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Andrew Gwynne (Denton and Reddish) (Lab):
Given that not all primary care trusts are coterminous with local authority areas, how will the public health aspect of the reorganisation be dealt with in areas such as Tameside and Glossop? It will not be as simple as just
moving functions across to a single local authority in an area where a single health economy is greater than just one district.
Mr Lansley: As I am proposing to abolish primary care trusts, the problem of a lack of coterminosity will no longer apply. Health improvement plans, led by local authorities, will be set out on a basis consistent with many of the other services that make a significant contribution to delivering the kind of health and well-being that we are looking for.
Emma Reynolds (Wolverhampton North East) (Lab): Wolverhampton primary care trust, working closely with GPs, has been at the forefront of driving improvements throughout Wolverhampton. For example, there has been a reduction in teenage pregnancies and in infant mortality. What evidence does the Secretary of State have that GP-led consortiums will be better placed than primary care trusts to carry forward further improvements in those areas, which affect the poorest communities in my constituency?
Mr Lansley: There is good evidence that physician-led commissioning of services for patients is very effective. Precedents in this country and across the world have shown that. The hon. Lady mentioned teenage pregnancy and infant mortality, and this is principally about the relationship between NHS services and wider public health services. Given such responsibility, I am sure that the local authority will be able to deliver local health improvement strategies that will impact on those factors more effectively than has been possible with the NHS doing it solely using NHS services and resources.
Chris Leslie (Nottingham East) (Lab/Co-op): If the Secretary of State is going to force GPs to spend all this extra time on bureaucracy and managing the NHS, does it not mean that they will have less time to spend with their patients? Is that the reason why he scrapped patients' right to see a GP within 48 hours?
Mr Lansley: Many GPs will find that they spend much less time trying to negotiate services for their patients through a PCT and NHS bureaucracy that get in the way. Of course GPs are operating collectively in a commissioning consortium, and I am not going to turn them into individual managers. Some GPs will be leaders-I am looking for clinical leadership-but they will also look for commissioning support. They can derive that from existing primary care trust teams if they think they are doing a good job; they can do it via local authorities or from independent sector providers of commissioning services as well.
Joan Walley (Stoke-on-Trent North) (Lab): Does the Secretary of State not realise that there are greater health inequalities in some parts of the country, as in Stoke-on-Trent? Can he explain how this new arrangement of GP-led commissioning is going to deal with those health inequalities? Is it all going to be rolled out at one and the same time, or will there be pilot projects as part of a rolled-out programme? How is he going to ensure that health inequalities are dealt with, when local authorities in Stoke-on-Trent have to make £70 million of cuts over the next three years? How is it all going to be provided for?
Mr Lansley: It would be a good idea if Labour Members at least acknowledged that over the last 13 years health inequalities have widened in this country. We have not achieved health outcomes here that are at least as good as the European average, and in some respects regarding some diseases we are among the worst in Europe. We are going to turn this around. In order to do so, we are going to work not only with national strategies but with local strategies that are geared towards identifying those health inequalities and that expressly set out to reduce inequalities by looking beyond the NHS. Local authorities, the NHS, social care, the community and the voluntary sector will work together to make it happen.
Alison Seabeck (Plymouth, Moor View) (Lab): The right hon. Gentleman talks about empowering GPs-some willingly and some unwillingly, I suspect. Some of them will need upskilling and training in order to understand the new process. What assessment has he made of the time GPs will need to devote to their training, and that of their staff, and of how much it will cost-or will GPs themselves be expected to pay for it?
Mr Lansley: I wonder whether the hon. Lady has met doctors in Devon. I have been to their local medical committee conference and discussed these issues with them. They are keen to go. If there was any difficulty, it was that at least one Plymouth GP had very high referral rates. I do not think he had ever checked those rates with his colleagues. It was interesting to hear them talk to one another. It became perfectly obvious that peer review-that sense of working collectively to manage services in an area-is going to hold GPs to account very effectively within consortiums as well. [Interruption.] The hon. Lady and all her colleagues completely underestimate the capacity of general practitioners, who are responsible for the overwhelming majority of patient contact in the NHS, not only to take on the responsibility of deciding whether they should incur the expenditure for the referrals they make but to have a say in designing those services.
Points of Order
4.38 pm
Helen Jones (Warrington North) (Lab): On a point of order, Mr. Deputy Speaker. You will be aware that the Secretary of State for Education today issued his fifth list of schools affected by the cancellation of the Building Schools for the Future programme. That list was not available to Members until 2.35 pm-after the first question on Building Schools for the Future had been taken at Question Time. Is there anything you can do to ensure that Members have the right information in front of them before we debate these issues?
Mr Deputy Speaker (Mr Lindsay Hoyle): The hon. Member has made the point that it would have been beneficial if this information had been in place before Education questions. She has now put the point on the record, so it can be taken into account.
Ms Gisela Stuart (Birmingham, Edgbaston) (Lab): On a point of order, Mr. Deputy Speaker. In the statement on the White Paper, the Secretary of State for Health asserted in response to a question from my hon. Friend the Member for Wolverhampton North East (Emma Reynolds) that there was evidence that GP-led commissioning was superior in outcomes to PCT-led commissioning. Am I right to assume that the Secretary of State will either substantiate that assertion in a letter to the Member concerned or by lodging substantiating information in the Library?
Mr Deputy Speaker: We have already had our debate on that issue and we cannot carry on with it now. It is not a point of order for the Chair.
Finance Bill
[Mr Lindsay Hoyle in the Chair]
That the order in which proceedings in the Committee of the whole House on the Finance Bill are taken shall be: Clauses 1 and 2, Schedule 1, Clause 3, Schedule 2, Clauses 4 to 6, Schedule 3, Clause 7, Schedule 4, Clause 8, Schedule 5, Clause 9, new Clauses, new Schedules, Clauses 10 and 11.- (Mr Gauke.)
4.40 pm
John McDonnell (Hayes and Harlington) (Lab): I beg to move amendment 11, page 1, line 6, at end insert-
'(2) Subsection (1) shall not have effect unless the Chancellor of the Exchequer has laid before the House of Commons a report on the extent of avoidance and evasion of corporation tax and on the measures he proposes to take to ensure the payment of tax which is due.'.
I almost feel like apologising for returning to the issue of tax evasion and tax avoidance, which I have pursued for a number of years since the debate that we had about the merger of Inland Revenue and Customs and Excise to form Her Majesty's Revenue and Customs. The amendment is fairly straightforward in seeking that a report be prepared by the Chancellor of the Exchequer before corporation tax and capital gains tax measures are agreed by the House. I will not repeat myself in relation to amendment 12 to clause 2, although I will move amendment 12 formally. We have argued consistently about how to tackle evasion and avoidance and the investment required to do so.
Let me explain the rationale behind the amendment. I listened to the Second Reading debate into the early hours, including the discussions about Randalls of Uxbridge, which were enlightening at that point in time-
Mr Kevan Jones (North Durham) (Lab): Refreshing even.
John McDonnell: As my hon. Friend says from a sedentary position, the discussions were refreshing, to say the least. I think there is another sale on at the moment.
The debate was about how to resolve the deficit that has arisen as a result of the credit crunch and the economic crisis that we face. Clearly, the division was around the level of reductions in public expenditure required and the time scale for their implementation. There was fierce debate about the level of public expenditure decreases and their implications for jobs losses, cuts in services and the impact on communities.
What was absent from the debate was a discussion of increasing tax revenues as an alternative to cuts. Everyone appreciated that the deficit needs to be reduced. There was some agreement, even across Benches, on some cuts, particularly with regard to ID cards and, perhaps, Trident. With regard to cuts in education and welfare
benefits, however, there were strong differences. We need to look again at tax avoidance and evasion. There has been confusion about definitions in previous debates. Tax evasion is defined closely as the illegal non-payment or under-payment of taxes, usually resulting from the making of false declarations, or from no declarations of taxes to tax authorities, and can result in legal penalties. Tax avoidance is seeking to minimise a tax bill without deliberate deception, but contrary to the spirit of the law.
Mr Jones: Does my hon. Friend agree that many people who will face the harsh effects of the proposed cuts will not be able to understand the difference between the two?
John McDonnell: The difference is clear with regard to legality and illegality. The technical implementation of tax legislation can be complex, so people can misunderstand which side of the fence they fall. During earlier debates in the House, the Denis Healey quote was cited that the difference is a prison wall. The implementation of measures to tackle tax evasion in particular is critical to the sound management of public finances and, obviously, to probity in the management of tax resources.
Mr Andrew Love (Edmonton) (Lab/Co-op): Does my hon. Friend agree that avoidance and evasion are the same to the extent that, in the context of both, it will take a motivated and full work force at HMRC to deliver the benefits that the Government supposedly seek?
4.45 pm
John McDonnell: I agree wholeheartedly. I shall say more about that shortly, because it is one of the issues that we raised-I think-four years ago at the time of the merger of the departments. We hoped at that stage for a more detailed report on personnel management and the number of staff who would be employed to deal with tax evasion in particular.
The fact that Her Majesty's Treasury does not distinguish between evasion and avoidance in its global figures suggests that the Treasury itself finds the distinction difficult to define. I tried to find a clear Treasury quantification of what is generally described as the tax gap in order to draft an amendment that would have some purchase in the real world, especially the world of Treasury practice.
Lorely Burt (Solihull) (LD): I am interested in the discussion of avoidance and evasion, but does the hon. Gentleman not agree that neither problem has been improved by his own party's complication of the tax rules, to the extent that ordinary people require a professional to help them to interpret those rules?
John McDonnell: Complication is certainly an issue. That is partly why I want the Chancellor to report to the House on the measures that will be used to tackle tax evasion and avoidance. We need a simplification of the process, but we also need to know how many staff the Government will employ for collection purposes.
Mr Love:
I thank my hon. Friend for being so generous in giving way. Does he agree with the Institute for Fiscal Studies that the terms of the Budget are likely to make
the tax system more complicated, rather than introducing the simplicity that the Government claim is one of the objectives of their Budget?
John McDonnell: Let me say as objectively as I can that I have not yet seen a Budget that simplified the taxation system, and I have been here for 13 years. I live in hope, which is why my amendment requests a further report that might indicate the path that the Government intend to take. I am merely a humble seeker for truth in this matter, as always.
I investigated various sources in my search for estimates of the tax gap. The latest HMRC estimate that I could find was £40 billion, but there is an element of uncertainty reflected in a reported memorandum circulated to staff in HMRC and the wider Treasury, asking people to come up with ideas for identifying and calculating the gap.
The HMRC estimate has been challenged by others. I chair a group called the Left Economics Advisory Panel, which brings together a number of Left economists including some who have been working with the Tax Justice Campaign. Over the years many Members will have worked with Richard Murphy and John Christensen, who are held in respect across parties because of the work they have undertaken in this sphere, and the advice that they have given to the Treasury and other organisations for a number of years. According to their estimate over the past year, the tax gap could be anything between £70 billion and £120 billion.
Mr John Redwood (Wokingham) (Con): If the gap is so enormous, can the hon. Gentleman explain why 13 years of Labour government did not close it?
John McDonnell: I can only say that that is one of the reasons why I have raised the issue so consistently. I hope that some Government will address it, and will do so effectively. It is also why I have sought to amend the Bill in a consensual way. All I am asking is for the Treasury to produce a report setting out our best current estimate of the extent of avoidance and evasion, and to propose measures that the Government could take. That would be a way for the Government to demonstrate that they are taking the issue seriously and tackling it.
There have been other estimates of the tax gap that go beyond that of Richard Murphy, some of which are as high as £150 billion a year. Interestingly in respect of the Treasury's £40 billion figure, it estimated in a table it published earlier this year that corporation tax accounted for 16% of its tax gap and that capital gains tax along with national insurance contributions and so forth accounted for 6%, so the taxes this particular amendment addresses are significant contributors to the tax gap.
I fear that unless this issue is addressed we will continue to have a sterile debate in the House about cuts in public services, whereas if we tackled the tax gap we would avoid a significant amount of the public service cuts that will impact upon all our communities. I therefore urge that we have a serious debate and that the Treasury produces a report quantifying more exactly the levels of tax avoidance and tax evasion, and that we then look at possible measures-including, I agree, on simplification. Issues to do with what resources we apply to tackling tax evasion and avoidance are also of relevance, however, and that comes down to staffing.
