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House of Lords

Friday, 23 January 2009.

10 am

Prayers—read by the Lord Bishop of Southwark.

Law Commission Bill [HL]

First Reading

10.06 am

A Bill to make provision in relation to the Law Commission.

The Bill was introduced by Lord Lloyd of Berwick, read a first time and ordered to be printed.

House of Lords (Members’ Taxation Status) Bill [HL]

Copy of the Bill

Second Reading

Moved By Lord Oakeshott of Seagrove Bay

The Lord President of the Council (Baroness Royall of Blaisdon):My Lords, I have it in command from Her Majesty the Queen to acquaint the House that Her Majesty, having been informed of the purport of the House of Lords (Members’ Taxation Status) Bill, has consented to place her prerogative and interest, so far as they are affected by the Bill, at the disposal of Parliament for the purposes of the Bill.

Lord Oakeshott of Seagrove Bay: My Lords, Britain is officially in recession. The spectre of deflation looms large. Retail prices have fallen over the past quarter at an annual rate of 10 per cent. Millions of our fellow citizens are struggling to keep their jobs, stay in their homes and pay their taxes, but there are Members of this House who are non-resident or non-domiciled for tax purposes. How on earth can it be right for Peers who avoid paying full British tax to vote, for example, on the Banking Bill as we pour tens of billions of ordinary, hard-working taxpayers’ money into the banks? How can any noble Lord in all conscience accept a peerage from the Queen for life and then keep signing tax returns—as you have to do as a non-dom—stating that he does not intend to stay permanently in this country? That is what non-doms do, and it is a disgrace.

We face the gravest economic crisis since the hungry 1930s. Our fellow citizens deserve moral as well as political leadership from their Parliament, but we are breaking their trust if we sit in this place, vote on their laws, but keep our treasure hidden in some tropical tax haven. Britain is fighting an economic war with its back to the wall. Tax revenues and tax collection will come under terrible strain, so for Peers to wriggle out of paying tax today is like wriggling out of conscription in 1940. My Bill is even more timely and urgent now than when I introduced it with wide-ranging cross-party

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support in the previous Session. Then, it ran out of time, but I thank all my supporters, many of whom have taken the trouble to be here today to show the flag again. In this Session, the Bill is off to a flying start with the first Second Reading slot for a Private Member's Bill. I thank my noble friend Lord Steel of Aikwood, who was in front of me in the queue, but who is, very sensibly on a grey day like this, cruising off Africa.

I look forward to hearing all noble Lords who speak today, especially my noble friend Lord Goodhart, who is exceptionally learned and helpful and a great expert on these matters and will particularly cover the question of Peers taking up temporary public appointments abroad under subsection (7). I will also be listening equally to noble Lords who were more sceptical in the previous Session, such as the noble Viscount, Lord Astor, and the noble Lord, Lord Selsdon, who always throws an entertaining and original light on any subject that engages his attention in this House. Remembering the Committee stage last year, I point out that the Bill does not change in any way any Peer’s tax status by one iota or even require him to disclose it. All that happens is that Peers will be taxed on the basis that they are fully resident and domiciled in this country for tax purposes, just like the vast majority of our fellow citizens.

Clause 1 is the key clause. It states that Peers are,

It is drafted like that because it is possible to be partly resident here and partly resident overseas. I have also avoided any need for Peers to make declarations publicly about their tax status or for Her Majesty’s Revenue and Customs to reveal any details about current Peers’ individual tax affairs to the authorities of the House or anyone else. We have drafted a simple and effective way of getting around that: the list of Peers’ names will be sent to the chairman of HMRC once the Bill becomes law and HMRC will be notified three months later of any Peers who have to be taken off the list under the terms of subsection (5) because they have chosen not to be taxed on that basis and have therefore taken leave of absence for life.

This is a new version of leave of absence, but it is just what it says on the tin: irrevocable. That seemed simpler than disqualifying Peers who do not pay full British tax, but the result is the same, except that they keep their title. In future, the Revenue would make a one-off declaration under subsection (7) that a new Peer is resident and domiciled in the United Kingdom for tax purposes within three months of his appointment. As this represents a change in the law since noble Lords were appointed to this place, it is only fair to give those who are not content to be taxed on that basis a once-and-for-all opportunity to opt out under subsection (2). By taking immediate and irrevocable leave of absence for life, they retain their current status, whatever it may be. What we cannot have is an open-ended rolling opt-out. There is no room for peripatetic parliamentarians who are British life Peers one moment, then Liechtenstein Lords, Monaco millionaires, Cayman Island counts or even Belize barons. Of course, Peers may want to spend time abroad for health or family reasons, but once you have

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accepted a peerage from the Queen for life and a seat in Parliament for life, you should pay full British taxes on your income for life.

