In the end, Starbucks did us a favour because the public finally became aware of an international financial structure that has substantially reduced government tax receipts in a way that directly affects the daily lives of many lower and middle income families in the UK and around the world. The question should not be “How much is Starbucks paying in tax and is that fair?” but “What are all UK companies paying in tax?”. Paragraph 86 of our report makes this point clearly by stating that,

“large companies operating in the UK should make public disclosure of their UK corporation tax returns”.

If the amounts are low when we see the figures in the public domain, the Government can review the applicable tax structuring and identify what legal arrangements are needed to allow these companies to continue operating in the United Kingdom.

In addition, it is essential to make country by country financial reporting publicly available in order to identify problematic tax arrangements. The charity Christian Aid has identified the fact that $160 billion are lost from poor countries every year due to tax dodging. That is more than all the developing countries together receive in aid. This haemorrhaging of the much-needed resources that are required to combat poverty and hunger and to fund vital public services is a continuing scandal. The situation is being allowed to continue to fester.

As the noble Lord, Lord MacGregor, said, the OECD has been charged with some responsibilities, but it has stated that the information from country to country reporting should be made available only to tax authorities, not to the public. I suggest that if that practice continues, we are not going to advance this issue by one whit. The Government urgently need to take this on as part of an international agenda and ensure that country by country financial reporting is secured. Professor Paul Collier of Oxford University has done much to highlight the social and economic injustices of global tax structures. He has noted that the G8 countries are now beset by the corporate opacity that Africa has faced for decades. He identifies the G8 as being far more important now, in times of austerity, than it was in the easy years of the rising economic tide.

I suggest that this short but sharp report can help us to think about the bigger picture, one that we should use to put our own house in order so that at last we can do something beneficial not only for our own citizens, both rich and poor, but for the poor in developing countries around the world.

6.16 pm

Lord Smith of Clifton (LD): My Lords, I thank my noble friend Lord MacGregor of Pulham Market for introducing this debate and for his consistent and exemplary chairing of the committee. I also join with him in thanking our clerk, Mr Bill Sinton, and our special adviser, Professor Michael Devereux.

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The very widespread practice of exploiting low-rate foreign tax havens and corporate tax avoidance facilities should be placed in the wider context of the contemporary character of commercial behaviour in the UK and, indeed, in other major western economies. We have witnessed a plethora of scandals in banking, insurance, fund management and elsewhere; hardly a sector remains untouched. All of these scandals derive from the nature of modern business which is based on greed and the quest for quick bucks while ignoring long-term considerations, and has contributed to a mindset that induces corruption, bribery, fraud, insider dealing and other criminal actions. These have been all too little investigated in the past, although the prosecution rate is now increasing, particularly in the United States. The UK has some way to go in order to catch up in this respect.

Turning a blind eye to such illegalities has encouraged a lowering of standards across the board. If criminality goes unchallenged, sailing close to the wind, stretching the rules and following only the letter but not the spirit of the law become par for the course. We live in an economic polity where much, probably excessive, reliance is placed on regulators to monitor activity in the public interest. The system simply cannot cope, and there is hardly a regulatory agency in this country that is fit for purpose. The BBC Trust, the Independent Police Complaints Commission, the Care Quality Commission, the Serious Fraud Office in particular, Ofwat, Ofgem, Ofsted et al have all been subject to severe criticism. Quis custodiet ipsos custodes? is as pertinent a question today as ever and is one that Her Majesty’s Government should seriously ponder. Perhaps the Minister could comment on the merits of this observation. It is a problem that will not go away.

As this report shows, Her Majesty’s Revenue and Customs is also a deficient regulator when it comes to policing tax avoidance by companies. Unlike tax evasion, avoidance per se is not criminal. However, it is unethical and flies quite blatantly against the spirit of the law. Its widespread practice is indicative of the contempt so much of UK business has for high standards and ethical conduct—in other words, contempt for the public in general.

In the report the committee points to the extent of the practice and the deleterious consequences that follow from it, and acknowledges the difficulties of securing internationally agreed rules to minimise it. The report also points to the growing discontent among the public, which the noble Lord, Lord McFall, also referred to. This is all too understandable in a period of austerity. Why should large corporations, which are either resident in the UK and/or making huge profits here, escape paying corporation tax and behaving like good citizens? The report also raises the question of how far HMRC falls short as a regulator, and how difficult it is to assess this given the secrecy in which it operates. It suggests that HMRC’s resources are too meagre for the job it is required to do.

The report questioned the appropriateness of employing secondees from the big four accountancy firms to advise on how best to deal with the problems of tax avoidance, given that these very firms earn considerable sums advising major companies how best

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to minimise their corporation tax liabilities. As we noted, only two days ago the Public Accounts Committee again questioned HMRC senior staff on the apparent feebleness of its treatment of what Mrs Hodge called the “immoral” tax avoidance schemes employed by Google, Starbucks, Amazon and many others. Accordingly, we recommend that HMRC has better resources, that company tax advisers should be regulated, and that a joint parliamentary committee be appointed to oversee the work of HMRC.

Her Majesty’s Government’s official response to these rather modest proposals, according to my rough calculations, was to “agree” with three of our recommendations and “disagree” with eight, while merely “noting” 11. This tally, which is in effect a complacency index, is disappointing to say the least, as the noble Lord, Lord MacGregor, mentioned. In view of Her Majesty’s Government’s attitude as revealed by this tally, “deplorable” might be a better description. I ask my noble friend Lord Newby whether he thinks that this is an acceptable tally.

Perhaps because of this official complacency, the Independent and its sister newspaper the Independent on Sunday were very recently prompted into a week-long, detailed analysis of offshore tax avoidance by major companies. They concentrated on the quoted Eurobond exemption loophole created in 1984. The papers revealed that the practice is far more widespread than our report showed. More than 30 companies across a wide range of economic activity use the loophole, at an estimated loss to the Exchequer of £35 billion. Companies being advised by the big four accountancy firms to exploit this loophole range across high street retailers, care and health providers, and public utilities in gas, electricity and transport.

While these companies are clearly not model citizens, the former editor of the Independent, Andreas Whittam Smith, concluded last week that Her Majesty’s Government are the real culprits, because they speak with a forked tongue. Using the helpful terminology of Murray Edelman, “exhortatory” political language is used to beguile the public, and to stress that the Government believe in fair taxes and are fully committed to stamping out “aggressive tax avoidance” schemes. However, the Government employ Edelman’s secretive bargaining language of politics to give businesses a nod and a wink that the Government will turn a blind eye to all but the most blatant practices, in order to encourage home and overseas investment. That helps explain the feebleness of HMRC.

Most tax havens are of course British Crown dependencies. If the Chancellor promised to rein them in, he would have a powerful card to play in seeking internationally agreed tax avoidance rules. But I fear that Mr Osborne will not play that card, as he is clearly intent on making the UK itself a tax haven.

What is the result? Business is aware of how low it has sunk in public opinion. Its PR advisers polish up the tried and trusted—at least by them—technique of owning up to shortcomings in a very generalised way, and initiating new dialogues about the need for greater ethical concern. Unsurprisingly, as I speak, this is already being diluted to “integrity”, which is a lesser word in this context. Hence the meeting on 24 October

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of some 200 senior business executives with religious leaders, headed by Archbishop Vincent Nichols with the support of Archbishop Justin Welby, to discuss the draft for a “blueprint for better business”. I wonder whether they arranged a conference call to seek the views of Sir Richard Branson from his Caribbean tax haven.

In a similar vein, Sir Richard Lambert has been asked to direct a standards board for the banking industry. Although I do not doubt the sincerity of those involved, the truth is that as always their proposals will be but the latest edition of the “Book of Proverbs”. They will have as much practical impact on the pursuit of business life as other such endeavours, from the Cadbury report on good governance in 1992 to the more recent Vickers and Davies reports. Is that too cynical a view? Remember that our report stated that Cadbury had been aggressively avoiding tax for years, long before its acquisition by Kraft. Nothing alters, it seems.

In the light of the Independent’s revelations and the findings from the Public Accounts Committee’s questioning of HMRC officials last Monday, will the Minister say how the Government will adopt a much stronger approach to tax avoidance, or will this be yet more empty rhetoric?

6.27 pm

Lord Lawson of Blaby (Con): My Lords, I start by thanking my noble friend Lord MacGregor for his outstanding chairmanship of the committee, and for introducing this debate today. He has been outstanding. He has been a friend of mine for a very long time, since before either of us entered the House of Commons, let alone this very illustrious House. Indeed, for part of my time as Chancellor he was my Chief Secretary to the Treasury, and I could not have had a better one. He has proved that he is a man of many talents, because he is as good a chairman of a Select Committee of your Lordships’ House as he was a Chief Secretary to the Treasury.

This report is called, Tackling Corporate Tax Avoidance in a Global Economy: Is a New Approach Needed?. Our answer was yes and the Government’s answer was no. That is a slight difference between us. My noble friend Lord MacGregor, who is a man of great understatement, said that in his judgment the Government’s response to our report was complacent and inadequate, as indeed it was, and in many ways it was also appallingly petty. I will refer to one or two things in a moment, but first let me reflect on why it was quite so bad.

One change that has occurred since my time has concerned me more and more. During my time there were two revenue departments—the Inland Revenue and Customs and Excise. The Inland Revenue was an absolutely first-class department, and it was a privilege to be the Minister responsible for it. Customs and Excise was very different; it was excellent on the drugs side. Its intelligence network, which is of the greatest importance in combating drug imports, and so on, was considerably superior to that of the police. It was also pretty good in its anti-smuggling responsibilities. Where it fell lamentably short of the standards set by the Inland Revenue was on the tax side. What happened

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is that subsequently, after my time, the two departments were merged and, instead of the standards of the better department being the standards of the whole, it has gone more the other way round. That happens very often with mergers of one kind or another, which look extremely rational but have that result.

Another thing that has greatly weakened tax policy in this country is that, again in my time, there was a very small tax policy division in the Treasury, but there was also a powerful tax policy division in the Inland Revenue. Since then, tax policy has been put entirely in the Treasury. There is now no tax policy division in the Inland Revenue, with the result that people on the policy side know nothing, or very little, or certainly very much less, about how the system works in reality. The knitting together of policy and administration is crucially important. So I am not surprised—although I do not think that it is the only reason—that the Government’s response to our report was so pathetically lamentable. I think that that has contributed to it.

Before I say anything more that my noble friend the Minister might find disagreeable, I will say one thing that pleased me about the Government’s response. Perhaps he would like to speak about it. One recommendation that we made was that the Government should look again at the different treatment of debt and equity capital in a company’s accounts. This completely different treatment, in which there is a tax allowance for interest on debt but no allowance of any kind for the dividends paid on equity, encourages the accumulation of debt. The noble Lord, Lord McFall, mentioned that he was a member of the Parliamentary Commission on Banking Standards, as was I. We made a recommendation on that, because it is real Alice in Wonderland; you have the regulator telling the banks that they must have less debt and more equity and the tax system saying that they must have more debt and less equity. That really cannot be very sensible. Even apart from banks, as the Mirrlees report pointed out, and as we point out in our report, there are very good reasons why this should to be looked at seriously.

I am glad of one good deed in a naughty world. The Government said in their response that they welcome,

“the Committee’s interest in this area. In response to the recommendation of the Parliamentary Commission on Banking Standards, the Government is reviewing the wider case for an allowance for corporate equity. The tax treatment of debt is one of the issues being explored by the OECD BEPS project”.

I am very glad to hear that, and I hope that my noble friend the Minister will tell us where they have got to on that, and what is their latest thinking.

For the most part, I am afraid that this is an extremely disappointing reply—and that is an understatement. I will give the House a flavour of the reply. On our main recommendation the Government say that they,

“do not consider that a fundamental review of the corporate tax system is necessary or would add value at this stage … and to change the rules unilaterally could undermine our attractiveness as a location. Changes on this scale could impose significant transitional costs on HMRC and businesses”.