Dr John Pugh (Southport) (LD): Should we not recognise that tax avoidance and tax evasion are two very different things, and that although we can make a rational guess as to the extent of the former, tax evasion that is successful is not detected at all and therefore any estimate of it must be highly speculative?
John McDonnell: I fully concur, which is why I think that HMRC must apply a lot more resources to tackling quantification. The estimates I have been given range widely from the £40 billion from the Treasury for both avoidance and evasion-its figures do not distinguish between them-to the £25 billion from the TUC solely for tax avoidance, to the higher estimates of anything between £70 billion and £150 billion for both evasion and avoidance. I know that Richard Murphy in particular has focused on evasion, which could account for anything between 40% and 60% of the budget deficit-the structural deficit as well-that this House has recently been debating, and dividing on almost unnecessarily it seems to me.
Andrew George (St Ives) (LD): I congratulate the hon. Gentleman both on raising the issue and on the manner in which he is doing so. He has made it clear that he has raised it under two Governments. Putting aside the tribal aspects of the debate, I agree that we need to bear down on this issue, and I have asked parliamentary questions on evasion and avoidance that are due for answer today. Does the hon. Gentleman agree that it is to be hoped that once we understand a great deal more about this issue, we will be able to close the loopholes, and address other issues such as where Treasury officials go and work after they leave the Treasury?
John McDonnell: I fully agree.
I have not included any reference to VAT, which is one of the largest areas of tax evasion and avoidance. Interestingly, it appears from the responses we have had over the years from the Treasury that it uses different methodologies to calculate the different forms of evasion and avoidance for particular taxes. I find that extremely confusing.
The amendment has been described as not tribalist. Well, I am a tribalist, but I am trying not to be on this issue; instead, I am being as consensus-seeking as I can be. Even though I come from a class-based politics, I am trying to come at this from a straightforward administrative perspective, asking how we can arrive at a situation in which HMRC will report to the House-to the Chancellor of the Exchequer-on the extent of evasion and avoidance and the measures that are going to be pursued. The reason why I am making a link to the changes in tax measures is that I want there to be a time limit, so that we get a report back to the House; otherwise, this situation will continue year after year.
This issue does relate to that of staffing, which I raised with the previous Government and am raising with this one. I chair the cross-party PCS trade union group in Parliament, which regularly meets PCS members who work in HMRC and who are tax inspectors. It is clear that they have performed an excellent service to our country over the years, and their productivity has been increasing year on year. However, over the past three years job cuts totalling 12,000 within HMRC have been announced that specifically affect staff involved in
tax generation. At a time when we are desperately trying to tackle the deficit through measures other than reductions in public expenditure and cuts in public services, we could do that by tackling tax evasion and tax avoidance. However, at the same time, we have the prospect of another 12,000 jobs being lost within HMRC.
Mr Redwood: If a constituent of the hon. Gentleman's had a deposit in a savings product that was paying interest, on which they were paying tax, and they switched that into a tax-free national savings product, would that be tax avoidance or sensible investment?
John McDonnell: That is an interesting point. Tax compliance should be a duty in law, so there should be a requirement on us all to pay our appropriate level of tax. Tax planning is perfectly consistent within the law and is appropriate for individuals and organisations in order to ensure that they pay the appropriate tax. However, such devices should not be used to avoid paying the rightful level of tax and certainly should not be used for the purposes of tax evasion, which is the illegal avoidance of tax.
As I was saying, my concern is that, just when we need staff to tackle tax evasion and avoidance, we are faced with the previous Government's plan for a further 12,000 job cuts within HMRC. I urge the new Government to review the matter and to look again at the staffing level that will be required if we are seriously to address tax evasion and avoidance. That is another reason why my amendment calls on the Chancellor of the Exchequer to lay before us a report that sets out the measures he proposes to take
"to ensure the payment of tax which is due".
In devising those measures, appropriate discussions will need to take place about the level of staffing and the qualifications and abilities required of such staff. Such factors will militate against the scale of job cuts that have taken place.
On another issue, but one that has certainly been close to the hearts of several Members over the past two years, such measures will need to take into account not just staffing levels but staff location. The closure in recent times of local tax offices has reduced HMRC's ability to respond to tax evasion and tax avoidance on the basis of local knowledge, and to assist local companies and individuals in proper tax planning so that they can comply with the law. I request that any report that the Chancellor introduces deal with the implications of the closure of local tax offices and, therefore, the appropriate location of the staff themselves.
I have tabled two amendments, the first of which, amendment 11, deals with corporation tax.
Mr Love: Does my hon. Friend agree that any such report dealing with HMRC must also deal with the difficulties that arose on the amalgamation of Revenue and Customs because of the very different cultures within those organisations? We really must address those difficulties, which still reverberate around the organisation, even at this late stage.
John McDonnell:
I appreciate the point that my hon. Friend makes. I accept that there have been issues relating to a new department settling down over time, but I want to pay tribute to the staff involved for the
excellent job they have done in the set-up of the new organisation, for the flexible way they have worked and for the co-operation that has worked across past agencies as they have come together. I accept that that might be an issue and it could be referred to.
I will not repeat the same speech when we deal with amendment 12.
5 pm
Sajid Javid (Bromsgrove) (Con): May I say that there seems to be a big confusion between tax evasion and tax avoidance? The hon. Gentleman keeps referring to "avoidance and evasion" and treating them in almost exactly the same way. Clearly one of them, avoidance, is entirely legitimate-it is a basic human instinct for someone to try to hold on to more of their own money, which they have earned through their hard work-whereas the other, evasion, is an illegal activity. Would he not do well to focus on what might be the issue, rather than trying to confuse it?
John McDonnell: I understand the point that the hon. Gentleman is making. My amendment tackles tax evasion, which is clearly an illegal activity, but we need to address a wider issue that goes beyond the normal tax planning: tax avoidance beyond the spirit of the law. In previous debates, we have tried to insert into the tax laws of this country a general duty of tax compliance, which exists in other countries. Such an approach puts an onus-as a duty in law-on the individual to comply and to try to emphasise that duty, rather than to look for every possible means to avoid tax. There is a gradation in these matters, but I tackle both these things because they are both legitimate concerns in wider society and will become increasingly pressing ones as individuals experience the public expenditure cuts that will take place as we seek to tackle the deficit.
Stewart Hosie (Dundee East) (SNP): The hon. Gentleman is making his case extremely well, but surely he should be pushing at an open door, given that the Red Book itself talks about changes
"to prevent avoidance of corporation tax using accounting 'derecognition' rules".
It also discusses tax avoidance involving "the creation" of certain things "for corporate investors", and mentions alternative investment funds, financial securities, inheritance tax on trusts and so on. There is also the possibility of a general anti-avoidance rule, as this is being considered informally by this Government as we speak.
John McDonnell: That is why I was hoping my amendment would achieve consensus in this House, although that might be a first for me. I was hoping that it went with the flow of Government policy, as well as with past Government policy, if not with past practice under successive Governments. A number of practices of tax avoidance clearly incur public opprobrium. The hon. Gentleman has cited a number that are listed in the Red Book, but there are others. These are seen as instances where people are not doing the right thing within the spirit of the law, which is why, no matter how difficult it can be at times, we can identify practices that fall within either tax evasion or tax avoidance by the practical response from the community.
This is an issue whose time has come, particularly because of the current financial climate. There is clearly a concern among Members in all parts of the House about tax evasion and tax avoidance, and there will increasingly be concern about it in the wider community. Therefore, my simply asking for the Treasury to produce a report before this latest round of taxes are implemented-this would give an element of timetabling and immediacy to the proposals that will be introduced by the Treasury-is nothing but helpful and will be seen in the wider community as actually getting the Treasury to examine this issue with some seriousness in a way that may not have been happening under previous Administrations of all political parties. I cannot see how anybody could vote or argue against this, but I shall sit down and wait for the argument to come.
The Chairman: (Mr Lindsay Hoyle) I call Karl McCartney. May I just remind Members that this is a maiden speech?
Karl McCartney (Lincoln) (Con): Thank you, Mr Hoyle, in your role as Chairman of Ways and Means and as the House sits in Committee to consider the amendments to this Finance Bill, for allowing me the opportunity to make my first speech in the House.
I intend to comment on two matters of importance today: the amendments to the Finance Bill and Lincoln, the constituency that I have been elected to represent. Before I discuss either matter, however, I want to pause to pay tribute to my parents, John and Brenda McCartney, who are here in the Gallery, along with my wonderful wife, Cordelia. I am pleased that she is still here, as I am indebted to her for so much, not least our two sons, Henry and Freddie.
Let me now return to the Finance Bill. What concerns me most is the lack of support for long-term share ownership that is eminently displayed by the current capital gains tax regime, which, ironically, now seems to be based on principles that are at odds with how we are to treat banker bonuses whereby an increasing proportion of their compensation is compulsorily taken in shares of their employing parent company. That has the quite admirable aim of encouraging actions that have at their centre the long-term interests of the companies for which they work. This is commendable.
Less commendable is the loss of taper relief, which encourages long-term share ownership and investment. Surely many on both sides of the House see the retention of taper relief as desirable. Also less commendable is the loss of indexation relief. Following a change introduced by the previous Government, payers of capital gains tax will continue to be taxed on illusory gains. A simple example might help to explain my concern. Let us say that the average price for a pint of beer is £2.50. Instead of buying a pint, one could invest that £2.50. If inflation averages 7% per annum for five years and the investment keeps pace, the beer will have risen in price to £3.50, as will the value of the investment. The investor would therefore expect that the investment would still buy a pint, except that it would not, because 28% capital gains tax would have to be paid and the investment would therefore be worth only £2.50 net of tax. That is clearly
inequitable. Given the widespread acceptance that short-termism from investors is a problem faced by businesses up and down the country that are trying to attract capital for start-up funding, working capital and expansion, surely that is short-sighted.
I know that this matter is important to a number of people who are resident and work in the city of Lincoln. My fellow constituents are industrious and hard-working, and many of them either own their own business, want to start their own business or work for a small family-owned business. They know the importance of access to capital as an owner, a manager or an employee. Enabling measures that encourage investment is surely what this House should be about. What we have in place now enjoys the invidious merit of achieving the exact opposite and I hope that my senior colleagues will rethink these issues at the earliest opportunity. I know that we are where we are because of the utter mess bequeathed to us by Labour in the last Government, so I hope that as soon we have rebalanced the nation's finances, we can reverse these measures, if we cannot do so now.
Let me now say a few things about the history of Lincoln and some of the main issues that affect the constituency. I shall summarise my thoughts and areas of interest, as well as detailing my predecessors and the military links that the constituency enjoys.
It is a privilege and an honour to represent the constituency of Lincoln. When I first embarked on the long and arduous B-road to selection, reselection and election, I did not imagine that I would have the privilege of representing such an ancient, traditional and famous constituency as Lincoln. I aim to show my constituents that they chose wisely, as a Jedi might say.
Lincoln is not just another name in the list of 650 constituencies. It is a city that plays and will continue to play a pivotal role in our nation's democratic tradition. Naturally, I am proud to represent Lincoln and, as hon. Members might know, it is one of the oldest constituencies in the country. The Romans quartered a legion in the city and Edward III presided over a Parliament in our cathedral. The cathedral, which is one of the glories of English architecture, dominates the city and a large swathe of Lincolnshire. It is still as impressive today as when it stood as the tallest building in the world for 238 years-the only building in the UK ever to have held that title. If my Government ever feel the need, I am sure that Lincoln will be willing again to host a meeting of Parliament or of the Cabinet at a date of their choosing.
Although I am not an historian, I can safely reveal to hon. Members that the historical evidence for Parliaments before 1295 is quite patchy. Lincoln and York head the list of towns summoned to send Members in 1265 and, with the recent splitting of the city of York into two seats, it would seem that Worcester and Exeter appear alongside Lincoln in having a possible claim to being the oldest continuously existing borough constituencies.
Lincoln has so much more to commend it as a destination and as a place of history and worship than its two equally ancient constituencies. The cathedral is stunning and has proved a welcome sight and landmark for many travellers over the centuries and for our brave airmen in Bomber Command during the second world war. Lincoln is also home to one of only three existing original copies of the Magna Carta, the foundation of British, and therefore world, democracy. With our new
Government's plans for a great repeal Bill, we can see the relevance that the Magna Carta still has today, nearly 800 years after it was signed.
