“I would agree with that. There is no such thing as an end-user guarantee on anything other than the most sophisticated of weaponry. Everything below the level of major aerial, maritime and ground-based combat systems—the really high-tech stuff that we produce—that is classed as small arms, light weaponry or even medium-range weaponry, is on the market once it is sold to anybody.”
A key question for NATO is whether our decision takers will take account of the very different way in which arms are seen in that part of the world. Arms are seen not merely as weapons but as money-making opportunities. Arms are bazaar items; they are there to be bought and sold at a profit if at all possible.
In conclusion, I say to my right hon. Friend the Secretary of State for Defence, to my right hon. Friend the Foreign Secretary and, most particularly, to my right hon. Friend the Prime Minister: before deciding whether to supply particular lethal weapons and equipment to Syria, take note of what happened to the Libyan
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stockpile. They should ask themselves the questions, “Where are the British weapons that went into that stockpile; which countries are they now in; and in whose hands are they now in?” Most of all, they should ask themselves, “If Britain is going to supply military equipment to Syria, what is the risk of putting petrol on the fire?”
2.20 pm
Mr Bernard Jenkin (Harwich and North Essex) (Con): If I may say so, it is a privilege to follow such a powerful speech about the spread of weapons. The whole House respects my hon. Friend’s extraordinary devotion to his work on arms control for the Quadripartite Committee. He approaches his subject with a passion and knowledge that is probably unrivalled in either House of Parliament.
If I may, however, I would like to respond, perhaps impertinently, to my hon. Friend’s implied rebuke to the Government for their helping to persuade the European Union to lift the arms embargo on the supply of weapons to the Syrian National Council—the least unrespectable part, if I may put it that way, of the Syrian opposition, which we would want to be properly represented in the peace negotiation or peace settlement that we are all striving to achieve. I support the Government in seeking to redress the extraordinary imbalance affecting the more reasonable forces involved in this extraordinarily bloody and complex conflict.
NATO should be agonising over this whole issue because it will have to pick up the pieces of a spreading war and conflagration that almost inevitably will occur unless the United States, Russia and the other major powers in the region—including, perhaps, even Iran—start to sit around a table and work out how to contain the conflict.
We were right to question whether there might be a case for sending arms into Syria to try to redress the imbalance, because the regime is already using a massive stockpile of weapons. Russian-trained pilots are flying Russian aircraft, dropping Russian munitions and firing Russian shells out of Russian guns at civilians all over Syria. I find it very difficult to tolerate the idea that the Russians should be able to do whatever they want in their bloody way in that country, while the west sits idly by doing nothing. It is not just the Russians, as extremist Sunni factions, too, are being armed by Qatari and Saudi interests, which are pouring weapons into the Syrian conflagration.
The danger is not that our sitting back and doing nothing will mean that nothing happens or that the pre-2010 stasis will reassert itself as Assad reasserts his power. The danger is that this conflagration will grow and grow and grow. I therefore think the Government are right to try to redress the political balance and to tempt the Americans into entering this crisis—otherwise, NATO will finish up having to pick up the pieces in a very much more active and perhaps unfortunate way than we would wish.
That brings us back to our subject, Madam Deputy Speaker—I hear you heaving a sigh of relief—which is the question, “What is NATO in our modern age?” I thought that my right hon. Friend the Member for North East Hampshire (Mr Arbuthnot), the Chairman of the Defence Select Committee, was right when he said that NATO has become a coalition of the willing—an
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organisation or a military alliance from which a coalition of the willing can be drawn. I do not rebuke the Minister for representing the Government at this debate because NATO is a political alliance that represents the foreign policy of this country, albeit backed by national military capability, pledged in co-operation to support the objectives of that political alliance.
Why is NATO still needed? I hope that I have just exposed one possible reason—to prevent war and to contain conflict. The reason NATO seems to be redundant and out of date to so many of our citizens today is that it has been so successful—the most successful military alliance in modern history—at containing, deterring and preventing conflict so that our continent feels perhaps deceptively safe from foreign conflict. NATO not only won the cold war, but keeps the peace. People should not forget the adage “If you want peace, prepare for war”, as that is what NATO is about.
Deterrence is the watchword—preventing wars rather than fighting them. That is why we spend money on defence—not to use the military capability in hot conflict, but so that we do not have to use the capability at all. Its use is pacific. That is one of the reasons the nuclear deterrent lies at the heart of NATO military doctrine. It is the relationship between the future of NATO and the continuation of our own nuclear deterrent that I shall explore briefly this afternoon.
There are three NATO nuclear powers: France, Britain and the United States. What threatens the future of NATO today is not just apathy or the parsimony of its member Governments’ defence budgets, and neither is it ignorance about its vital role. NATO is not going to be abolished suddenly. Nobody is going to make a decision at some NATO summit that NATO has had its day and will be wound up. The great danger is that NATO withers. I put it to the House that, with the war fatigue following Iraq and Afghanistan and the lack of appetite for NATO to play its deterrent peacekeeping and stabilisation role across the world, NATO is already withering. The collapse of key components of NATO is another danger, as is the uncertainty and the question mark that still exists over the continuation of our own nuclear deterrent. In fact, that is a threat to the continuation of NATO.
With the greatest respect to those who advocate European Union alternatives or supplements to NATO, I say that without NATO European defence is sunk. NATO has been doing European defence and security and it is doing European defence and security: there is no substitute or alternative to NATO.
We have left a question mark about the vital part of NATO’s capability. Our nuclear deterrent is pledged to the defence of NATO and our NATO allies. The Government have conducted a study into possible alternatives to the Trident nuclear deterrent. Now is not the time to go into great detail about that, except to say that we understand that it has exposed the truth: that there is no viable or cheaper alternative to our nuclear deterrent. Trident is the only viable nuclear deterrent on offer to the United Kingdom.
Mr Spellar: Can the hon. Gentleman—who is probably better informed than Opposition Front Benchers on this—give us any idea of when he expects the outcome of the study to be published so that we can have that informed debate?
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Mr Jenkin: I am ahead of the right hon. Gentleman, and ahead of the official Opposition. I have tabled a question to the Prime Minister, and I am waiting for his written reply. I cannot tell the House any more than that, although my hon. Friend the Minister might be able to do so.
We know that there is no alternative to Trident, because we have been briefed to that effect, so why does this uncertainty still hang over our deterrent? The answer is that there is now talk of our no longer needing continuous at-sea deterrence. It is being said that we could have, or could risk having, a part-time deterrent by having fewer than the four submarines that are essential to the guaranteeing of continuous at-sea deterrence.
I need hardly explain to the House why that idea simply does not bear scrutiny. At a time of crisis, putting a nuclear submarine to sea to stand guard over our country is a very public act, because submarines go to sea on the surface. The submarine would be exposed to possible enemy pre-emptive attack, and our foreign policy would be exposed to accusations of escalation and inflammatory acts at a time when sensitive international negotiations were taking place. A continuous at-sea deterrent that is not at sea 24 hours a day, 365 days a year, is not a viable deterrent. It would be vulnerable to attack and vulnerable to misinterpretation, and at a moment of crisis we would hardly ever dare to put it to sea. I cannot imagine why it takes intelligent people so long to work out that if we are not going to order four submarines, we might as well not order any.
I regret to say that that uncertainty is being sustained by our Liberal Democrat coalition partners. The implication must be that they want the issue to be a bargaining chip in the negotiations of a future coalition. As my hon. Friend the Member for New Forest East (Dr Lewis) has repeatedly pointed out, if they have a choice between coalition partners at the next general election and one of the parties offers unilateral nuclear disarmament—which is what this amounts to—that is the party that they will choose.
The hon. Member for St Austell and Newquay (Stephen Gilbert) is shaking his head. If I am wrong and the Liberal Democrats are now committed to the renewal of the Trident deterrent with four submarines, I invite the hon. Gentleman to put me right.
Stephen Gilbert: Like the hon. Gentleman, we are all eagerly awaiting the publication of the report that is being prepared by the Prime Minister and the Deputy Prime Minister. When we have seen that report, we can have a debate on the basis of some facts.
Mr Jenkin: I do, indeed, eagerly await the report’s publication. I wonder what the delay can be.
I do not think that the report turned out to be quite what the Liberal Democrats wanted, although many of us had been saying that submarine-launched Cruise missiles, land-based systems or new air-launched weapons would be not only impossibly expensive, but probably illegal under the nuclear non-proliferation treaty. However, I am glad that they have learnt that much. Perhaps they will now learn something else.
Because that uncertainty rests over our deterrent, it rests over the whole of Europe’s deterrence system. We should not imagine for a moment that it would be easy
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for a French Government, equally afflicted by austerity and public pressures, to sustain their deterrent if we were going to wind ours down. We should not believe for a second that the United States would remain as committed to NATO and the transatlantic alliance if it became apparent that the European powers were no longer prepared to shoulder their burden of nuclear responsibility in the defence of our own continent. We should not think for a minute that the United Kingdom’s relationship with the United States could stay the same if we threw the gift of the Trident nuclear deterrent back in its face after the US had gone to such lengths to share the costs, development and risks of the system that we both deploy.
The hon. Member for Bridgend (Mrs Moon) rightly referred to the importance of continued co-operation between our conventional forces. It is true that we engage in extensive military co-operation. The airborne forces based in the constituency of my hon. Friend the Member for Colchester (Sir Bob Russell) need to be integrated with the American military command when necessary, so that we have a role in supplementing American forces. The Americans can do so much less unless they have international support, and we are always their first port of call in that regard. It is our influence over American policy that gives us our leverage. That is why, when there is a really big international crisis, the American President does not call the French, the Germans, the Japanese, the Indians or the Chinese. It is always the British Prime Minister whom the American President calls first.
Many people are aware of the importance of the intelligence-sharing relationship between the Americans and GCHQ, which demonstrates an extraordinary degree of trust, but it is not widely known how integrated our nuclear forces are. We send our submarines to the United States, and the Americans subject them to readiness-at-sea trials. The Americans train our crews for NATO operations, and, indeed, we train theirs. We certify their crews for readiness at sea. The relationship between our two nuclear submarine fleets is deeply symbiotic. It is burden-sharing in the real sense of the term. If we were not to maintain continuous at-sea deterrence, we would deliver a mortal blow to the US-UK relationship, to our ability to contribute to global security, and to NATO.
Let me make two more points, which will serve as a coda. Last week the Public Administration Committee published a report, “Engaging the public in National Strategy”, which explains how “deliberative” polling can be used more effectively to help us to understand what motivates our voters, what aspirations they have, and what sort of country the British people want ours to be. Members of the public were asked a number of questions, one of which concerned nuclear forces. It became clear that most people in the United Kingdom would order the four submarines: 57% said that they would rather do that than give up our nuclear weapons altogether, which is what the alternative amounts to.
Let me say finally that the great danger—the wild card—is Scotland. The Scottish people must make their own decision about their independence, but even if they vote for it, if they want Scotland to continue to be a member of NATO, they had better accept that the
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British nuclear deterrent will remain at Faslane. It would be impossibly expensive to move it, and were they to insist on scrapping it, they would deliver a fatal blow to the affordability of our nuclear deterrent. If it were brought down to some other part of the United Kingdom over a short period and stationed there—if a deep-water port were found where all the weapons systems and weapons storage and protection facilities would be welcome—not only would Scotland be giving up the largest employer on its own west coast, but it would be wrecking NATO. The fact that Scotland has taken a stronger anti-nuclear stance than any other NATO member—refusing, unlike any other NATO member, not just to admit visiting nuclear forces but to allow any nuclear forces to be stationed on its soil, even in a crisis—means that it would never be allowed to join NATO.
2.39 pm
Bob Stewart (Beckenham) (Con): I am going to return to the theme that the vice-president of the NATO Parliamentary Assembly started us on: why NATO? By the end of next year, we will be out of combat in Afghanistan. Clearly, there will be a period of readjustment for western armed forces. The British Army is being reduced by 20%. The other armed forces—the Air Force and the Navy—are being reduced by a similar amount. The Americans are already declaring that sequestration will take $50 billion a year out of their $550 billion budget, which is a lot. Therefore, fundamentally, there will be big changes.
When NATO started in 1949, General Lord Ismay said that its purpose was
“to keep the Russians out, the Americans in, and the Germans down.”
