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5.59 pm
Mr. Nick Gibb (Bognor Regis and Littlehampton) (Con): It is a pleasure to follow the hon. Member for Wolverhampton, South-West (Rob Marris), who seems to have the right approach to the conduct of political debate. However, he overestimates the problem with manufacturing.
Britain is a huge overseas investor. British entrepreneurs have billions of pounds of manufacturing assets around the world. The hon. Gentleman mentioned one of those entrepreneurs, Mr. Dyson, who has moved his factory to the far east. That is not necessarily a devastating decision, because the profits from those factories will come to the UK, the entrepreneurial activity will take place in the UK, and the design of new products will take place in the UK, so many metal-bashing jobs will be replaced by warm, comfortable, higher paid jobs in offices and design studios. The figures from the TUC that the hon. Gentleman quotes will not include the masses of manufacturing that takes place under the aegis of British entrepreneurs all around the world.
The hon. Gentleman underestimates the problem with Government borrowing. The debt figures, to which many of my hon. Friends have referred, have been revised a number of times. In last year's Red Book, for example, the net borrowing for 2004–05 was set at £24 billion. In the pre-Budget report, the figure was revised upwards to £31 billion, and today the Chancellor revised the figure yet again to £33 billion. He did not mention in his speech the inexorable upward shift of private finance initiative commitments, which now stand at about £6.5 billion every year. Those are like credit card payments, which we must pay, and £6.5 billion a year is the minimum payment. It is the
Government's hidden debt. It would represent a huge quantum of debt if one could turn it into the actual capital figure that was spent.I shall concentrate my remarks on tax avoidance. I am one of the few Members on the Conservative Benches who is not a former Financial Secretary, but I spent 13 years of my career, prior to entering the House, as a tax adviser in one of the big four accounting firms, so I have a real concern about corporate tax avoidance. I have a particular concern—I share the view of my hon. Friend the Member for Sutton Coldfield (Mr. Mitchell) on this—about aggressive corporate tax avoidance schemes, but I am still against a general anti-avoidance rule. I welcome the fact that the Chancellor has, for the moment, ruled out the introduction of such a rule.
I welcome the public and open move by Gus O'Donnell to call in the heads of tax of the big four accounting firms to tell them to stop marketing aggressive tax avoidance schemes. Those outrageous schemes are designed to use loopholes in the tax code to reduce a company's or a wealthy individual's tax bill—loopholes that were not designed to give that tax relief—for example, paying a City trader his bonus by lending him a substantial sum in the currency of an inflation-wracked country. The trader takes the currency and converts it immediately to sterling. A year later, once the foreign currency has substantially declined in value against sterling, he converts back into the foreign currency enough sterling to repay the debt. Of course, it requires significantly less sterling to repay the debt, and that gain, which is a foreign currency gain, is essentially tax-free. That loophole has been closed, but the question I ask—which my hon. Friend also asked, in a sense—is why the banks that used the scheme thought it was right for a City trader to receive his bonus in that tax-efficient way.
For most people, every penny they earn is taxed. In my judgment, it is taxed too highly. Even £10 of interest on a non-ISA building society account is taxed. Why does it become acceptable for some people with very large incomes not to pay tax on every penny of their income? What I find particularly galling about large companies that buy and demand aggressive tax avoidance schemes from their accountants—incidentally, it is only the large corporations that can afford to buy and implement those schemes, because they are very expensive—is that while they exploit those tax schemes, they continually lobby and complain about the increasing complexity of tax legislation that has become complex simply because the Inland Revenue is trying to close the loopholes that those companies have prised open.
Mr. Laws: I have a great deal of sympathy with the points the hon. Gentleman is making. Does he agree that many tax loopholes—for example, the film industry tax relief and the 0 per cent. corporation tax rate that caused so many businesses to incorporate—have been opened by the Government, not simply exploited by business?