There are a number of fallacies there. First, it is certainly desirable that we should have in this country as benign a tax regime as we can, consistent with finding the finance to pay for necessary public expenditure.

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But in my experience, what people look to when they are thinking about where to locate their investment and do business is, first, the size of the market, and how prosperous and good it is; whether the rule of law can be relied on; and whether the overall tax regime is attractive. The personal tax regime has, in my experience, more of an effect in many cases on how people see the jurisdiction than corporate tax or other forms of taxation. They also take into account the social legislation and whether there is too much regulation. All those things are taken into account. The idea that somehow, if we go it alone on corporation tax, we will no longer be attractive, is totally absurd.

We have to go it alone, because there has been a fundamental change in the world economy. Nothing in this world that I have ever come across is all good; there are always some disadvantages. Some of our witnesses tried to pretend that a lot of modern commerce has become dematerialised through the internet age. Nothing could be as material as a cup of coffee, yet Starbucks was among the most prominent of the early users of tax avoidance, which, I may say, is totally legal. That is the point: it is totally and completely legal. But globalisation has changed things—and, overwhelmingly, it has done good. If I had to choose the single best thing that has happened as a result of globalisation, it would be the success of so much of the developing world. The emerging world has really emerged successfully, which would not have been possible without globalisation or the freedom of trade and capital movements. Those private capital movements dwarf aid flows into complete insignificance, as well as being of rather better quality than aid flows. Globalisation has enabled China and a number of other countries, most but not all of them in Asia, to develop in the most wonderful way in the past 25 years. But nothing is without its drawbacks and disadvantages.

The Government have to face up to the fact that globalisation means that the corporation tax system is no longer fit for purpose, and will not and cannot be fit for purpose, because multinational companies will move profits legally to wherever the tax regime is lowest. A number of ill effects flow from this. One is that the Chancellor loses much needed revenue—and I feel for him, particularly when we have a deficit the size of the one we still have, although happily it has gone down a great deal. Loss of revenue is a serious business. A second flaw, defect or downside, as other noble Lords said, is that it brings the whole tax system into disrepute. That is not a good thing at all.

The third thing is that it is grossly inequitable. Although all those multinationals—I have nothing against multinationals—can shift their profits and intangible assets around the world in such a way that they pay little or, in some cases, no UK corporation tax, the backbone of this country is the small and medium-sized enterprises that are national companies, not multinationals. They still have to pay the full rigour of corporation tax. There is no level playing field. It is a totally inequitable system.

What are the Government doing? They are just prancing around and saying, “We are talking about it with our opposite numbers from other OECD countries and other European countries” and goodness knows

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what. They love going to conferences, and every so often they go to a conference and make a statement that they have reached a great understanding or agreement, but they have not. The system is just the same. The problem is just the same; it has not gone away. Then they say, “We will approach it this way, but we could not possibly take a lead”. God forbid that the United Kingdom should take a lead and introduce a sensible tax system of its own, which would probably comprise—although we do not lay down what it should be—a very low level of tax on corporate profits with a low level of corporate sales tax, because sales in this country are sales here that could be taxed here.

So what is the answer? We should take a lead, but instead, nothing happens. I have to say to the Government, “You’re not even getting nowhere fast; you’re getting nowhere slowly”. This simply will not do. They have to realise that corporation tax in the modern world has had its day as a major source of revenue. We have to find a new system. The modest proposal that we made, which was that there should be a review, is incontrovertible. I hope that my noble friend will sing a different song from the pathetic government response which this committee was accorded.

6.42 pm

Lord Browne of Ladyton (Lab): My Lords, it is a genuine pleasure to speak after the noble Lord, Lord Lawson of Blaby, and not just because I rise while the sense of the Government getting a bit of a drubbing is still in the air—although I am not unhappy about that. The noble Lord’s robust, challenging interrogation of the Government’s position did the House a service beyond just making life difficult for the Government. I apologise to the Minister for glorying in that a little. The noble Lord shared with us some common sense, straightforward arguments based on his extensive experience that made many points with which I agree much more understandable to me than they were before I rose to speak.

I look at the list of those who have chosen to speak in this debate. Excluding those who speak from the Front Benches, I see that there is an unwise minority of us who are not members of the distinguished Select Committee. As I am the first of that unwise minority to speak, it falls to me to thank the noble Lord, Lord MacGregor of Pulham Market, and his committee for the service that they have provided to the House not only in taking on this short inquiry but in producing such a readable, comprehensive and accessible report in an area of great complexity. The committee has produced a series of serious, simple recommendations. I join the noble Lord, Lord MacGregor, my noble friend Lord McFall and the noble Lords, Lord Smith of Clifton and Lord Lawson, in expressing regret and disappointment that the Government’s response was so self-congratulatory. It was not just disappointing but complacent.

I intend to devote a significant amount of my short contribution to expanding on the argument, which has already been made, about whether the Government are entitled to any degree of complacency or self-congratulation in this area. There is significant and recent evidence provided through the witness examination

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of the Public Accounts Committee that there is no room for complacency or self-congratulation, but that the challenges are still significant and growing.

In its report, the committee justifies the whole process in the first phrase of the first sentence of the summary, which states:

“The UK faces a serious problem of avoidance of corporation tax”.

The last sentence of that paragraph states:

“This damages the economy and undermines trust in the tax system”.

I know from previous debates that the Minister shares the view that that is a serious and significant challenge. That view has gone well beyond those who are in the know about the detail of what happens in the Treasury or in her Majesty’s Revenue and Customs. The people of the United Kingdom know in spades that we face a serious challenge on that, and there is an expectation that we will respond in a serious manner to those challenges.

When we search for some proxy for describing the nature or the scale of that challenge, in previous debates, we have gone to the tax gap. I now know, although I did not fully appreciate this, that the avoidance of taxation by the methods referred to in this report are not included in the tax gap, but the tax gap is a good proxy indicator of the scale and nature of the challenge.

I last spoke on these issues in your Lordships’ House on 6 June, when we debated a Motion moved by my noble friend Lord Foulkes of Cumnock that this House take note of the economic and social consequences of tax evasion and avoidance. In the Official Report, at col. 1308, the noble Lord, Lord Newby, followed the estimate that we were all using that the tax gap was about £32 billion—not all of which, of course, is avoidance of tax by corporate bodies, and none of which, it would appear, is avoidance of tax by multinationals operating the devices referred to in this helpful report.

It was said to be £32 billion and falling. To test whether the Government’s confidence in what they intend to do to reduce tax avoidance is well-placed, I go to the first answer given by a man by the name of Edward Troup, who is the tax insurance commissioner for Her Majesty’s Revenue and Customs, when he gave evidence before the Public Accounts Committee only this Monday, 28 October, at a hearing of the committee to which the noble Lord, Lord Smith of Clifton, has already referred. The transcript is a veritable mine of useful information to test whether what we are doing as a country to address this issue is having any effect at all, or any measurable effect.

I should say that this is the uncorrected transcript of the oral evidence, and it may be adjusted later, but the very first question put to Mr Troup is about the tax gap. He says that it is £32 billion and falling but that it,

“has gone up from £34 billion on an adjusted basis last year to £35 billion in cash”.

I am not sure whether those two figures are comparable, because I am always conscious of vocabulary, but he says that it has gone up from £34 billion on an adjusted basis last year to £35 billion in cash. Thereafter follows some significant to-ing and fro-ing between

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the members of the Public Accounts Committee and the witness. That to-ing and fro-ing is calculated to leave everybody utterly confused about how those figures are made up and how reliable they are. What is unequivocal is that the tax gap is going up. That is the evidence that was given only a few months after the Minister who will respond to this debate unfortunately told your Lordships’ House that it was lower than that and going down. That was the best information with which he was provided from the same sources. I understand that because I have been in that position myself. The first proxy for this that we can find indicates that the situation is getting worse, not better.

My first question is: what is the current estimate of the tax gap? Is it £32 billion, the figure which was being deployed in June? Is it £34 billion which was apparently the unadjusted figure for last year? Is it the £35 billion cash figure for this year, and is the gap going up or down?

Secondly, this evidence makes it clear that the tax gap does not include any estimate of the taxation we as a country are being denied by the practices identified in this report, with which we have all become familiar. This is for good reason. As the noble Lord, Lord Lawson, said, this is not illegal. Until the policy and the law change, there is no way of estimating what it is. From page 8 onwards in the transcript of the evidence there were some interesting exchanges between Austin Mitchell, a Member of Parliament, and the same witness. The committee tries to put some scale to the taxation avoided by these processes. The way it does so is interesting. The scale is drawn from information communicated to the SEC in the United States of America by companies discussed before in the debate—Google, Starbucks, others—about the scale and nature of their sales in the United Kingdom. The disparity between the figures is astounding. These companies are telling the United States regulators and others that they are doing billions of pounds’ worth of business in the United Kingdom whereas they are telling Her Majesty’s Revenue and Customs that they are doing at most hundreds of millions of pounds’ worth of trading here.

The most interesting thing about this evidence is that nowhere does there appear to be any estimate of the revenue lost. Nowhere does there appear to be an estimated figure we can put to the nature and scale of this problem. That passage of evidence alone—I shall end on this because I want to do service to this report but I cannot go into all the detail of it—generates an incontrovertible argument for the recommendation of the Select Committee for some method of coherent and appropriate accountability to Parliament. That method should follow the example of the Intelligence and Security Committee. The reason the argument is incontrovertible is that as you follow the evidence you discover that HMRC witnesses cannot give any answers. They cannot answer for policy because apparently they have no involvement in policy. They cannot answer for estimates because their business is collecting the taxation that is due, not estimating. They cannot answer in relation to individual taxpayers’ experience with Her Majesty’s Revenue and Customs because that is confidential. Thus there is no accountability at all.

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This is not a question of confidence in the taxation system being bolstered by a process in which there is no accountability. It is an example of confidence in the taxation system we have in this country ebbing away because there is no accountability for it. Rebuilding confidence will require Her Majesty’s Government to realise that transparency, accountability and a shared knowledge of what is going on inside our tax system lie at the heart of the matter. As to what the noble Lord, Lord Lawson, has suggested about restructuring the taxation system, I should have to look at the details carefully, but what is necessary is accountability in Parliament. We, at least, need to know who owes what or who should have been paying what, and we do not.

6.56 pm

Lord Leigh of Hurley (Con): My Lords, it is with great pleasure that I rise for the first time, to speak on this important issue of tackling corporate tax avoidance in a global economy, in the same debate as my noble friend Lord Lawson whom I have admired for so many years, for reasons connected to this debate, which I will come on to shortly.

I want to start by thanking the many people here who have helped me in so many ways, particularly since my introduction. This includes those who work here, for what seems to be very long hours, and who have guided me through the past few weeks. I am very grateful to my supporters, my noble friends Lord Feldman of Elstree and Lord Fink, who have been close personal friends for some time, and with whom I have had the honour to work in my role as a treasurer of the Conservative Party.

I understand that it is customary in a maiden speech to make a few remarks about oneself. Members of my family first arrived in this country in 1780, whereas other scions arrived here later in the 1880s. My ancestors probably left the Middle East some 2,000 years ago. I suspect that in that time, during their itinerant travels, no country has treated my family better than this one.

I hope to contribute to this House in a number of areas, not least because some 25 years ago I started my own business with one partner and one assistant and it has grown to become well established in its field of expertise. Accordingly, I have spent the last 25 years advising businesses, principally entrepreneur-owned small and medium-sized enterprises, and have some understanding of the issues that SME businesses face, partly as I started one and still have an interest in one, and partly from talking to those entrepreneurs on a daily basis. I hope that my daily interaction with these businesses, together with my activities within my other communities, will enable me to contribute to the House.

My early career started in chartered accountancy at a large multinational firm where I specialised in tax. In addition to serving on the council of Institute of Chartered Accountants I qualified as a fellow of the Chartered Institute of Taxation some 30 years ago, before moving to my current specialist field of mergers and acquisitions. Accordingly, although it might seem a little early for me to make my maiden speech so soon after my introduction, I was keen to have the opportunity to speak in this debate on tax matters.