Obviously, the situation has changed a lot. The Warsaw pact was formed in 1955 as a reaction to NATO. We could not have had NATO without German rearmament.
I and other members in the House spent most of our military careers preparing for what we loosely called the third world war, hoping it would not happen. Thank goodness it did not happen on the north German plain. When the Berlin wall fell, everything changed and NATO had to change. As I have explained to the House on previous occasions, after I came back from Bosnia, in my last two years in the Army, I was a member of the planning team at Supreme Allied Commander Europe. We most definitely were not seeking a new role outside Europe; it was largely thrust upon us. Therefore, doubts remain about NATO and its solidarity. I agree that we must keep banging on about NATO’s target of spending 2% of GDP on defence. We must keep it. The problem is that some people, particularly in France, suggest that the alliance is
“an alliance of the unable and unwilling”.
A French academic said that. I put it to the House that NATO has a good future.
Twenty years ago, who would have thought that Russia would be resurgent? Russian military spending is now increasing by three quarters of a billion dollars; it will have increased by 53% by 2015. Russia still possesses more than 1 million troops and it has 20 million in the reserve. However, the Russians have big problems. Russian military prosecutors recently said that about a fifth of the budget had been embezzled, so they are trying to sort that out. However, look at the Russian navy. We
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have talked about the high north. That navy has been transformed in the last eight years: 45% of the ships in the Russian navy will be replaced by 2015. By 2007, Russia was building as many ships every year as the Soviets did at the height of their power.
My hon. Friend the Member for Harwich and North Essex (Mr Jenkin) made an excellent speech on the nuclear deterrent. The Russians certainly think in terms of flexible response. They envisage using tactical nuclear weapons in their exercises; a recent exercise that they undertook in the Baltic states suggested exactly that. Part of their war-fighting ability is to use nuclear weapons. That is one of the reasons that we must retain our nuclear deterrent.
Mr Jenkin: Not only do the Russians exercise that capability, but they talk about it, have not renounced first use and have said that they would use their nuclear weapons in a conventional conflict against their neighbours.
Bob Stewart: I thank my hon. Friend for that intervention. He puts it better than I could write it.
In China, Xi Jinping has consolidated his power. He talks of fighting to win wars. There has been a 10.7% increase in the Chinese military budget. The strategic forces of China now have 3,000 miles of tunnels. They have 850 nuclear warheads ready to launch. They are almost at strategic parity with the United States. They are also building globally deployable forces, which are now edging into the Mediterranean, as we have heard, and coming through the high Arctic. They are challenging western strategic military superiority.
Something else is new, and we have touched on it in the debate: cyber-warfare. The Defence Committee has just completed a report on that. It is a new form of war. It is invidious and evolving at unimaginable speed, with serious consequences. Cyber-space is an aspect of asymmetric warfare. It is very difficult to identify sometimes where these attacks are coming from. State actors such as China, North Korea, Iran and Syria are devoting resources to it. Hacking can be more deadly than the gun. The targets are government, industry and the military. There is great concern in the west about how disruptive cyber-attacks can be. For example, on 23 April, in seconds, the United States stock market dropped 1%, losing $136.5 billion, because of a false tweet put into the system, possibly from Syria.
The United States is changing some of the focus of its direction. Its strategy now, as the Defence Committee heard when we were in the US, is to concentrate on trying to avoid war much more. The Americans do not want any war that is not short term. They are looking at Asia. Sequestration will cost an enormous amount in military terms. The Americans consider that Russia is not a great threat at the moment—although its military spending is increasing, as I have mentioned—but that China is and it is growing in power. However, as one American academic put it to the Committee, “Going to war with China would be like going to war with your bank if you are an American.” Thankfully, since 2001, there have been huge improvements in US intervention power: there has been a two thirds increase in its intervention power capability.
The lesson of European, and world, history is that surprise is normal. The unexpected should always be expected, so we should expect to be surprised. Therefore,
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whatever we do within NATO, we must try to work in such a way that our armed forces can deal with as many envisaged eventualities as possible while also expecting that we will still be surprised. NATO gives us more combat power, by collaboration with others.
I am about to conclude Mr Deputy Speaker—I think you might be looking at your watch. The problem is that our potential enemies remain our potential enemies. Symmetric warfare between states is not dead. We may think it is. We have not had a war for 70 years, when Europe historically had six or seven each century, and thus the public ask, “Why do we have to spend money on defence?” The problem is that that has not gone away and we may well be surprised.
Defence is an insurance policy, therefore. We want to deter the possibility of war. We do not want to use nuclear weapons. The point of possessing nuclear weapons is to avoid using them by avoiding threats. The aim is to help our country be left alone and not be attacked, and, in NATO terms, the aim is to avoid all NATO countries being attacked.
I believe very strongly that we must remain part of NATO as I believe it has a big future. I disagree with those who say its purpose, in Lord Ismay’s definition, is gone. No, NATO is required because it helps us, as a medium-sized nation, to combine with other nations—the French, the Germans, the Spanish and other nations that are not members of NATO—and form a coalition of the willing to deal with problems in the world.
We must have the resilience to adapt, to deter and to deal with the unexpected, and we should try to do that as cheaply as possible of course. The days of huge military budgets are over; they are long gone. The best way is for us to collaborate and work with like-minded states, and NATO is most certainly the best means to that end.
2.51 pm
Mr John Spellar (Warley) (Lab): I congratulate the hon. Members who have secured this debate, especially my hon. Friend the Member for York Central (Hugh Bayley), a long-standing colleague and the president of the NATO Parliamentary Assembly. May I also say, Mr Deputy Speaker, how pleased I am to be participating once again in a defence debate, although, like the right hon. Member for North East Hampshire (Mr Arbuthnot), I am slightly puzzled as to why the Minister for the Armed Forces is not responding? Sometimes the working of the minds of Government business managers baffles even me.
The debate also takes me back to the first defence team of the incoming Labour Government, with Lord Robertson, Lord Reid and our late and much-missed friend and defence stalwart who died recently, Lord Gilbert. I am proud to have been part of such a formidable team.
I was very pleased and encouraged by the nature of the debate, which demonstrated the bipartisan support for Britain’s defence in NATO and our own armed forces. It is right, therefore, to stress the bipartisan support for NATO by all Governments of both political parties since the war, which has also reflected the solid support of the British people. Members on both sides of the House have spoken in that spirit in the main, recognising, I am sure, that it was Attlee and Bevin whose foresight founded NATO and also, incidentally, commissioned Britain’s first nuclear weapons programme.
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Sir Peter Bottomley (Worthing West) (Con): NATO was originally a political grouping and then became military after the Berlin blockade, and particularly after the Korean war. The right hon. Gentleman is right to mention that the Labour Foreign Secretary of 1948 prepared the basis for the Western European Union, however. It has now gone, but it was an important part of the history of political and military co-operation in Europe.
Mr Spellar: The hon. Gentleman will also find that the North Atlantic treaty, including article 5, was signed in 1948 and that Ernie Bevin was the prime instigator of that. The hon. Gentleman is right that there were a limited number of countries and that other countries came in later, but that demonstrates the foresight of that Government, who saw the nature of the threat and recognised Britain’s responsibility to play our part in addressing it—and, as I have said, who saw the need to commission Britain’s first nuclear weapons programme.
We should also recognise and celebrate the fact that NATO has been one of the most successful military alliances in history, if not the most successful, especially if judged by the attainment of the objectives in restraining and containing an aggressive and virulent Soviet threat until the ultimate, and, in George Kennan’s prediction, inevitable—even if it was rather protracted—implosion of that empire. NATO protected the free world and western Europe, and also provided a beacon of hope for the liberation, with minimal bloodshed ultimately, of eastern Europe.
That does not mean that we should unthinkingly continue an organisation that has served us well in the past, but we must give serious consideration to adapting such an effective organisation to deal with emerging challenges and threats. I was very much taken by the point made by my hon. Friend the Member for Bridgend (Mrs Moon) about the ability, through NATO, to undertake strategic thinking. The success of that policy of NATO inevitably and legitimately raised questions about the role of defence and collective security through NATO at the end of the cold war. My hon. Friend the Member for Islington North (Jeremy Corbyn) touched on that period during his contribution. I have to say, and I think that there would be some agreement on this among some Government Members, that the then Conservative Government, under their policy programme “Options for Change”, too readily reached for the so-called peace dividend, cut too far and too fast, and badly undermined our capability. They did not comprehend the stark warning from Senator Pat Moynihan that the world was still a dangerous place and that the end of the cold war represented perhaps less threat but also less peace.
Mr Arbuthnot: I remember, because I was then a Parliamentary Private Secretary in the Ministry of Defence, that the Labour party was begging us to cut further and faster at that time.
Mr Spellar: The Labour defence team I mentioned recognised fully how the impact of the cuts the Conservative Government had put through under “Options for Change” had caused huge problems, particularly on the manning side. Huge disruption was caused to manning levels, recruitment and training.
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The Minister of State, Foreign and Commonwealth Office (Mr Hugo Swire): Would the right hon. Gentleman say that that created more of a problem or less of a problem than the £35 billion black hole that his Government left this Government to sort out?
Mr Spellar: Interestingly, Government Members have got back to their default answer to every question being the so-called black hole, as these days Unite and Len McCluskey are normally the cause of all the problems. This is a ridiculous way for Government Members to continue, because many Conservative Members at the time of “Options for Change”—those who were involved very much on the military side—were concerned at the cuts that were taking place. They did recognise that they were not planned, that the Treasury was taking too much out of defence and that that was to the detriment of defence.
Unfortunately, the current Administration seem to be repeating that error with their policy of drastic retrenchment in our military capability. That is damaging not only in itself—we will have a debate on that—but in the message it sends to Washington, because there is a proper debate in Washington about the balance of military expenditure and its deployment. We need to get that into perspective, because it is undoubtedly true that, as President Obama says, America is still the indispensible power. We should recognise that US defence spending is twice as much as that of the other NATO countries combined, including Canada and Turkey. Furthermore, as we all know, the US spends its money, particularly in the equipment programme, more efficiently.
There have been exaggerated concerns about a US pivot towards the Pacific, which my hon. Friend the Member for Bridgend mentioned. The move from an estimated 60% focus on the Atlantic and 40% focus on the Pacific to a 50:50 balance is a shift, but 50% of the US defence budget is still more than that of the rest of NATO put together; the US is still a formidably effective and overwhelming presence. Our real concern should therefore be voices on Capitol Hill, as people there may become weary of what they would see as carping criticisms from Europe. They may question whether, after the end of the cold war, the US still has that obligation to show such a commitment to European defence unless European countries, including ourselves, show a similar level of commitment.
Hon. Members have mentioned Secretary Gates’s comments about the need for Europe to pull its weight in NATO. Otherwise, he said, NATO will have little future. He has called for the European nations to step up to the bar.
We are either all in this together, committed to playing our full parts, or we are not an alliance that will last. We should also recognise that our public are becoming wary and weary and that there is public reticence about international military expedition. Mixed and impatient European public opinion on Libya demonstrated that, and I would say to the right hon. Member for Tonbridge and Malling (Sir John Stanley) that if he looks in Hansard he will see that at the time of the Libya situation, I was raising questions in this House about the fate of surface-to-air missiles—an issue that had been raised with me at a very senior level by concerned officials in the Russian administration; they had sold them to Libya in the first place, but they were concerned about their location.
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We need to recognise that there is a danger that multilateralist proactive action will be hampered by public scepticism and reserve arising from the experience of recent conflicts and that that will be a problem in all our countries. I recognise that the percentage of GDP spent on defence by the UK is greater than that of other European nations whose defence spending, as a number of Members have mentioned, is at a level that is unsustainable if we are to continue to have an effective European component in the alliance. Those are significant issues with which Ministers and the NATO Parliamentary Assembly will have to continue to deal.
I say to the hon. Member for Colne Valley (Jason McCartney), regarding his remarks about Somalia, that I think it is unfortunate for us to start to pose NATO against the EU in that context. Somalia is a particularly bad example to pick. There is no uncertainty in the mind of a serving rating or officer about the chain of command—the person who is giving him the orders is above him in the chain of command. In fact, Somalia has been enormously effective in dealing with piracy—not one ship has been captured by the pirates this year and there has been a dramatic drop in piracy and in the number of people being held—and in integrating the international efforts of countries with different traditions, and perhaps even different objectives, but with a combined objective of trying to keep the sea lanes open and to protect seafarers, vessels and cargos. Those operations have been well synchronised between the various parties. It shows that where there is a properly organised European component that can play a useful part and is an encouragement to countries of the EU to step up their contribution to defence within that framework, rather than a cause for criticism.
