Examination of Witness

Criminal Finances Bill – in a Public Bill Committee at 4:12 pm on 15th November 2016.

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Right hon. Dame Margaret Hodge MP gave evidence.

Q We will now hear oral evidence from the right hon. Dame Margaret Hodge. I have known Margaret for a very long time, and I am pleased that I know her. There are new Members of Parliament who are not up to date on your background and work on the Public Accounts Committee and so on, so before we begin, could you just give us a brief summary?

Dame Margaret Hodge:

First, thank you for asking me to give evidence. I was really pleased to be given the opportunity. My interest arises out of the work that we did on the Public Accounts Committee, which I chaired for five years from 2010 to 2015, and particularly our work on tax avoidance and evasion, and the links to corrupt practices. I warmly welcome the Bill, as I am sure everyone has said to you. I hope that in the brief time I have, I can say where I think there are a few gaps and where we could strengthen the Bill—there are a few omissions that the Committee could rectify as it considers the Bill.

We tend not to think about this, but we have to remember that, along with our overseas territories and Crown dependencies, the UK is probably the biggest secret jurisdiction in the world. That is why so much money gets laundered through the UK and why the Bill is so important in tackling corruption around the world. David Cameron was really strong in saying that he would lead on anti-corruption. He said quite clearly that we have to lead by example. There are certain omissions and issues in the Bill, but if we strengthen it, we could make a reality out of his statements and commitments.

Thank you very much for that. We are time limited. We have until 4.52 pm, which does not leave us much time at all, so will Members please be concise with their questions?

Photo of Rupa Huq Rupa Huq Shadow Minister (Home Office) (Crime and Prevention)

Q It is great to have you here, Dame Margaret. You were the Chair of the Public Accounts Committee when a landmark report came out in 2014. How much of the stuff that you recommended is reflected in this legislation? You hinted that there are some omissions that need addressing. Could you tell us about those?

Dame Margaret Hodge:

Again, in the context of general welcome for the Bill, let me talk about three issues, including the overseas territories and Crown dependencies. What is missing is a clause in the Bill— I know an amendment has been tabled already and I hope the Committee will consider it carefully—that provides for registers of beneficial ownership that are open to the public. Let me just quote from somebody who made a statement about this because it is really important:

“Now some people will question whether it is right to make this register public. Surely we can get the same effect just by compiling the information and using it within government and sharing it between governments? Now of course, we in government”— that gives it away a bit—

“will use this data to pursue those who break the rules, and we’re going to do that relentlessly, but there are also many wider benefits to making this information available to everyone. It’s better for businesses here, who’ll be better able to identify who really owns the companies they’re trading with. It’s better for developing countries, who’ll have easy access to all this data without having to submit endless requests for each line of inquiry. And it’s better for us all to have an open system which everyone has access to, because the more eyes that look at this information the more accurate it will be.”

That was actually David Cameron when his Government launched the UK public register of beneficial ownership.

We have given the overseas territories and the Crown dependencies three years to come on board with this. It was first raised by David Cameron in 2013. I think that is long enough. I know there is a reluctance by the Government and that they feel that we have come some way, but that commitment to openness and transparency is vital. It is at the heart of ensuring that we really tackle corruption and money coming into the UK. If we cannot get the commitment in the Bill, which is what I would love, we are seeking a timeline that says that, within a certain time if the overseas territories and Crown dependencies have not come on board with public registers, we will instruct them through Order in Council to do so. We have the powers to do that.

Photo of Rupa Huq Rupa Huq Shadow Minister (Home Office) (Crime and Prevention)

Are there examples of where that has been done before? You probably know more than me but I think there is precedent.Q

Dame Margaret Hodge:

There are plenty of examples where we have used those powers. May I quote again from a Government White Paper? This is particularly about the overseas territories, which is a slightly different position from the Crown dependencies. This is a Government White Paper—I understand that there have been some questions about that during your consideration today. The paper says:

“As a matter of constitutional law the UK Parliament has unlimited power to legislate for the Territories.”

We do have that power. I am sure you heard examples this morning. A Conservative Government used it to outlaw capital punishment. A Labour Government used it to outlaw discrimination on the grounds of sexuality. We used it in the Turks and Caicos when there was systemic corruption and maladministration, and we should use it again. This is so much at the heart of the whole agenda. It would be a terrible missed opportunity if we did not, during the course of the Bill, go for public registers of beneficial ownership. I just cannot see an argument against it.

Photo of Rupa Huq Rupa Huq Shadow Minister (Home Office) (Crime and Prevention)

A last question from me: the new corporate offence relates to cases of tax evasion, so is there a case for extending it to come down on companies for facilitating tax avoidance?Q

Dame Margaret Hodge:

Or economic crimes. Can I just say again that I really welcome the Bill? This is the first time that we have tried to get at those companies and organisations that are actually responsible for devising many of the schemes that lead to aggressive tax avoidance or evasion. It is a really important toe in the water and a first step forward. The real experts on this are Edward Garnier, Nigel Mills and Catherine McKinnell—all lawyers who have been arguing strongly that the provisions ought to cover all economic crime.

Another amendment could be really helpful. If we could at least have a report to Parliament showing how the failure to prevent tax evasion power is actually being used by the enforcement authorities, I think that would really improve the Bill. I would like to see how much it is used. We could then see how effective it is, as with the unexplained wealth orders—it is important to report to Parliament once a year on the progress made on the use of unexplained wealth orders. I cannot see anything particularly controversial about that sort of amendment, so I would do it for both. Of course, I think you will find that the lawyers think we should do this for all economic crimes. I am with the lawyers on this.

