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If we are to tackle avoidance without going down the general anti-avoidance rule route-if the Minister is minded to go down that way, I suspect that by the time he has gone through the full gamut of consultation, he will be backing off quickly-perhaps we should look at overall solutions for tackling the problem rather than proceeding on that basis alone. Targeted purpose rules in areas of tax that are commonly exploited are the better way to go. As a way forward in tackling tax avoidance, we want simple, clear legislation so that the
intention of Parliament is clear and both tax authorities and taxpayers can understand the aim of the law and what the rules are. That will help to support the moral argument: if we all understand the right amount of tax to pay in a situation, everyone should be paying it. The present complexity gives people the veneer of an excuse when they structure transactions in an artificial way.
The hon. Gentleman mentioned tax havens. There is a lot of scope for tax planning using other EU nations that have very different tax regimes or much lower tax rates in some situations. I am sure that the Minister has found in his in-tray a load of pending or ongoing cases at the European Court of taxpayers claiming that they have suffered tax that does not comply with various EU treaties. Roughly how much tax is the Exchequer in danger of losing or having to pay back as a result of those cases? It is important when looking at tax law to make it compliant with systems outside the UK, but it is difficult to do.
My area of expertise was transfer pricing. We were forced to apply transfer pricing rules on transactions within the UK, rather than just cross-border ones, which added a huge compliance burden that, frankly, taxpayers were not desperately excited by and the tax authorities did not have anything at stake on. I hope that we can find better ways of writing tax law that do not add to that burden. Perhaps some tweaks to European treaties would have been a better way of sorting this and creating OECD-compliant tax law, rather than using a sledgehammer to crack a nut.
If we want to tackle tax-avoidance effectively, let us have simple, clear legislation, and where there is abuse, let us have targeted, principles-based anti-avoidance rules that state clearly that the intent of Parliament is to stop one-sided complex financing transactions that have no commercial benefit and get a big tax advantage. In that way, we will make the progress that the hon. Gentleman wants.
This has been a fascinating debate. It is entirely in keeping with the work that the hon. Member for Southport (Dr Pugh) has done on this issue and with the fact that he has sat on many a Finance Bill Committee that he has brought this extremely important issue to the attention of the House, and I congratulate him on initiating the debate. He put his case very well and demonstrated that he has spent many years considering these issues. He could see both sides of the argument and he managed to put both of them in much of his contribution. He also identified the free-rider mentality, which is the key thing we all want to crack down on and minimise.
The hon. Gentleman was generous enough to praise the previous Government's record, and I thank him very much for that; that has not been noticeably present in our debates on the Floor of the House so far in this Parliament, which has diminished our debates in this difficult time for the country. I deplore the rewriting of history and the abuse that the previous Government's record has received, particularly in the economic context, and it is nice that the hon. Gentleman did not sink to that low level.
I particularly thank the hon. Gentleman for praising the record of my right hon. Friend the Member for East Ham (Mr Timms), who would have been winding up the debate under more normal circumstances. I hope that Members will realise that my right hon. Friend is still recovering from the attack on him at his constituency surgery, and I am sure we all join together in wishing him a speedy recovery. He has been seen back around the House and he is well on the mend, but he is still a bit fragile.
I welcome the new Minister to his position. Those who slog away in opposition do not always end up inheriting the positions that they shadowed when their party is lucky enough to be magically translated into government, but the hon. Gentleman has managed to make that transition. Having experienced the Department he now represents, I know he is a very lucky man, and he certainly deserves luck. I therefore welcome him to the debate.
I want to spend a little time putting the previous Government's approach on the record. I then want to ask the new Minister a few questions about his Government's actions and their future intentions on this extremely important issue. I note the self-restraint that the hon. Member for Southport showed in not trespassing on the area of capital gains tax, but I wonder how long the restraint shown by the partners in this Conservative-led Government will last as we get further into this Parliament-I will certainly watch developments with interest. The hon. Gentleman has set a sterling example, although I notice that it was not particularly followed by the right wing of the Conservative party at Prime Minister's questions earlier today-"interesting noises off" is all I will say about that.