Jason McCartney: Would the right hon. Gentleman be happy to know that there is an EU mission staffed with 80 people in Djibouti, duplicating the effort provided by our embassy, the French embassy and the German embassy? Or is he happy yet again to spend yet more money on more bureaucracy?
Mr Spellar: Again, the answer to everything is Europe. If efficiencies are needed, that is worth considering—and they would be welcome—but I notice that the hon. Gentleman in no way denied that this was an effective operation. There might be some surplus people, and let us have a look at that, but the integration of the NATO operation and Operation Atalanta has been very successful. We should be celebrating that, because other piracy problems are emerging in other parts of the world that will need to be dealt with and the United States will be neither able nor willing to participate in all of them. Issues might well arise in west Africa partly because of terrorism but partly because of the serious rise in the influence of organised crime.
Jason McCartney: Of course it is a successful mission in Somalia; there are so many people there doing so many things. Another example of the overlap came when we went to Northwood for a briefing: we had a briefing from the NATO admiral—a three-star—and had to have exactly the same briefing an hour later from an EU admiral. Too many three-stars and top brass—come on!
Mr Spellar:
No doubt in the second world war, the hon. Gentleman would have complained if he had to meet both Montgomery and Eisenhower. [Interruption.]
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The hon. Member for Shrewsbury and Atcham (Daniel Kawczynski) has only just walked into the Chamber, but he seems to have a lot to say.
Mr Deputy Speaker (Mr Lindsay Hoyle): Order. I think I know when people came in, but not to worry about that. I am more concerned about the fact that you have been speaking for 15 minutes and only have a minute left, Mr Spellar.
Mr Spellar: I have been giving way, Mr Deputy Speaker.
Mr Deputy Speaker: Giving way does not extend the debate, and we have given a lot of extensions. There are 15 minutes for each Front Bencher. I am very lenient and can allow a minute or two, but not much more.
Mr Spellar: In that case, Mr Deputy Speaker, I shall move on to two other areas I think we need to consider in the context of NATO. One is security, the work of GCHQ and operations in cyberspace.
For Britain, more than for any other alliance country, our relationship with NATO is intrinsically bound up with our defence and security relationship with the United States. That is clear to those who serve in the Parliamentary Assembly and other right hon. and hon. Members who take defence and security matters seriously. Our relationship with the United States is unique and indispensable, not only in the hard power defence of our liberties and interests, but in the developing struggle against international terrorism and organised crime—especially the trafficking of people, narcotics and weapons, as my hon. Friend the Member for York Central said—and in the sphere of cyberspace, through our security services and GCHQ.
Unfortunately, albeit for understandable reasons, success against those threats cannot be widely publicised, but the pooling of technology resources and intellectual analytical capacity, and indeed the courage of individuals who often have to operate in very dangerous environments, is a joint endeavour. We owe a great debt to all those involved in that work and should acknowledge it more widely, and I am pleased to do so here today.
Military and security cohesion is a necessary but not sufficient condition for the ongoing health of the alliance. Other elements of the transatlantic relationship also need to be refreshed, which is why the talks on the transatlantic trade and investment partnership are so encouraging. As ever, there will be a host of complications and vested interests to overcome, but if the participants can keep their eye on the main prize, it will be considerable. Achieving greater integration of the north Atlantic market, with five of the G8 countries and approaching half the world’s GDP, would not only provide a vital economic boost, but further consolidate our political and security relationships.
NATO, founded by the great post-war Government of Attlee and Bevan, has served this country and the free world well. It faces challenges, and we should be prepared to meet them. We should remember that some of those who argue NATO’s irrelevance today are those who, at the height of the cold war, were most opposed to NATO. Collective defence and collective security have served us well throughout my lifetime. May they continue to do so into the future.
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3.8 pm
The Minister of State, Foreign and Commonwealth Office (Mr Hugo Swire): I thank the hon. Member for York Central (Hugh Bayley) and my hon. and gallant Friend the Member for Colne Valley (Jason McCartney) for requesting this debate, which has highlighted NATO’s continued importance to the UK’s interests. I pay tribute to their work and that of other right hon. and hon. Members who serve in the NATO Parliamentary Assembly—an institution that, as we have heard today, provides an important link between NATO and the public in its member countries.
I join all those who have congratulated the hon. Member for York Central on being elected president of the Parliamentary Assembly by parliamentarians from NATO parliamentary delegations in November. He has visited Afghanistan more than half a dozen times, so I also pay tribute to his unwavering support for our armed forces.
Since it was established in 1949, NATO has been fundamental to transformations in regional security: consolidating the post-war transatlantic link; preventing the re-emergence of conflicts that had dogged Europe for the preceding 50 years; contributing to the fall of communism and the gradual democratisation of the former Soviet bloc; and leading operations in the Balkans, Afghanistan and Libya. Purely through its existence, NATO serves as a potent deterrent to those who would wish us harm. It remains the best tool we have for tackling certain threats to our national security further afield.
NATO is at a crucial juncture. The end of combat operations in Afghanistan will change the nature of daily life for the alliance. The continued pressure on defence budgets and the US rebalance towards Asia further change the strategic context in which NATO operates. Yet the threats and challenges that face us in the 21st century make NATO more, not less, important: continued instability in the middle east, north Africa and the Sahel; the growing risk of nuclear proliferation; and increased threats from failed and failing states, from both state and non-state actors. Against this complex backdrop, it is all the more important that NATO is fit for purpose in political and military terms.
Despite concern over the US’s rebalance towards Asia, the United States has been clear that it remains committed to transatlantic defence, but we need to ensure that Europe is seen to be carrying its fair share of the burden of that defence. The hon. Member for St Austell and Newquay (Stephen Gilbert) and others raised the issue of the Government pressing our European allies to meet the target of 2% of GDP defence spending. As my right hon. Friend the Defence Secretary said at his most recent meeting with NATO colleagues, we will continue to press them to do that, while doing what we can to protect defence investment and maximise its impact in the shorter term. I agree with the hon. Member for York Central that we need to explain to allies and our own public why this spending is important.
We will also continue to press to make the NATO defence planning process as robust, transparent and rigorous as possible, and for all Europeans to organise our collective capabilities in a more cohesive, coherent and prioritised way. Small multinational frameworks such as that which we have achieved with France through the Lancaster House treaties may be the best way of doing this.
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The United Kingdom remains committed to filling 100% of our allocated slots in the NATO command structure. At the organisational level, we need to ensure that NATO remains open to change and able to build on its experience, that it is reform-minded and continuously reforming, that it is fully accountable and that its activities and procedures are transparent and fully in line with best practice, which will underpin its future credibility. The UK has been leading efforts to ensure that NATO remains lean and effective, evolving as the security environment changes so that it stays relevant and responsive, and we will continue to do so with energy.
Afghanistan will remain an important focus for the alliance after the end of combat operations. ISAF’s transfer of security responsibility to the Afghans is on track for completion by the end of 2014. As my right hon. Friend the Prime Minister has said, we can be proud of what we have done in Afghanistan, but along with other members of the international community, our work is far from over. Post-2014, the UK will take the coalition lead at the new Afghan national army officer academy and look to operate in NATO’s train, advise and assist mission, Resolute Support. This is in addition to the £70 million that the UK has committed to funding the Afghan national security forces.
It will be crucial to the alliance’s future credibility that it is able to maintain an open door to those European democracies which meet the standard and wish to join. The United Kingdom remains firmly committed to the prospective membership of Georgia, Bosnia and Herzegovina, Macedonia and Montenegro, once they are ready to join. The hon. Member for Ilford South (Mike Gapes) asked about Kosovo. KFOR continues to maintain freedom of movement and a safe and secure environment in Kosovo, in line with United Nations Security Council resolution 1244. As he will know, the UK fully supports the continued NATO presence in Kosovo as long as conditions require. Supreme Allied Commander Europe has advised that strategic patience is the order of the day and we share that view.
NATO’s ability to work with partners will be crucial. A number of right hon. and hon. Members touched on this during the debate. Partners considerably augment NATO’s capabilities—for example, providing 10% of the air campaign in Operation Unified Protector in Libya in 2011. Partnerships also boost NATO’s political weight: partners see mutual benefit in working with the alliance and it is an incentive to do defence better. The UK will continue to lead the way in giving focus and momentum to NATO’s partnerships.
Considerable attention has been drawn to NATO’s relationship with one partner in particular—Russia. I fully agree with those who have highlighted concern over Russia’s political direction in recent months and years, but it is vital that we continue to engage with Russia. It is already a key security partner in areas such as counter-terrorism and maritime security. We should continue to look for common ground where it exists in order that we can more constructively discuss the issues on which we do not agree. That is the approach we will continue to take, both bilaterally and within NATO.
The middle east is a region of obvious strategic importance, as demonstrated by current developments in Egypt. It is absolutely right that NATO continues to monitor and discuss developments in the region, including considering their impact on the alliance and whether it
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can contribute to security there. That is why we support the current careful deliberations in NATO on whether it might provide some assistance to the Libyan Government. It is also why we believe it is right for the North Atlantic Council to discuss the situation in Syria, including with NATO’s partners in the region, such as Jordan and Morocco.
Various Members, including the hon. Member for Moray (Angus Robertson), who is no longer in his place, the hon. Member for Bridgend (Mrs Moon), who serves on the Defence Committee, and the hon. Member for Ilford South, who serves on the Foreign Affairs Committee, asked a number of questions about the high north. The Arctic is not currently a region of high tension and the Arctic Council has proved to be successful at maintaining inclusivity in the region. Although some regional actors may look to NATO to deter selected activities and act as a guarantor of security, the Secretary-General recently stated that NATO currently has no intention of raising its presence and activities in the high north.
Members will have noted with interest the strong support given by the hon. Member for Bridgend and my hon. Friend the Member for Harwich and North Essex (Mr Jenkin) for maintaining a continuous at-sea deterrent. Deliberations are underway and we will just have to wait and see the results of the review. I was interested by the statistic that 57% of those consulted in a recent poll would rather order four more Trident submarines.
The high north is not neglected by the Government. The Under-Secretary of State for Defence, my hon. Friend the Member for South West Wiltshire (Dr Murrison), visited the headquarters in Bodo in May, where he met senior military personnel and discussed threats and challenges in the high north, not least those resulting from climate change.
Jeremy Corbyn: Will the Minister give way?
Mr Swire: I was just about to address the points raised by the hon. Gentleman. He mentioned the peace dividend following the collapse of the Soviet bloc. As he knows, NATO is a collective security alliance and deterrence remains one the alliance’s fundamental security tasks. The fundamental purpose of the nuclear forces of the allies is political—to preserve peace and prevent coercion and any kind of war. He will know that NATO has reduced the types and numbers of its sub-strategic nuclear forces by more than 85%. Moreover, the alliance has declared its reduced reliance on nuclear weapons and has ruled out their use except in the most extreme cases of self-defence. The circumstances in which any use of nuclear weapons might have to be contemplated by allies are extremely remote.
The hon. Member for York Central asked about the state of NATO-Russia relations. NATO and Russia have been co-operating through the NATO-Russia Council for 10 years. The alliance, including the UK, remains committed to the NATO-Russia relationship. We have seen much in the way of good, practical co-operation on a number of mutual security challenges, including Afghanistan, counter-narcotics, transit routes and helicopter maintenance, as well as work against piracy.
My right hon. Friend the Chairman of the Defence Committee gave us a little vignette of his ancestor ending up in Davy Jones’s locker and described how one
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of the first multinational taskforces was at the battle of Trafalgar. He went on to describe NATO as a vital resource from which a coalition of the willing could be formed. That probably encapsulates this debate as well as anything else should any headlines emanate from it.
My right hon. Friend also discussed value for money, which is incredibly important. The United Kingdom emphasises the importance of resource management and rigorous prioritisation of military requirements. Our national position is that NATO budgets should operate within the framework of zero nominal growth, but approved budgets will require the consensus of all 28 member nations. Within agreed common funding ceilings, NATO prioritises all military requirements. As my right hon. Friend will know, there is an ongoing debate within NATO regarding the limited use of common funding as an enabler for NATO forces in 2020. The United Kingdom consistently urges realism and applies a rigorous standard to all NATO expenditure.