The city's MPs have included the redoubtable Dick Taverne, who continues to sit in the other House, and the right hon. Member for Derby South (Margaret Beckett), originally Miss Margaret Jackson in Lincoln, eventually Mrs Beckett. More recently, I am honoured to follow in the footsteps of the last Conservative Member for Lincoln, Sir Kenneth Carlisle, who served happily between 1979 and 1997 and for whom there is a mutual, deep affection for and from the city of Lincoln and its people. My direct predecessor was Gillian Merron, who worked hard for constituents and was incredibly photogenic, appearing in our currently daily paper with regularity-something that I fear I will not be able to emulate, not least because many of my friends say I have the perfect face for radio.
The people of Lincoln and Lincolnshire are proud to be yellow-bellies-a hark back to the original Lincolnshire "Poachers" Regiment, which is now part of the Royal Anglian Regiment, some of whom I met earlier today out in Westminster yard. They serve us well abroad and in many fields of conflict, and I know that the people of Lincoln are immensely proud of them and all the armed services associated with our city, which is linked with the RAF and the Grenadier Guards.
As well as the city, my constituency covers the lovely villages of Skellingthorpe, Bracebridge Heath and Waddington, where the RAF is based. RAF Waddington is one of the busiest and most varied operational air bases in the United Kingdom, as well as one of the longest established. It has played an important role in the defence of the country and in supporting and servicing our armed forces. Soon, Waddington is due to become the home of the Red Arrows, who are another well-loved and appreciated aspect of Lincoln life as we are often treated to their practice sessions in the skies above our city.
Despite its wealth of attractions both historical and current, Lincoln has poor transport links that have worsened over recent years. There is now, unfortunately, only a post-election promise of one direct rail link to London and there are inadequate connections to other places. The A46 is soon to be dualled from Nottingham to Newark and the knock-on effect might be that the A46 single carriageway and roundabouts that plague our western, and only, bypass might cope even less well than they do now. The only other route is through the centre of our city, using the single carriageway A15 or negotiating our High street with its famous level crossing.
I am not aware of any other city in our country that is being held to ransom by Network Rail, which is currently threatening the city with the closure of that level crossing for up to 40 minutes in the hour throughout the day to allow freight trains that are of no benefit to Lincoln to pass through. Lincoln needs investment in its transport system that will provide a vital benefit to the long-term prosperity of both the city and the whole county, such as the east-west link road that is currently proposed. On all these transport issues, the Secretary of State for Transport and his Ministers can expect continued representations from me and my fellow Lincolnshire MPs, I am sure.
Many experiences, people and types of employment have shaped my life so far, and I am a great believer in
being the owner of one's destiny. If individuals feel that the world owes them a living, it does not, but if they are willing to believe in their own self-determination, there are no limits to what they can do. Many individuals from both sides of the House are testament to that philosophy. I now have the opportunity and ability to help to make decisions that affect our nation and to question and challenge them properly in the House, with, I hope, the important addition of compassion. It is a privilege to have that opportunity, in tandem with serving the kind and generous people of Lincoln, who did me such a great service in electing me to represent them in this traditional and great place. Doing my best for our city will be a major preoccupation of mine for as long or as short a time as the people of Lincoln allow me the privilege of representing them in this House.
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Mr Redwood: Let me start by saying a few words about my new hon. Friend the Member for Lincoln (Karl McCartney). I am sure that the House will join me in praising him for his speech and in wishing him every success now that he has joined us here. It is good to hear someone with a radio face with a passionate voice for his constituency. If he continues that, I am sure that his constituents will be well served. It was great to be reminded of the hugely important Lincoln cathedral, which many of us have visited and admired, and of the fact that Parliaments were once more peripatetic. In those days, there was probably less security and fewer people in the baggage train, so it was probably cheaper to take Parliament around the country than it would be today. I fear that he might have quite a long wait before the next Parliament at Lincoln.
We are here to debate tax avoidance and evasion. I listened carefully to the hon. Member for Hayes and Harlington (John McDonnell), but I think that the Committee is pursuing a will-o'-the-wisp if it seriously believes that there is £120 billion of tax evasion and avoidance generally, and that there is substantial tax evasion and avoidance in particular on corporation tax, which we are debating, that we can tackle and get the money in from. Every hon. Member would like to think that there is an easy way out of the financial crisis. If there were a great pot of money representing tax dodging that we could identify and bring into the Treasury, it would have been done by now. It is not a matter of party dispute. If there are tax evaders out there whom we know about, they need to be brought to book-we all agree with that. Labour spent 13 years trying to do it, but the hon. Gentleman does not think that it did it well enough, and is now urging the coalition Government to do it. The coalition Government will pursue it in similar ways, with similar intensity, to the outgoing Labour Government. I fear that they will be no more successful than the previous Government at finding that £120 billion pot of gold because, in all honesty, I do not think that it exists in the form that hon. Members wish that it did.
Let us take evasion-the more serious case. I am sure that everyone in the House agrees that if someone is deliberately evading tax, it is a criminal offence. The House has said that it is a serious offence, and made it a criminal offence, or series of criminal offences, and we wish to see those people pursued and prosecuted. In the case of corporation tax, for example, if a company deliberately misreports its income, and says that it receives less income than it earned-one way of misleading the
tax authorities over corporation tax-the book should be straightened, the record corrected, and they should be prosecuted. If the company deliberately overstates its costs to try to suppress its profits-the other way in which people could evade corporation tax, if they were seeking to do so-that, too, should be something that the authorities can identify on investigation, leading to a correction of the accounts. False accounting would be involved, as well as the criminal offence of tax evasion, and there are methods of tackling it. The state has a range of powers, introduced by Governments of all persuasions, to allow company investigation, including second-guessing the audit, and going in if it is thought that crooked directors are misrepresenting their costs or revenues, and the auditors have missed it. I wish my right hon. and hon. Friends the Ministers in the Treasury every success in trying to capture genuine crooks, because we do not need them in our community, and we need to flush them out.
There is another kind of failure to pay the amount of tax that the corporation tax authorities think is correct which, in some people's language, could be evasion. A company may report honestly its revenues and costs, but comes to a different conclusion from the Revenue about what the taxable profit should be, given its income stream and costs. It attempts to understand the complexity of the law-it may well have its own tax advisers and auditors in support, because any medium or large company does not do this in isolation; the directors want the comfort of knowing that they have serious tax experts behind them, because of the complications of the law-and it makes its case to the Revenue, which disagrees with them. I do not think that that should be treated as a severe criminal offence leading to the imprisonment of the directors. What should usually happen-and what tends to happen-is a fierce exchange of views between the Revenue, which is trying for one view of the tax, and the company and its tax advisers with a different view. Eventually, agreement is reached. If it is thought to be a bad case, the Revenue has the power to impose financial penalties as well as to secure the tax that it thinks that it is owed.
Clive Efford (Eltham) (Lab): I am interested in the right hon. Gentleman's train of thought, but will he clarify something? Is he saying that there is no such thing as avoidance of corporation tax, or is he saying that anything that comes about is just the result of a misunderstanding?
Mr Redwood:
Has the hon. Gentleman been in the Chamber while I have been talking? The first part of my speech was about bad cases of evasion in which a company has deliberately misrepresented its financial condition. Like him, I think that those cases should be taken seriously, and prosecution should result. I am going on to the second set of cases, in which evasion is thought to have taken place according to the Revenue, but when we look at what is going on there is a genuine disagreement between one group of tax experts, lawyers and company advisers and another lot advising the Revenue, which sometimes needs to consult counsel on these complicated matters to try to reach a conclusion. Such cases are often sorted out slightly more amicably, and rightly so, because the companies concerned were
obviously not trying to do down the Revenue but to pay the minimum amount of tax to comply with the law, as most sensible people try to do, and there was a disagreement that had to be sorted out sensibly. That might result in financial penalties or in an agreement not to have financial penalties, but usually the Revenue has a certain amount of strength in having its way.
That is evasion, and then there is avoidance, which is much more problematic. I am sure that billions-worth of avoidance is going on all the time, because it is a perfectly legal approach; one man's avoidance is another man's sensible tax planning. That is why I asked the hon. Member for Hayes and Harlington for an example relating to personal income tax, which is easier for people listening in to this debate to understand. Many small savers switch from tax-paying savings to tax-free savings, which is avoidance of tax, is it not? They realise that they can do better by having a tax-exempt savings product; surely we should not condemn that, because it is about someone trying to get the most for their money. Indeed, that is something that the Government positively encourage. They encourage tax avoidance because they say, "We have the unique power to provide tax-exempt products for savings, and we want you to buy ours rather than the taxed private sector product."
Stephen Timms (East Ham) (Lab): My hon. Friend the Member for Eltham (Clive Efford) asked a telling question, and I am not sure what the right hon. Gentleman's answer is. The question is this: does he deprecate any tax avoidance, or is he saying that as long as it is strictly in compliance with the law, anything goes? As he knows, there have been some very ingenious, and indeed expensive, schemes used by companies to avoid paying tax, clearly contrary to the spirit of the law but arguably in compliance with the letter of the law. Does he not deprecate that kind of activity?
Mr Redwood: I do not want to get drawn into the moral issue of deprecating or not deprecating: what I am interested in is the efficiency of revenue collection and the clarity of the law for the people having to meet it. It is the job of this House to have a clear tax law that people have to follow, and we often have these debates to try to carry out that task. Sometimes tax law is so complicated, or people outside this House are so ingenious, that there are ways round it that I might disagree with and the right hon. Gentleman will often disagree with, and that is when we come back to legislate again. We say, "We haven't done our job well enough. People are avoiding tax more easily than we would like them to be able to, and so we're going to add another complication"-or sometimes even a simplification or clarification-"to the tax law to try to capture that." That is the job of this House. The shadow spokesman and I will sometimes agree that an avoidance scheme goes too far and we need to legislate to stop it; on other occasions, we will disagree. I will say, "That's perfectly rational tax planning-don't be such a party pooper", he will say, "I don't like people getting away with that kind of thing", and we will have our disagreements.
Mr Love: Given the thrust of the right hon. Gentleman's remarks, does he agree with my hon. Friend the Member for Hayes and Harlington (John McDonnell) that cutting the number of HMRC employees by 10,000 might not assist in the process that he is outlining of ensuring that those who take part in avoidance are brought to book?
Mr Redwood: It would clearly be a false economy to cut back on the number of staff needed to tackle serious cases of tax evasion; I do not think anybody wants to do that, and I certainly would not recommend it to Front Benchers. It would also be wrong, however, to exempt Revenue and Customs from pressure to improve efficiency and to do more with less at a time of enormous strictures on public spending. I hope that there will be ways to accommodate the hon. Gentleman's wish for us still to have Revenue and Customs pursuing tax evasion and our coming back to legislate on tax avoidance that it thinks is going too far, as we have under past Conservative and Labour Governments, and that that will be done efficiently and effectively in the way that we wish to see.
John McDonnell: To follow up on the question of my right hon. Friend the Member for East Ham (Stephen Timms), are there any measures that the right hon. Gentleman would consider tax avoidance that should be brought within the purview of Her Majesty's Revenue and Customs, such as the large-scale offshoring mechanisms that corporations use to avoid tax? All that the amendment asks is for a report to be made about the measures that the Government will take on such issues.
Mr Redwood: I do not necessarily disagree about the need for us to consider another report on tax avoidance and evasion, but I am trying to set some of the parameters for that report and the framework of the debate. This is an opportunity to discuss why the matter is difficult, and why past Governments have not lived up to the hon. Gentleman's expectations. I have no problem with having a report, although I do not want to link it to the particular corporation tax rate in clause 1, as his amendment would.
John McDonnell: I am grateful for that response. Successive Governments have pragmatically examined the latest tax avoidance mechanisms and then sought to work through them systematically to address them. The amendment is intended simply to bring forward a report on those mechanisms so that the House can have more oversight of that process.