Photo of Antoinette Sandbach Antoinette Sandbach Conservative, Eddisbury

Q Dame Margaret, I am very interested by your proposal that that should apply effectively to every company’s beneficial ownership, because it was, of course, the Government that you were part of in 1998 that passed the Data Protection Act, which recognised that there should be privacy around individuals and disclosure of their data. Why, at that time, did you not—

Dame Margaret Hodge:

Sorry, I am trying to think what you are getting at here. I do not quite understand what aspect of the Bill you are referring to. I am really sorry.

Photo of Antoinette Sandbach Antoinette Sandbach Conservative, Eddisbury

You are talking about disclosure of beneficial ownership—

Dame Margaret Hodge:

By companies.

Photo of Antoinette Sandbach Antoinette Sandbach Conservative, Eddisbury

By companies, which would presumably relate to named individuals. The register looks at controlling interests—

Dame Margaret Hodge:

The register of beneficial ownerships?

Photo of Antoinette Sandbach Antoinette Sandbach Conservative, Eddisbury

Yes, of named individuals or other companies. I can see why, if it is another company, there would not be an issue, but if it is a named individual, this Parliament decided to protect data around individuals. Does your premise not assume that every company is therefore acting in a way that is, in effect, criminal, and should not the burden be the other way? In other words, having private registers allows the Government to interrogate the data where there are serious allegations of crime, but still to protect the privacy of individuals.

Dame Margaret Hodge:

I am slightly muddled, so I apologise if I am answering this wrongly—if so, do come back at me. The register of beneficial ownership of companies in the UK is actually public. It is not private. In fact, I think another weakness of the Bill, and of the unexplained wealth orders, is that until we bring into legislation the George Osborne commitment that there would be a register of beneficial ownership of properties in the UK, it will be very difficult to administer the unexplained wealth order power. I hope the Committee will look at that.

Do I think it will create difficulties for individuals? I do not. Should we have done it? Yes. It is ironic, the whole issue. It gained momentum. It was not a big issue at the time. That is my only explanation. Transparency is at the heart of it. Whenever I look at any of these problems, I always find that if you have transparency, you are well on the route to tackling some of the bad behaviour, be it tax evasion, avoidance or whatever. Have I not answered properly?

Photo of Antoinette Sandbach Antoinette Sandbach Conservative, Eddisbury

Q Clearly there is a distinction between evasion and avoidance. One is legal, and the other is illegal.

Dame Margaret Hodge:

Can I come back on that?

Dame Margaret Hodge:

There is a distinction. I call it a spectrum, which is why I think this power is limited and why we need to think further. There is a spectrum from sensible tax planning through avoidance and into evasion. The honest truth is that people often say to me, “But we’re only acting within the law.” There is a story in The Guardian today about people being employed by companies set up to avoid national insurance and other taxes.

The reality is that when we as parliamentarians write far too complex, far too long tax law, we have an intention. If we could write it in a way that was really copper-bottomed, covered every eventuality and had no ambiguity, we would do so. I do not think this is a particularly partisan thing. We cannot do it. Therefore, you find that a lot of aggressive avoidance is unlawful when HMRC finally, if it has the resources, catches up with it, but it is difficult to call it evasion.

Photo of Antoinette Sandbach Antoinette Sandbach Conservative, Eddisbury

Q I understand that there are now changes. We are awaiting tribunal assessments where there is doubt about whether it is legal avoidance or illegal evasion, but the law has now been changed to require individuals to pay up front.

Dame Margaret Hodge:

That is an improvement.

Photo of Antoinette Sandbach Antoinette Sandbach Conservative, Eddisbury

The burden has been reversed.

Dame Margaret Hodge:

But it still assumes that HMRC catches up with them, and it does not always do so.

Photo of Antoinette Sandbach Antoinette Sandbach Conservative, Eddisbury

Q Given that this is a really important first step, and that the Government are working with the overseas territories to get co-operation, would it not be useful, rather than going to a broader system that is more difficult to manage, to focus on the more serious cases and allow that co-operation initially? If it is then seen to be inadequate, we can perhaps broaden it out.

Order. Before you answer that, Margaret, we have two Members still to ask questions and you have got two minutes. I am going to ask them to ask their questions, and then we can hopefully get some correspondence from you to answer the questions more fully.

Dame Margaret Hodge:

There are lots of answers. One is that they have had three years to get on with it, and they have not done it. David Cameron said they should be public at this point. I am sure people have talked to you about the Panama papers, but so much of that went through the BVI, for example—nearly half of the corporations were established through the BVI. If we do not tackle that, it particularly impacts on the poorest countries because they do not have the resources we have for enforcement. We are bad at it, and they are even more poorly equipped. If they do not have the resources, they lose three times as much in tax avoidance and evasion as they gain through the international aid that we give. They have had their time, and this is the moment when we should get tougher. We are saying that there should be a timeline.

Can the two Members—Mr Hunt and Mr Mullin—ask their brief questions? Then we will conclude.

Photo of Tristram Hunt Tristram Hunt Labour, Stoke-on-Trent Central

Q Our previous witness from Christian Aid proposed the idea of looking into unexplained wealth orders for overseas territories. I just want to know your views on that.

Dame Margaret Hodge:

Looking at them for overseas territories—

I think we will have a written reply.

Dame Margaret Hodge:

Okay. I am going to think about that one. Thank you. That will save me, Sir Alan.

Photo of Roger Mullin Roger Mullin Shadow SNP Spokesperson (Treasury)

Q Is there a case for extending public registers to cover trusts?

Order. I am afraid that brings us to the end, Dame Margaret. Our allotted time has run out again. Thank you very much for coming. It was a delight to see you.