We can all agree that the financial crisis of 2008 led to a radical shift, domestically and internationally, in the approach to tax evasion and tax avoidance. Following the crisis, the previous Labour Government made certain that the UK was at the forefront of the drive for radical change. Internationally, there was a rapid realisation that the lack of transparency in the international financial system presented previously unrecognised but severe systemic threats to the entire global financial architecture, that those threats had to be dealt with and that good progress had to be made quite rapidly. In the forum of the G20 and in the aftermath of the credit crunch in 2008-09, good progress was made, but that momentum needs to be maintained, and one theme of the questions I want to ask the Minister to deal with is how he sees its being maintained.
It is only human nature that when people are in the middle of a crisis, they suddenly put at the top of their political and economic priority list things that have been around for years, although they were never really at the top of the list. Suddenly, transparency, the exchange of information and the ability to supervise global institutions cross-border and globally acquire far more importance. Everybody is very exercised by them, and there are a load of international meetings at the OECD and the G20; indeed, that is what happened, as we can see. The crisis then abates, and people turn back to dealing with more domestic things. If we are not careful, the momentum for change-the momentum behind introducing transparency and opening up cross-border supervision-could wilt. It is important that the new Government continue the momentum that the previous Labour
Government created in the aftermath of the crisis. I would certainly be interested to hear how the Minister sees the issue and what plans and actions he has in train to ensure that that momentum is maintained.
The hon. Member for Southport touched on the fact that, domestically, the huge bank bail-outs that were necessary to deal with the immediate threats that the crisis caused to our economic well-being have brought two important truths home to us all. If those truths had not been brought home to us before the election, they certainly would have been once we had spent months on doorsteps in our constituencies listening to our constituents' experiences and opinions. The first of those truths is that there is growing hostility among the majority of our hard-working constituents who pay all their taxes towards those who avoid paying their fair share. That phenomenon is growing and is more noticeable than it has been, and it will only continue to grow if it is not addressed by policy and Government action. Secondly, where tax revenues have been hard hit by the downturn and the recession caused by the irresponsible greed of a few, there is an even greater responsibility on the tax authorities to collect the tax that is due. That responsibility can only be reinforced when next week's Budget takes a scythe to the public services that many of our most vulnerable citizens rely on.
The previous Government measured the tax gap and published estimates of it, setting it at £40 billion, as the hon. Gentleman rightly said. He had some other estimates, and the Trades Union Congress has a much larger estimate, as does the Tax Justice Network, which the hon. Gentleman mentioned. For the sake of argument, however, let us say that the tax gap is £40 billion. We know that it is impossible to collect such sums and completely to close the tax gap so that it does not exist at all, but we could certainly do with some of the revenue that is due, but which is not being collected. Even if we closed the tax gap by half, we would avert real pain and suffering among those who are often the most vulnerable in our society and who particularly rely on services provided through public expenditure. In that context, it is even more important than it has been that we do all we can to ensure that we close the tax gap.
As the hon. Gentleman again pointed out, and as the hon. Member for Amber Valley (Nigel Mills) also described in his speech, that is easier to say than to do: it is easier to speak in principle or theory about tax laws that work and are simple for everyone to understand, and that no one tries to game, than it is to bring them about. But just because it is difficult-some might say very difficult-it does not mean we should not keep striving. With the policies established after the credit crunch by my right hon. Friend, we have made considerable progress towards such an approach. I should be interested to learn how the new Government intend to build on the solid foundations left by the previous Government, and to take things further.