The hon. Member for Bridgend and other Members talked about the implications of the US pivot. The US has been clear that the rebalancing towards Asia should not be seen as a threat to the transatlantic relationship. Security threats and challenges evolve; so should the response. The US is increasingly a security partner to Europe, rather than the provider of security for Europe. The unbreakable bond between north America and Europe remains the bedrock of our security. The US has demonstrated its commitment to NATO, including through practical investments, such as the bases for NATO’s ballistic missile defence. It is worth repeating that even after the withdrawal of US army personnel from Europe, their numbers remain higher in Europe than anywhere else outside America. There are about 70,000 US personnel in Europe.
The question of whether Scotland would remain a member of NATO were it to vote to leave the United Kingdom next year has been raised. The SNP Minister for Transport and Veterans, Keith Brown, this week admitted for the first time ever, before the Defence Committee, that Scotland’s membership of the defence alliance would not be “automatic”. It most certainly would not, and nor would its membership of the EU, the UN Security Council, the OECD and almost every other international forum that it enjoys being a member of through being part of the United Kingdom.
My right hon. Friend the Member for Tonbridge and Malling (Sir John Stanley) made a very good speech about Syria, which my hon. Friend the Member for Harwich and North Essex (Mr Jenkin) also referred to. I say clearly again that the United Kingdom has made no decision to arm the Syrian opposition. Our priority remains finding a political solution and establishing a transitional Government. We are providing advice, non-lethal equipment and technical assistance to the moderate opposition, whom we recognise as the sole legitimate representatives of the Syrian people.
In closing, I come back to my earlier argument. The uncertainties of the 21st century make an alliance such as NATO more, not less, important. As my hon. Friend the Member for Harwich and North Essex said, NATO remains the world’s most successful military alliance, based on a shared set of democratic values. The Government fully intend to maintain that success and to build on it.
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3.22 pm
Hugh Bayley: I cannot respond to all the wonderful, well-informed, thoughtful and powerful contributions that colleagues have made to this debate.
I will respond briefly to the exchange between the hon. Members for St Austell and Newquay (Stephen Gilbert) and for Beckenham (Bob Stewart) about NATO’s initial reluctance to get involved in the former Yugoslavia. In the early ’90s, before I was a member of the Parliamentary Assembly, I was part of a cross-party delegation to NATO along with Max Madden, who would have been close politically to my hon. Friend the Member for Islington North (Jeremy Corbyn), and the late Michael Colvin, who was a mainstream Conservative. We went to ask how practical it would be in military terms to intervene. Everybody at NATO said that it was utterly out of the question, until we got to meet the chairman of the military committee, Sir Richard Vincent. He said that it would have to be done sooner or later, and the longer we waited, the more difficult the military options would be.
I welcome the contribution of my hon. Friend the Member for Islington North. He is very much in a minority in the Chamber, but he speaks for many people in the general public whom we have to convince. The Chairman of the Defence Committee, who made an extremely good speech, said that he disagreed with me on one point. He said that the NATO Parliamentary Assembly is not doing enough to make the case for the Assembly or for NATO itself. I would agree with him about that. Perhaps we have made a start today in this debate.
This has been an exceptionally good debate. It is my intention to go back to the Backbench Business Committee and request debates twice a year after the spring and autumn plenary sessions of the NATO Parliamentary Assembly. If they are as good as this debate, they will be worth while and will help to explain why we are a member of the alliance and what the Parliamentary Assembly does.
That this House has considered NATO.
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Corporate Structures and Financial Crime
3.24 pm
John Mann (Bassetlaw) (Lab): I beg to move,
That this House has considered the use of corporate structures in the UK and money laundering, tax evasion and other financial crime.
It gives me pleasure to introduce the debate and to thank the many Members from all parties who proposed it to the Backbench Business Committee, which we also thank for granting us the time for it. Perhaps in anticipation of it, earlier this week the Financial Conduct Authority made by far its strongest ever comment, including those of its predecessor organisation the Financial Services Authority, about the banks and so on. As a relevant introduction to the debate, let me quote Tracey McDermott, head of enforcement at the FSA, who this week said that banks’ trade finance businesses
“remained particularly vulnerable to abuse by criminals and terrorists, and that in some cases the shipments being funded by lenders were just ‘fresh air’.”
Martin Wheatley, the new chief executive of the FCA, warned that organised criminal gangs “filtered, cleaned and rebottled” £10 billion in the UK every year using banks and other financial services.
Sir Tony Baldry (Banbury) (Con): Will the hon. Gentleman give way?
John Mann: I will finish my introduction first, because banks are just one aspect of the problem and I want to focus on all aspects in my brief comments.
The problem is that we have opaque structures that mean that people can avoid tax and participate in illegal activities such as smuggling and money laundering. The amount of unregistered money involved is estimated by some analysts worldwide as being in excess of £20 trillion. A third of that is estimated to be directly linked with the European Union, and a third with UK Crown dependencies.
I will illustrate how the problem works. An individual sets up a firm in a country that keeps the names of directors a secret, then links that firm with another firm in a respectable place such as the United Kingdom, where the details of who owns a company do not have to be registered if it is owned by another company. They then set up nominees to be directors of the opaque firm, register with the corporate registry in the initial country, open a bank account for the original firm and funnel money through the firm in the legitimate area to the original firm in the opaque country.
There are many examples of that, and all areas of our national life, such as football, now seem to be covered by such structures. Whether it is illegal or legal, it is a major problem for transparency. We as legislators should be particularly concerned about any illegal aspects, and the banks have been at the forefront of those, as we have seen with the problems of money laundering. HSBC funded Iran with transactions involving £19.4 billion through shell companies over seven years, through the Channel Islands and the Cayman Islands. That broke sanctions but was incredibly hard to trace, because it happened through opaque shell companies
In the case of crime, in one year alone the same company funnelled £7 billion through the Mexican Zetas drug cartel, the biggest and most violent
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criminal agency anywhere in the world. Again, it did so through shell operations. Various mafias have also been involved.
The BBC’s “Panorama” exposed rather efficiently a woman called Lana Zamba, a Russian-born Cypriot yoga teacher, who was the director of a firm called Nomirex and 23 other UK-based firms. Records showed that those firms were inactive between 2007 and 2009, but “Panorama” demonstrated that £350 million had passed through them in that time.
Mr Pat McFadden (Wolverhampton South East) (Lab): I thank my hon. Friend for his energy in securing today’s debate. In the cases he outlines, does he agree that the complexity of modern global banking should not be used as an excuse for ignorance by those charged with the stewardship of the banks, and that we should put in place regulatory—and if necessary criminal—sanctions to ensure that responsibility cannot be evaded on the basis of professed ignorance? Responsibility for running large global complex organisations must be taken by those in charge.
John Mann: My right hon. Friend makes a valid and relevant point about criminal sanctions. The banks’ uniqueness is that they are the channel for funds. Because things are recorded in this technological age, it is straightforward for banks to investigate themselves and see what is going on, so the plea of ignorance by those at the top is inexcusable.
What my right hon. Friend and I are saying, and what I interpret the Financial Services Authority to be saying, is that responsibility must be taken at the top. Pleading ignorance is simply not good enough. We are talking not about small, missed operations but about huge major operations that funnel vast amounts of money. It is easy for banks to identify and track such operations, yet they choose not to do so. There seems to be a particular problem of huge reputational risk to the City of London because banks based in the UK have been those most often caught out. However, I have produced a document that demonstrates that this is not simply a UK problem. In recent years, every one of the top 50 banks in the world has had this problem and experienced prosecutions or ongoing investigations into prosecutions.
Tessa Munt (Wells) (LD): I thank the hon. Gentleman for securing a debate on this subject. Does he agree that a board member should be made explicitly responsibly for each bank’s compliance? Anti-money laundering and due diligence provisions should be used effectively by the authorities to apply existing rules and ensure that people even go to jail if they have committed such crimes.
John Mann: The hon. Lady makes a valuable point about the importance of compliance and how that must take place at senior level. Everyone at senior level in a bank must take responsibility and be held accountable for the structures within it.
This is not simply a banking problem. Money laundering and some aspects of criminality are the biggest problems in terms of the volume of money involved, but there is also an issue of percentages and actuality of individual companies. Banks are not setting up opaque structures
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to create criminality; they are turning a blind eye while their structures facilitate criminality. Others are using weaknesses in corporate structure to create criminality.
Of the half a million companies that struck themselves off the UK corporate register in 2010, 40% had never filled in accounts with Companies House, and 33% had paid no corporation tax that year. If large numbers of companies are not submitting accounts and returns to Companies House, we have a fundamental problem. Our problem in dealing with this issue is demonstrated, rather ironically, if we look at the two Front Benches. The hon. Members present are excellently and diligently representing their parties, but one notes that they come from different Departments. That is part of the problem when it comes to Companies House, and I hope the Minister will clarify—we hope on behalf of the Government —who is responsible for Companies House and who should be holding it to account in Parliament.
Companies House is underfunded, under-resourced and perhaps under-specialised, and such opaqueness in our country has grown dramatically, allowing the creation of opaque corporate entities. That encourages criminality and discourages transparency for the general public, decision makers in Parliament and others.
On the impact of such actions, valid estimates indicate that Africa is losing twice as much in tax it cannot collect because of opaque corporate structures as it gets in development aid. In other words, if we cracked this problem, the amount of development aid required from the west to Africa would diminish dramatically because the tax base itself would be generating income, which is, of course, a key component of a vibrant democracy.
Mr Jim Cunningham (Coventry South) (Lab): I have never understood why successive British Governments have not tightened up in this area. I understand that there needs to be international agreement, but at least in America there would be some accountability; we only have to look at Lehman Brothers and others to see that. I do not understand why we allow tax havens not too far from these shores to exist.
John Mann: Let me come on to that. In Davos in 2010, the Prime Minister said that he wished to “shine a light” on corporate ownership. In the Lough Erne declaration, the calls were for more transparency, more international co-operation and stopping firms shifting profits to avoid tax.
What needs to be done by Government in these areas? On transparency, it is essential that the Government follow up their G8 commitment and create a UK register of beneficial owners, making things transparent and traceable and deterring people from using this country for illegal purposes. All major countries—not least those in the G8 and the EU—need to collaborate. I note that Italy is already suggesting that it will not collaborate, and we need to tackle those countries that are suggesting that they will not co-operate even with the modest proposals emanating from the G8.
We need effective enforcement with, as we have heard, clear sanctions for law breaking; we need criminal sanctions; we need the collecting of fines. On the corporate structure, I suggest that raising the cost of setting up a company from the current £15 and hypoth—[Interruption]—and using that money explicitly and exclusively to ensure better regulation and policing. Hon. Members know
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which word I mean but I will not try to spit it out; we might be here for the rest of the afternoon. Hypothecating is the word. [Hon. Members: “Hear, hear.”]
Firms that have not filed up-to-date tax returns need much greater sanction for not doing so. The fact that so many choose not to do so and get away with it is a fundamental and major weakness. This is where this House needs to put its beady eye on what is going on at Companies House. Is it properly resourced? Are its powers great enough? Is it doing the job properly? I would suggest that out of those, at least two must be at issue; perhaps all three. We must get on top of this in the near future.
The question of tax liabilities and of how much liability and responsibility are needed for directors in relation to the law needs to be reconsidered. As a specific micro-proposal that I think could have a huge impact, it should be illegal for anyone to set up a bank account outside this country without informing HMRC and Companies House first. In other words, if people are using British corporate structure, we should stop letting them set up overseas operation without anybody knowing what is going on.
We need legislation relating to the Crown dependencies. I have made this point on many occasions and I will make it again briefly now. It is unacceptable that our taxpayers provide defence and legal structures for those countries when they have an opaqueness that, whatever tax system and regime they end up having, does not allow anyone to know what is going on. The football industry in this country provides a good example. In vast numbers of football clubs nobody, including the spectators and those who are owed money when the clubs go bust, has a clue who owns what bit and where and how. These major institutions are an example of how deep the problem has become and how we have failed to deal with it. We need to look to our regulations, such as those being introduced on banking, and think about how they can be applied to UK dependencies. Leaving them as they are is simply unacceptable, and it is becoming increasingly counter-productive for this country.
