Lord Foulkes of Cumnock Labour

My Lords, is it a breach of our privileges for any Member of this House to avoid paying United Kingdom tax by the use of tax havens?

Photo of Lord Young of Cookham Lord Young of Cookham Lord in Waiting (HM Household) (Whip), Lords Spokesperson (Cabinet Office)

My understanding is that in order to be a Member of your Lordships’ House you have to be registered as a UK taxpayer. My own view is that everybody should pay the tax which is due to them, and I agree with what the former Prime Minister said about the morality of tax avoidance.

Photo of Lord Tunnicliffe Lord Tunnicliffe Opposition Deputy Chief Whip (Lords), Shadow Spokesperson (Defence), Shadow Spokesperson (Treasury)

My Lords, the noble Lord has given his usual charming and reasonable answers, if somewhat unconvincingly in some cases. However, I wonder whether the truth of the matter is displayed by his boss, Philip Hammond, who in an interview with a German newspaper in January said:

“I personally hope we will be able to remain in the mainstream of European economic and social thinking. But … We could be forced to change our economic model, and we will have to change our model to regain competitiveness. And you can be sure we will do whatever we have to do”.

Is his boss threatening to turn Britain into a Cayman Islands-like tax haven?

Photo of Lord Young of Cookham Lord Young of Cookham Lord in Waiting (HM Household) (Whip), Lords Spokesperson (Cabinet Office)

My Lords, we want to remain competitive in a world economy and to attract inward investment. Although we have reduced corporation tax since 2010, onshore corporation tax receipts have gone up by 50% since that date, despite the reduction in the rate. Reducing corporation tax encourages business investment and growth, and one estimate has shown that the cuts announced since 2010 amount to an estimated increase in GDP of 1.3%.