Mr Redwood: As the hon. Gentleman knows, I am all in favour of more oversight by this House, and the more informed a debate we can have about this and other issues the better. Public debate in Britain has been stifled in recent years for all sorts of political reasons that we need not go into. It is better if we can bring such debates out into the open, but we need collectively to think through what avoidance is and what evasion is. If we do not know that, we cannot hope to guess its scale or optimise our measures for dealing with the features of it that we do not like. I am trying to deal with avoidance, on which I believe there is more scope for disagreement than on evasion, which we are all against.
I return to the point that some people's avoidance is a bad practice and other people's is common sense. Let us take another example of a matter on which the Government encourage avoidance. I gave one from personal tax, but we ought to be concentrating on corporation tax. The previous Labour Government were keen to encourage avoidance of corporation tax because they wanted companies to invest-a perfectly worthy aim. They said to companies, "If you invest more than you otherwise would do, that is an allowance against your corporation tax so that you will be able to avoid some tax in order to
invest more." One debate that the Committee will have is whether this Government are cracking down too much on investment avoidance by removing some of that allowance and giving everybody the benefit of a lower rate. I hope that Opposition Members will see that they are not as pure as they think they are on avoidance, and that there are certain types of avoidance that they see as a very good thing. It is a well-known feature of many tax structures to encourage avoidance in order to encourage good works or change conduct.
Mark Tami (Alyn and Deeside) (Lab): The right hon. Gentleman talks about avoidance all the time, but is it not about the Government giving companies incentives to invest, rather than allowing them to avoid tax?
Mr Redwood: The hon. Gentleman has made my point beautifully. I have just said that one man's avoidance is another man's tax incentive-that is exactly the point that I am trying to make. There are good types of avoidance and bad types. Sometimes all the parties in the House agree that a certain type of avoidance is bad, and then it is in our own gift, because we are the legislature, to table business on any day to stop that tax avoidance in its tracks by changing legislation explicitly and clearly to send a signal. At other times we come together to legislate in favour of tax avoidance, because there are things that we wish to encourage. As he rightly says, sometimes the best thing to do is to give people a lower tax bill to encourage such procedures. That is surely encouragement of tax avoidance of a benign kind and a perfectly reasonable thing to do.
Mr Redwood: The hon. Gentleman shakes his head, but what else is it? Why are people investing more than they otherwise would have done? Because they are allowed to avoid tax and pay less tax than they otherwise would.
Stephen Timms: The right hon. Gentleman is uncharacteristically abusing the English language. To say that something that is explicitly provided for in the law is tax avoidance is not what most people mean by the term.
Mr Redwood: Fine-that is a very good linguistic point, and if the right hon. Gentleman wishes to define tax avoidance more narrowly as actions that we all disagree with, we can do that and it makes the debate much simpler. However, he has to understand that there are a series of grey areas, and it is not a black-and-white matter. There is not a set of actions that everybody agrees are tax avoidance and another set that everybody agrees are perfectly reasonable incentives or sensible ways of paying less tax.
Let us get on to the more difficult corporation tax cases, having dealt with the investment one-everybody in the House thinks that investment is a good thing and that corporations should therefore pay less tax one way or another, either through the rate of tax or through explicit relief.
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Let us consider overseas offshoring, which has already been mentioned. Multinational companies have some flexibility about where they invest, borrow and carry out their activities, and they regard the taxation regime
as one of the important considerations in determining all those matters. If it is benign, they are more inclined to borrow the money, put up the facilities and earn the full profits in the country concerned by carrying out the whole process and adding all the value. However, if the taxation regime is more hostile to enterprise, they might make different arrangements. Any country that takes part in the multinational free enterprise world has a choice. It must decide whether it wants to be tax friendly, in which case it has to allow people to pay rather less tax, or tax tough, in which case those who stay will end up paying more tax, but there will not be so many businesses here, and some will decide to offshore more of their activities.
Offshoring presents a difficult set of cases. I am sure that Opposition Members can find examples of offshoring that we would all regard as unacceptable avoidance, but much other offshoring represents simple, rational business decision making because the country being offshored against does not have a favourable tax regime, and that is why our decisions tonight and on other occasions when we try to settle the corporation tax regime are terribly important to whether our constituents get more jobs, whether our businesses make more money and whether more action will take place here. Companies have many footloose decisions that they can make about where to borrow, where to spend, where to invest, where to create jobs and how much value to add.
I see nothing wrong with more parliamentary accountability and scrutiny. If my hon. Friends have more capacity to produce a report on tax avoidance and evasion, it would be useful. I hope that my remarks have outlined some of the complexities of trying to determine the elements of avoidance that are to be condemned and about which we need to legislate more, and those that are simply common sense, or even tax promotion schemes, which the Government are producing.
I remind the Committee that I have recorded in the Register of Members' Financial Interests that I offer business advice to a global industrial company and to an investment company.
Clive Efford: I pay tribute to the hon. Member for Lincoln (Karl McCartney), who made his maiden speech. Many of us remember his predecessor with great fondness, and we certainly notice the difference in appearance to which he referred. She was a popular Member here, as I suspect that she was in her constituency. I am sure that the hon. Gentleman will do an able job in his time as Member of Parliament for Lincoln.
The thrust of the argument of my hon. Friend the Member for Hayes and Harlington (John McDonnell) is that the House should be able to scrutinise the Government's actions on enforcement of corporation tax to avert some of the severe and harsh cuts elsewhere in public expenditure. The Red Book refers to the need to reduce all sorts of evasion. Indeed, paragraph 1.96 mentions the Government's measures on corporation tax, which a later group of amendments tackles, and states the need to alter the rate of corporation tax to reduce the avoidance of payment. A practice has been created of people avoiding other forms of tax and paying capital gains tax at a lower rate to minimise the amount that they pay in tax. I therefore agree with the thrust of the point that the right hon. Member for Wokingham (Mr Redwood) made that there are times
when we need to tweak the tax system to close down loopholes. In that sense, the tax system has historically been like turning a thermostat up and down. We introduce one set of regulations, that area overheats, the thermostat is turned down, another section of the tax system responds and people move in that direction to avoid paying tax.
With amendment 11, my hon. Friend is trying to ensure that the House can hold the Government to account for what they do to fulfil what they say in the Red Book, and thereby ensure that the Government maximise the amount of corporation tax that is paid.
Kwasi Kwarteng (Spelthorne) (Con): Will the hon. Gentleman clarify his basic position? Does he believe that in principle corporations ought to pay more tax than they are paying already?
Clive Efford: The point, on which I believe we are all in agreement, is that everyone should pay the tax that they are due to pay. Amendment 11 proposes not that corporation tax should be raised or reduced, but that it should be paid, that the Government ought to take action to ensure that companies that are liable to pay it do so, and that the House should have the role of providing a check and balance to ensure that the Government are carrying out that function.
Mr Love: Does my hon. Friend believe that there is a tax gap, as I think all Opposition Members do? Whether the gap is £40 billion, £60 billion or £100 billion, it is very significant, and we ought to turn our minds in this Budget to doing something about it.
Clive Efford: I could not agree more. If I were to start listing some of the harsher items in the Budget, such as the £1.9 billion that the Government are trying to take out of housing benefit or the overall £11 billion from the welfare budget, I would risk incurring your wrath, Mr Amess. I would also risk that if I were to point out some of the actions of the previous Government in relation to the medical tests that disability living allowance claimants were forced to go through. The coalition Government, supported by the Liberal Democrats, tell us that things will become even harsher for DLA claimants, so our discussion of minimising avoidance of corporation tax is absolutely relevant.
Stewart Hosie: May I ask the hon. Gentleman to put a number on that? What is his estimate of the value of lost revenue yield as a consequence of the 12,000 Revenue staff lost under the previous Labour Government?
Clive Efford: The hon. Gentleman makes a point that I could repeat. Cutbacks in Her Majesty's Revenue and Customs staff make more distant the target of maximising the amount of tax taken. He may have joined me on the odd occasion when I voted against the previous Government, so we have been on the same side of such arguments from time to time. Some of us are sinners turned saints, and even as a loyal Labour Back Bencher, I might agree with elements of the criticisms of the previous Government.
We have been given instruction in tautology on the question of avoidance and evasion, but we are quite clear that we are talking about people whose actions are
not within the rules. We need to ensure that action is taken so that they pay their fair share, because clearly, the increase in taxation-the VAT increase and other measures-and the cuts will hit the poorest in our communities first. That is why it is absolutely essential that we have discussions such as the one instigated by my hon. Friend the Member for Hayes and Harlington.
Mr George Mudie (Leeds East) (Lab): Does my hon. Friend agree that it would be a shame to let this debate go by without mentioning the activities of Barclays bank, and particularly its capital section? The head reputedly earned £90 million a year. We should consider that amount of money, because that group was set up to find ways for companies to avoid paying corporation tax, or indeed any tax.
Clive Efford: My hon. Friend's intervention needs no comment from me, other than to say that it is an excellent example of the sort of practices that we need to bear down on. We pay a plethora of accountants and financial advisers to advise on how to invest our money wisely, and that is a legitimate area of activity. It is right that people may order their finances within the rules to maximise their income, but if that becomes exploitation or unfair in terms of what people are contributing, we have to act. That is where the amendments that we have tabled on capital gains tax, which we will discuss later, come in.
The hon. Member for Dundee East (Stewart Hosie) mentioned the cut in tax staff, and if we are going to see substantial cuts in staff, it will make it even more difficult for HMRC staff to perform their task on whatever tax they are pursuing, be it corporation tax or any other.
The right hon. Member for Wokingham seemed to dismiss the issue of tax evasion, suggesting that we could pursue evaders until the cows came home, but they would never pay the tax so we would not be able to close the deficit by pursuing them. He then went on to talk about the difference between evasion and avoidance, rather than focusing on what we can do-as the people who scrutinise legislation-to ensure that the Government are delivering on their words in the Budget.
Mr Redwood: I wish to correct the record. I made it very clear that if a company were evading tax, we should throw the book at them and get the money back.
Clive Efford: My point is that that was the sum total of the right hon. Gentleman's contribution on that subject. He then elaborated on other issues. The point is that the thrust of the amendment is evasion-people working the system in a way that breaches the rules and means that they do not make the contributions that they should make. Those are the people we should bear down on. In my intervention in his speech, he accepted that there was such avoidance, and that those people should be dealt with. It is how we scrutinise that that we are discussing now. It is the function of this House to hold the Government to account, and the amendment asks for a report to Parliament on what exactly the Government are doing.
I congratulate my hon. Friend the Member for Hayes and Harlington on his amendment, and I look forward to hearing what the Government have to say in response.
Gavin Williamson (South Staffordshire) (Con): I shall try to be brief, as I was always told that brevity is a virtue. I am sure that many hon. Members will be brief in all their contributions this evening.
I pay tribute to my hon. Friend the Member for Lincoln (Karl McCartney), who painted such a stirring picture of the city of Lincoln that most hon. Members will be hotfooting it there at the weekend if their constituency duties allow.
I listened with great interest to the hon. Member for Hayes and Harlington (John McDonnell), especially when he said that in his 13 years as a Member of Parliament taxation had never been simplified. I suggest that that is because of the 13 years of Labour Government during his time in Parliament; that is why the taxation system has got so complicated. To reduce tax avoidance we need to ensure that we have a simple and plain tax system. It might be a difficult concept to accept, but the less tax we have to raise, the less chance there is of having tax avoidance. It is beautifully simple, but beautifully true.
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I honestly believe that the measures outlined in the Budget and the Bill will make an impact on encouraging all companies to pay their way, contributing the correct amount in their taxable allowances, thereby reducing avoidance. However, the simple reality is that we have had 13 years of incredibly complicated tax systems, which has acted as a massive disincentive for everyone to pay the tax that is due, because there have been too many opportunities to avoid tax. I believe that the measures taken will make a positive impact in setting that right.
Stewart Hosie: The case for a simple tax regime is well made. Had the Government abandoned capital allowances and the annual investment allowance, that would have been simpler, but instead they just reduced and changed them. Can the hon. Gentleman explain how that simplifies the tax code in the way that he has described, rather than otherwise?
Gavin Williamson: I am obviously far below the pay grade of my hon. Friends on the Front Bench, but I am sure that they have great plans to make the tax system much fairer and more equal, right across the board.
One important thing that my hon. Friends have done is reduce corporation tax, which will help so many businesses. Most importantly, they have helped small businesses-it is often small businesses that have had the most difficult time over the past few years-which is something that I warmly welcome.