Tessa Munt: I thank the hon. Gentleman for giving way again. I wanted to draw it to his attention that the power has been used several times by the UK already to make the dependencies comply with other parts of regulation, so we could just require them to do what they should do. I would give as examples the banning of the death penalty, the rules on acceptance of homosexuality, and, on a slightly minor level, an acceptance that they should ban pirate radio.
Madam Deputy Speaker (Dawn Primarolo): Order. The hon. Lady knows, because it is repeatedly pointed out to her by occupants of the Chair, that interventions must be brief. That was another very long intervention. I think she has made her point. While I am on my feet, may I also say to the hon. Gentleman that he has been speaking for quite a long time? This is a short debate and a lot of people want to get in, including, funnily enough, the hon. Member for Wells (Tessa Munt).
John Mann:
Madam Deputy Speaker, my speech was already at an end, save for the final sentence. I did not wish to hog the debate with illustrations and proposals.
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I wanted to set some of the terms of the debate and implore those on both Front Benches to come forward with effective proposals, because this is a major issue for the UK economy and for our democracy.
3.42 pm
Sir Tony Baldry (Banbury) (Con): This is probably the first time in my parliamentary career that I find myself almost entirely in agreement with the hon. Member for Bassetlaw (John Mann). I think it is right to say—I am sure my hon. Friend the Minister will confirm this—that so too does the Prime Minister. He has stated that he thinks beneficial ownership information should be in the public domain. The head of tax at the CBI has also stated that he thinks that information should be public, saying that it is a “no brainer”. The International Banking Federation has said that this needs to be done, and it supports public registries as a way of making anti-money laundering and “know your customer” requirements both less expensive and more effective.
I wanted to intervene on the hon. Member for Bassetlaw to make a point about money laundering, which now punishes lots of innocent people. One of the biggest supporters of international development in countries like Somaliland or Somalia, are remittances, but they need systems to make them work. Barclays bank, which has facilitated remittances, is now suspending that facility. It is not that it thinks the people receiving the money in Hargeisa or Mogadishu are abusing it; it is concerned that it can no longer properly police who pays the money in because of money laundering. Therefore, large numbers of people living in grinding poverty around the world will now be denied access to an important part of their development funding because of the actions of those who have been engaged in criminal money laundering for a long time.
Anyone who becomes a company director—the Register of Members’ Financial Interests shows that I am a director of a number of companies—must register at Companies House. That includes registering all the other companies of which they are a director and their home address. All sorts of public information is involved, which can be found not only by shareholders but by the general public, the media and non-governmental organisations. The information is totally accessible. There is absolutely no valid reason why that should not apply to corporate structures across the world. It is absolutely right that we should be at the forefront of that.
I also agree with my hon. Friend the Member for Wells (Tessa Munt) about the overseas territories. Some 20 years ago, I was a junior Minister in the Foreign Office under Douglas Hurd—now Lord Hurd—as Secretary of State. We undertook a review of the contingent liabilities for the dependent territories, as they then were. There are considerable contingent liabilities, as we saw with the Falkland Islands and elsewhere. Those territories look to us to offer them protection, but as my hon. Friend pointed out in an intervention, there is a quid pro quo. The quid pro quo should be that if they wish to remain overseas territories and benefit from the Crown, the Union flag and all that protection, we should be able to expect their banking systems and company registries to comply with accepted international norms of transparency and accountability.
I am conscious that a number of people want to take part in this debate. What has been put forward this afternoon is substantially a no-brainer. When my
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hon. Friend the Exchequer Secretary replies to the debate, I hope he will make it clear that what has been put forward has the full support of the Government, as I am sure it does. As the hon. Member for Bassetlaw made clear, the challenge for us will be ensuring that other G8 countries support us. However, there is absolutely no reason why we should not take a global lead on this—and be proud to take a lead—while the UK has the presidency of the G8.
3.47 pm
Helen Goodman (Bishop Auckland) (Lab): I am pleased to have the opportunity to speak in this debate and am grateful to my hon. Friend the Member for Bassetlaw (John Mann) for persuading the Backbench Business Committee to hold it. I am extremely concerned, as are all hon. Members, about the morality of cheating in the tax system and, as my hon. Friend said, the economic distortions it creates.
Ordinary small and medium-sized enterprises cannot cheat in that way, and the collapse in the high street is being exacerbated by the tax advantages enjoyed by the internet companies that facilitate online shopping. Indeed, the international internet companies are among the most significant offenders when it comes to tax avoidance. Their business model is built on an apparently free offer to consumers, but the services are paid for by advertising, which is targeted through the collection of personal data from consumers based on the cookie system. I have secured a separate debate in a fortnight’s time on the internet companies’ use of personal data. Today I wish to say something about their business model and its implications.
A Public Accounts Committee report found that between 2006 and 2011, Google paid the equivalent of $16 million in income tax in this country on revenues estimated at $18 billion. It claimed that advertising sales were being made in Ireland, when in fact the two contracting parties were in the UK.
Facebook, another US-based company, has 33 million users in the UK, with 25 million people visiting the site each day. Its revenues from advertising are estimated at around £170 million a year, but last year it reported sales of only £20.4 million. Using that figure for its sales, it reported a pre-tax loss of £13.9 million in 2011, enabling it to pay just £238,000 in tax last year. The position with Twitter is even worse, if that is possible to imagine. It did not even submit any accounts last year.
I want to set the behaviour of those companies, in relation to their corporate structures and tax performances, in the context of the cost to society and the public purse that they are creating. Everyone agrees that online child abuse is a serious crime. We in Parliament, the public and the industry are committed to its eradication. The Internet Watch Foundation is a fantastic organisation that takes down sites that carry child abuse images. It is a membership organisation for the industry, so we were all shocked to hear of the very small contributions that the industrialists were making to its work. Until a month ago, Google was donating £20,000 to the Internet Watch Foundation. In recent weeks, it has upped its contribution to £250,000 a year for four years, and the other media organisations have collectively offered a further £250,000 a year for the same period. I learned this week that Facebook makes a contribution of only £10,000 a year.
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The problem with that is that the Internet Watch Foundation is hugely strapped for cash and unable to deal with all the alerts it receives. It is worried, because a survey that it undertook has suggested that, although 1.5 million people have seen child abuse images, only 40,000 reports have been made to the organisation. It is calling on the public to report more, in the interests of child protection, but it requires more resources to enable it to respond. Furthermore, once members of the public start to respond, they are not going to be able to distinguish between the different categories of image—illegal, obscene and indecent—and they will report everything that disgusts them.
We have a similar situation with the Child Exploitation and Online Protection Centre—CEOP—which is the part of the police force that deals with these issues. It believes that 60,000 people in this country are downloading child abuse images, yet its resources are so limited that it was able to secure only 1,570 convictions last year. At the same time, the companies that distribute that material are not paying the taxes that would help properly to resource the police. I have met representatives of those companies and written to Ministers about these issues. I am still waiting for a reply from Ministers.
Returning to the business model that Facebook uses to generate its revenues, I want to explain a further connection between the two kinds of crime. A whistleblower recently informed us that advertisements were appearing alongside the indecent images of children. They were advertising the services of a large number of household-name companies, including PayPal, John Lewis, Procter & Gamble, EE, Hewlett Packard, Betfred, Bing, Johnson & Johnson, Google, BSkyB and Western Union. Facebook has now agreed to do a manual sweep to remove the advertisements from the sites, because the advertisers do not want to finance them and do not want to be seen to finance them. It would be helpful if we had public statements from those companies on their views on that, and on whether they are happy to have so much advertising being channelled to other organisations that are not paying their proper taxes.
Charlie Elphicke (Dover) (Con): I might have misheard her, but it sounded to me as if the hon. Lady was making serious allegations about John Lewis. Will she please reconfirm them for the benefit of Government Members?
Madam Deputy Speaker (Dawn Primarolo): Order. Before the hon. Lady returns to her point, I am sure she is going to tell us how what she is talking about connects with financial crime. We are discussing corporate structures, tax evasion, money laundering and financial crime. The crime she was describing was serious, but she said there was a link between it and financial crime, and I would quite like to hear what it is.
Helen Goodman: Thank you, Madam Deputy Speaker.
Let me respond to the hon. Member for Dover (Charlie Elphicke). The companies that I listed have been inadvertently caught up in financing in this particular way, but the question for them is whether they have made it clear, publicly, that they do not wish to be financing the distribution.
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In response to your point, Madam Deputy Speaker, the problem is that we have a system through which money is hoovered up in one way and can then be used to finance any other kind of crime—the crimes that I have described, but also those mentioned by my hon. Friend the Member for Bassetlaw. What we do not have from these organisations is any proper accountability that would allow us to get to the bottom of the issues and tackle them properly. It is extremely problematic that we do not have international agreements about how to deal with these internet companies when it comes to their taxes and their other behaviour. Although it is true that tax avoidance is a scourge and tax evasion is a crime, the industry’s use of these sites helps to promote other kinds of crime. I believe that there is a serious cultural issue about these companies that must be addressed.
Charlie Elphicke: I thank the hon. Lady for giving way again. I have used privilege in this place to name and shame financial wickedness and, indeed, industrial scale tax avoidance. I have always done so, however, in an attempt to provide evidence. The hon. Lady has made some serious allegations in respect of which I am concerned she has not provided us with any evidence.
Helen Goodman: The hon. Gentleman may not be aware that a whistleblower showed me a large number of pages on which I saw some of these advertisements. The point I am trying to make to him is that the companies are inadvertently drawn into this through the targeting and retargeting of advertisements. Their money is being used to finance the internet companies according to the business model that operates, so if they do not want to be involved, they must take steps to avoid doing so.
To offer the hon. Member for Dover some comfort, Marks & Spencer, for example, took the view that it really wanted action to be taken—and it took it publicly, which had a tremendous impact on Facebook and on what Facebook was doing. The other companies have not yet come out as clearly as Marks & Spencer did.
I had better not speak for too long. This is an important debate, and I am grateful to my hon. Friend the Member for Bassetlaw for opening it up. I am very concerned, however, about what the debate is uncovering.
3.58 pm
Tessa Munt (Wells) (LD): As I said earlier, I thank the hon. Member for Bassetlaw (John Mann) for bringing this issue to everyone’s attention and for providing an opportunity for us to debate it this afternoon. He has already raised the effect that anonymous shell companies have on facilitating the corruption that keeps many poor countries poor. Hidden company ownership may be a particular problem. I welcome the efforts of the Prime Minister during his G8 presidency, particularly his calling on the EU and the G8 to work together to break through the walls of corporate secrecy and to ensure much more transparency.
Any move that can clean this whole business up will have a major impact on the world’s efforts to tackle poverty. If we are to commit regularly to having a substantial percentage—0.7%—of moneys being put
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into aid, we need to make sure that the money is used effectively and that there is a clean-up. It has been noted that a third of the world’s poorest 1 billion people live in resource-rich countries, but as a result of weak governance and widespread corruption, finances do not always reach Government accounts. In fact, many of those resource-rich countries have been looted by the very politicians who are meant to be running them and developing their economies.
It is primarily companies that are used to move dirty money. The World Bank reviewed 213 large cases of corruption between 1980 and 2010, more than 70% of which were found to have relied on anonymous shell companies. Companies registered in the United States topped the list, but the United Kingdom and its Crown dependencies and overseas territories came second.
It seems to be terribly easy to set up anonymous companies and trusts. It is very cheap to create complex corporate structures, and the practice of using “nominees” does not help at all. I hope that the Minister will emphasise the need to put beneficial share ownership into the public domain. A “many eyes” procedure would ensure that company ownership was subjected to continuous tests. I agree with the hon. Member for Bassetlaw that we should not just leave it to HMRC. Beneficial owners are individuals—living people, real-life human beings. We are not talking about yet another company and yet another trust.
The financial action task force, the intergovernmental body that sets global anti-money laundering standards and makes recommendations, has said that the system does not work, and that it is much too easy to avoid due diligence. In many countries, company service providers are all too willing to flout the law. A large number of the world’s major economies are ineffective in preventing companies from being misused by money launderers. Six of the G8 countries and 18 of the 27 European Union member states are listed as being “not compliant” or only “partially compliant” with the new recommendations on beneficial ownership.