It is not morally acceptable for a small minority to think that they can opt out of their obligations if they can buy the right advice or pay for sophisticated tax avoidance products. It is about time for all political parties to adopt and voice that moral approach more. Like benefit fraud, tax evasion undermines the confidence of ordinary taxpayers in the legitimacy of the system. It should be far less acceptable, socially as well as morally-it should not be thought reasonable and polite-to admit
in company to earning a living by helping well-off people and companies to avoid their tax liabilities in the jurisdictions where they operate. I do not say that the vast majority of taxpayers or tax accountants do that, but some do, and the practitioners in question probably know who they are. The hon. Member for Amber Valley is nodding, and we can talk to him later-he does not have to say anything on the record. We know the practice when we see it, and it should be far less acceptable morally, and in company, than it has been in the past. We need that switch to happen.
Dr Pugh: I accept entirely what the hon. Lady says, and her reference to the free rider principle. We can identify free riders, but it is rather like identifying people who do not pay their bus fare; it does not mean to say that there is an easy way to do it. I refer her to an interesting discussion at the Public Accounts Committee with the landlord of the Treasury, whose office is based, I think, in Bermuda. All the people we interviewed and all the senior staff enjoy the advantages of London society, and the benefits that that bestows on them, but avoid tax by virtue of having a name plate-well, a little more than that, but not much more-in Bermuda.
I hope we all agree that the world has changed and that there will be no hiding place for tax cheats. The previous Labour Government had a record to be proud of and it is important that the momentum we managed to create should be continued, especially internationally. In 2004 we introduced a requirement to disclose tax avoidance products in advance, to a storm of protest. In 2009 we strengthened the regime, and that has transformed the fight against avoidance. As the hon. Gentleman explained, that protects more than £12 billion of revenue.
The March 2010 Budget made the disclosure regime broader, increased the penalties for non-compliance and gave Her Majesty's Revenue and Customs access to more information on those who use the schemes. The package was designed to tackle tax avoidance, non-compliance and offshore evasion and to protect £18 billion of revenue. Last year HMRC identified £12 billion in extra tax due-another point to which the hon. Gentleman referred-seized £57 million in assets and £9 million in cash forfeitures and successfully prosecuted 171 cases. Will the Minister set targets or expectations in HMRC to increase the rate of prosecutions, and perhaps achieve better figures this year? We also legislated to give HMRC more effective powers to ensure that the sanctions it could use would be effective and proportionate. There are to be more onerous reporting restrictions in future for those who are caught evading tax of more than £5,000, and as the amounts evaded get higher the consequences under the current law for those who are discovered doing it get worse, and end up with naming and shaming.
Internationally, and as the hon. Member for Southport also recognised, as president of the G20 we led a global clampdown on tax havens and offshore evasion. That is an important aspect of what we must do if we are to close the tax gap. The hon. Gentleman mentioned in passing the 100 tax information exchange agreements
signed by OECD countries in the past year, including those the UK has agreed with Jersey, Guernsey, the Isle of Man and, perhaps more interestingly, Belize. In 2007 the offshore disclosure facility gave the customers of five major banks the opportunity to put their tax affairs right, yielding more than £400 million in tax revenue due. Last year, as part of the Budget process, HMRC served notice on more than 300 other financial institutions to hand over details of those who cheat on their tax by hiding income in offshore accounts.
We also concluded the ground-breaking Liechtenstein disclosure facility, which is expected to bring in nearly £1 billion in lost tax revenue. That agreement goes far beyond the tax information exchange agreements we have been discussing, and could be a model for future agreements. I should be interested to hear what the Minister has to say about that. Under the agreement, UK taxpayers with money in Liechtenstein accounts must demonstrate that their tax affairs are in order, and must have letters to that effect from HMRC; otherwise, their Liechtenstein accounts are closed down. They must then settle with the UK tax authorities. Thanks to progress made by the previous Labour Government, there are fewer places for large amounts of money to be sent if Liechtenstein accounts are closed down, and there are fewer places to hide.