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I congratulate my noble friend Lord MacGregor and his colleagues on this excellent report. Reflecting upon my time as a tax adviser, albeit nearly 30 years ago, it is interesting to see how much has stayed the same and how much has changed. Equity financing as opposed to debt financing was an issue, as every inward investment had to have an agreed structure negotiated in advance. At that time, some 30 years ago, the mood was changing dramatically and suddenly the United Kingdom became an attractive place to invest after years where businesses had felt that there would be no point in coming here, either because they were not going to make a profit, or simply because they felt unloved. We need to ensure that we never go back to those very dark days.

This takes me back to my earlier reference to my noble friend Lord Lawson, who did so much to change the climate of taxation in this country, taking bold and imaginative steps dramatically to reduce both the legislative and fiscal burdens, which helped us to have a boom for the subsequent 25 years. It is with that in mind that I am nervous to read about proposed fiscal steps that might make multinationals feel less than encouraged to come to the UK, either because there is a feeling that this country might become anti-business or because there is uncertainty about how their tax affairs will be treated.

As the OECD report on base erosion and profit shifting notes, in the past 30 years there has been a huge change in the way multinational corporations arrange their finances. They are now perfectly able to choose in which country they want to invest, where their profits arise and, frankly, where to pay taxation.

The rules that I had to work with then, and many are still extant, are not fit for purpose as domestic tax regimes fail to interact globally, sometimes leaving gaps but sometimes doubling up. As a result, an enormous amount of legislation is being churned out to plug holes, which may work but frequently just creates other inequalities. For example, the aforementioned worldwide debt cap, which HMRC introduced some five years ago to limit the total tax deduction for interest that the UK part of a corporate group can claim as a fair deduction, has in fact produced an absolute bonanza—but only for the firms of accountants that have charged millions in fees trying to calculate this elusive proportion.

Accordingly, a wider holistic approach to this problem is needed. The UK has a track record in leading the way. Our approach to CFCs is regarded as the best in class worldwide. I welcome the Government’s decision to contribute a further €400,000 to the OECD to establish a global solution to these issues. This is important, as there is nothing so frustrating and annoying to hardworking entrepreneurs in the SMEs than the belief that a large multinational competitor is somehow avoiding paying its fair share of tax to the community from which it derives its income.

There are of course other organisations that benefit from a reduction in tax by the use of debt finance, whose activities are entirely based in the UK but whose use of offshore tax havens to shelter interest payments—and thus, of course, profits—may need further investigation.

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I could comment much more on the report, particularly on my concerns over the regulation of tax advisers and the very good points made about the secondment of staff to HMRC, but my Whip, my noble friend Lady Jenkin, has given me excellent advice on many matters, particularly timing, for which I am grateful. So this time—it is the first and it may be the last—I will abide by her instructions and resume my seat, with thanks to her and to many others in this House.

7.03 pm

Lord Hollick (Lab): My Lords, it is a great privilege and pleasure to follow the noble Lord, Lord Leigh of Hurley, in his maiden speech. He is very welcome to this House. He and his family have been on the most interesting journey. His 30-year or so perspective on the tax matters that we have been looking at is most helpful. It is interesting that he was grappling with some of the same problems then, although there are also some new ones.

What struck me is that when the noble Lord said that tax arrangements were not fit for purpose, and he speaks with great authority, he used the expression that the UK was “leading the way”. One of the most disappointing things about the Government’s response is their failure to pluck up the courage to lead the way. This is something that as a country we rather hold our heads up high about and say that we believe we can find a way forward on these difficult matters, but unfortunately that has not been the response of the Government. I thank the noble Lord for his remarks.

I also thank our chairman, the noble Lord, Lord MacGregor, for leading us at a brisk pace through a complex area, and for coming up with some important and sharp points that need to be taken on board and considered at length by the Government; indeed, I hope that the House will remind them of the need to do that.

I declare my interests in several companies and partnerships, which are listed in the register of interests. As has been said, corporation tax makes an important contribution to public finances, accounting for between 9% and 10% of total tax receipts over the past decade. As we know, for the vast majority of companies—SMEs and companies that are based here—tax payment is a matter of routine: taxes are calculated, reviewed and audited, and payment is made. However, for many large companies, some based here but also some multinational companies headquartered elsewhere, the tax charge can be manipulated downwards—in some cases, near to vanishing point—to boost profits, to the great benefit of owners. This is because of the sheer complexity and asymmetry of tax laws here and in other countries.

These large companies therefore have the opportunity effectively to game the system. They are aided by a sizeable army of advisers—the big four accounting firms, top legal firms, specialist tax advisers and of course banks—all of which make a very grand living from providing that advice. Of course, many of those people also advise the Government and HMRC on the detailed framing and operation of tax regulations—tax regulations that they are then free to game when they return to the commercial world. It is a case of foxes

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having a free entry pass to the henhouse. The opportunity to play these games, as we heard, arises from the historic structure of corporation tax based on physical presence in one country, but this has been made redundant by globalisation and digitisation.

When I started in business in the City, tax planning used to fall into two categories: avoidance, which was legal, and evasion, which was not. Today there is a third category, aggressive avoidance, which amounts to a no-holds-barred exploitation of loopholes in national and international statutes. The activities may be contrary to the spirit of the law but they are, just, within it. The Prime Minister put it well when he said at the G8 that forms of aggressive tax avoidance,

“raise ethical issues and it’s time to call for more responsibility”,

from companies,

“and for governments to act accordingly”.

The stock defence for companies that engage in aggressive tax avoidance is that they have a duty to their shareholders to maximise their profits. Farrer, the firm of lawyers, based on opinion from leading counsel, recently published an opinion that said:

“It is not possible to construe a director’s duty to promote the success of the company as constituting a positive duty to avoid tax”,

so that defence falls away. When the Chancellor hailed the G20 communiqué that stated:

“Cross-border tax evasion and avoidance undermine our public finances and our people’s trust in the fairness of the tax system”,

he put his finger on the uncomfortable truth that while most companies and individuals are expected to pay their fair share of tax and are vigorously pursued if they do not, large companies with deep pockets to fund the defence of their tax arrangements are treated quite differently. This is the case with Goldman Sachs and Cadbury—and, I am sure, many others that we do not know about—which are able to negotiate an advantageous settlement that rarely sees the light of day. A tax system that is mandatory for all but the very biggest, for whom it is voluntary, is grossly unfair and, as many noble Lords have said, undermines the trust and sense of responsibility that are essential to the proper functioning of the tax system.

Many witnesses confirmed what business leaders say in private and sometimes in public: that the panoply of schemes to shift profits abroad, and to load up companies with debt, enables them to choose the tax charge that they wish to pay, safe in the knowledge that HMRC will not pursue them. In HMRC’s eyes, legal form triumphs over substance, so a business that earns a substantial economic rent in the UK can divide up its activities—such as purchasing, marketing, brand ownership and financing—into different corporate entities located in different countries, to take advantage of the low tax rates in those countries.

This structure completely defies the way the business is actually run. Nevertheless, it is accepted by HMRC. Google has been referenced. Interestingly, the group profit margin of Google is 22.5%. Assuming that the UK, which is one of its largest markets, would achieve the same margin on a turnover last year of £3.5 billion, it would make a profit of just short of £800 million, on which nearly £200 million of corporation tax would be paid. This compares with the £11 million that was

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actually paid. That is the scale. As my noble friend Lord Browne mentioned, the tax gap does not include any of this. It is a very difficult number to put your finger on but in one company, Google, that is probably the scale of tax avoidance. Eric Schmidt, the Google chairman, pointed out that Google is only following the rules and it is for the Government to determine the rules, and when they do the companies will respond accordingly. He has a point: it is the Government’s responsibility.

Cadbury, which was investigated in a most illuminating article in the FT recently, appears to have strayed a very long way from its founding Quaker principles. Its tax planning was so aggressive that it decided that a couple of schemes were so likely to raise a red flag that it stopped them after 11 months. Therefore, by the time the year-end came around Cadbury did not have to be audited. However, in the 11 months it had spirited away £30 million of profit. I would be interested to hear from the Minister on this point whether HMRC is now looking at intra-year schemes which might not appear on the books but generate considerable savings. I appreciate that he may wish to write to me on that point.

In response, the Government state that they support the principle that profits and taxing rights shall be linked with economic activities, but to achieve this we need better rules. Indeed, the OECD work is important but, as the noble Lord, Lord Lawson, colourfully described, it makes very slow progress and getting multilateral agreement will be particularly difficult. EU agreement might be easier and it would be interesting to know from the Minister whether the Government are prioritising the co-ordination of rules within the EU to reduce manipulation. Many of the schemes we heard about were in fact EU-based.

Of course, there is scope for unilateral action. In his evidence, Professor Picciotto said that,

“it is inappropriate to treat firms which are economically integrated and centrally directed”—

most of the companies we have mentioned today are—

“as if they were a collection of independent entities”.

He claimed that there was discretion under the existing transfer pricing rules of the OECD for countries to take a dim view of this and to say, “That’s not right, it doesn’t work, it’s a sham”. We should have the courage to look into that because the way these companies are reporting for tax purposes is a complete nonsense. It is a complete fiction.

The Government say—and previous Governments have made the same point—that they do not want to frighten away large companies or do anything to upset them. To be fair, as the noble Lord, Lord Leigh, said, it is important that we have a welcome mat but we do not have to lie down and be run over. Large companies such as Google, Amazon, Starbucks and Apple are not going to leave the UK, which is a major market for them, where they make a great deal of money, simply because we require them to pay the right level of tax. It is important that the Government summon up the courage to close the door on these tax avoidance schemes. Yes, as the noble Lord, Lord Leigh, said, we must be clear and consistent about it, but we must also be disciplined if we are to have a fair system. That

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will actually help competition because it will create a level playing field with international companies having to pay the same level of tax in the UK as the currently disadvantaged UK-based companies. Perhaps a corporation tax system that requires all companies in the UK to pay, in the PM’s words, a “fair rate of tax” will significantly boost revenues and open the door to far greater reductions in corporation tax. A wider net will raise more money, help the Exchequer and allow corporation tax rates for large and smaller companies to come down substantially below the levels that are currently planned.

Yes, these measures will threaten Luxembourg’s remarkable position as the largest coffee exporter in the world and outlaw such mouthfuls as the Dutch sandwich and the Irish double dip but, frankly, these are all based on fictitious accounting and so we should shed no tears. Will the Minister confirm that the Government will look again at the discretionary measures available to them under OECD guidelines?

Mention has been made about high levels of debt. Having worked in the City and in private equity I am very familiar with the benefits and, occasionally, the disadvantages of high levels of debt. Because of the asymmetry between the tax treatment of debt and of equity as the noble Lord, Lord Lawson, and others have pointed out, the incentive is to pile on more debt. That needs to be looked at but the arrangements at the moment mean that debt can be raised to finance foreign activities and to shift profits out of the UK. The Government and HMRC need to look closely at what is going on here.

The noble Lord, Lord Smith of Clifton, mentioned the Eurobond scandal. This rather curious loophole costs the UK some £500 million a year. Yet the Government, having consulted 30-odd people in the City—the usual suspects—decided not to score. They were in front of an open goal with £500 million as the prize. For the Government to claim, as they do in this response, that they are protecting the UK Exchequer from aggressive loan financing is palpably absurd. As the Prime Minister said, it is really time for them—he did not say “them” but I will—to wake up and smell the coffee. This is now a rampant activity, which is losing the Exchequer a great deal of money.

Informed discussion of the tax system and the performance of HMRC is bedevilled by opaqueness. The Prime Minister put it in a nutshell in Davos in January this year when he said:

“We need more transparency on how governments and, yes, companies operate”.