Many countries do not require banks, lawyers or company service providers to identify beneficial owners of corporate clients. The penalty in the United Kingdom and the United States for having a fake identity in the form of a passport is up to 10 years in prison, yet anyone who is willing to pay a small amount—I think it is £200 or £300—can create a fake ID through a company and then use the company to hide behind, and the penalties for that are very small.
One way of preventing abuse of anonymous companies is for countries to require all information about beneficial owners, the names of all people behind trusts and foundations, to be put into the public domain. It is essential for such information to be public, rather than being accessible only to the police and other law enforcement agencies. There is no interrelationship between most of these countries, and they cannot carry out the necessary tests. If only HMRC or the police can gain access to our information when fraud is suspected, it will not be possible for us to check other countries’ systems, or for them to check ours.
It is cheap to put beneficial ownership into the public domain. It has been suggested that 99% of companies that are registered in this country are family companies or micro, small or medium-sized businesses. There is a clear relationship between the ownership of companies and individuals. Only 1% of companies registered in this country have a complex financial structure.
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We have said that banks could be charged with greater duties to ensure that they are more compliant and rigorous in exercising their duties to ensure that money laundering does not take place, but they have a conflict in that they stand to make very big profits in accepting the business of rich and dodgy customers. Our anti-money laundering laws sound fairly stringent, but, as has been said already, they bear down heavily on smaller companies and it is the big, professional organisations that are trying to launder money through the system on a major scale and that can do that quite easily.
There is little personal responsibility from individual bankers—HSBC is a strong example. In 2012, it agreed to pay a record $1.9 billion fine levied by the US authorities after admitting that its anti-money laundering systems had failed; it laundered hundreds of millions of dollars at least for drugs cartels, terrorists and pariah states such as Mexico. The Senate sub-committee that carried out the investigation described HSBC’s cultures as “'pervasively polluted”.
During that time, over 47,000 people died in Mexico at the hands of drug traffickers, so it is important that we deal swiftly and effectively with such companies. The penalties could be toughened greatly. As I said earlier, we should make individual people on the board responsible for looking after that part of the business. However, I accept the point made by the hon. Member for Bassetlaw that every bank executive should be responsible and made liable for the damage that they cause and that there should be a rigorous system of penalties, which should include the option of imprisonment.
I do not want to go on too much longer. The most important point is that bringing in a public register of beneficial ownership will not involve a huge amount of red tape. The point has been made already that a number of individuals are clear that it would be easy for this country to make such a move. I cannot stress enough how important it is to small businesses to ensure that everyone gets a fair deal, that taxes are paid and that there is absolute clarity when money passes back and forth across the world.
4.7 pm
Mr Michael Meacher (Oldham West and Royton) (Lab): I pay tribute to my hon. Friend the Member for Bassetlaw (John Mann) not only for obtaining the debate and for making another strong speech on the subject, but in particular for his relentless campaigning on the issue of financial crime in all its forms, including money laundering, tax avoidance and evasion. That is what I want to concentrate on.
As the hon. Member for Wells (Tessa Munt) said, at the G8 summit, the Prime Minister made a great media blitz of his supposed crackdown on corporate tax avoidance. He tried to get UK-controlled tax havens to sign up to an OECD agreement on providing tax information. He also tried to secure a worldwide standard on automatic tax information transfer, to get the G8 countries to reveal the identity of shell companies and to help developing countries to get their rightful entitlement to tax. All those are extremely worthy objectives and no one in the House would demur from any of them, but all he achieved—it is achievement, rather than aspiration, that matters when one is Prime Minister—was a bland statement in favour of the principle of tax information transfer, without any actual means of enforcement.
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The Prime Minister defended that feeble result by claiming that little can be done without international agreement and that it takes time to build that, but that is not true. Of course the best result would be an internationally agreed set of rules, but even in the absence of that there is a great deal that Britain can and should do. First, as a number of Members have said, the UK controls 10 Crown dependencies and overseas territories, which collectively embrace over one fifth, I think, of all the world’s tax havens. Most of them have signed up in principle—[Interruption.] Well, we shall see, but they have certainly signed up to the proposal for tax information exchange, and it is now within the purview of the British Government to enforce that proposal, if there is any reneging or backsliding, by the simple expedient of refusing to recognise any financial transactions emanating from those areas if there is any failure to secure full compliance.
That will generate a great deal of resistance, not least from the tax havens themselves, but also I suspect particularly from the big UK banks, which are the main users of these tax haven facilities. Since the Tory party continues to get more than half of its income every year from the banks—[Interruption.] There is no need to roll the eyes or shake the head, as that is an important fact, so facing down the banks on this important issue will test the Government’s resolve.
I therefore want to ask the Minister the following question, which I hope he will answer: will he assure the House that the Government will enforce these tax information exchanges with the tax havens they control? I agree he cannot do that without international agreement in the other havens, but he can control these ones. Alternatively, are we simply going to find that the Prime Minister’s fine words, which we all agree about, will just fade away in a puff of smoke after he has had his PR day in the sun?
What makes the Chancellor’s remonstrations about tax avoidance being immoral seem perverse is that he himself has now emerged as the arch proponent of tax avoidance. He is changing the controlled foreign company rules from 1 January next year to allow any multinational company with a subsidiary in a tax haven—and as the Minister knows very well, 98% of those companies do have a subsidiary in a tax haven—to reduce their corporation tax liability from 23% to a mere 5.5%. Given the boast of the Prime Minister and the Chancellor about cracking down hard on corporation tax avoidance, that is breathtaking hypocrisy. The message is, “Don’t worry about artificial tax avoidance. You needn’t do anything about that, because I am going to serve it up to you on a plate.”
Then the Government went even further. They have put forward the pro-tax avoidance proposal of the patent box, a wheeze whereby any patented process applying to any part of an enterprise, however trivial or minor, not only secures a reduction in corporation tax to 10%, but applies to the entire enterprise. Frankly, the more the Government go on in this way, pushing corporation tax almost to zero, the more tax avoidance fiddles become redundant, because the Government are doing it for them. Perhaps that is the Government’s aim.
Charlie Elphicke: Will the right hon. Gentleman give way?
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Mr Meacher: The hon. Gentleman was a tax lawyer, I think. He is also a very mischievous Member of this House, but I will still give way to him.
Charlie Elphicke: I thank the right hon. Gentleman for his kind remarks about me. It is all very well for him to have a go at this Government, but he will recall that under his Government revenues from corporation tax rose by 6% while revenues from income tax, paid by ordinary folk in this country, rose by getting on for 100%. Does he think his own Government did such a great job?
Mr Meacher: I do not think that the previous Government did a great job. They did an appalling job on corporation tax, and the hon. Gentleman might be pleased to know that I said so at the time and I have always taken that view. The hon. Member for Bristol West (Stephen Williams) raised the issue of capital gains tax with me when I was last speaking, and I think that that tax should be at the same level as income tax. Corporation tax is another matter, of course, but it should be well above the levels the Government are now proposing.
The Government can and should restructure the whole approach on tax avoidance by switching the onus of proof away from Her Majesty’s Revenue and Customs and on to the potential perpetrators. That is exactly what my General Anti Tax-Avoidance Principle Bill was intended to do. It would have made it clear that any scheme whose primary purpose was to avoid tax, rather than being any genuine economic transaction, would be invalid in law and struck down. In order to discourage perpetrators of this attempt to bend the will of Parliament, there would be a sizeable penalty for attempting to subvert that will. My Bill had only a 10-minute showing on the Floor of the House, thanks to Tory filibustering of the prior Bill on that day, so perhaps I might take this opportunity to ask the Minister: does he accept the general anti-tax-avoidance principle? If he does not, what are his reasons for rejecting it? I think he will say that the Government are putting up their alternative—the so-called GAAR or general anti-abuse rule—but that really does not meet the ticket. I wish to say why, and I hope that he will listen to why the Government’s GAAR is really no alternative.
The GAAR is based on a report by Graham Aaronson, who was always a representative of the tax-avoidance industry and never of the tax-compliance will of Parliament. I accept that the GAAR will have some effect, because it outlaws egregiously aggressive and abusive tax avoidance, but of course the implication of that is that it legitimises rather less extravagant tax avoidance.
The Exchequer Secretary to the Treasury (Mr David Gauke) indicated dissent.
Mr Meacher: Perhaps we should have some debate about that.
Mr Gauke: Let me put the right hon. Gentleman’s mind at rest on this by saying that the GAAR does not do that. We accept that the GAAR is directed at egregious tax avoidance. It is an additional tool, but there will still be targeted anti-avoidance rules and other measures that the Government take. I want to make it very clear that we are not saying that if something falls outside the GAAR, there is no problem with it.
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Mr Meacher: I am glad to hear it, but the Minister and his Government will have to prove that in the outcomes that we see over the months ahead. He makes an important point, but there is a perception that if we opt for a rule that is limited to dealing with the worst kind of tax avoidance, it suggests that the rest is rather less important in the Government’s mind; I cannot see the point of having a GAAR if one is also going to “include” other abusive tax procedures, about which there is equal concern. I am sure that debate is coming along, but I am glad that he said what he did and we shall certainly hold him to it. The GAAR could actually make things worse and, even at this late stage, I ask the Government seriously to reconsider whether they should not take over my Bill.
The Government could and should recognise that their strategy to deter tax avoidance, which has been in use for many years, including under the previous Government, via the disclosure of tax avoidance schemes—DOTAS—is of limited value and is inadequate on its own. It requires those who are designing and trying to sell these schemes to inform HMRC in advance about each new scheme they introduce. I understand that something over 100 new schemes have been disclosed in each of the past four years under the DOTAS proposals. That shows the industrial scale—I think that was the word that the hon. Member for Dover (Charlie Elphicke) himself used—of tax avoidance going on in the City.
DOTAS still leaves two problems. First, it can take HMRC many years to defeat any of the schemes if it goes to the courts and, secondly, some of those promoting such schemes will go to great lengths to avoid disclosure. Even if they are detected and taken to court, the penalty is often something derisory like £5,000 or so. Those involved in such schemes have every incentive to fail to comply with what the Government are seeking.
HMRC’s working definition of tax avoidance, which is often seen as a rather nebulous concept, is, rather sensibly,
“using the tax law to get a tax advantage that Parliament never intended”.
I think that is extremely sensible, so why can it not be cast in statute? Why can it not be laid down as the principle by which the Government and HMRC will test such schemes? That would see off the tax avoidance industry far more effectively than the soft touch of DOTAS. We are coming to the same view on tax avoidance as we did on the banks, and unless persons as opposed to organisations are held responsible—if need be, in extreme cases, by criminal sanctions—very little will happen. If a person were subject to a penalty that was a multiple of the tax charge—perhaps two or three times the charge, depending on the blatancy and gravity of the offence—for seeking to pervert the will of Parliament, that would act as a serious deterrent.
Charlie Elphicke: Will the right hon. Gentleman give way?
Mr Meacher: I think that others might wish to speak, but I am sure that I will carry on the conversation with the hon. Gentleman outside and on other occasions.
Finally, corporation tax is, as everyone recognises, so riddled with loopholes as a result of the evolution of the international economy and corporation structures over the past 30 to 40 years that it urgently needs
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wholesale restructuring. The drive towards territorial taxation must be abandoned and replaced by unitary taxation by which multinationals are taxed according to where their genuine economic activity occurred and not where they pretend it occurred to collect the huge windfalls of transfer pricing.
Surely the most appropriate corporation tax base is either free cash flow or economic rent—the amount, in other words, a business earns in excess of its cost of capital. There are several ways of doing that: removing interest deductibility, introducing an allowance for the cost of corporate equity or shifting the tax base towards tax flow and away from accounting profit.
I have tried to offer several positive proposals. I realise that it is possible to make a lot of pejorative remarks, which are probably just, about the performance of this Government and the previous Government in tackling the problem, but I have tried to be as positive as I can. Unless the Government adopt at least some of the proposals, their claims to have serious intentions about cracking down on today’s enormous cancer of corporate tax avoidance will be seen as the pretence that, sadly, I sometimes think it is.
Madam Deputy Speaker (Dawn Primarolo): Order. I remind the two remaining Members who wish to speak that we are running out of time. So that we can hear the Front-Bench speakers, may I ask them each to take a maximum of six minutes? I will not put a limit on the clock, as they are both experienced Members who can judge it for themselves to enable us to hear the wind-ups.