We also persuaded the OECD to develop best practice guidelines on country-by-country reporting, as was also mentioned earlier-an excellent initiative that was put on the agenda by the development community, and in particular Christian Aid, ActionAid and Oxfam. Tax evasion costs developing countries billions of pounds each year in lost revenues, and is a barrier to social and economic development and growth.
Ahead of next week's emergency Budget, I want to ask the Minister a few questions. Will he recognise the excellent work that the previous Government bequeathed him in this important area, and tell us how he intends to build on it? Will he set a target for the tax gap; and what percentage of the fiscal consolidation that we all expect, given the softening-up process of the past few weeks, does he expect closing that gap to represent in the Budget? Will he maintain the hidden economy advisory group to inform that vital work? It was in the middle of extremely important work-particularly on creating routes back to legality for those who might have been in an illegal position, and to allow them to settle their tax.
Does the Minister agree that, in an international setting, maintaining the momentum to clamp down on tax havens and non-compliant jurisdictions is vital, and does he therefore share my disappointment with the perfunctory mention that the entire agenda received in the recent G20 communiqué? Why did it receive such a perfunctory comment at the G20 Finance Ministers' meeting? I hope the Minister can reassure us that that does not mean this important area is to be less of a priority.
Does the Minister intend to pursue new disclosure facilities, similar to the ground-breaking example we have managed to negotiate in Liechtenstein; and what progress has been made between the UK and the authorities in Belize, given the recent signing of the tax information exchange agreement? How much lost tax revenue does he expect to raise as a consequence of that agreement? I look forward to his response.
Dr William McCrea (in the Chair): Before I call the Minister, let me say-I do not think that I am out of order here-that we wish the right hon. Member for East Ham (Mr Timms) a speedy and full recovery, and that we look forward to him taking part in many debates in the House.
The Exchequer Secretary to the Treasury (Mr David Gauke): It is a great pleasure to serve under your chairmanship, Dr McCrea. Let me begin by endorsing your words with regard to the right hon. Member for East Ham (Mr Timms). It was a great privilege to shadow him for a number of years, and I look forward to his return. I know that he has a formidable intellect and is a fine parliamentarian, so he will be a very testing person to have as a shadow. He is also a very good man, and I wish him well. I endorse the words of the hon. Member for Wallasey (Ms Eagle).
I congratulate my hon. Friend the Member for Southport (Dr Pugh) on securing this debate and on his excellent contribution. He has the benefit and experience of serving on many Finance Bill Committees. The second excellent contribution was from my hon. Friend the Member for Amber Valley (Nigel Mills), who, I suspect, will serve on many Finance Bill Committees. He brought great expertise and considerable practical experience to the debate.
We had a thoughtful debate on some of the matters relating to the general anti-avoidance rule, and I shall say more on that during the course of my remarks. The quality of this debate has been extremely helpful, and I am very grateful to my hon. Friend the Member for Southport for highlighting this particular issue, and for giving me the opportunity to say a bit more about tax avoidance and the tax gap.
I am grateful to the hon. Lady for her kind remarks in respect of my position. I had the pleasure of shadowing her to some extent. I did not directly shadow her position, but we served on Finance Bills together. She has demonstrated today that she is as tenacious in her Opposition role as she was as a Minister, and I hope to be able to answer her questions.
The issue of the tax gap, which incorporates tax avoidance but does not consist solely of it, is important for the Government. As earlier speakers have mentioned, it has been brought into even sharper relief by the dreadful state of the public finances, which we have inherited from our predecessors. As the hon. Lady pointed out, there is a public mood for people to do the right thing and to play by the rules, and that includes paying the taxes that are due under the law. Those who do not do that have very little public sympathy. The hon. Lady said that she felt that the previous Government are being traduced and unfairly criticised over their record. Although I would be the first to point out the failings of the previous Government with regard to the public finances, there are elements of both HMRC and the previous Government that I want to address in a fair manner, and their record is not all bad.
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