He prefigured our report. His words have been ignored by the Treasury, whose refusal to embrace transparency for companies and to produce effective parliamentary oversight of HMRC smacks of arrogance and complacency. Without specific details of aggressive tax manipulation schemes, it is impossible for Parliament and the public to comment sensibly on the massive tax leakage the UK is suffering. It is helpful that the newspapers have been able to shed light on this but it should be a matter of public record.

In response to the report’s call for parliamentary oversight, the Government trumpet the appointment of the Tax Assurance Commissioner. Now, he is an

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HMRC insider. He is marking his own homework and doing his own scorecard. Perhaps the Minister can help us here. Why was this not set up as an independent body answerable to Parliament? It would have more credibility and give more comfort to taxpayers. The response also says that the National Audit Office has full access to HMRC. That is a good thing but how much detailed oversight does the National Audit Office actually take of the workings of HMRC? Can the Minister tell us what resources are deployed by the National Audit Office to oversee HMRC’s performance? How many investigations have been carried out annually over the past decade?

That the Treasury’s response to our report is supine is perhaps not wholly surprising. Our recommendation that the Treasury should review a range of radical tax proposals and promote a more assertive approach to profit manipulation probably falls into the “Too difficult, don’t bother me with that” category. Transparency and effective parliamentary oversight would put the performance of the Treasury and HMRC in the spotlight, which might prove to be uncomfortable. The Treasury and the Government are beguiled by those smart folk in the City and large companies, and do not want to disturb a cosy relationship. Of course, ignoring or sidelining the wishes of the Prime Minister, which have been very clearly set out, is a long-established Treasury pastime.

7.20 pm

Lord Bilimoria (CB): My Lords, I declare my various interests in this area. I congratulate the noble Lord, Lord MacGregor, on initiating the debate. I also congratulate my friend the noble Lord, Lord Leigh of Hurley, on his excellent maiden speech. He is a fellow chartered accountant and we have known each other for many years. As he humbly said in his speech, he is also a fellow entrepreneur and a successful one at that. I read a book by a Wharton professor about givers and takers: in life you have givers, takers and matchers. It is not necessarily the case that the givers will get further in life, but when they do get there they always get there in a much better way and have a more sustainable, happier future. The noble Lord, Lord Leigh, is a giver. He has given to this House today his expertise as an entrepreneur, as an expert in corporate finance and as a chartered accountant. We welcome him here.

The noble Lord, Lord MacGregor started with the complexity of the UK tax regime. He spoke about multinationals and the infamous example of Starbucks which, from 2006 to 2011, had UK revenues of $18 billion yet paid UK corporation tax of only $16 million. As the noble Lord said, there is a serious issue of avoidance. The Select Committee on Economic Affairs—I am proud to have been a member of the Finance Bill sub-committee every year—has produced a thorough report, Tackling Corporate Tax Avoidance in a Global Economy:Isa New ApproachNeeded? The report says right up front that the present system is not working and urgently needs reform. It says that it is confident that the Treasury will bear this in mind as it conducts its proposed review. However, we have heard that the Government have not really listened to the report, and will not be taking much of it into account.

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The report highlights that UK corporation tax, having come down to 20%, is the lowest in the G20. The German rate is 29%, France’s is 33% and the United States’s is 40%. This is wonderful news. On the other hand, the report also highlights something which is not understood by the public: a significant feature of the UK’s corporation tax regime is the low rate of allowances for capital spending. Our regime does not encourage investment. In fact, within the OECD and the G20 countries, only one country, Chile, has a less generous allowance than the UK. We must look at this as a whole.

The other major point which has not yet been highlighted in today’s debate is how much corporation tax yields as a percentage of GDP. Again, the report lays this out clearly in a table comparing us with other countries such as France, Germany and the United States. Our UK share of corporation tax receipts has held up pretty well in spite of falling headline rates. As a percentage of GDP, in 2005 corporation tax was 3.2%; today it is 2.7% in spite of rates having fallen. The nub of it all is that, of the contribution by tax to total HMRC receipts, corporation tax stands out in that it is only 8.7%. It is dwarfed by income tax at 32.2%. National insurance contributions constitute 21.8% and VAT constitutes 21.4%. This clearly shows that, yes, everyone is getting upset about corporation tax not being paid by certain companies, but are people talking about all the other taxes that these companies are generating, predominantly through creating employment? Employment generates a far greater proportion of taxes than corporation tax. We are not quite getting the context of and perspective on this. I will come back to that point at the end of my speech.

In fact, 81% of UK corporation tax is paid by the top 1% of companies. Here we are getting upset about 1% of companies; 99%—SMEs have been mentioned—are paying the full rate of corporation tax in many cases. We are losing a sense of perspective. The report says:

“In total, PwC say that Hundred Group members contributed around £8 billion in corporation tax in 2012 and a further £16.8 billion in other taxes borne”.

A multinational company is not taxed as a single entity but as a number of legally distinct, individual companies all over the world. The present tax system around the world encourages multinationals to move their profits around the world. That is the reality. We are trying to stop that. The report recommends ways of stopping it. When I was on the sub-committee for the previous Finance Bill, we focused on the GAAR. As the noble Lord, Lord Hollick, said, when he came up in the business world he was taught the distinction between evasion and avoidance. To a chartered accountant it is very simple: evasion is illegal; avoidance is allowed. Now we are going one step further and saying “abuse” as well. However, it is clear that the GAAR will not catch everything. It is narrowly focused. It will not, for example, catch the Starbucks situation at all. That needs to be communicated. I am glad that the Government have listened and that the GAAR will be communicated to the public.

I am proud to be a fellow of the Institute of Chartered Accountants in England and Wales. The report says:

“The ICAEW offers advice to its members that appears to go well beyond the Code of Conduct. It states, for example, that

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‘Although tax avoidance may be legal, whether something is within the law isn’t the only thing that matters. You are under a duty to take into consideration the public interest and at all times to comply with ICAEW’s Code of Ethics … The boundary between legal tax avoidance and illegal tax evasion is not always clear and there’s a danger that what starts out as legal tax avoidance may slip into illegal tax evasion’”.

Who is competent to catch all of this? The noble Lord, Lord Lawson, raised the point of the structure of HMRC, this merged entity. Is it fit to deal with this? What about the relationship between the Treasury and HMRC? A lot of the policy is formed in the Treasury and HMRC is meant to execute it. Can the Treasury make this policy properly?

Then there is the question of reputation. In my business, our most valuable asset is our brand. The threat of naming and shaming companies is serious. We, as companies, are all very concerned about our brands. Much more can be done in this area by naming and shaming companies.

The Government actively promoting the implementation of the G8 proposals on the movement of funds between companies is very good. We need to continue to do this. Again, however, it will not solve everything. A unitary tax system, treating multinational companies as single entities in the global economy, is attractive in theory, as the report says, but is quite frankly utopian. In practice, we cannot even get the EU to agree on corporation tax rates. How on earth are we going to get the whole world to agree on something? We have to realistic and practical about this.

The setting up of a Joint Committee to supervise and oversee this matter is a great idea. The expertise of the House of Lords in this area is far greater than the expertise in the other place. This expertise is used in the Finance Bill sub-committee. If it could be used on a permanent basis, that would be great. Will the Minister consider forming such a committee to oversee the issue on a general basis? I think that the confidentiality argument is absolute nonsense, as was said by noble Lords earlier.

I now come to the points made by the noble Lord, Lord Lawson, which I thought were excellent. He hit the nail on the head. He said that corporation tax in the modern world is inequitable between multinationals and SMEs and that, in the way it is structured at the moment, it has had its day. He has summed it up. The noble Lord, Lord Browne, talked about a tax gap of £32 billion and said that the tax gap is going up. I want to refer to a friend of mine, Vindi Banga, who is a former head of Unilever in India and was then on the main board of Unilever here in the UK—companies do not get more multinational than Unilever. He wrote an excellent article earlier this year in the Telegraph, headed, “Tax compliance should be judged by rules and not morals”. This was when the Starbucks issue was at its height, when it was being bashed by politicians—the noble Lord, Lord Hollick, referred to this. The Prime Minister, David Cameron, at the World Economic Forum in Davos, said:

“Companies must wake up and smell the coffee”.

One cannot get more specific than that. Vindi Banga then talked about IP royalties; the way companies move profits around the world, perfectly legally. One

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way, of course, is to charge royalties from where the IP is headquartered. Let us say that the IP is headquartered in a country outside the UK; royalties are charged and paid, reducing the tax here in the UK. However, what we overlook is that the UK is also a recipient of royalties and we encourage IP. We encourage the innovation of IP, the generating of IP and the holding of IP. In net receipt terms, the UK receives more royalty income than we pay out. So it will go against us if we stop that in trying to address tax evasion.

The other point that Vindi Banga made—this is my main point—is that our tax system has to be competitive because we, as companies, operate in a really competitive environment. In fact, while evasion is immoral, avoidance, if it is legal, is a duty: companies almost have a duty to try to pay as little tax as possible in order to be as competitive as possible and to survive and compete in the global environment. However, there is something that could and should be done. Could the Government bring in even more regulation for companies to disclose all the tax that they are paying in one simple table? Every company would disclose how much it generates as a result of its operations in terms of PAYE paid, employer national insurance paid, employee national insurance paid, VAT collected as a result of sales, and corporation tax. In my company’s case, there would also be the excise duty generated as a result of the company’s existence. That would put into perspective how much tax a company is generating.

The noble Lord, Lord Leigh of Hurley, made a very valid point about the legislation that exists because our tax code is so complex. In spite of all the efforts of the noble Lord, Lord Lawson, we still have such a complex tax system and legislation is constantly plugging holes. The noble Lord, Lord Leigh, said, very correctly, that it is not fit for purpose and that we must continue to try for a global solution. He spoke very clearly about SMEs, which are paying too much tax, in relative terms, unfairly. As a country, we do not have a competitive tax regime overall. Our corporation tax rate may be one of the lowest, but our capital allowances, on the other hand, are not good enough and our top rate of income tax, at 45%, is still very high. The overall tax burden on the consumer and on companies is actually very high. Do the Government have the guts to address the overall situation?

I conclude by getting to the crux of all this, which is that we should not really be focusing on corporation tax, although we must address that. My dream is for us to have a simpler, fairer tax system that is competitive, attracts investment and promotes spending, saving and growth.

7.34 pm

Lord Brennan (Lab): My Lords, I congratulate the noble Lord, Lord Leigh, on a maiden speech of elegance and economy. It is a remarkable example for his fellow accountants. I also commend the Economic Affairs Committee on the high quality of this report. It applies clarity to the complex and gives its recommendations succinctly and to the point. It should be required reading—where necessary, rereading—for those in government dealing with financial affairs who are given to policy complacency or the intellectually superficial.

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I declare an interest as chairman of Global Financial Integrity, a Washington think tank working on tax issues and illicit cash flows. It works with several Governments in a task force dealing with tax reforms. Its work informs much of what I am about to say.

I want to deal in particular with the international aspect of corporate tax reform. It was described by the noble Lord, Lord MacGregor, echoing the Government, as a topic of key importance. So, what can be done internationally that will prevent our country losing its competitive advantage and yet achieve a more stable and just tax regime? We want to achieve as level an international playing field as possible. The importance of this topic was recognised this year by the G8, by the OECD it its initial report of February and its action plan of July, and by the G20 in calling for action in Mexico last year and in Moscow this year, endorsing the OECD action plan. What does the OECD say needs to be done? There are five principal points. The first is transparency: that is obvious. The second is evidence of beneficial ownership. Who actually owns which companies in which jurisdictions and how are they interconnected? The third is the automatic transfer of tax information. This already applies to the three NAFTA countries, applying to individuals and companies. It is a three-country market of 450 million people and hundreds of thousands of companies. It can be done: it is being done. The fourth and fifth are two interrelated topics: country-by-country reporting and transfer pricing.