Mr Love: On small businesses, is there not some concern that unincorporated individuals will now incorporate because of the reduction in the small business tax rate, which will cause avoidance by another route?
Gavin Williamson: The hon. Gentleman makes an interesting point, although more people becoming incorporated as limited companies will reduce the amount of tax avoidance from which people could perhaps benefit as sole traders.
Stephen Timms: I join others in congratulating the hon. Member for Lincoln (Karl McCartney) on his maiden speech. He launched some important claims on behalf of his constituents. I was interested in the case that he made for reintroducing indexation and taper relief on capital gains tax. I suspect that these debates will gain a new currency, given the increase in the rate of capital gains tax that the Bill introduces. I also welcome the evidence of independent thinking that he showed the Committee today, and I appreciate, as many will, his generous remarks about Gillian Merron, who was certainly a very popular Member of the House, as well as a popular feature in the local press in the hon. Gentleman's constituency.
I am grateful to my hon. Friend the Member for Hayes and Harlington (John McDonnell) for raising this issue. He has done us a service by raising some important points. I do not agree with his criticism of the previous Government in that respect, as I shall explain, but it is right that we should have this debate in this part of our consideration of the Bill.
I enjoyed listening to what the hon. Member for South Staffordshire (Gavin Williamson) said a moment ago. What he was saying, I think, was that he was expecting the new Government to simplify the tax system. Well, maybe, although I do not think that there is much simplification in the Bill. In fact, there is a major new complication, as we will see when we come to clause 2. For the first time ever, the rate of capital gains tax is being changed in the middle of a year. That is a significant new complexity that the Bill introduces. Although I am touched by his faith, I suspect that he might find himself somewhat disappointed as time goes on.
My hon. Friend the Member for Hayes and Harlington was right to pay tribute to the work of Richard Murphy and the tax justice campaign. I want to pay particular tribute to Richard Murphy for developing, and first arguing for, the idea of country-by-country reporting. We are debating the avoidance, and indeed evasion, of corporation tax, and of course, that is a matter not only for the UK but for developing countries on a large scale as well. Richard Murphy was the first person to argue that companies should report, on a country-by-country basis, the profits that they make in each country and the tax that they pay in each country, so that everyone can see if there is a mismatch between the two.
The previous Government supported that call, and I am pleased that the OECD is taking the matter up. I think that we are now going to see some progress on that front, thanks to Richard's efforts. I note from his blog that he has been on the receiving end of some unwarranted online harassment recently on account of his work. I certainly wish him well in what he is doing. However, I am not entirely persuaded by his criticism, or that of my hon. Friend the Member for Hayes and Harlington, of the work of HMRC on the tax gap. As my hon. Friend rightly mentioned, however, it is inevitable that any estimates in this area will be uncertain because no one knows precisely what is being hidden from the tax authorities.
Narrowing the tax gap was an important priority for the previous Government, and I was grateful for the comments made by the hon. Member for Southport (Dr Pugh) and by the Minister in the debate on tax avoidance that was held in Westminster Hall on 14 June. In that debate, my hon. Friend the Member for Wallasey
(Ms Eagle) set out the key elements of the progress that the previous Government had made on tackling the problem of avoidance. One of the initiatives that we took was to propose a voluntary code of practice for the banks, and I hope that the Minister will be able to tell us more about this when he winds up the debate. My hon. Friend the Member for Leeds East (Mr Mudie) mentioned one of the banks a few moments ago. The idea was that banks would sign up to the code of practice and, in doing so, would agree to stick not only to the law on the payment of taxes but to the spirit of the law as well.
Having listened to the arguments put forward by the right hon. Member for Wokingham (Mr Redwood), I imagine that he would be opposed to that initiative, because he would feel that it should simply be a matter of asking, "Are you or are you not complying with the letter of the law?" and that, if a problem arose, the Government should legislate to close the loophole. The problem with that approach is that we can get into an arms race, as we have certainly done on many occasions, in which the Government and Parliament agree on changes to the law and everyone knows perfectly well what they mean, but the banks then commission ingenious accountants to find ways round the spirit of the law, even though the letter of the law is being complied with. If we were to stick with the approach for which the right hon. Gentleman is arguing, Parliament would then have to close the loophole, perhaps a year later, and the circle would continue to go round. He made an interesting case, but we have to find a way of breaking that vicious circle, because huge amounts of money are being spent by taxpayers and by HMRC, and, in the end, nobody benefits.
Mr Redwood: The right hon. Gentleman is quite right to say that there can be an arms race, but would he also acknowledge that, while quite a lot of companies accept that they need to pay a fair whack of tax, there are many judgments involved? Those companies seek advice on that judgment, but they do not always get the same advice as HMRC. It is not that they are all trying to cheat the taxpayer; these are complicated matters and a view needs to be taken on cost overhead allocation, transfer prices and so on. Judgments are reached and the Revenue disagrees, but these are judgment matters, and this subject is not easy to handle.
Stephen Timms: The right hon. Gentleman is absolutely right about that. I entirely accept that that often happens, but I hope that he will accept that there are also people who commission very highly paid accountants to find ways of getting round the law. Everyone involved in that practice knows perfectly well that they are going against the spirit of what Parliament intended, and that is the kind of damaging avoidance that we need to bear down on.
Kwasi Kwarteng:
Clearly, we have laws, but people are also going to try to pay the minimum amount of tax that they can. That is an entirely rational thing for them to do. It is our job to frame the laws as simply as possible, so that there are no loopholes. As my hon. Friend the Member for South Staffordshire (Gavin Williamson) pointed out, because there is so much more complication in our tax system, there are far more opportunities for loopholes. Surely the way to tackle the
problem is to simplify the tax code, rather than pursuing people through the law courts or making the code even more complicated.
Stephen Timms: I am happy to subscribe to the view that the tax code should be as simple as possible, and I look forward to the new Government introducing measures along those lines. Simplicity is certainly a virtue, but, as I have said, those who are pressing for such measures might find that they have a rather longer wait than they would have liked. Let me also make it clear, in agreeing with my hon. Friend the Member for Hayes and Harlington, that there is absolutely nothing wrong with tax planning or with people ordering their affairs in a sensible way from a tax point of view.
Mr Mudie: I thank the Minister for giving way. I am sorry, I should have said "the shadow Minister"-old habits die hard. Does he recall that it was reported last year that the majority of the top 100 companies paid no tax whatever? That was not a matter of the tax system being complicated; it was a simple matter of their going to enormous lengths-working with the worst culprit, Barclays bank-to devise systems and work through offshore companies to avoid paying any tax. Do not Members on the Government Benches get angry that ordinary people work hard and pay their taxes while multinationals and other large companies go to extreme lengths to pay no tax whatever?
Stephen Timms: My hon. Friend is absolutely right. There are some flagrant examples of that, not least in the banking sector. Indeed, some of those examples were very well documented in the excellent series in The Guardian earlier this year. I would particularly welcome an update from the Minister on the progress of the voluntary code of practice for the banks, which could be an effective way of tackling the problem that he is dealing with.
Andrew George: Of course we all agree that we should seek the holy grail of a more simplified tax system, but what assessment did the right hon. Gentleman make of the announcement of 12,000 job cuts in HMRC, which we have discussed, and particularly of the breaking up of the compliance teams that were scrutinising the very areas of tax avoidance and tax evasion that we are now debating?
Stephen Timms: HMRC, for which I was responsible, has a very difficult task on its hands. I was persuaded, and remain convinced, of the case for HMRC being able to discharge its functions a good deal more efficiently in the future, thanks to the use of new systems and to a reorganisation into larger groups. In the past, HMRC was characterised by lots of offices with not very many people working in them. It is now clear that that was not very efficient or effective, and I think that the reorganisation will help. There is no escaping the fact that it has a tough job to do, but I think that it is setting about it in the right way.
The financial crisis since 2008 has led to a big shift in the approach to tax evasion and tax avoidance. Following the crisis, the previous Government made certain that the UK was at the forefront of the drive for change. Internationally, there was recognition that a lack of transparency in the international financial system had presented previously unrecognised but nevertheless
significant systemic threats to the global financial architecture, that those threats had to be dealt with and that progress had to be made quickly. In the forum of the G20 and in the aftermath of the credit crunch, good progress was made, but that momentum needs to be maintained. I hope that the Minister will set out for us today how he sees it being maintained.
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The previous Government measured the tax gap and published for the first time an assessment of it and a detailed breakdown of how it was made up. My hon. Friend the Member for Hayes and Harlington rightly referred to the £40 billion figure as the overall assessment, and a detailed breakdown of it was published at the time of the Budget in a document called "Measuring Tax Gaps". I hope that the Minister will tell us that it is his and the Government's intention to publish this assessment regularly, and I hope that my hon. Friend will be reassured by that.
The figure in that analysis for corporation tax as a contribution towards the overall £40 billion gap is £8.9 billion, which is 16% of the total corporation tax-a very significant contribution. Indeed, 16% is one of the largest of the direct tax losses, although it is not quite as much a loss as that from diesel duty in Northern Ireland or hand-rolled tobacco duty. Apart from those, however, the proportion of corporation tax not being collected is the largest of the taxes set out in the analysis.
Gavin Williamson: In 1997, we had the 11th lowest rate of corporation tax, whereas in 2010 we have only the 23rd lowest. Does the right hon. Gentleman believe that that might have some impact on corporation tax evasion?
Stephen Timms: I believe that it is important, as the previous Government made clear was their continuing intention, to have the lowest rate of corporation tax in the G7. That is why we reduced corporation tax when we were in government, and when we come to debate the rate, as we will in a few minutes' time, I will press the Minister to reiterate on behalf of the present Government the commitment that was made and indeed fulfilled by the previous Government-to have a competitive corporation tax regime.
Gavin Williamson: When global companies are looking across the globe to where they should locate their headquarters, is the right hon. Gentleman not concerned that we slipped so far down the rankings under a Labour Government?
Stephen Timms: No, we were successful in maintaining a competitive business tax system in the UK. It is true, of course, that if a company goes to Ireland, it will pay a much lower rate of corporation than it would in the UK, but that rate of corporation tax in Ireland is lower than in any G7 country. Our commitment was to keep the UK's corporation tax rate the lowest in the G7, and that is what we successfully did. It was important that we did so.
There is debate about whether the £40 billion figure is correct. I believe that HMRC did a serious and careful analysis. I also think there should be more discussion
with people such as Richard Murphy. I believe his figure for the tax gap on corporation tax was about £12 billion-not vastly more than the £9 billion or so in the HMRC figure. Richard Murphy also makes the point that there is uncertainty-perhaps more uncertainty-about that figure than some of the others that he estimates. Continuing discussion between people such as the tax justice campaign and HMRC is important so that we make these figures as accurate as possible. I very much hope that the Minister will confirm that it is his intention regularly to update the analysis that has been published, to be frank and robust in publication and to discuss the issues with the tax justice campaign, which takes a different view, and the TUC, which has also taken a close interest. Ultimately, it is in everyone's interest to have the best possible information available. I hope that the Minister will reassure us on that.
Matthew Hancock (West Suffolk) (Con): The right hon. Gentleman has just admitted that since 1997, in respect of avoidance or evasion of corporation tax, the tax gap was reduced by only £3 billion. Does he not agree, then, that it is wrong to go around the country telling people that the entire deficit could be dealt with if we just got to grips with this one issue? It is, of course, important to get to grips with it, but it will not on its own resolve the deficit. Is it not wrong to tell people that it could?
Stephen Timms: I am sorry if I misled the hon. Gentleman into thinking that the figure was reduced by only £3 billion as result of the previous Government's efforts. I did not say that at all. I would be happy to go through in more detail the efforts of the previous Government on this issue, but the crucial initiative was the disclosure regime, which we introduced in 2004 to great howls of protest, yet it has undoubtedly saved many billions in tax that would otherwise not have been collected. The total figure is certainly a great deal more than £3 billion. As to whether addressing this problem could be the sole solution to the problem of the deficit, however, I agree that it could not.
Stewart Hosie: The shadow Minister makes a point about the success of the disclosure scheme. It has been successful, but does he now regret not implementing a pre-commencement validation system with the Revenue before such avoidance schemes were put in place rather than a post-commencement disclosure, when the money has to be clawed back through retrospective legislation? Is it not better to avoid any avoidance happening in the first place?