Some Peers have argued that that simple change to clean up our act and our image in the country should wait for the second stage of Lords reform. As the House of Commons Public Administration Select Committee pointed out this week in its excellent response to the White Paper on an elected second Chamber, that moment,

The committee, in arguing for a stronger House of Lords Appointments Commission, a view that I very much share, states that,

The logic is just the same for cleaning out the dark corner of Peers’ taxation status. It makes no difference whether you support an appointed or an elected chamber. Anyone who sits in this place and votes on our laws must pay full British tax.

10.13 am

Lord Lea of Crondall: My Lords, I very much welcome the Bill, although it might have been nicer to discuss it on a cruise liner off the coast of Africa—perhaps we could all have been there to hear the noble Lord, Lord Steel, tell us about the merits of his Bill on reform of the House of Lords. I have enough experience of Private Members’ Bills, as we all have, to know that this is a chance to air the principle behind it, which is very timely. Some of us will therefore not be addressing the detail this morning.

The noble Lord, Lord Oakeshott, made an interesting observation at the start of his speech along the lines of, “Here we are now in a recession and we see people in offshore tax havens having a legislative role in the House of Lords”. My noble friend Lord Lipsey and I were on opposite sides of a debate last night about who caused the winter of discontent. During the winter of discontent in 1979, 24 million working days were lost. For each increase in unemployment of 1 million in a year, 365 million days are lost. A 2 per cent increase in unemployment, which we have, means more than 600 million days lost. The crisis we are in at the moment is very relevant to the reputation of the whole financial services sector, those people who live in tax havens, and some of the best brains in the City of London who for years have dedicated themselves to defrauding the British public of the tax that they should be paying.

To complete the analogy, those 24 million days lost in 1979 and all the circumstances that led up to that—there are arguments on both sides—are thought among historians of the intelligentsia to have been the nadir of the trade union movement. I could argue about that but if it is true, a fortiori it is now true a hundredfold about the damage caused by people who are defrauding the country. What are they doing to the economy? These are the greedy people who have looked after their own interests. They have no interest in the rest of society. They have gone from 10 to 20 to 30 to 40 in leverage ratios, in pyramid lending and all the

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rest of it. It is a scandal that anyone with that status should be legislating in the House of Lords.

In one sense, I am quite happy that things continue as they are, because that will be a clear signal to many other sections of society, such as people in Burton-on-Trent in a few weeks or a few months’ time. Who are they going to blame for what is happening at the moment? They have to blame someone.

Lord Strathclyde: Mr Brown.

Lord Lea of Crondall: They are not going to blame Brown, they are going to blame those greedy people in the City of London. That is what the polls are showing and that is what will happen.

Lord Strathclyde: My Lords, I thank the noble Lord for giving way. Is it not true that the Prime Minister and the Labour Party started this whole story by blaming the American banks? Now they are blaming the British banks. Next they will blame the people. They will never take responsibility for it themselves.

Lord Lea of Crondall: My Lords, I am very glad that the noble Lord asked that question. The City of London is a big part of the globalisation process, which we are blaming. No one is arguing that globalisation is nothing to do with the City of London. It is the noble Lord’s friends in the City of London—

Noble Lords: Oh!

Lord Lea of Crondall: My Lords, that will be the thought going through the minds of people in Burton-on-Trent. I am not talking about the noble Lord, Lord Strathclyde, himself but about all the people around him who are not squeaky clean in the party of which he is a senior member. I look forward to debating this further. It is interesting to ask: what is the political profile of our party versus the Conservative Party? Where did they go to school? Where did they get their money? That will quite rightly rub off on their party. I am very pleased that certain friends in the Conservative Party will try to defend where we are. That will be remembered.

Where are we with international financial reform? The G20 will be held in April in London or hereabouts and it will be attended by President Obama and leading statesmen from around the world. What will be the main item on the agenda? It will be the connection between worldwide regulatory reform of financial institutions on the one hand and what we can do together on fiscal expansion on the other. Regulatory reform has quite a lot to do with tax havens and multinational companies minimising tax—as we know, there are some very important merchant banks in the City of London that do not pay a penny of tax. That scandal will have to be opened up like the proverbial oyster—I believe that it is being opened up. When we met Swiss parliamentarians the other day, albeit in Davos and not off the west coast of Africa, we had very tough talks with them. They are well aware that the Germans, among others, are asking for those items

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to be put on the agenda. That is why the Swiss want to be invited to the G20 meeting, although they know that they do not have a chance of becoming members.