The OECD, in its 15-point action plan—four points of which, as a matter of interest, refer to transfer pricing—says that country-by-country reporting and transfer pricing are an essential element in tax fairness across countries. The G8 agrees that this is essential. The OECD is neither amateur nor academic. It has a tax database and a tax policy centre and it is used to reporting on, and seeking to implement, tax reform. I quote from its report on transfer documentation practices, paragraph 71—a sentence that is tediously long but important:

“It seems possible for businesses to provide without undue burden individual country data based on either management accounts, consolidating income statements and balance sheets, and/or tax returns that would provide tax administrators with a general sense as to how their global income is allocated and where pressure points in the transfer pricing arrangements might lie”.

As far as I am aware, no one in the year or two since that was published has produced a plausible argument against its practicability.

Quoting these two issues in its action plan of July, the OECD promised an urgent response. That response was given 10 days ago, on 17 October. It precedes a consultation meeting in Paris in mid-November on country-by-country reporting and transfer pricing. By this rapid interim report it anticipates a set of rules to be developed that will include a requirement that multinational companies provide all relevant Governments with necessary information on their global allocation of income, economic activity and taxes paid in the relevant countries, according to a common template. That has been produced in three months. It requires a consultation response, including from our Government, by mid-November. Action is sought, and expected. Despite the understandable concerns of those in this

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House about the difficulty of obtaining international co-operation, the OECD reminds us all that the Extractive Industries Transparency Initiative and the Publish What You Pay initiative have both been put into practice by Governments and international energy companies. It can work and it is working. There is no reason why the OECD recommendations should not be accepted in the next month or two on these topics. However, we need to make more significant progress.

The Government and other interested bodies have to push the OECD. It is an important institution, and I praised it. However, Professor Picciotto, a witness to the committee, laments at paragraph 32 of its report some of the OECD’s past waywardness after it had made a good start. Indeed, he complains about the transfer pricing initiatives that it took, saying:

“Regrettably, the OECD officials have been allowed to go their own way, free from any parliamentary scrutiny, and develop the increasingly complex and inappropriate Guidelines”.

So they give the initiative, but the Governments ensure that they are quickly and practically produced for action.

We must next press the accounting profession. The International Accounting Standards Board is responsible for the creation of modern accounting standards, expressed in the international financial reporting standards —the IFRS. As far as I know, at present the standards board has no programme of any action in response to the OECD plan, and neither is any draft work being done on how the IFRS might have to be changed to meet the recommendations with which I have been dealing. Therefore, although Governments call for action, which requires accounting procedures to be in place, they have no oversight over the body responsible for creating them, nor on the profession that will implement them. That surely must be dealt with. We cannot have a two-year programme from the OECD and then a further lamentable year or two—or more—of introducing accountancy standards. A competent accountancy profession can produce a draft along with the OECD proposals.

Surely the third and last point is that this has to be kept in front of the public. It is a matter of serious public concern. We ordinary people pay taxes; why should these giants escape? It is simply not fair, and the public will not forgive politicians or Governments who forget that. It is important to note, to echo the words of Prime Minister David Cameron, that this is an issue whose time has come. I hope that the Government, Parliament and those responsible for these changes will not find themselves left behind.

7.45 pm

Lord Shipley (LD): My Lords, I thank the noble Lord, Lord MacGregor of Pulham Market, for chairing our committee and for leading so effectively this speedy but very important inquiry. I also congratulate the noble Lord, Lord Leigh of Hurley, on his excellent maiden speech.

The days are long gone when tax collectors could stand at the gates of towns and cities and levy tax in cash on goods brought in for sale. They could raise taxation successfully by that means because there was a clear border and goods were visible. As we have heard, HMRC estimates our loss of tax today through avoidance, evasion and non-payment at £35 billion,

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which begs the question of how it knows. There is a lot of evidence to suggest that the figure is a great deal higher than that, as we heard earlier in the debate.

I remind the Minister that the coalition agreement of 2010 stated:

“The parties agree that tackling tax avoidance is essential for the new government, and that all efforts will be made to do so”.

Therefore it is reasonable for the Government to assess what has been achieved. Our report poses the question: “Is a new approach needed to tackle corporate tax avoidance in a global economy?”. The answer is, “Without a doubt”. The general public certainly agree, because they see it as an issue of fairness. Perhaps, therefore, the Government’s response to this report should have been a bit warmer. As the noble Lord, Lord Smith of Clifton, explained, that response can be construed in the verbs used. I will add one verb to his list of “agrees”, “notes” and “disagrees”. The Government “welcome” what we say just once.

The constant use of the word “notes” seems odd when the word “agrees” would be absolutely justified. For example, paragraph 138 of our report says:

“Corporation tax is a significant component of HMRC’s portfolio of taxes and makes an important contribution to the UK’s total tax revenue”.

That is self-evidently true, but rather than say that they agree, the Government in their response simply “note” what we have to say. I am puzzled as to why this should be. It seems to relate to the fact that the Government agreed at G8 that work to minimise avoidance is an international matter and that we should therefore await the progress of the OECD. It implies that there is little that the Government can do on their own. However, as we have heard, is this true? It is not.

Our report says in Chapter 1:

“It is primarily for the Government to correct the flaws in the UK’s corporation tax regime and to pursue agreement to make the international tax framework more rigorous”.

There is no doubt that following the G8 decision the latter is starting to be done. G8 and G20 countries have realised that something must be done about international rules which allow multinationals to shift profits across borders to avoid tax. Governments get less money, other taxpayers are short-changed, and the general public rightly wonder how this can be fair and what their Government will do about it.

I accept entirely that multinational solutions are needed and I welcome the OECD initiative. However, I have concluded that the Government must do more themselves to correct flaws in our corporation tax structure. Indeed, they have made 33 changes to tax law and are investing more resources in HMRC, which should repay that investment. That is welcome. However, the public expect that HMRC will be properly resourced to reduce the large amount of tax being lost. I hope that the Minister in his reply will be able to confirm that it will be resourced in the way we need.

In response to paragraph 141 of our report, the Government confirm that:

“Paying Corporation Tax is not voluntary; it is an obligation”.

Indeed it is. But if it is an obligation, will the Minister confirm whether it is true that a British multinational company can take out a loan in the UK, count it

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against its tax liability, and then place it in a finance company in a tax haven, which can then lend the money on to another company elsewhere in the world? If so, what if that company lent via a tax haven to a sister company? Would tax be saved twice—in the UK because the money is borrowed, and in the receiving country because it is borrowed there, too? Can the Minister tell the House how extensive this practice is thought to be, and what action HMRC is taking to block the loophole? I understand that many other countries are now doing that. Surely the UK should not encourage offshore tax havens at a financial loss to our own taxpayers.

We said in our report:

“As things stand, there are too many opportunities for multinational companies to manipulate their affairs to reduce their global tax payments”.

We also said that,

“ways are open, especially for multinationals, to shift profits between countries so as to reduce their overall tax liabilities, and to make UK corporation tax to a considerable extent voluntary for multinationals”.

Surprisingly, in response to paragraph 141 the Government have simply noted our comments saying, first, that corporation tax is not voluntary—when for some multinationals it clearly can be voluntary—and, secondly, that HMRC is to,

“step up its fight against those multinationals that do not pay their tax in accordance with the law”.

But not paying according to the law is tax evasion. Tax avoidance is about devising ways to get round the law. We have ended up with multinational companies able to avoid corporation tax and national companies unable to do so.

We refer in our report to the “tax avoidance industry”—and I think we are justified in talking about an industry because, from the evidence we received, there is clearly an industry at work. There is now little public trust in the corporate tax system and, as we have heard, it has become potentially very damaging to our democratic processes. So, why is there to be no Treasury review? Why is there no publication of corporation tax paid? Why is there to be no regulation of tax advisers? Why is there a refusal to review all statutory measures available to HMRC to combat tax avoidance, even aggressive tax avoidance? Why is there to be no Joint Committee?

As we have heard, developing countries are some of the worst affected by profit shifting. Christian Aid claims that developing countries lose more revenues as a result of tax avoidance and evasion than they receive in aid. That means that while we are delivering the 0.7% target through the front door, a bigger sum is seemingly going out of the back door. The problems of developing countries are implicit in our report, but perhaps we should ensure that as the OECD, the G8 and the G20 lead reform, developing countries get involved and that due account is taken of their needs. Effective tax collection is vital if poor countries are to reduce their dependency on aid.

Will the Minister comment on the practice of trade mispricing, in which multinational companies can reduce the amount of tax they pay in a developing country by buying raw materials at below market rate and reselling

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them on the international market at a much higher rate? For example, Christian Aid estimates that if Zambia had received the same price for its copper exports in 2010 as Switzerland did for selling on the copper, Zambia could have doubled its GDP. There is a remedy: international guidance prices, at which I hope the OECD will look closely.

I ask the Minister two things in respect of developing countries. Following the G8 declaration, what support are the Government providing bilaterally, and through the OECD and G20, to ensure that developing countries have a say in the renegotiation of global tax rules? Secondly, what other steps are the Government taking to ensure that the UK’s own tax rules do not allow or encourage any multinational enterprises to reduce overall taxes paid by artificially shifting profits to low-tax jurisdictions? The general public think that tax should be paid where the profit is made. The problem is not going to go away. The mispricing of transactions, and the mislocation of the profits of economic activity into a tax haven to avoid tax, have become a very big political issue.

In conclusion, I ask: are the Government doing all they can? It has been reported that last year, for example, HMRC investigated only 1,000 out of 250,000 reports of transactions that were thought to deserve further inquiry. As we have heard, the Government must lead by example. I agree entirely, and I hope that, in summing up, the Minister will be able to confirm that we will do just that.

7.55 pm

Lord Lipsey (Lab): My Lords, as a member of the committee, it would not be seemly for me to blow its trumpet—although I do not mind giving a toot or two for our chairman, who did such an admirable job. The report was generally welcomed as a very balanced one. We did not accept the proposition put to us by many of our witnesses that all was for the best in this best of all corporate tax worlds—a suggestion that many of us ascribed to the fact that many of them made their money advising on precisely that system. But nor did we side with Richard Murphy and the Tax Justice Network, with their ambitious plans to milk the corporates.

It was a balanced report, and it went down well—except with Her Majesty’s Government. I have rarely read a more dismissive—and, I am afraid, at points arrogant—response to a Select Committee report. “No, we won’t review corporate taxation. What a silly idea”, “No, we won’t look at tax relief on interest”, “No, we won’t register tax advisers”, “No, we won’t penalise those caught under GAAR”.

I once wrote a book on the Treasury—little read today, I am afraid—and I am generally a supporter of it in all the difficult jobs it does, warts and all. But this response is a very big wart. What explains the tone of the response? The answer is simple. The clue is on page 2, where the Government say that they are taking action,

“first, to make the UK tax system more competitive … second, to clamp down on tax avoidance … and third, to drive forward reform of the international tax framework”.

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I can paraphrase that as follows: “We would quite like less tax avoidance. However, if we do anything to get it, we shall put firms off locating in Britain, where we want them. So the best thing is to minimise national measures. We’ll have to do a few things to pacify the pop newspapers and Margaret Hodge, but meanwhile we’ll concentrate on international measures”. The result of that is that the Starbucks, the Amazons, the Googles and the food companies exposed by the Independent can laugh at us.

With this excessive tolerance we are encouraging an international race to the bottom. Corporation tax rates worldwide are falling. If others think like us they will act like us, and corporate tax will soon be a thing of the past. The noble Lord, Lord Lawson, would welcome that, as he said—and so might I, so long as it was replaced by something equally lucrative to the Exchequer, and preferably more, rather than less, progressive.

The “do nothing nationally” approach enshrined in the response is extended by the Government to measures that would not in any way affect the international competitiveness of our tax system. For example, the report canvasses a proposal for a register of tax advisers, which might facilitate action being taken against those who give egregious advice to their clients, and an accompanying code of conduct. The Treasury does not explain why it rejects this; that would be too much bother, I think. It just says that the Government,

“does not regulate the tax profession”,

as if their failure to do what the committee recommended was a decisive argument against doing so. Honestly, whether or not noble Lords share my view of the committee’s report, it deserves better than this. This is not the response of a Government who are seriously concerned to do anything about corporate tax avoidance and evasion. I hope that this complacency will not be repeated by the Minister in his reply this evening.