4.24 pm
Chris Heaton-Harris (Daventry) (Con): Thank you for your guidance, Madam Deputy Speaker.
It is a pleasure to follow the right hon. Member for Oldham West and Royton (Mr Meacher). I am glad to be doing so on a day when he has been very positive. I would hate to follow him on a day when he was being negative—it would be like having a dementor circling the room. It is always a pleasure to see him in this House, though, especially when he has so many to choose from.
I wanted to take part in the debate to do two things. First, I wanted to set out that the vast majority of businesses established in our country do the right thing by tax and the right thing by corporate structure. They really do work hard to stay within the rules, and they, like everyone else, are shocked when they see other corporate structures not doing the same.
Secondly, I wanted to congratulate and support the hon. Member for Bassetlaw (John Mann). It comes as a bit of a shock to me to say that, but I know that he has worked hard on this subject. I do not agree with him on everything, but he does raise a number of valid points; he states them and debates them well and they need to have a good airing. I look forward to continuing the dialogue with him.
Before I got involved in this political charabanc, I was a small business man. I much preferred running a small business and being able to do something positive to sometimes sitting through debates and ultimately achieving nothing. We remain a nation of small businesses and we should encourage them, so I believe it is important that we allow small businesses to set up and establish
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themselves quickly and cheaply. I therefore disagreed with the hon. Gentleman when he talked about making it more expensive and complicated to set up a company.
Only a year or so ago, I set up a company, and it was a delight to be able to do so online and quickly. There are a few hoops to jump through—one has to prove one’s identity, for example—but I thought the right checks and balances were in place. If we want to create wealth in this country, as we all do because that is where our taxation comes from, enabling businesses to be set up quickly is a good thing. I hope that the hon. Gentleman forgives me for disagreeing with him on that point.
Like my hon. Friend the Member for Aberconwy (Guto Bebb), I am a member of the Public Accounts Committee. We have been going through report after report on a series of corporate structures that were set up in a slightly interesting way to avoid paying tax, but to do so legitimately. We have been able to show where tax has not been paid or where people think tax should be paid, but it is only a thought, only a process. The companies that have come before us have all been able to say to us, “We do exactly the right thing both by the law in this country and by international law.” If we are serious about tackling this problem, we need to engage on an international stage. That is why I welcome very much the Prime Minister’s words and deeds at the G8 summit and what I expect will happen in future.
The right hon. Member for Wolverhampton South East (Mr McFadden) mentioned the complexity of modern-day banking. In fact, now that banks are so interlinked, there is an odd sort of transparency about banking transactions. Banks can make themselves as complicated as they like, but with modern technology and the internet—something the hon. Member for Bishop Auckland (Helen Goodman) was moaning about—comes a degree of transparency that, should we wish it, could clear up a number of issues behind the scenes. Again, however, that would have to be negotiated on an international basis.
Damian Collins (Folkestone and Hythe) (Con): Does my hon. Friend agree that transparency about ownership, particularly the ultimate beneficial owner, of a company should be welcomed? For many years, the identity of the real owners of some football clubs, such as Coventry City and, previously, Leeds United, was hidden in dummy companies registered offshore.
Chris Heaton-Harris: I agree. Coventry City is a perfect example. It announced today that it is moving in with Northampton Town, a club that is local to me. I am sure fans would love to know what went on behind the corporate structure there.
I have one wish, which is to ensure that we get some sort of transparency behind these corporate structures. Members will know that I am a big campaigner against onshore wind farms. Many of the developers have an unbelievably complex corporate structure that sucks money—subsidy, actually—out of this country and away to far-flung lands through a number of countries and a number of companies.
There is a job to be done. I welcome this debate, I congratulate the hon. Member for Bassetlaw on securing it, and I look forward to working with him and others in the House to get the right job done.
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4.30 pm
Keith Vaz (Leicester East) (Lab): It is a pleasure to follow the hon. Member for Daventry (Chris Heaton-Harris) and I associate myself with his remarks about my hon. Friend the Member for Bassetlaw (John Mann), who is an assiduous campaigner on this and so many other issues.
My small contribution will be about the way in which proceeds of crime have found their way into the financial sector, and I will seek assurances from the Minister that the Government are doing everything they can to deal with the issue of proceeds of crime within our financial structures. Some £675 million is owed by 178 criminals who were each ordered to pay back £1 million or more after their conviction. Prosecutors are unable to force repayment by 45 offenders whose debts to the taxpayer total £225 million. Clearly, the law as currently written and the existing structures are not sufficiently able to deal with the way in which these proceeds are kept by the Mr Bigs who, having committed horrendous crimes, are able to continue with their life after prison and are not asked to pay back what they owe.
I am glad that the Government are proposing changes to the law. I recently had a letter from both the Metropolitan Police Commissioner and the Director of Public Prosecutions about a wish to examine default sentences, changing the definition of “confiscation” in the Proceeds of Crime Act 2002, amending the Bail Act 1976 to prevent absconding—once somebody is out of prison, there is no way in which they can be made to pay this money—implementing the EU Council framework decisions on the execution of orders freezing property or evidence, and making sure that agencies work together so that if someone has committed an offence, they do not rush out of the country because the Passport Office has given them a passport.
On money laundering, as the House knows, 85% of drugs profits are earned by distributors in the United States or Europe. The current estimate is that global drugs profits are £380 billion, the majority of which enters the financial system. Antonio Maria Costa, the former head of the UN Office on Drugs and Crime, has said:
“I cannot think of one bank in the world that has not been penetrated by mafia money.”
Banks with British bases, such as Coutts and HSBC, have been found guilty of money laundering.
As the Home Affairs Committee said recently, until these companies hear the rattling of handcuffs in their boardrooms, they will not take seriously the issue of drugs money within our financial systems. Indeed, we recommended new legislation to extend the personal criminal liability of those who hold the most senior positions in banks and are found to have been involved in money laundering. As my hon. Friend the Member for Bassetlaw said, it is hoped that the new Financial Conduct Authority will be much tougher than the Financial Services Authority, which in our view did not do enough to deal with the issue.
Yesterday the Home Secretary reclassified khat as a class C drug because she believes that sales of it have entered our financial systems and fund Islamic extremist groups such as al-Shabaab. In January the Advisory Council on the Misuse of Drugs said there was “insufficient evidence” that khat caused health problems. The panel
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found “no evidence” that khat, made from the leaves and shoots of a shrub cultivated in the horn of Africa and the Arabian peninsula, was directly linked with serious or organised crime. The problem is that once these drugs are banned, they go underground and the drugs barons are able to launder even more money.
Mr Jim Cunningham: The hon. Member for Daventry (Chris Heaton-Harris) has raised the issue of Coventry football club. I do not want to go too far down that road, except to say that the parent company should be investigated. It set up two sub-companies, one of which went into administration and was then given by the administrator to the other company. It is a ludicrous situation for the people of Coventry to find themselves in: the fans are up in arms, they do not know where they are going to play next season and all sorts of threats are being made.
Madam Deputy Speaker (Dawn Primarolo): Order. Before the right hon. Member for Leicester East (Keith Vaz) responds to that point, I remind Mr Cunningham that the courtesies of the House indicate that he should not enter a debate at the end and immediately intervene, because he has not been present at any stage during the debate.
Madam Deputy Speaker: We will not discuss this now, but I am sure Mr Cunningham will remember it for the future.
Keith Vaz: I thought that my hon. Friend the Member for Coventry South (Mr Cunningham) was going to tell me that the directors of Coventry City were chewing khat. I did not realise that he wanted to make another point.
In conclusion, I say to the Minister: let us look at the proceeds of crime and the way in which financial structures protect them, and let us use effective action through the structures of Government and the financial agencies to try to make sure that the Mr Bigs pay back the money they have stolen.
4.35 pm
Emily Thornberry (Islington South and Finsbury) (Lab): In beginning this debate, my hon. Friend the Member for Bassetlaw (John Mann) pointed out that the responsibilities of the two Front Benchers relate to different Departments. The reason why I am speaking on behalf of the Opposition is that it is our view that too many of the matters under discussion are crimes, should be crimes, should be prosecuted and are not being prosecuted at the moment. My presence underlines the emphasis that the Opposition put on that.
We welcome the fact that tax evasion was on the agenda at the G8 and the Prime Minister is right that we need to pierce the corporate veil. Lack of transparency enables criminals to hide behind shell companies and launder the proceeds of crime. In our view, however, the Prime Minister left the heavy lobbying until too late and the international commitment to breaking down corporate secrecy was weak. In fact, as my right hon. Friend the Member for Oldham West and Royton (Mr Meacher) has said, it was feeble. The G8 members only agreed to
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consider national registries of the beneficial ownership of companies, which, to be frank, is very little commitment at all.
What is the Government’s commitment to that registry? Will it be public? The hon. Member for Banbury (Sir Tony Baldry) has said that the Prime Minister is on record as saying that he wants it to be public, but what does that mean? Will it be rigorous?
Every legal entity is ultimately controlled by a natural person—somebody who lives and breathes and who can go to jail if they do things wrong. Will there be a requirement that the information registered on beneficial ownership always includes a natural person? What penalties will there be for failing to supply the required information? Will there be an obligation to record the owner of bearer shares where the owner is not registered and the issuing firm does not track subsequent transfers of ownership? Will there be an obligation for companies that use nominee directors to reveal on whose behalf those directors are working?
We are told that the Government are reviewing all of this, but it seems to me that there is plenty of wiggle room. Will there be an obligation on the part of the registry to carry out due diligence on the information it receives? In practical terms, will Companies House have the resources to do that? Past studies have revealed that Companies House has not even had sufficient resources to routinely check company directors against a list of disqualified persons.
Will Her Majesty’s Revenue and Customs have the resources to investigate? HMRC currently faces £2 billion of funding cuts this Parliament, leading to a further 10,000 job cuts. Will the Crown Prosecution Service, also cut by more than 27%, have the resources to prosecute? Will the Government strengthen the regulation of corporate service providers that set up sham companies and straw-men directors? We do not know. Will we be told, and if so, when?
What we do know is that a future Labour Government will bring an end to the era of tax smoke and mirrors. As the shadow Chancellor, my right hon. Friend the Member for Morley and Outwood (Ed Balls), and the shadow Exchequer Secretary, my hon. Friend the Member for Newcastle upon Tyne North (Catherine McKinnell), have set out in Labour’s policy review on corporate tax, the Government should ensure that HMRC has the power, resources and capacity it needs. They should also explore how their general anti-abuse rule can be strengthened. The Government should also deliver internationally agreed reporting rules so that large multinational companies have to publish the key pieces of information that people need to assess the amount of tax they pay.
We also need to look at the channels through which the laundered money goes. Of the 17 banks analysed by the FCA, half were found not to have proper processes to prevent money laundering. Four of those were UK banks. I was disappointed that the FCA did not name those banks and have written to it asking it to do so.
Many Members have referred to last year’s US Senate report, which found that HSBC had been used to launder the money of Mexican drug lords. It called HSBC a conduit for
“drug kingpins and rogue nations”.
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The US Department of Justice fined HSBC £1.25 billion for money laundering. I am not aware that the UK authorities have taken any action on that, beyond requiring an improved monitoring regime. Of course, the chairman of HSBC at the time became the Minister for Trade and Investment in this Government and continued to be so until recently.
Whether it is LIBOR rigging, money laundering or sanctions evasion, the UK has been slow to investigate British banks. When it has punished them, the fines have been dwarfed by those imposed by the US. For example, Barclays was fined £101 million in the US for LIBOR rigging, whereas the Financial Services Authority in the UK fined it £60 million and the Serious Fraud Office is still investigating. The SFO prosecuted only 20 cases last year and convicted 14 individuals. In the past two years there has not been a single corporate prosecution.
Keith Vaz: My hon. Friend is making an excellent point, which reflects what was said in the recent Home Affairs Committee report. However, there is an issue with the absence of personal liability, not just corporate liability. It is individuals who made the decisions.
Emily Thornberry: I am getting to that. I am grateful to my right hon. Friend.
Is it any wonder that KPMG has just reported that in the UK, fraud cases totalling more than £500 million were recorded in the first half of 2013, which is up by more than a quarter on the previous year?