The bottom line is that this applies to everybody, regardless of whether you live in the Cayman Islands with friends—we may hear more about the benefits of the Cayman Islands. When we look forward to the G20, it is important to ensure that we give fair-dos to people in their taxation and clarify how to deal with the financial services industry, whose abuse of power is 100 times greater than any other in the previous 50 years.

10.22 am

Lord Selsdon: My Lords, I am rather aghast at the moment. I assumed that the noble Lord, Lord Oakeshott, would not change his spots and that he would probably be naming and shaming many Peers. I had planned to do a Conrad Russell and move a Motion that the noble Lord should be no longer heard. I am now rather disappointed.

I notice that many on the Liberal Benches were not here for Prayers, when we set aside prejudice and partial affections. We saw a few prejudices just now from the noble Lord, Lord Lea of Crondall, whom I fully admire. I am happy to say that I am slightly older than him. I have been in the House longer than all four Liberal speakers put together—theirs is the new boys’ Bench.

I wonder why the noble Lord, Lord Oakeshott, has advanced this Bill. When he first mentioned some of the problems, I spoke with him and wrote him a friendly letter and we had a glass of wine together. I recall that he announced that he paid a six-figure sum in tax every year, and I wanted to know what it was. Under the Freedom of Information Act, I thought, having seen this Bill, that I would ask HMRC whether it could provide the information. My friend at HMRC said that of course it could not provide or publish such information.

What are we talking about here? We are talking about the Liberal party wanting to attack the other parties in order to promote themselves.

Noble Lords: Shame!

Lord Selsdon: No, my Lords, not “Shame”; that is the normal behaviour of the Liberal Democrat party.

I have the great advantage of never having given a penny to any political party and I have never been allowed to vote because my father died rather young, so I am totally independent. Here I come to the principal issues of the Bill. If it is a bit of fun, it is a good bit of fun. There is someone whom the noble Lord, Lord Oakeshott, mentioned last time whom we can mention under the rules here. The noble Lord said that we might, heaven forbid, even have Lord Mandelson of Mischief here. I think that the noble Lord, Lord Mandelson, would rather like that; that was suggested before anybody had contemplated that he would be a Member of this House.

On a more serious note, I do not want to decimate the Bill, but I thought that the answer was that I should add a whole range of new clauses. The first

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problem is Clause 1, which just does not work. I have raised that before and put it in writing. It involves the question of residency. Residency in the United Kingdom means that you must now—the law has been changed—be here for no more than 91 nights. However, you can be resident in several countries at the same time; other countries have their own tax regulations. The problem is that that is not a clear-cut issue.

Then we come to ordinary residency. If you have lived and worked abroad for a period and you come back to the United Kingdom, you are immediately resident if you are here for more than a certain period. You do not have to be deemed to be resident; you are effectively resident for tax purposes. Ordinary residency means that if you have been away for a period, it takes four years to become an ordinary resident. You are not an ordinary resident immediately. That causes some concern.

I have raised the question of domicility before and I have looked at it again at some length. I am not an expert on this, but in my life in international banking everybody wants to mitigate tax when there are transactions. The noble Lord, Lord Oakeshott, will have found that in his investment business. You seek to find the best opportunity if you are buying or selling businesses or investing to get tax clawbacks, government grants or capital allowances.

Taxation is a weapon of trade. I remind noble Lords that I am president of the Anglo-Swiss Society. We found in discussions with the Swiss that we wanted to co-operate on taxation. You wish to attract people to a tax-friendly—but not tax-free—environment. Our legal and accountancy systems in the UK are perhaps the most trusted in the world; that is a plus. People would like to be here for that reason, but not necessarily for that reason alone.

Domicility raises an interesting scenario. At birth, you take the domicile of your father. You therefore have that domicile for life or until you wish to change it, which you can do at the age of 16. When you change your domicile of origin, as it is called, you have to do certain things. You must cut off all links with your former country, you must resign from your clubs and sell all your assets, and you must do that, effectively, for life.