8 pm

Lord Davies of Oldham (Lab): My Lords, I have read the report and congratulate the committee on the excellent work it has done and the judicious way in which it has presented its arguments. The chairman of the committee who introduced the report today—the noble Lord, Lord MacGregor—continued that pattern in identifying the committee’s arguments. He indicated that the Government had not responded constructively to an issue which the committee clearly recognises is one that exercises the public and is of considerable immediate importance. The chairman’s judicious and careful presentation was somewhat submerged in the subsequent debate in which noble Lords forcefully expressed the view that the Government’s response was utterly inadequate. I think that the noble Lord, Lord Lawson, called the response lamentable. Other noble Lords have indicated that the response goes beyond complacency and is not worthy of a government response to a Select Committee report.

I will comment on several of the speeches made in the debate but it also falls to me to congratulate the noble Lord, Lord Leigh, on his maiden speech, in which he expressed himself with great precision. However, he also did something which is quite exceptional in

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this House in that he apologised for speaking briefly. He will not encounter brevity too often and he will never find it accompanied by an apology except on this occasion. However, we are grateful to the noble Lord for the points he made.

My noble friend Lord McFall wasted no time in identifying the context in which the report was presented. The committee feels very hard done by in terms of the Government’s response given the serious level of public discontent about corporation tax that has manifested itself over the past 18 months. The public outcry was sufficient for Starbucks to decide that it merited a gesture on its part in the form of making a contribution to the Revenue. My noble friend said that the public felt there was a breakdown of the national contract. That may not be putting it too high. After all, everyone knows that in this time of great austerity and difficulty, when wages have not increased over the past 10 years, people are paying their taxes, as they are obliged to do, and they find it scandalous that some large organisations can treat corporation tax almost as a voluntary levy to which they pay mere lip service. That is why the Government’s response ought to be much more positive.

We have encountered many difficulties with regard to these issues. My noble friend Lord Browne referred to the scale of the tax gap and asked whether that gap was increasing or decreasing. There are clear reports that in the last recorded year the gap was £34 billion, and that it has gone up £1 billion since then. However, as my noble friend indicated, it is very difficult to put the basis on which these figures are presented into clear perspective. That is why it has been constantly argued throughout the debate that the first thing we need is transparency on the part of companies and the second is accountability on the part of HMRC. We all know what the Government’s response was to the question of accountability. The committee stated:

“The threat of naming and shaming represents a reputational risk to companies; and may therefore have the effect of encouraging boards to make sure that the companies they run are not using inappropriately aggressive tax avoidance strategies”.

The Government’s response is that the Government are subject to taxpayer confidentiality rules that protect the tax affairs of all taxpayers. In other words, there is to be no advance in that area, or on the committee’s constructive recommendation that there should be parliamentary scrutiny not dissimilar to that which obtains with regard to the security services: that is, a parliamentary committee should be established to look at these issues on a confidential basis. However, the Government are, of course, utterly and totally dismissive of that proposal. This will not do. It certainly will not do against a background of a determination to make progress in this area at an international level, as my noble friend Lord Brennan indicated. Where is the UK to figure in this? The committee obviously hoped that we would be in the van of progress. The Government’s response makes them look as if they want to be as distant from such progress as they can possibly be.

The Minister has a significant task ahead of him in winding up the debate. I have not even reinforced the points which my noble friend Lord Hollick made about the successful use of eurobonds on the part of multinationals, and indeed on the part of some British companies which are not multinationals. Thames Water,

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which has approached the Government on the issue of a subsidy with regard to a big investment it wishes to make, is also reducing the tax it pays through the use of the eurobond device which my noble friend Lord Hollick identified. However, there seems to be no response whatever to that point.

Has corporation tax had its day, to use the colourful phrase of the noble Lord, Lord Lawson, who should know about these things? I do not know whether that is the case but it is certainly in need of considerable reform, as the committee identified. The Government’s response makes them look as though they regard those arguments as having being drafted on another planet and therefore are ones to which they have no need to make a coherent, consistent or constructive response. I hope that the Minister does rather better this evening.

8.08 pm

Lord Newby (LD): My Lords, it is a great pleasure to respond to this debate. I start by thanking the committee for its work and for the characteristically thoughtful way in which the noble Lord, Lord MacGregor of Pulham Market, introduced the debate. I congratulate the noble Lord, Lord Leigh of Hurley, on his maiden speech. I hope that his understanding of the advantage of brevity does not diminish with the passing of the years as, sadly, it sometimes does among other Members of your Lordships’ House. His speech was extremely thoughtful, in a House that prides itself on its expertise but which in fact has relatively few experts on financial affairs. Those we have are extremely distinguished. Compared to, say, debates on anti-social behaviour, in debates on any aspect of the economy or finances, we are pretty short on people with real current or past expertise, so I am doubly pleased to welcome the noble Lord to your Lordships’ House and look forward to taking part in many more debates with him.

I start with a confession. I am an alumnus of the lamentable side of Customs and Excise. I worked for a number of years in that part of Customs and Excise that provided tax policy advice to the Treasury at a time when it had virtually no tax officials of its own. Although things have changed, I like to think that we were at least able to match our colleagues in the Inland Revenue, with whom we had an extremely friendly rivalry at the time. I do not want to go into detail about the way in which tax policy is currently organised, but say simply that both departments have a clear remit. HMRC has a strong operational tax policy role, whereas the Treasury is responsible for strategic tax policy, but they work very closely together—literally as well as figuratively. When I worked in Customs and Excise my office was several miles away from the Treasury, which meant that even if I wanted to have a quick chat with somebody it was quite difficult. There is a common and regular movement of staff between HMRC and the Treasury, so there is quite a lot of joined-up working.

I shall deal with the complaint from all sides of the House that the Government are complacent about the issues. We are not complacent in respect of three aspects of the problem that we are facing. First, we accept and completely understand the level of public

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discontent. Secondly, we believe that that discontent is realistic and soundly based, and thirdly, we are dealing with a major problem. We are far from complacent about the need to do more. I hope to explain both what we are doing and why we will be doing more. One thing that I must say, having been a Treasury spokesman for the Liberal Democrats in your Lordships’ House for nearly 15 years, is that for the first part of that 15 years there was never any movement on the issues that we are talking about today. Pressure groups came year after year, asking why we were not doing this or that. Many of the things that we argued for to no avail for a decade have now been implemented, and a whole raft of other initiatives that have been started very recently have the ability to make fundamental improvements in how we deal with this problem. We are now in the middle of a rapidly moving series of national and international activities, which definitely goes in the direction that the committee wants, and I shall attempt to set that out.

I should perhaps state the blindingly obvious—that the Government’s view on corporation tax is that while we are keen to drive forward tax competitiveness, such a policy does not mean that we should be soft on tackling tax avoidance. We are determined to rebalance the tax regime to ensure that it supports growth and investment, and we want a corporate tax regime that improves our business environment, helps to attract multinational companies and encourages investment. That is why, alongside other reforms, we have reduced the headline rate of corporation tax. Having created a competitive tax regime, we expect companies to play by the rules and to pay the tax that is due. I completely agree with the noble Lord, Lord Hollick, that companies have wider duties than simply to minimise the amount of tax they pay. The Companies Act 2006 lays out clear directors’ duties as well as duties for the company as a whole in terms of having regard to the impact of its activities on society, which was a new and welcome initiative by the previous Government. It means that the two-dimensional view that anything that increases profit is good and anything else is bad is no longer acceptable and no longer recognised in law.

I shall deal with the question of whether corporation tax has had its day. Corporation tax at the moment raises 8.7% of HMRC revenue, as the noble Lord, Lord Bilimoria, pointed out. It is not as much as the top three but it is far above any other in that middle league. As I said earlier today, from a pragmatic point of view, a tax that raises 8.7% of revenue is one that should be made to work better but not, in my view, replaced. The Government have a credible record to date in dealing with companies avoiding tax. That has been demonstrated both through the legislative and operational changes we have made since 2010 and by HMRC’s success in litigating through the courts. The number of cases has not only dramatically increased manyfold; the proportion of cases heard in 2012-13 resulted in a more than 80% success rate for HMRC. So far, we have made 33 changes to tax laws to close down numerous avoidance loopholes.

As noble Lords mentioned, we have introduced the first general anti-abuse rule, which is designed to tackle abusive tax avoidance schemes and is a key part of our

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plans to drive down tax avoidance. Now that it is happening it is put to one side as though it is a little tick in the box, but we campaigned for years to get some movement on a general anti-avoidance law. At long last it has happened, and while I accept that, as the law beds in, we might over time want to strengthen it, it is a major shift for the better. We have updated the public procurement rules so that any potential government suppliers bidding for large contracts must now declare occasions of significant tax non-compliance. The noble Lord, Lord MacGregor, specifically asked me about this point. These rules were introduced on 1 April this year. It is not so much a case of naming and shaming suppliers who avoid tax but of suppliers disclosing occasions of significant non-compliance so that departments can have a number of remedies at their disposal, up to and including contract termination.

On top of our domestic action, we have taken a lead in the international field. Indeed, a lot of the debate today has been around the international initiative that is now being carried forward through the OECD. The noble Lord, Lord Lawson, said that the Government should accept that corporation tax was not fit for purpose. Indeed, that is why the Government have taken the lead in pressing for international action. A number of noble Lords said that it is about time the Government took a lead. They made it clear that in their chairmanship of the G8, tackling tax avoidance was their top priority. The OECD initiative has come about largely because this Government have taken an international lead. I strongly agree with the noble Lord, Lord Brennan, that the OECD is a body that is capable of getting to grips with this. There is a key component that will be absolutely crucial in determining whether the good work that has started comes to a satisfactory conclusion, which is whether Governments keep their eye on the ball. If it is just left to the OECD and it is not being pressured by Governments to make quicker progress it will not.

We are seeing now a recognition, not just by this Government but by a number of Governments internationally, that they have to take firmer action and keep the pressure on. That is why we have agreed to fund the OECD to the tune of another €400,000, to make sure that it keeps up with the pace and produces what is an extremely ambitious work plan, and ensures that it has effect.

The noble Lord, Lord MacGregor, asked how that was going. The OECD has established 15 actions needed to deal with base erosion and profit-shifting, which include a specific task force to look into the tax challenges of the digital economy—what might be called the “Google and Apple Task Force”—and a review of transfer pricing rules, the “Starbucks Task Force”. This is being carried forward by a number of OECD working parties, which will report back next year and the following year.

Closer to home, as a number of noble Lords have said and as the committee pointed out, it is obviously key that HMRC is fit for purpose in tackling a very difficult issue and dealing with companies that have considerable resources at their disposal. That is why the Government are investing almost £1 billion over

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this spending review period, specifically to tackle tax avoidance and evasion and to reduce losses from fraud, error and debt. That will bring in an extra £9 billion a year by 2014-15.

The additional money is spent largely on people. There has been an increase in the number of graduate-level trainees and a significant increase in the amount of technical training inside the department, in part with the Association of Accounting Technicians and Manchester Metropolitan University. An increased number of people are working on transfer pricing, as the rules already allow us to deal with some aspects at least of egregious transfer pricing. That requires highly skilled people, and there are now more of them. As I said earlier today in your Lordships’ House, the Treasury will look at any request it receives from HMRC for additional resources in the run-up to the spending review.

We have also seen—and been actively participating in—a sea change in the way that tax information is exchanged between jurisdictions. Another major campaigning issue has been about the automatic disclosure of tax information between the UK and tax havens—between the UK and our Crown dependencies and overseas territories. That is now happening. Some have signed, while the others have agreed. That will make a huge difference to transparency, which a number of noble Lords mentioned and which we are keen to see promoted.