We need a change of culture in our law enforcement agencies. We must equip them with the tools and resources that they need to get on the front foot. Under English law, companies are criminally liable only if it can be proved that a director was personally involved in the wrongdoing. That is an extremely high threshold—a problem to which the hon. Member for Wells (Tessa Munt) referred.
There is a good case for holding companies vicariously liable for their employees’ economic crimes, unless they can demonstrate that they had adequate compliance procedures. The last Labour Government did that in relation to bribery with the Bribery Act 2010. We want to build on that, but this Government want to water it down. They say, for some reason, that rules against bribery are red tape. That stopping people bribing one another can be seen as red tape is beyond belief.
If we change the law on corporate responsibility, we may see an increase in the number of companies that are prosecuted, so we must have a penalty structure that is worthy of receiving them. The highest fraud fine to result from an SFO prosecution is £2.2 million. The highest fine clinched by the US Department of Justice is larger than $3 billion. Why do we not introduce a system in which sentences are based on a percentage of the company’s turnover over the past three years?
Although the SFO’s problems are not entirely down to under-resourcing, resources are important because these crimes are expensive to investigate. Last year, the SFO’s budget was £34 million, compared with £40 million in 2009-10. In 2014-15, it will fall to only £30 million. It is so short of money that it has to go cap in hand to the Treasury whenever it wants to take over a major prosecution. That at least gives the impression that the Chancellor has a secret veto on whether fraud investigations take place.
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The US approach of topping up the funds of fraud prosecutors is much more appealing. Where possible, confiscated assets are returned to the victims. The proceeds from the many cases in which the victims cannot be traced are poured into a central fund. Each year, teams of prosecutors bid for a portion of that fund for asset tracing and law enforcement investigations. We have the beginnings of such a system in the UK. We could extend that and put large fines or at least part of them into the pool as well. In these austere times, we need to explore such alternative means of funding.
Stephen Barclay (North East Cambridgeshire) (Con): The hon. Lady is eloquently describing the failure of the tripartite regulatory regime that her Government put in place. She is correct that the fines in the UK are a fraction of those in the US. A further failure is that the fines have rewarded other banks. This Government have ensured that the fines that are paid do not reduce the levy so that banks no longer profit from the wrongdoing of other banks. That was the regime that her Government put in place.
Emily Thornberry: I am grateful to the hon. Gentleman, but in the time I have available, I would like to look to the future and consider the best method that we have for solving the current problems. I am happy to talk to him at some length outside the debate, because I am committed to the issue and will be interested to hear his point of view.
It seems to me that one good way in which the assets in question can be used, instead of lowering the levy, is to put them into a pool that prosecutors can use in future. That would help to pump up what we are doing. That seems to be a way forward, and I am putting it before the House today to get some sensible responses.
Sir Edward Garnier (Harborough) (Con): Will the hon. Lady give way?
Emily Thornberry: Unfortunately I am running out of time, but I would like to hear from the hon. and learned Gentleman briefly.
Sir Edward Garnier: The hon. Lady urged us to look to the future. Does she agree that one thing that we need to consider with reasonable urgency is an alteration in how corporate criminal liability is described in law? At the moment, we have the Victorian “directing mind” principle, which is not really appropriate for vast international companies. Does she agree that we need to Americanise the system—
Helen Goodman: She’s just said that. If you’d been here, you’d have heard it.
Sir Edward Garnier: It is always so lovely to hear the hon. Lady, but I am actually addressing the shadow Attorney-General.
Madam Deputy Speaker (Dawn Primarolo):
Order. Before the hon. Member for Islington South and Finsbury (Emily Thornberry) responds, I point out again that interventions made by people who have only just arrived
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in the Chamber, not having been present at any point during the debate, do not show the best courtesy to the House. I hope that all Members will bear that in mind.
Sir Edward Garnier: On a point of order, Madam Deputy Speaker. If I have caused any offence, I apologise. The reason I addressed the hon. Member for Islington South and Finsbury (Emily Thornberry) was that she and I have a joint interest in the matter. I am sure she did not take offence.
Madam Deputy Speaker: Thank you, Sir Edward, but you are continuing the debate. Your point is on the record, but we are now eating into the Minister’s time. I understand that he does not mind, so I call Emily Thornberry to conclude her speech.
Emily Thornberry: I am grateful to the hon. and learned Member for Harborough (Sir Edward Garnier) and appreciate his expertise in the matter, but I actually did say that immediately before he came into the Chamber. I am glad that there is now cross-party agreement, and I urge him to ensure that his party’s Front Benchers adopt my ideas. Now is the time to move on in relation to fraud, and I believe that companies should be held liable for the fraudulent activity of individuals, building on the Bribery Act. That is a way forward, and if we can agree on it, then great—let’s do it.
If the Government are committed to a crackdown on crime, why have they left it to Labour to amend the Financial Services (Banking Reform) Bill, which will come before the House again on Monday? Why have they not tabled amendments? We understood that the Prime Minister was committed to introducing a crime of reckless management of a financial institution, so why have the Government not tabled such an amendment? Why do we need to do it? It seems odd. We are concerned that, although the Prime Minister is happy to make pledges when everyone is watching, he hopes that when nobody is noticing he can carry on and do nothing.
It seems to us that an offence of reckless banking needs to do more than deliver symbolic sacrifices after the event. We need managers to be held liable if they turn a blind eye to those who are committing crime. They should have a responsibility to monitor what happens. No single person brings a bank to its knees and no single person should be responsible for UBS, Société Générale or Barings, whatever some may want us to believe. There are further people who are also responsible, and we need to ensure that the law allows for other people to be prosecuted. Nowhere is that more apparent than in the Government’s record on basic economic crime such as the failure to ensure that people are paid the minimum wage. In the past three years, only two bosses have been prosecuted for that, and workplace inspections have halved in the past 12 months. It seems to us that it is about time the Government started taking seriously economic crime of all types, including people not being paid a basic wage.
4.48 pm
The Exchequer Secretary to the Treasury (Mr David Gauke):
I congratulate the hon. Member for Bassetlaw (John Mann) on securing the debate. It has been wide-ranging, but I will focus my remarks, at least to begin with, on the issue that he focused on most, which was
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company misuse. If I have time, I will address other issues that were raised, such as tax avoidance, although to be fair we had a debate on that a week ago.
I am pleased to address company misuse because, as my hon. Friend the Member for Banbury (Sir Tony Baldry) rightly pointed out, the Prime Minister has demonstrated leadership on this issue on the international stage. The Government are committed to tackling illicit activity and the misuse of corporate vehicles to facilitate such activity, and we are well aware of the impact such things have on the UK and the global economy. Such misuse is made possible because companies can be used to hide who is really in control and who is the beneficial owner. Hidden beneficial ownership to facilitate criminal activity is a long-standing issue, and international standards have proved difficult to implement effectively for many jurisdictions. For that reason, the Prime Minister put tackling that issue at the heart of the UK’s G8 agenda. I am sorry that one or two right hon. and hon. Members have been less than generous in recognising that.
Stephen Williams (Bristol West) (LD): At Lough Erne it was agreed that each of the G8 countries would come forward with a national action plan for implementing the agreements made there, which for the UK will hopefully include the Crown dependencies. Have the Crown dependencies come forward with their draft plans, and do they include commitments to publish registers of beneficial ownership?
Mr Gauke: It is perhaps worth saying a word or two about the Crown dependencies because they have received criticism during the course of the debate. There is nothing illegal about an international structure, especially in a globally integrated economy, but what must stop is the use of offshore structures to hide assets and income illegally, and to evade taxes. The overseas territories and Crown dependencies have all committed to automatically sharing information to fight tax evasion, and to producing national action plans to set out how they will improve beneficial ownership transparency. The Crown dependencies have already published their plans, and the overseas territories have committed to do so by the end of the year. This is a significant step forward in transparency, and we will continue to work closely with the overseas territories and Crown dependencies to ensure that the action to which they commit is robust and ensures the effectiveness of their systems. It would be a pity for this debate to give the impression that we do not acknowledge the significant progress made in recent months.
Returning to the G8, there was collective action to improve transparency of beneficial ownership and make it easier for law enforcement and tax administrations to fight company misuse. The G8 have committed to a set of common principles, and each member has committed to publish a national action plan. The US, France, Italy, Japan, Canada and the UK, as well as the Crown dependencies, have published their plans already, and Germany and Russia have committed to do so before the end of the year, along with the overseas territories.
The G8 action plan means a number of things for the UK. First, we will legislate to ensure that all companies know who owns and controls them. Companies will be required to obtain and hold information on their beneficial ownership—a requirement that will make it harder for criminals to hide their identity, and easier for law
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enforcement bodies to trace company misuse. Secondly, we will require that information to be held centrally at Companies House and made available, at a minimum, to law enforcement and tax authorities. Again, that will enable law enforcement and tax administrations to track down beneficial ownership information much more quickly. It will also help us develop better working relations with our international counterparts, by responding to their requests more quickly during cross-border investigations. To address the point raised by my hon. Friend the Member for Wells (Tessa Munt), it is important that law enforcement agencies and tax authorities co-operate on such matters.
We will also consider whether that information should be made publicly accessible. Although there would be significant advantages to such an act, such as enabling greater scrutiny of the accuracy of the information and allowing investors and others to understand better with whom they are doing business, there would also be legitimate concerns about individual confidentiality and whether the information would always be used in the right way. The case of companies involved in animal testing raises an interesting point. Hon. Members may be interested to know that we have committed to consult on this issue.
Thirdly, we will be looking at what measures can be taken to mitigate the misuse of nominee—or sham—directors and bearer shares. The fact that both are currently allowed to exist is inconsistent with our desire to know who really owns and controls UK companies, so the Department for Business, Innovation and Skills will be issuing a public discussion paper on these precise issues shortly, setting out a number of options for reform.
I turn now to the issue of Companies House, which was raised by the hon. Member for Bassetlaw. The House will be aware that the core function of Companies House is to receive company information and make it available to the public, and a key part of this is ensuring that accounts and annual returns are delivered for every company. Compliance rates for those documents—97.9% for annual returns and 99% for accounts—are the best they have ever been and are amongst the best in the world, but we will continue to consider additional means to ensure that companies comply with all their statutory filing requirements.
For example, in response to calls for more transparency about the extent of company subsidiaries in tax havens, my right hon. Friend the Secretary of State for Business, Innovation and Skills has asked Companies House to check the accounts of all FTSE 350 companies for the disclosure of overseas subsidiaries information. Hon. Members may be interested to know that Companies House will publish the findings on this at the end of July.
On HMRC, there are legal remedies to stop taxes being avoided or evaded through dissolving companies without payment that HMRC makes regular use of. As an example, HMRC frequently requests restoration of companies to the register and then liquidates them, an act that allows liquidators to pursue directors for misfeasance and other wrongdoing. As a Government, we have reinvested in HMRC significant sums to deal with tax avoidance as a whole.
We are short of time and I am unable to address issues such as the general anti-abuse rule and the wider issue of tax transparency, but I am grateful for the
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opportunity to set out the Government’s commitment to dealing with opaque company structures that facilitate financial crime. It is thanks to the Government that this was put on the agenda for the G8 and that countries around the world are setting out action plans to deal with beneficial ownership. It is why there is a much greater exchange of information between jurisdictions now than we have seen before. We have a proud record in this area and I am grateful for the opportunity to make that clear.
4.58pm
John Mann: We have had a useful debate with, I think, 16 contributions, interventions and speeches. I was a little taken aback by the number of plaudits from Government Members, but I will perhaps take up the offer from the hon. Members for Daventry (Chris Heaton-Harris) and for Banbury (Sir Tony Baldry), who spoke by proxy for other Oxfordshire Government Members. We could perhaps form a little group to take such issues forward: a friendly society, perhaps. We could call it Unite and we could all join.
The responses from those on the Front Benches were different, but there were important points from both. With vast numbers of companies not submitting returns, as they should, to Companies House; with situations such as those at Leeds United and Coventry City football clubs, where people do not who owns them, including those who work at and pay for those clubs; and with the biggest criminal gang in the world laundering vast amounts of money through a British bank, there is clearly a major issue that has not been addressed but needs to be addressed. There are different arguments and ideas on how to take this matter forward. It is important for Parliament to keep it on the agenda and hold the Government to account. I also think—
5 pm
Motion lapsed (Standing Order No. 9(3)).