Stephen Timms: The hon. Gentleman, who knows a lot about these matters, is right that this is one of the subjects that will have to be considered in looking at a general anti-avoidance rule. The problem, I think, is HMRC having to respond quickly to potentially huge numbers of pre-clearance requests of that kind, which would be a massive additional burden. If I were in the Minister's shoes, before going down that road, I would press very hard for some cast-iron assurances on the part of HMRC that those clearances could be provided quickly. The problem is that a lot of new bureaucracy would be required.
Stewart Hosie: I understand the argument and I have heard it before-last year, in fact. I welcome what the shadow Minister is saying, but given the concept of promoters or introducers of these schemes-effectively a clear register of people who might engage in this kind of activity-might it not now be easier than it would have been even two or three years ago?
Stephen Timms: I think it would still be difficult, complex and cumbersome. A judgment will have to be made about whether it is the right thing to do-effectively, the benefit of reducing avoidance would have to be worth the additional complexity. I am sure that this debate is still to come.
The Exchequer Secretary to the Treasury (Mr David Gauke): Before responding to amendment 11, I would like to thank my hon. Friend the Member for Lincoln (Karl McCartney) for making his maiden speech earlier. He is rightly proud to represent that fine constituency, and I am sure that his constituency will be rightly proud of him. I hope he represents his constituency for many years to come. I will deal with the issues he raised about capital gains tax-as already noted, he shows great independence of mind on this point-when I respond to a later grouping of amendments.
I am very pleased to see the right hon. Member for East Ham (Stephen Timms) back at the Dispatch Box. It is good to see him returned here and I hope he is returning to good health. He is certainly a formidable person to face on the other side of the Dispatch Box, as he has great expertise and experience in this particular subject. He was a highly popular and effective Minister, performing the same role as I now perform. His are big shoes to fill and I am sure that there will be plenty of disagreements in the months ahead, but it is none the less a great pleasure to see the right hon. Gentleman back, well and in good form.
Amendment 11 seeks the publication of a report assessing corporation tax avoidance and evasion and setting out measures to ensure the payment of tax before the reduction in the main rate of corporation tax can be applied. The Government are committed to a competitive corporation tax rate, which will show that the UK is open for business and encourage growth. The amendment is narrowly focused on the role of evasion and avoidance, so I shall explain later and in more detail our reasons for the more general changes proposed.
Terminology was a large part of the debate on the matter. As we have heard, tax evasion occurs when someone acts against the law. Tax avoidance involves compliance with the letter but not the spirit of the law, and it is right that the Government seek to minimise that. Tax planning is a case of acting in both the spirit and the letter of the law. There is a distinction, although there will be occasions when the line is a little blurred.
The Government are committed to tackling robustly avoidance and evasion, which undermine the effectiveness of the tax system, distort competition and increase the burden of taxation on those who do comply with the spirit and letter of the law. The emergency Budget clearly sets out the Government's strategic approach to reducing tax avoidance and evasion. As a number of my hon. Friends have pointed out, some matters relate to how we make tax law, and to ensuring that tax law has as much clarity as possible. At the time of the
Budget, we produced a well-received publication setting out a more deliberative and consultative way to make tax law.
There is also a strong case for a more simplified tax code. Too many allowances and reliefs and too much complication within the tax system provide opportunity for tax avoidance, which we seek to address. We will address long-standing avoidance risks, and I have announced an informal consultation on the introduction of a general anti-avoidance rule. I appreciate that there are arguments on both sides, some of which we heard from the right hon. Member for East Ham. We will ensure that we make changes in the law in a way that prevents increasing complexity and reduces the need for frequent legislative revisions. We will also ensure that we build in sustainable defences against avoidance opportunities when undertaking policy reform. The Government have already closed specific loopholes to prevent the avoidance of corporation tax, and clauses 8 and 9 protect about £200 million of tax revenues per year.
The Government fully support the type of transparency for which the hon. Member for Hayes and Harlington (John McDonnell) calls in his amendment. As others have pointed out, that form of transparency already exists. The right hon. Member for East Ham pointed out that HMRC has published an assessment of corporation tax avoidance and evasion, although it deals with not just corporation tax but tax across the board. In December 2009, HMRC published the document, "Measuring Tax Gaps 2009", which estimated the overall tax gaps across HMRC's regimes for the first time. Alongside that statistical release, HMRC also published estimates of the tax gap by behaviour, including avoidance and evasion, as well as the actions being taken to reduce the gap. As we have heard, HMRC's estimate for the tax gap as a whole is £40 billion, and the definition includes evasion and avoidance, debt and legal interpretation-as my right hon. Friend the Member for Wokingham (Mr Redwood) pointed out, there are sometimes disputes between two parties, both acting in good faith.
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HMRC estimates that corporation tax avoidance by large companies amounts to £3.4 billion, and that such avoidance by small companies amounts to £0.3 billion. We have heard a lot this afternoon about the TUC figures produced by Tax Research UK and by Mr Richard Murphy in particular. As I understand it, his figure for corporation tax avoidance is £12 billion. I note that the right hon. Member for East Ham disagrees with Mr Richard Murphy's estimate of the tax gap. Mr Murphy's calculations on corporation tax avoidance are on the basis of the gap between the statutory rate, which was 30% at the time of the assessment, and the effective rate, which was somewhat lower. That estimate does not take into account those reliefs and allowances that Parliament has determined should be available, for example capital allowances, to the extent that they are more generous than depreciation treatment would allow. Mr Murphy has acknowledged that point and is considering it further.
In addition, as far as we can see, no allowance is made for double taxation relief, which prevents a taxpayer from paying tax twice, in two different jurisdictions, for the same profits. The right hon. Member for East Ham referred to country-by-country reporting, and we continue to consider whether there is a practical way forward in
that regard. If we are to have country-by-country reporting, however, double taxation relief becomes all the more important. As far as I can see-if I am wrong, I am sure that Mr Murphy will correct me in his lively and entertaining blog, as he follows these matters closely-the Exchequer cost of double taxation relief is £16.7 billion. It is not clear that that is taken into account in the distinction between the statutory and effective rates. Such a top-down approach does not work for corporation tax.
There are other flaws in Mr Murphy's methods. For example, he does not appear to take into account any tax recovered through HMRC's compliance activity.
Mr Redwood: My hon. Friend reinforces my point: avoidance covers a variety of different things. In this case, it seems to cover conduct that a Government are trying to encourage, as well as conduct that a Government are trying to repress or stop. That is why the House needs a little more humility instead of rushing into saying, "There's all this tax being avoided." Some of it is being avoided for reasons that the previous Government approved of.
Mr Gauke: I am grateful to my right hon. Friend, who brings me to my next point.
The Government see the distinction between tax avoidance and tax planning, but those lines can be blurred, and sometimes use of the terminology is not as accurate as it might be. For example, I quote the "Missing Billions" report, produced for the TUC, which, after setting out a series of numbers leading towards the estimate for corporation tax avoidance, states:
"Much may be due to legitimate tax planning, but by no means all is. Some, undoubtedly, is due to tax avoidance."
That seems to me to suggest a slight blurring of the lines. Again, I am sure that I will be corrected in Mr Murphy's blog if I am wrong, but there does appear to be some confusion.
I am not suggesting that tax avoidance and tax evasion do not matter. The £40 billion figure is significant. However, it is also true that we cannot pretend that if we just address this problem, the deficit will go away. Although it is always tempting for a new Minister in a new Government to attack everything that happened before, I must point out-not purely out of fondness for my predecessor, the right hon. Member for East Ham-that, in international terms, £40 billion is not too bad as a percentage of tax revenue raised.
HMRC does not do particularly badly. Indeed, it tends to lead the field in this respect. Nor has it deteriorated during a period in which it has incurred substantial job losses, as a number of Members have pointed out. I believe that it employed 97,000 people in 2005, and the most recent figure is 69,000. It is a question of deploying resources as effectively and efficiently as possible.
None the less, to the extent that it is possible to go further in reducing evasion and avoidance, the Government are keen to do so, and I have set out some of the ways in which we intend to do so. I can tell the hon. Member for Hayes and Harlington that we already assess the amount of tax lost through avoidance and evasion, and that we are committed to reduce those losses as much as possible. We will also continue to publish the tax gap figures as frequently as possible, to provide a focus for HMRC and to ensure that our debate is well informed.
I hope that what I have said gives some reassurance to the hon. Member for Hayes and Harlington. Let me also remind the shadow Minister that HMRC introduced a banking code of practice in 2009, and HMRC's annual report will provide anonymised statistics on the number of banks that have adopted it. We believe that the code encourages banks not to enter into, or be party to, avoidance arrangements, but we will of course continue to monitor and review its operation.
John McDonnell: I am grateful for the Minister's assurance that information on the tax gap will continue to be published, but my amendment also deals with when it will be published, and asks for further information to be given on the measures that will be taken to tackle the problem.
Mr Gauke: The hon. Gentleman's points have been noted. Today's debate is the second on this matter in which I have taken part in my present post-the first was in Westminster Hall-and I am well aware that it is of considerable concern to Members on both sides of the House. It has also featured heavily in Treasury questions, which will take place again tomorrow. Who knows? There may be a question on this very subject then.
The hon. Gentleman is right to hold Ministers and HMRC to account in regard to how we seek to reduce the tax gap. The Government are taking the matter seriously, and, in the spirit of transparency in which we operate, we will provide as much information as we can so that our debate is as well informed as possible. In the light of that assurance, I hope the hon. Gentleman will accept that the amendment is not necessary and will withdraw it.
John McDonnell: I think that the debate has been helpful to Members on both sides of the Committee. An attempt has been made to get out of the trenches, and to engage in a wide-ranging discussion of how we can proceed in a pragmatic way. I believe that this will become one of the key issues that people will expect us to address as the economic crisis continues. If they see public expenditure cut so that their local schools are not refurbished, and if they see a tax on welfare benefits, they will expect us at least to maximise the revenue from the tax that people and organisations should be paying. Justice and fairness in the taxation system will become critically important to more and more people.
Some of the arguments that we have heard today have been very helpful, and at times they have been entertaining. I am fascinated by the concept that reducing taxation reduces evasion and avoidance: that is almost an argument for no taxation at all, although it may not gain much purchase in the House. We all accept the arguments about simplicity, but the problem with simplicity is that it makes loopholes possible, and we then need complexity to tackle the loopholes. It is a circular problem. However, it is a joint venture for us to try to ensure that the legislation that we draft is appropriately simple.
Kwasi Kwarteng: What was said was that simplicity aided the avoidance of loopholes, and that complexity led to more loopholes. The hon. Gentleman has just contradicted that.
John McDonnell: I was talking about what had been experienced in the past, but we can all sign up to the pious statement that we will achieve as much simplicity as possible. I merely say on the basis of practical experience in the House that, unfortunately, when we have sought simplicity, people have argued for further complexity to tackle the loopholes. However, we will all aim for simplicity, and the onus is on us to try to draft legislation in a way that achieves it.
I welcomed the Minister's statement about the continuation of, and consultation on, the commitment to the anti-avoidance rule, but I hoped that at some stage a future report from Government would enable us to engage in a wider debate on how we could install in legislation the duty to comply more simply and effectively. As my right hon. Friend the Member for East Ham (Stephen Timms) pointed out, the issue that arises time and again is the ingenious use of devices to avoid the spirit of the law. In other contexts, we draft legislation in such a way that when a device appears it can be seen to be a device, which is patently against the spirit of the legislation and whose effect can therefore be outlawed. I also welcomed the wider debate on the anti-avoidance principle to be installed in legislation.
This has been a helpful debate. I leave the Minister to the savagery of Richard Murphy's blog: I am sure that Mr Murphy will respond to each of the points that he raised. Let me make this point, however: whether the tax gap is £40 billion or £120 billion, when people out there are experiencing cuts in public services and reductions in their pensions and are having to work for longer, they will expect us to collect those taxes. The subtle distinctions between evasion and avoidance will be lost on them. They will expect the House of Commons to produce legislation ensuring that HMRC is sufficiently staffed and sufficiently resourced to bring in the tax, and to deal with the significant part of the deficit that we have identified in the past few weeks.