I will deal with a number of specific points, some from the committee and others raised de novo today. Staff are seconded from the big four to HMRC or the Treasury only when the Treasury or HMRC identifies a lack of expertise and knowledge. The number of people involved here is not huge. We believe that effective safeguards are in place to ensure that official information is treated confidentially. Although there is quite a lot of general talk about people going in and nicking lots of ideas from the Treasury and telling their clients about them when they get back to the private sector, I have yet to see any concrete evidence of that.

The noble Lords, Lord Lawson and Lord Hollick, talked about the rules on interest deductibility, which they felt were too generous. This is one of the areas being looked at currently by the OECD. A number of rules are already in place to limit how much interest a company can deduct from its tax liability, but I was rather depressed to hear from the noble Lord, Lord Leigh, quite how much of a bonanza that was proving for the professionals and tax experts.

On harmonising the treatment of debt and equity finance, I am afraid that I can only repeat what we have already said: we are reviewing the wider case for an allowance for corporate equity. Again, the challenge here is one of cost, because it would be very expensive to do it on a large scale. Would undertaking a comprehensive review of the operation of corporation tax add value at this point? As we are in the middle of the OECD process and of ramping up the number of people working in the area, we seem to have a process in place which, if successful, will meet the requirements of the committee. To have a major review of it in midstream would divert effort in the wrong direction.

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A number of noble Lords raised the point about a joint committee. Perhaps this is because I was a taxman, but I personally find it extraordinary to think that we should be establishing a committee of politicians to review the way in which the tax authorities look at individual taxpayers’ concerns. If the Government had proposed it, there would have been absolute outrage. I believe that the way forward is for the NAO to undertake rigorous investigation in this area. If the Public Accounts Committee in another place feels that not enough resources are being devoted to it by the NAO, we hope it will discuss that with the NAO and we will get more resources devoted to it.

The increase in the tax gap from £34 billion to £35 billion, which the noble Lord, Lord Browne of Ladyton, was very keen to hear about, was largely due to an increase in the VAT gap of 1.5%, caused by the rise in the standard rate of VAT from 17.5% to 20%. It had nothing to do with the issue that we are discussing today.

The noble Lord, Lord Shipley, asked a very specific question, which I will need to write to him about. In terms of what the Government are doing, bilaterally and through the OECD, to ensure that developing countries have a say in the renegotiation of global tax rules, we are, first, doing quite a lot with capacity-building via a joint HMRC-DfID programme, so that these countries are more capable of doing the job themselves. They are involved in various aspects of the task force work. A number of noble Lords raised the problem of mispricing. The extractive industry transparency initiative and the EU accounting directive now mean that there is a lot more country-by-country accounting in those areas and a lot more transparency, which will yield results over time.

The noble Lord, Lord Hollick, asked whether HMRC looks at intra-year tax avoidance schemes. Yes, it does. Corporation tax is calculated on the end of year accounts, and where a scheme to reduce taxable profits takes place during the year but has ended before the end of the year, HMRC will investigate. The DOTAS regime requires companies to disclose tax avoidance schemes when they are undertaken.

The noble Lord, Lord McFall, made a very powerful case about establishing a register for beneficial ownership. Such a register is being set up, and the case for making that public is currently under active consideration by Ministers. As I have always said, as a Leeds United fan, I would very much like to have known whether Ken Bates really did own Leeds United—that is the side of the argument on which my vote comes down.

I hope that I have gone some way to answering the points that have been made and reassured noble Lords that the Government are not in the slightest bit complacent. This is an area that we take extremely seriously and on which we will continue to focus.

8.29 pm

Lord MacGregor of Pulham Market: My Lords, for a potentially dry and technical subject, we have had a lively and well informed debate. Of course, it is not a dry subject; it is a crucial one that is fundamental to the well-being of our citizens and our businesses.

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We have had many excellent contributions from noble Lords this evening and I thank them all. I particularly thank my noble friend Lord Lawson for his overgenerous remarks about me. It has been hugely rewarding for me to have had so many opportunities to work with him over the years. I congratulate my noble friend Lord Leigh of Hurley on his maiden speech. He was modest in the length of his speech and temperate in his comments. But even in the short time he spoke, he demonstrated that he has wide expertise and knowledge, from which we will all expect to benefit in future.

It is also clear that the Government and the officials who drafted the response to our report gave too little thought to it. The Government gave the impression of complacency—that they are doing all that is required and reject all other recommendations for action. That approach means that they have not perhaps obtained enough credit for what they have been doing. The Minister certainly endeavoured strenuously to put that right in his response tonight.

I share very much the view of the noble Lord, Lord Lipsey, on the Treasury. Based on my experience, I thought that his book on the Treasury, which I have read comparatively recently, was good and very revealing. I hope that this debate has demonstrated that the Treasury will need to give much more serious consideration to some of our recommendations than it has done so far. Symptomatic, I think, was the terse rejection on false grounds of our recommendation of a parliamentary committee to oversee HMRC. The participants in this debate have demonstrated the expertise in the financial and commercial world that would make such a committee highly relevant.

Ours was a swift but intensely considered report. The debate tonight and the inadequacy of the Government’s written response have convinced me that it is a subject to which we will have to return.

Motion agreed.


Question for Short Debate

8.32 pm

Asked by The Lord Bishop of Coventry

To ask Her Majesty’s Government what steps they are taking to address the humanitarian crisis caused by the ongoing conflict in Syria.

Lord Popat (Con): My Lords, if Back-Benchers stick to eight minutes, we should be able to finish by 10 pm.

The Lord Bishop of Coventry: My Lords, despite the admirable diplomatic activity of recent weeks, the humanitarian costs of the ongoing conflict in Syria show no sign of abatement. As violence expands exponentially and cruelty abounds, no one can fail to be moved by the scale of the crisis, which is nothing short of a catastrophe.

This debate seeks neither to underestimate the efforts of Her Majesty’s Government to rise to the challenge of humanitarian support, nor to question their resolve to work towards a political resolution of the civil war. Rather, I hope that it will give an opportunity for your

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Lordships’ House to focus its expert attention on the humanitarian costs of the conflict and the humanitarian imperative of bringing the conflict to an end, and, in so doing, of checking that every stone is being turned in the cause of compassion and the pursuit of peace.

I am honoured that the noble Lord, Lord Bates, whose personal commitment to these issues is an inspiration to your Lordships’ House, will be replying on behalf of the Government. The Government are to be applauded for orchestrating the UK’s largest ever response to a humanitarian crisis. The United Kingdom is at the forefront of the humanitarian battle, leading others in the provision of strategic, targeted humanitarian aid. Such decisive, compassionate action is an important step towards healing the wounds of history that many of our past interventions in the Middle East have caused, which were powerfully explained by the noble Lord, Lord Bates, in a previous debate.

However, are we content that the humanitarian battle is being fought with the ferocity, skill, determination, sense of urgency and application of resource that are necessary in order to win this war on human suffering? I ask the Minister, therefore, for his views on how other Governments can be most effectively pressed to commit to the pledging conference that the United Nations Secretary-General has called in January 2014, and then to fully and speedily honour their commitments. Syria needs more than the current 50% return. The cost of the humanitarian aid to which we are committed is high, but it is a great deal lower than the cost of military intervention would have been.

Does the noble Lord agree that without more international generosity and a greater commitment to honour their promises of support, countries neighbouring Syria will be less inclined to keep their borders open? Indeed, I would welcome the noble Lord’s thoughts on what consideration has been given to the UK hosting or resettling a fair percentage of refugees to ease the pressure on Syria’s neighbouring countries, as requested by the UNHCR.

Returning to the January pledging conference, do Her Majesty’s Government accept that as well as increasing their funding commitments, donors must show greater flexibility and impose minimal bureaucratic restrictions on aid agencies, given the complexity of humanitarian operations inside Syria?

If you had one word for the British Government, what would it be? I put that question to a Lebanese humanitarian worker among Syrian refugees recently. His response was an impassioned call to invest—a word he used advisedly—our aid through locally based bodies whose scale and agility give them immediate access to need on the ground that makes them highly cost effective. It is a plea that I have heard from other agencies, several of them faith-based, which are doing remarkable work in Syria and surrounding countries.

I should like to pay tribute to those agencies that remain on the ground in Syria. I have just attended a meeting of the All-Party Parliamentary Group on Human Rights which was addressed by members of the International Committee of the Red Cross. They spoke movingly about all sorts of subjects, including the kidnapping of three of their aid workers and the recent killing of more than 20 Red Crescent workers.

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Yet they are committed to remaining on the ground, engaged and seeking local solutions. It would be good to learn from the noble Lord what percentage of UK effort is directed to meeting emergency needs, and what percentage is earmarked for long-term humanitarian assistance.

The other impassioned word from the Lebanese humanitarian worker was that, without a comprehensive solution to the humanitarian situation in Syria, and to the conflict itself, the wider region will continue to deteriorate. The United Nations Security Council endorsement of Resolution 2118 of the Geneva Communiqué and the backing for a follow-up conference provides a much-needed consensus among the P5. Such impetus for a political solution is necessary to prevent the fossilisation of systems of aid into semi-permanent structures. We know, from that same region, that this can happen.

In the light of recent announcements from some elements of the Syrian opposition, it would be helpful to hear the views of the noble Lord on how the will for peace, upon which the success of Geneva II depends, can be engendered in the country itself. Securing a sustained and monitored cessation of hostilities in Syria, as set out in paragraph 5 of the original Geneva Communiqué, will not be easy. However, a ceasefire is essential to improve the humanitarian situation and to allow, at the very least, a short humanitarian pause in hostilities. Furthermore, surely a complete and immediate halt to arms and ammunition to Syria, as set out in paragraph 12 of the Geneva Communiqué, is another necessary component in the cause of peace. I would welcome the noble Lord’s reflections on steps that are being taken to halt the flow of arms into Syria.

The noble Lord is all too well aware that paragraph 5 of the Geneva Communiqué was given a renewed lease of life by the recent UN Security Council Presidential Statement. Parties to the conflict are still failing to uphold the basic obligation, under international humanitarian law, to facilitate the safe, unhindered passage of humanitarian convoys in areas under their control. In the light of the penetrating comments from the noble Baroness, Lady Amos, in her United Nations capacity to the Security Council, it would be good to know the noble Lord’s views on progress towards implementing this provision and how it might be benchmarked.

At the meeting I have just come from, there was a very moving account from a British doctor who has just returned from Aleppo. He spoke about how access for humanitarian aid is absolutely critical. He asked: if it could be done for a weapons’ inspector, why could it not be done for an ambulance?

One issue sadly missing from the guiding principles of the Geneva Communiqué is any consideration of the wider refugee crisis and how the right of return will be provided for. This appears to be a glaring omission. Those displaced by the conflict need to be given a stake in Syria’s future. Perhaps the noble Lord will provide some insight into how this issue might be resolved.

In conclusion, if the existing humanitarian costs of this conflict are shamefully terrifying, the humanitarian costs of not reaching a political settlement at Geneva II would surely be intolerable for the moral conscience of the world. Even with a political solution, the scars of

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this conflict will take many generations to heal. It will require the continued generosity of the international community in a sustained and strategic humanitarian commitment. I hope that Her Majesty’s Government will continue to take a courageous lead and make this not the last business of a long day but the priority of every morning until the holy land of Syria is healed.

8.42 pm

Baroness Jenkin of Kennington (Con): My Lords, I thank the right reverend Prelate for introducing this debate so ably and movingly. Like other debates on similar topics, I cannot help feeling slightly uncomfortable as we, so comfortably ensconced on these red Benches, appear to wring our hands and feel helpless in the face of the injustices being perpetrated on the innocent victims of this terrible war. How can we have any idea of what they are suffering and going through? How can we begin to put ourselves in their shoes? But, in the end, one of the privileges of being a Member of this House is to keep the topic both in our own minds and those of others who care about the tragedy unfolding in Syria, and I am grateful to the right reverend Prelate for providing us with the opportunity to do so.