In your Lordships’ House and in many parts of this country, there are people who have come in from abroad who had foreign domicility to begin with. Why should they be penalised for such activities? Under the new rules, someone has introduced the horrendous phrase “non-doms”. Some people thought that that meant that we were getting rid of domestic servants. We have to accept that if you have been in the United Kingdom for 17 out of the past 20 years, under the new regulation you will be deemed to be domiciled. However, you have the problem of your domicility in other countries, which can cause concern not just in relation to taxation but in all sorts of human relationships. If you change your domicile and become domiciled here or are forced to be domiciled here, you effectively cut off your ties with your mother country. At any time, you have the right, under current law, to resile that domicility of choice and go back to your original country. I am a Scot and if we split up, I would be

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domiciled in Scotland, where I have a pretty serious opportunity. If you also have a place to bury yourself, as the noble Lord, Lord Desai, made clear at Second Reading, you are domiciled where that is. In Scotland, that is call a lair certificate—you receive a letter when you reach 50, which is the age at which you are expected to die, saying that the authorities hand that over to you. Normally a Scot has paid for the plot a long time ago and paid a maintenance fee for life, so you cannot be got at by the vicar to pay an extra amount. This means that you have a territory.

Just before this debate I went to the first floor to get advice on your Lordships. If a noble Lord takes a title and becomes an “of”, does he have a territory that could be related to having a grave? He has a designated territory. Let us take the noble Lord, Lord Oakeshott, who is “of Seagrove Bay”. After his title, the record states “of Seagrove Bay, of Seagrove Bay in the County of the Isle of Wight”. The comma is very important. Therefore, he has a territory, which, if I were standing in the European Court of Human Rights, would mean that he is domiciled in Seagrove Bay. It is a question of where the comma comes. Commas are very important. In some countries a comma means a full stop, particularly for money.

This whole domicile business is extremely worrying. I assume that the noble Lord, Lord Oakeshott, is putting this Bill forward purely for political reasons; but within it are some interesting points, which is why I should like to extend it. I believe that anyone in this country who is in Parliament or who is elected, who holds a public appointment or a job for which they are paid, should have that fully disclosed and have it disclosed that tax is paid on that. Over the years, I have asked Questions on whether the Government—not this one—would provide a list of what public appointments are held by Members of Parliament and what is their remuneration. Most people thought that that was a political issue. I wanted to demonstrate that the breadth of knowledge of your Lordships’ House was even greater because of the external appointments that Members held; but people are so concerned about party political sniping that it becomes worrying.

On a previous Bill, when I banged on ad nauseam at Second Reading, which was an unpleasant experience for me because I do not like doing that sort of thing, I drew attention to the problems that would come to the economy when international confidence went. I forecasted that the pound would go down and that foreigners would leave. A significant proportion in the fall in the value of sterling is because of that. People do not have confidence anymore that the United Kingdom is a stable place in which to live and work from a tax and other points of view.

I welcome the noble Lord, Lord Oakeshott, for having shown the clemency and understanding that he would not name and shame people. But also he should know that within your Lordships' House there may be, because of people who have come from the Commonwealth and elsewhere, many more foreign domiciles who would like to remain as such. As Her Majesty is Queen of many Commonwealth countries, we cannot look at this issue in isolation. We may come to the view that if people cannot become Members of

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this House because they are foreign nationals they may change their nationality. Does that forbid them from being Members? It is a complex issue, which is worthy of debate. I have enjoyed, so far, the prejudice of the noble Lord, Lord Lea, and I am sure that we will have prejudice later.

Perhaps I may point out that my noble friends Lord Trefgarne and Lord Astor, and I, together have more years of service than all those sitting on the Liberal Benches today. My noble friend Lord Trefgarne is younger than me but has been here longer. I hope that the wisdom of my colleagues will prevail and that the Liberal party sitting there with some three-line Whip on “Thank God it’s Friday”—

Lord McNally: My Lords—

Lord Selsdon: I might point out, my Lords, that a Private Member’s Bill in your Lordships' House costs £100,000 if the normal charges of lawyers, accountants and others are added up, which is a lot of money. We are spending two hours in this Chamber and, after adding all that up, the cost to the taxpayer of the fees that will be charged by the Liberal party is proportionately greater than they deserve.

Lord McNally: My Lords, if the noble Lord looks at the records, he will find that the record of voting by the Liberal Democrats on all days far outstrips that of the Conservative Party.

Lord Selsdon: My Lords, I have great support for the Liberal Democrats, but I do not support this particular issue. I have found them very co-operative and I have many friends among them, particularly from some of the smaller countries.

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