Mr. Gibb: I do not regard those as loopholes. They are specific tax incentives introduced by the Government in order to encourage certain investment or activity. I find
nothing wrong with companies or businesses deliberately deciding to take advantage of such concessions and therefore investing in films or incorporating small businesses into corporations to take advantage of the 0 per cent. rate. However, I do find it irritating that companies will try to exploit tax loopholes that do not have such objectives.The large corporations that take advantage of those loopholes trumpet their involvement in corporate responsibility activities. They put people on the Cadbury and Greenbury committees looking into corporate governance, while complaining at board meetings about the high tax charge in the accounts and asking why the finance director has not done more to reduce it. They send employees off to inner cities to engage in worthy pro bono activities, while avoiding millions of pounds in tax that they should be paying, the shortfall from which has to be made up by ordinary taxpayers or from public spending in those very inner cities.
That all gives the impression that corporate responsibility is just a veneer. If a company genuinely believes in corporate responsibility, it should pay the tax that Parliament has decided it should pay. It should honour the spirit of the law, not just the wording, particularly if the legislation has been poorly drafted, which increasingly it tends to be.
Mr. Andrew Mitchell: Does my hon. Friend agree that companies should be encouraged to make it much clearer in their annual report and accounts how much tax they, and in particular their employees through PAYE, pay? First, it would demonstrate the important contribution that business and companies make to building hospitals, funding schools, and so on, and, secondly, where they do not make payments because they indulge in these schemes, it would be clear to all of us.
Mr. Gibb: I am grateful to my hon. Friend for making that point. It is a point that he made in his speech with regard to the Royal Bank of Scotland trumpeting the fact that it had paid huge sums of tax that was being used to fund hospitals and schools. He is right in the comment that he makes. We are talking about a minority of plcs that are engaged in such activities, so it would be useful for shareholders and others to try to expose companies that are not being corporately responsible and fulfilling their obligations to society.
Let us not forget that the companies that use such schemes are not fledgling, struggling businesses, with the owners' homes on the line because of the money that they owe the banks; nor are we in an era of 98 per cent. tax rates, as we were in the 1970s when tax avoidance was almost inevitable, and almost understandable because of the very high corporate and income tax rates. We are talking about plcs, well-known household names, some of which are headed by multi-millionaires.
I raise this because it is part of a wider issue. It is about people in positions of responsibility asking "Is this right?" Corporate responsibility is not just about asking "Is this legal?" or "Is this within the wording of the legislation?"; it is about asking "Is this right?" That question should dominate board meetings. Large businesses cannot have it both ways. They cannot
complain about increasing amounts of legislation if all they do when assessing a proposition is to ask "Is this legal?" If morality extends only up to ensuring that an activity is within the law, it becomes the responsibility of the legislators to ask "Is this right?", to fill the moral vacuum and to create new laws to cover every eventuality and new development.If the view of some of those who run the major corporate enterprises of this country is that any activity is justified provided that it is within the law and that they have no responsibility beyond that, and no responsibility to ask whether something is right even though it is legal, they cannot complain when the laws are continually extended. Make Warburton, of the accounting firm Grant Thornton, summed up that corporate view when he said:
- "Tax advisers have a duty to minimise their clients' tax. Indeed they can be sued for not doing so."
As a Conservative, I abhor increasing amounts of regulation and laws. They are costly to enforce, read and understand and they distort and hamper free enterprise. However, if we want, as I do, to live in a low regulated society, it is imperative that its leading members take upon themselves a sense of responsibility so that they behave responsibly without the need for such rules and regulations. In essence, they must ask the question, "Is this right?" If the answer is no, they should not proceed.
Was it right for Merrill Lynch to advise unsuspecting savers to invest in companies that it knew to be junk? Did someone on the board in New York ask, "Is this right?" Was it right in the 1980s for companies to borrow off balance sheet to deceive bondholders or circumvent their rights? Was it right for Rank Xerox to boost its profit figures in its accounts by recognising now profits to be earned in future years? Did the advisers to Enron ask whether it was right to deceive investors and creditors by pushing swathes of debt off balance sheet in special purpose vehicles?
The problem with the position that we have reached is that it has been spawned partly by excessive regulations. The more burdensome and extensive the regulation, the more people feel that complying with it somehow fulfils their moral obligations. That is similar to high taxes. The higher the tax, the more people feel that their responsibility to others is fulfilled when they sign the cheque to the Inland Revenue.
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