On the basis of the assurances that we have had from both Front Benches of co-operative working on this issue, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Chris Leslie (Nottingham East) (Lab/Co-op): I beg to move amendment 21, page 1, line 6, at end add-
'(2) The main rate of corporation tax for financial year 2011 will remain at 28 per cent. on the profits of banking institutions as defined by section 2 of the Banking Act 2009.'.
The Temporary Chair (Mr David Amess): With this it will be convenient to discuss the following:
Amendment 34, page 1, line 6, at end add-
'(2) Prior to this rate taking effect, the Chancellor will place in the Library of the House of Commons an assessment of the impact of this clause on the banking sector.'.
Amendment 50, page 1, line 6, at end add-
'(2) This section shall not come into force until the Treasury has laid before the House of Commons as assessment of the impact of this section on-
(b) all other sectors to which corporation tax applies.'.
Chris Leslie:
My amendment is quite simple. It does not seek to alter the rate of corporation tax suggested in the Budget, except in one respect: it should not apply to
banks and banking institutions. Surely few issues can highlight the unfairness and injustice of the Government's Budget more effectively than the suggestion that, of all the sets of institutions that should benefit from more advantageous tax arrangements, the banks should be given such a windfall at such a time.
I was prompted to table the amendment by a flurry of reports that appeared immediately after the Budget statement, suggesting that the banks would be net beneficiaries. Deutsche Bank analysts were reported as saying that the Budget was a "good outcome for banks", and John-Paul Crutchley, an analyst at UBS, expected that Lloyds and HSBC would benefit by 2012 as a result of, particularly, the cut in corporation tax.
We must look at this measure in the context of the other Budget provisions. While the Finance Bill is, I suppose, substantial to a degree, it addresses only one short set of Budget measures that presumably will be brought before the House in different Bills at different times in the coming year, and it is a shame in a way that we will not get a chance to address this corporation tax measure in that wider context. I do not think any Members are opposed in principle to the banking levy that the Chancellor announced, although many might question whether it is tough and stringent enough.
Mr Kevan Jones: Does my hon. Friend agree that this cut will be unfair to small businesses in that while the major banks that got us into the financial mess two years ago will benefit from it, many small and medium-sized businesses will have to pay for it through the cut in the annual investment allowance from 2012?
Chris Leslie: Indeed, I think there is a set of unfairness issues that affect not only public services and our constituents, but business to business. Many small businesses will be incredulous at this giveaway to the banks, which are having their corporation tax cut. HSBC's own banking analysts agreed that they would be better off. One of them was quoted in the media as saying:
"We'd expect most domestically-orientated banks, for example Lloyds, to be better off after four years than they were pre-Budget."
Analysts at Redburn Partners said that Lloyds in particular would see a 3% rise in its earnings per share by 2012, especially as corporation tax is planned to be reduced to 24% over time. The measures in this Bill make only a 1% change in that tax from 28% to 27%, but as the years pass the banks' gains clearly will accrue and become even greater.
It was no coincidence that the share prices of some of our leading banks leapt after the Budget statement, even though, paradoxically, it included a banking levy that they supposedly feared. Lloyds shares gained 2.7% the morning after the Budget, and others were similarly jumping for joy. The Daily Mail-a journal of great repute-reported that a city insider was privately very happy, saying that
"some banks will have a feeling of glee at the way this has worked out. But none would be stupid enough to say anything openly."
It will be for the Minister to defend this measure of course, and I look forward to hearing him explain why, of all institutions, the banks deserve this windfall at this time.
The interplay between the banking levy and the impact of the corporation tax cuts must be at the heart of our considerations this afternoon, and I am glad that my
Front-Bench colleague my right hon. Friend the Member for East Ham (Stephen Timms) and the hon. Member for St Ives (Andrew George) have tabled amendments that also seek to probe that issue. My amendment would have the effect of not passing on the corporation tax cut, and theirs' would insist that at the very least the Treasury conduct a review of these matters.
My concern remains that the banking levy was set at far too low a rate-starting at 0.04% and rising to the heady heights of 0.07%. I gather that might even be about half the level at which the Americans set their banking levy. The notion that this was all done internationally at the same level is absolutely not the case. For some bizarre reason, the Chancellor really held back. He made great play of this levy in the Budget statement because he knows the general public are angry about the situation the banks have left in this country. They are furious that the banks were the source and cause of many of our national debt problems and the deficit we face today. I am glad that the Government say at page 26 of the Red Book that they will consult on the final details of the banking levy, and I urge the Minister to think carefully about how that levy will play in relation to the corporation tax reduction, because if the banks are gaining from that, it must be possible to ensure that they pay their fair share at some point .
Matthew Hancock: Does the hon. Gentleman regret his party's position before the last election, which was that we should not have a banking levy unless everywhere else in the world signed up to it? Does he therefore applaud the current Government's leadership in unilaterally putting forward a bank levy?
Chris Leslie: I may be wrong, but it is my recollection that a number of countries simultaneously came out with their banking levy arrangements, on the continent as well as America, and it was, of course, the natural point at which to introduce a banking levy. It is a matter of nuance whether we get a collection of large industrial countries to act simultaneously or we act on our own as a country, but I think it is necessary to have a banking levy that recoups all the payments that the banks took from our taxpayers.
Mr Kevan Jones: My hon. Friend refers to page 26 of the Red Book, which states at paragraph 1.63 that
"the Government will introduce a levy based on banks' balance sheets from 1 January 2011, intended to encourage banks to move to less risky funding profiles."
The paragraph concludes by saying:
"The levy will result in a rebalancing of the burden of taxation between banking and other sectors."
Does my hon. Friend agree that that actually supports his amendment, in the sense that we should not take decisions on the banks' corporation tax rates before this levy is introduced?
Chris Leslie:
I could not agree more. It would not be in order to stray too far from the topic of corporation tax, but it is important that we see this change in context. It appears that the Chancellor press-released the fact that he was taking, in some brave measure, an amount of money from the banks through the banking
levy, but failed to publicise that he was also giving that back with the other hand through the reduction in the corporation tax rate.
We are talking about significant and serious amounts of money, and the Minister ought not to be so careless with this revenue as it is needed to repair our deficit and to protect our public services. I am very surprised that the Treasury did not take action to plug this loss of revenue, but chose instead to apply the reduction in corporation tax across the board.
We must not forget that the banks have already benefited from an enormous amount of largesse from the taxpayer more widely. The Royal Bank of Scotland and Lloyds Banking Group had £76 billion of their shares bought by the taxpayer. The Bank of England had to be indemnified against losses incurred in providing more than £200 billion of liquidity support. There have been guarantees of up to £250 billion of wholesale borrowing by the banks to strengthen liquidity. Also, £40 billion of loans and other funds were made to Bradford & Bingley and the Financial Services Compensation Scheme. There was insurance cover of more than £280 billion for bank assets as well. These changes were not unnecessary at the time; they were absolutely vital as a way of ensuring that our banking system-our credit system-did not collapse entirely.
Had the coalition parties been in power at that time they would have had to fulfil exactly those same commitments, assurances and undertakings to make sure that our banking system did not collapse. That is why it infuriates so many members of the public to hear Members on the Government Benches claiming that that was a partisan cause or that our spending such a large share of our national income on public services is the real cause of our deficit, when in fact responsibility lies squarely at the feet of our banking sector.
Mr Love: May I correct something my hon. Friend has said? Most of the measures the previous Government introduced to safeguard the financial system were in fact opposed at the time by the Conservative party, although it appears to have changed its mind. I also want to ask about the public concerns about the widespread reports from banking spokespersons in respect of this supposed levy. They are suggesting that there will be an opportunity during the consultation to weaken the legislation and reduce the amount of tax they pay. Does my hon. Friend deprecate such projects, and will he try to ensure that the Government stand firm against any such thing?
Chris Leslie: That is entirely so. Those with significant financial wherewithal-the corporate advisers, the consultants, the accountants-are always exceptionally adept at lobbying Ministers and making their points in their detailed ways, often with the general public entirely unaware that such measures are being put in place to their advantage. Clearly, the banks have been very aggressive in lobbying for these changes. It appears they may well have been successful in watering down the banking levy, while at the same time gaining benefit from this corporation tax change.
The Minister may argue, "Ah well, some of our banks made very significant losses in previous financial years, and because of the complexities of our corporation
tax law, companies have certain rights to recoup some of those losses from the corporation tax they paid previously." In my view, the banks should also be excluded from making such claims-or at least, their ability to do so should be lessened. I was unable to frame my amendment in that way-that takes a certain level of drafting-but we must ensure that the Treasury does not allow the exceptionally clever and highly paid advisers whom the banks can employ to find their way round the provisions and take even more money from the taxpayer.
Mr Kevan Jones: Reference has already been made to Barclays, whose full-year profits increased, I understand, by 92% in 2009 to stand at some £11.6 billion. Does my hon. Friend agree that Barclays will also gain from what is now proposed?
Chris Leslie: That is especially true over the longer term, and, as I was saying, although clause 1 refers only to the financial year 2011-12, the Government clearly intend to go even further even faster.
There may well be a case for saying that all companies need to be treated the same and that it would be wrong to discriminate against a particular class, and the Minister may argue that there are other sets of corporations-large oil companies, the privatised utilities and so on-that the public would frown on if they regained a corporation tax benefit, for example. In my view, the public are getting wise to the cause of the reduction in public spending, some of which, naturally, is driven by Conservative party ideology. However, the reductions that are driven by the existence of the deficit are largely the result of the costs incurred in bailing out the banks and the subsequent recession. Because of the lack of credit available in the wider economy, we had fewer tax receipts. In fact, the real story of the deficit is not that we are spending so much on public services, but that tax receipts are considerably lower.
Ian Lucas (Wrexham) (Lab): Is my hon. Friend as confused as I am by the Government's trumpeted aim of rebalancing the economy, while at the same time they introduce a corporation tax cut such as this, which favours companies across the board-from retail to banking-but not manufacturing? In fact, the capital allowances scheme actually penalises manufacturing companies. Does not the generality of the Government's approach contradict their own headlines?
Chris Leslie: Indeed. This is a very perplexing set of Budget measures and if we have the chance to debate clause 1 stand part, there are a number of other questions we might want to probe the Minister on. For instance, why, inexplicably, are the reductions in the "small profits rate" of corporation tax not in the Bill? It seems that the Government are very adept at putting at the head of the queue the large institutions that will bleat and shout the loudest. It is incredible to me that the Government are giving priority to those institutions, which should be more contrite and should contribute a fair share. It is the concept of a fair share that eludes both the banks and the Government.
6.45 pm
Andrea Leadsom (South Northamptonshire) (Con):
Is the hon. Gentleman confusing a healthy banking sector that can contribute to the regeneration of a healthy economy with the issue of banks paying bonuses?
I do not see what reducing the headline rate of tax that banks pay, which inevitably leads to healthier balance sheets and greater ability to lend to companies and is good for our economy, has to do with what I think he is talking about, which is the banks' payments to themselves. I see those two issues as being very different. Perhaps he can explain.
Chris Leslie: I am grateful to the hon. Lady who, I am sure, would have wanted to declare an interest had she been in her previous guise. I understand that she was previously employed in the banking industry, although I may be wrong and I do not want to disparage her in any way. However, it is important to know.
Andrea Leadsom: It was 10 years ago.
Chris Leslie: I just wanted to place the hon. Lady's comments in their particular context.
It is certainly true that the general public have a distaste for the excessive bonuses and remuneration of those in the banking industry, but such remuneration would not be possible were it not for the high profit rates that the banks were able to post and report on so many occasions. We are indeed all shareholders in many ways-either directly, or indirectly through our pension funds or as taxpayers-and Members on both sides of the House will hope that, over time, the banks will be returned to some level of normalcy. However, necessarily, they must not, as institutions, evade-or avoid; I want to use the correct parlance-paying their fair share.
Mr Kevan Jones: It is not just the general public who feel that way. On 20 April 2010, the now Deputy Prime Minister-I think he and his party are still one and the same-called bankers "reckless and greedy", saying that they have been allowed to hold a gun to our heads.
Chris Leslie: My hon. Friend is right. Before the general election, there was a lot of tough talk and rhetoric from both Conservatives and Liberal Democrats. Indeed, The Sun-a journal of great repute-said on 20 March that the then Leader of the Opposition
"singled out the banking industry as one example of 'vested interests' he is determined to confront and who he accuses Prime Minister Gordon Brown of failing to stand up to. 'We had the biggest bank bail-out in the world. We can't just carry on as if nothing happened'".
I am afraid we may well be carrying on as if nothing had happened, especially if the banking levy is offset by this giveaway in corporation tax.
Mr Jones: Let me add another example of the feeding frenzy. In December 2008, the current Prime Minister told Channel 4 that he wanted to see more senior bankers in prison.
Chris Leslie:
I would not want to set the hare running across the City of London that the long arm of the law is necessarily about to grab them on the shoulder, but I understand the frustration and anger of the British public more widely, and all politicians in this House should be angry. While it is fun and games for the Conservatives and Liberal Democrats constantly to say, "Ah well, it was the Labour party that left us in this
predicament", they know very well that the root cause was the greed and excess of the banking sector, which ought to pay its fair share.
Andrea Leadsom: The banking sector is far from being given a free ride by this Government. We are absolutely not going to allow it to get away with past transgressions-far from it. In fact, it is this Government who are going to restore banking supervision and lender-of-last-resort powers to the Bank of England. The tripartite system that Labour put in place, and which led to some of the failings of the banking system, was a key mistake. This Government are not going to ignore those issues. We also have a commission to look at competition, which is key, because we have to re-establish fair competition in our banking system and get rid of the tendency towards ever larger and more consolidated banks. I agree, in part, with the hon. Gentleman, in that we have to take the banking system seriously, we have to improve it and we absolutely have to make it more competitive. However, I do not agree that we should consider a differential rate of tax, as that is simply uncompetitive.
Chris Leslie: The hon. Lady makes her case. We can all, in hindsight, say that regulatory improvements should clearly have been made. The British Government could claim that work should have been done to ensure that that was the case in America, in every country in Europe and all the around the world. It is absolutely true to say that the whole worldwide banking system ought to have been more closely regulated, but that was the first time I have heard a Conservative Member defend the reduction in the corporation tax rate-that is the specific measure that we are discussing. There may be a need to debate the regulatory changes that should apply to the financial services industry-I look forward to those proposals being made-but I still do not understand her argument about anti-competitiveness. It is important to hear why the Government believe that the banks deserve this particular cut.
Mr Kevan Jones: The hon. Member for South Northamptonshire (Andrea Leadsom) has just said that we should not have a differential rate of tax, but may I again cite paragraph 1.63 on page 26 of the Red Book, which comments on the introduction of the banking levy? Its final sentence says:
"The levy will result in a rebalancing of the burden of taxation between banking and other sectors."
Is that not exactly what we are going to see here?
Chris Leslie: Quite, and this is important. We could send a signal from this House that we, as politicians and representatives of the general public, believe that that particular industry has to pay back the cost it is has left upon the shoulders of the general public. Is it not always the case that the general public-the ordinary working people-have to dig us out of the hole created by those affluent and comfortable individuals who work in the banking system?
Clive Efford:
I am grateful to my hon. Friend, because his probing is uncovering who is winning the arguments on the Government Benches. The Liberal Democrats went into the election calling for a 10% levy on banks, but the outcome is that what has been raised in the levy
has more than been compensated for by the corporation tax cuts. We are seeing who is winning the arguments on the Government Benches on making the banks pay their fair share.
Chris Leslie: That is the case, and we have seen the glee with which the banking industry reacted after the Budget to this puny banking levy of less than 0.1% on the banks' profit and asset base.
Chris Heaton-Harris (Daventry) (Con): A few moments ago, you were talking about the banking industry that had received the "largesse" of the taxpayer, but your amendment deals with the whole banking industry, which includes those banks that did not come to the Exchequer asking for a bail-out. How do you differentiate between the two? Or are you quite happy just to nail the whole thing?
The Temporary Chair (Mr David Amess): Order. It is "the hon. Gentleman", not "you".
Chris Heaton-Harris: I apologise, Mr Amess.
Chris Leslie: The hon. Gentleman makes a fair point. I have tried to define "banking institutions" by referring to the Banking Act 2009. I believe that I would thus exclude the building societies and other more mutual, co-operative institutions that I would not regard as being as culpable as the plc-based financial institutions. Irrespective of whether a particular bank received a direct sum from the taxpayer, all those banking institutions benefited from the implicit and implied safety net that the taxpayer provided. Were it not for that underwritten implicit guarantee, banks such as Barclays and others would have been in significant trouble. They may not have taken the handout themselves, but had the markets not felt that the Government of the day were prepared to act were they so requested or had it been necessary to do so, all those banking institutions would have been in an entirely different position.
Ian Lucas: I commend my hon. Friend's response, because he has just said exactly what I was going to say about the fact that the whole sector, including those organisations that did not receive direct investment from government, benefited from the decisive action taken by the then Labour Government, which, I repeat, was vociferously opposed by the Conservative party.
Chris Leslie: That is absolutely the case, and it perhaps betrays the enlightenment of Government Members on this particular issue. Each and every one of them who votes against my amendment, or even against the other amendments on the Order Paper, will need to go back to their constituents tonight and explain why they feel that the banking institutions deserve this handout. This is an incredibly important point and it is very useful to have the chance to debate it.
Mr Edward Timpson (Crewe and Nantwich) (Con):
I have been considering the hon. Gentleman's amendment carefully and listening to what he has had to say. What I really need to hear from him is whether he has assessed its impact on the competitiveness of banking institutions in this country and on this country's competitiveness in terms of attracting banking institutions to the UK to
do their business? Without such an assessment it is difficult to know whether his amendment is going to do what I hope it would do.
Chris Leslie: I am delighted that that hon. Gentleman is thinking about supporting the amendment. That is incredibly important and a good step forward. I genuinely welcome his support this evening, because this could be a close-run thing. I have made an assessment, as far as I can as a humble Back Bencher. My assessment is that there are hundreds of millions of pounds at stake here that the banks could be gaining. However, I also support the amendments grouped together under this clause. We need the Treasury to undertake an urgent assessment. If the Minister says that he accepts the principle of my amendment but that he wants to do more work on it to get the details right, I would, like him, be happy to consider my position on pressing this amendment.
Matthew Hancock: Does the hon. Gentleman have any evidence to suggest that the reduction in corporation tax on banks would offset the £2.5 billion to be raised by the bank levy?
Chris Leslie: Yes I do, and at the outset of my comments, I quoted a series of highly professional and well-respected analysts from across the City of London. They were saying that this was a "good outcome", that there would be "a feeling of glee" about the Budget measures, and that they expected
"most domestically-orientated banks...to be better off after four years".
It is important to remember that the £2.5 billion supposedly gained from the banking levy is obtained only as it progresses to years four or five. At the outset, it generates an exceptionally small amount of revenue-I believe the figure is less than £1 billion.
Matthew Hancock: Can the hon. Gentleman supply any evidence that the corporation tax cut is larger than the £2.5 billion to be raised by the bank levy, because none of the things that he read out was evidence of that?
Chris Leslie: If some analysts, who on the secondary evidence before me are saying publicly that they believe that the corporation tax-
Chris Leslie: If they are saying that the corporation tax cashback, as my hon. Friend says, will offset the levy, perhaps by less than the banking levy or perhaps by more, then I think this would be wrong. It sounds as though the hon. Member for West Suffolk (Matthew Hancock) is defending the cashback arrangement that he wants to implement- [Interruption.] The hon. Gentleman says he is in favour of cutting the corporation tax rate for the banks. Government Members will vote that way. I am incredulous about that.
Mr Jones: Does my hon. Friend agree that that is completely at odds with the rhetoric we heard from both the Liberal Democrats and the Conservatives in the lead-up to the election? I hasten to add that the Conservatives went very quiet the nearer we got to election day.
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Chris Leslie: Indeed. I cannot keep track of the turns and U-turns, with so many permutations, that the Government go through or of the chamaeleon-like arrangements of some hon. Members. There are honourable ladies and gentlemen in all parties-even in the parties opposite-and I appeal to them to consider the amendments carefully. These are incredibly important suggestions. I have not yet heard a case in the interventions-except, perhaps, for the competitiveness argument, which I shall discuss in a moment-for why there should be a corporation tax windfall, this boon for our large banks. Perhaps I shall hear one from the hon. Lady.
Andrea Leadsom: I want to clarify. It is to all our benefit to have a healthy financial services sector. Obviously, all parties agreed, when we had the financial crisis, that we simply could not afford to see our banking system go into meltdown. There is no doubt that that is precisely what would have happened. Nevertheless, through the banking levy the Government are seeking to make the banks compensate the taxpayer for the undoubted support that they received. If there were a reduction in corporation tax alone with no offsetting bank levy, of course the Opposition could say that the banks were getting a free ride. However, the existence of a bank levy means that the banks are paying compensation to taxpayers for their largesse while at the same time ensuring that we retain a highly competitive financial services sector that can encourage and help our economy to recover.
Chris Leslie: I am interested in the hon. Lady's arguments. She is saying that it would be wrong for the banks to receive a corporation tax cut-that is an important concession-but that it is all right because they are paying the banking levy. As I reckon it, that puts them right back to the standstill that they were at in the first place. In other words, they would not be paying any more and there would be no reparations, as I see it, for the public at large. They would simply be standing still. It beggars belief that the Government, having talked tough before the election, are now going to give a free ride to the banks and offset some of the costs of the banking levy.
The hon. Lady mentioned earlier that there is, of course, the Government's independent commission on banking. I understand that the Secretary of State for Business, Innovation and Skills is a promoter of it and I would be interested to hear his views on whether we should give a corporation tax cut to the banks. He has gone from saint to axeman in a matter of weeks, but it is the impact on public services that we are worried about most of all.
As I was saying, it is the unfairness of this measure that strikes home most of all. People who are in a comfortable position are lecturing the world about the cuts to our public services that are needed. What really sticks in the craw is the statement, "We are all in it together", which hon. Members will have heard. Well, that is not the case for the banks. They are not in it with the rest of us.
It reminds me a little of the polite and well-spoken cat-burglar who sneaks in to one's home as a thief in the night and tries to purloin all sorts of goods and chattels but, when caught red-handed, explains, "No, I'm not
stealing from you. I'm just rearranging the furniture and decluttering the house." It is a grab of the worst possible kind-a grab on the public services on which the poorest in our community rely. The revenue from this measure and from reducing the corporation tax on the banks is needed by our vital public services. I hope that the Treasury will take the amendment seriously. The banks have not earned the right to this windfall. They do not deserve it and I commend the amendment to the Committee.
Vernon Coaker (Gedling) (Lab): On a point of order, Mr Amess. Has the Secretary of State for Education given you any indication that he wishes to come to the Chamber to explain some of the errors that have already come to light in his fifth list? Additionally, during questions this afternoon, the Secretary of State claimed that one individual had received more than £1 million in consultancy fees. The Department for Education has now admitted that that was £1.35 million of consultancy fees paid to KPMG as a whole over three years. Do you not think that the Secretary of State should be coming to this Chamber and have you had any word from him that he wishes to do so?
The Temporary Chair: I have listened very carefully to what the hon. Gentleman has said, but I am afraid that the point of order is of no relevance to the Committee stage of the Finance Bill.
Andrew George: I want to speak in support of amendment 50, which is tabled in my name and those of my colleagues. I congratulate the hon. Member for Nottingham East (Chris Leslie) on the manner in which he proposed his amendment. The broad thrust of the case that he seeks to probe and possibly to press to a vote later on-we do not know-is, I think, worthy of being probed. The House should obtain a great deal more information on the issue before we make a decision.
I have asked a large number of parliamentary questions on the subject and, more particularly, on the banking levy and the basis on which assessments have been made to set that proposed levy at the level at which it will be set. It is rather frustrating for many of us who wish to engage in the debate on corporation tax and to cross-reference it with the banking levy that both measures are not contained in the Bill. I understand, of course, that there will be a consultation on the banking levy before its implementation in January, and I am sure that the Minister will say that they could not both be contained in the Bill because it was proposed that the arrangements would be undertaken in such a manner. However, leaving aside the politics of the issue, the broad thrust of the argument, on which I understood that all parties were agreed, is that when we came to set the first Budget after the general election, those who dropped this country in it and caused the public finances to be in such a serious state would do most to help us to get out of it and to help to restore our public finances. We should be looking to those sectors that are most culpable to make the greatest contribution.
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