As a trustee of UNICEF UK, I have of course been briefed on a regular basis about its activities on the ground and I, too, pay tribute to it and to the other NGOs and agencies providing humanitarian aid in almost impossible circumstances. Operating any form of assistance in Syria is increasingly challenging, dangerous and highly complex. There is no security for aid workers and rising numbers of armed groups across the country will do little to improve stability or safety. Thousands of aid workers are risking their lives daily to reach those who are most in need. The pace of change in the conflict and the vast array of armed groups all threaten agencies attempting to provide aid. The safety of aid workers must be guaranteed if we are to effectively provide assistance to the people of Syria. The right reverend Prelate pointed out in his speech that we can take pride in the fact that Britain is leading the way in providing aid and assistance. We are the second largest bilateral donor and the £500 million earmarked by DfID for Syria will go a long way to alleviating the suffering of those on the ground, once effective aid routes are implemented and sufficiently protected.

There is so much suffering throughout Syria and in the neighbouring countries, but in the short time available, I wish to focus my remarks on the plight of women and the sexual violence, both in Syria and in the camps, which has tragically become a part of their daily lives. In January, an International Rescue Committee report surveyed Syrian refugees in Lebanon and Jordan and identified rape,

“as the primary reason their families fled the country”.

As Erika Feller, the Assistant High Commissioner at the UNHCR, asserted:

“Syria is increasingly marked by rape and sexual violence employed as a weapon of war”,

to destroy,

“identity, dignity, and the social fabrics of families and communities”.

Alma is one woman who has dared to speak out about the horrors inflicted on women in Syria. She was a battalion commander in the Free Syrian Army

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from Damascus and was arrested by the Assad regime after attempting to intervene in an incident where a soldier was beating a 16 year-old boy. During her 38-day imprisonment Alma was whipped with a wire, strung up by her wrists and feet, and injected twice a day with a drug that made her feel high. She was gang-raped daily. The things she recalls the men saying as they allegedly raped her multiple times were so filthy that she is loath to repeat them, although she remembers them saying, “Here is the freedom you wanted”, which is a phrase similar to ones other women have reported hearing while being raped in Syria. She has recently received news that her husband, disgusted by the rape, has married a new wife, and her children have remained with him. Speaking out has been a decision she has made after many months of being told to stay quiet. “We have to share this with the entire world to show that women are fighters”, she says.

The reality is that the victims of sexual abuse have much to lose and little to gain from speaking out. It takes a lot of courage and strength for a victim to speak up and they may be on their own with little support as they do it. In addition to the shame and isolation a victim may feel, they now are living in an insecure environment due to the war. They may be in a large refugee camp with no privacy, surrounded by people they do not know or trust. If they tell someone, to whom and where does that information go? It may be hard to put their trust in a stranger when, time and again, there has been little justice for the victims of wartime rape. Added to that must be the physical, psychological and emotional trauma that victims are already suffering from the war and displacement. It is not surprising that they are reluctant to come forward.

However, there are others whose stories are beginning to come out. Now at a safe house in Turkey near the Syrian border, a 25 year-old Sunni woman spoke of how she was detained for more than eight months. Her first days in detention were largely spent without sleep and being relentlessly interrogated for information. She could hear the screams of fellow prisoners being beaten and was continually threatened with sexual violence. She was taken to a cell full of male prisoners in their underwear. Leering, the jailers told her that they would leave her alone with the prisoners, “to take care of her”. To a conservative young Sunni woman, this was unthinkable. She began to scream for them to let her out of the jail. “I thought I was being given to these men for them to rape me”, she said. “I think I screamed for three hours. They wanted to break me, and it worked. Finally I said, ‘Okay, I will tell you the truth’”. When speaking of the degradations she had experienced, she would not use the word “rape”. However, an NGO worker who had been looking after her confirmed that she had been subject to sexual abuse. “But she needs to rebuild her life, and you can imagine what rape means in Syria. She has said that she feels more than violated; she feels ruined”.

A recent UN Commission of Inquiry report on Syria cites five instances of women who committed suicide after being raped, so intense is the shame associated with the crime. The sheer misery of women who have been forced to flee their homes is difficult to convey, and once they have reached supposed safety

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across the border, the nightmare does not end. Along with the risk of maltreatment and food shortages, there are accusations that Turkish security forces have abused refugee girls and women. According to some Turkish media and news networks, since August 2012 some 400 Syrian women have been raped, with 250 of those rape cases resulting in pregnancy. Increasing numbers of women living as refugees report that they would rather return to their homes, under horrendous conditions, than remain at the risk of rape and sexual abuse in the camps. It is heartbreaking that these women flee their homes with their families seeking safety, only to exchange one place of violence for another.

I am proud that the UK, and our Foreign Secretary in particular, are leading the way in the global campaign against rape as a weapon of war. We should also be glad that so many countries have responded positively. In April in London, the G8 made a historic commitment to address this issue, and in June the UN Security Council unanimously adopted a resolution bolstering the UN’s capabilities, but we need more than words.

Every one of the stories which I have used, and thousands I have not, is a human tragedy. I welcome the commitment by the Secretary of State for DfID to ensuring that vulnerable girls and women in refugee camps have safe access to facilities such as toilets and washing areas, and her commitment to helping tens of thousands of survivors of sexual violence across the region with clinical care and case management, mental health services and financial support. However, we need other donor countries to join us in stepping up and co-ordinating support for refugees. The terrible experiences of these women underline the need to find a political solution to bring this conflict to an end.

8.50 pm

Baroness Symons of Vernham Dean (Lab): My Lords, I start by thanking the noble Baroness, Lady Jenkin of Kennington, for that quite remarkable speech. She vividly brought the plight of women in Syria to our attention. I also join her in thanking the right reverend Prelate the Bishop of Coventry for introducing the debate with such clarity, and indeed such conviction.

The conflict in Syria has obviously had a huge impact on the politics of the whole of the Middle East region, and of course it has divided opinion across the world. The deepening sectarian divisions in Syria and the countries around it, the role of Iran in supporting the Assad regime, and the respective roles of Russia and the United States in attempting to find a way forward to stop the fighting and the use of chemical weapons are issues all very well known to us.

The outlook is grim. Only this week United Nations envoy Lakhdar Brahimi was told by Bashar al-Assad that the civil war in Syria would end only if foreign powers ended their support for those trying to overthrow him. Yesterday brought the depressing news of the sacking of the Syrian Deputy Prime Minister, who had been among those pressing for reform in Syria. He had been liaising with Russian and American officials about peace talks which it was hoped would end the tragic civil war. Qadri Jamil has now been dismissed for allegedly spending too much time outside Syria, neglecting his duties and holding meetings without co-ordinating with the Government.

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Today we are not debating the politics of the situation but the impact of the failure of politics and the political process on people in Syria and its neighbours. More than 2 million people have fled Syria, according to the Red Cross. One million of those people are children. It is the worst refugee crisis in 20 years, and we have seen nothing like it since Rwanda in 1994. Every day another 4,000 people cross over into other countries to seek safety elsewhere. They are often women with their children, without their husbands or fathers who have been left to fight. They are escaping brutality and violence which, as the noble Baroness said a moment ago, are almost unimaginable to us. Yet I am bound to say that the appalling pictures that we see in our newspapers of dead and mutilated people, and the unimaginable horror of public summary executions, which sometimes take place in front of very young children, bring home to us the reality of what is happening on an almost daily basis.

Can the Minister please tell us whether and how our humanitarian aid is now being dispersed in Syria? The websites of all the aid organisations are clear that aid workers are hugely at risk. Twenty-two Red Crescent volunteers lost their lives trying to get aid through to those who need it most. Of course, mercifully for us, thousands of volunteers still try to reach those who are in need of their help.

I shall focus for one moment on one individual, Archbishop Yohanna of Aleppo, who disappeared on 23 April this year. I thank Ministers for the updates that I have received on this. The archbishop is a man hugely respected by people of all faiths in the region. I ask the Minister to assure us that the Government will do everything that they can to continue to try to find out where he is and to work for his release.

I concentrate the rest of my remarks on the impact of this humanitarian crisis on Syria’s neighbour, Jordan. There are now more than 600,000 Syrian refugees in Jordan, representing an increase in Jordan’s population of around 10%. That is like us having 6 million more people in this country. Since Jordan opened the Za’atari refugee camp 14 months ago, it has become a place where there are 145,000 Syrians, and it is now the fourth largest city in Jordan. The country has often dealt with the arrival of refugees in the past; what makes this influx so different is that the Syrians arriving in Jordan have little or no money, are living alongside their hosts and put a huge strain on Jordan’s limited resources and job opportunities.

Those of us who know Jordan well know that it is a terrific country; it is beautiful, has wonderful historic sites and vibrant and articulate people. But it has no natural energy source and little water. It has nothing like enough jobs for its own young people. Education, health and water infrastructure and the job market are under enormous strain. To accommodate the 78,000 Syrian children in the education system, schools are now working on double shift in Jordan. Health services are deteriorating, particularly in the northern governorates, and medicines and vaccinations are becoming heavily depleted.

The job market in Jordan is at breaking point. The International Labour Organisation estimates that 160,000 Syrians are now working in Jordan in construction,

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agriculture and service sectors, while unemployment among Jordanians is now running at something approaching 16%. This is a recipe for real tension between a host community and the refugees whom they are attempting to host.

Water and sewerage pose appalling difficulties in the refugee camps, both at Za’atari and Al-Azraq. The water is now being drawn into those refugee camps and away from established urban populations. The water bill for refugees has increased by more than $40 million in the past year or so. As a result of being good hosts to their neighbours, Jordanian communities are really suffering. What are Her Majesty’s Government doing to assist not only Syrian refugees in Jordan but Jordanian people in need? They, too, are part of this humanitarian crisis. The estimated additional costs continue to rise in hosting the more than 600,000 Syrians, and now stand at $1.68 million.

Jordan is, and has been, a very good friend to the United Kingdom. It has been a positive force for moderate politics in the region in relation to Israel and Palestine and in the councils of the Arab League. If the stability of Jordan comes under severe threat because of the internal strains that have been created by the huge influx of Syrian refugees, we shall all be the poorer. The security of all of us will be undermined. Wringing our hands about the humanitarian crisis is not enough; active and committed support is needed, and it is needed now.

8.58 pm

The Earl of Sandwich (CB): My Lords, I, too, pay tribute to the right reverend Prelate the Bishop of Coventry, whose name has a special resonance in this field of human rights and humanitarian aid.

As the noble Baroness, Lady Symons, mentioned, we see our most experienced negotiator, Lakhdar Brahimi, revisiting President Assad, representing both the UN and the Arab League. Let us not forget that he was the Arab League’s special envoy to Lebanon when he brokered the agreement of 1989, which gradually ended the 15-year civil war there. He was also the UN representative in Iraq in 2004, following the American invasion when, as we now know, his proposals for Iraq were ignored by the Americans and ourselves, with tragic results. The war in Syria has to end sometime, and there is no one better qualified than he is, at least to start the process.

However, our hopes cannot be set too high. The regional powers will first have to come to some understanding. The diplomatic wheel is turning all the time, and it now seems that Turkey and Saudi Arabia are even aligning themselves with Israel in an attempt to prevent US rapprochement with Iran. I believe that some member states of the EU could take a much firmer stand to resist that process, because Iran is surely one of the powers influencing and financing the civil war. As long as there are proxy combatants inside Syria, the war and the suffering will continue.

Turkey, having so warmly welcomed the refugees, is usually seen as aligned with the opposition in Syria, but it also accommodates a substantial Shia Alawite minority in Istanbul. Only last week, a prominent Turkish socialist MP visiting Westminster criticised

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his Government for their open-door policy. It is obvious that Turkey is allowing arms and al-Qaeda fighters, among other jihadis, through the border with Syria, but it is also extremely wary of more Kurdish autonomy on its doorstep. That is another dimension.

I understand that Mr Brahimi has angered the Syrian opposition by advocating Iran’s presence at the negotiating table in Geneva. Of course, Iran is financing fighters, just like the Saudis, the Qataris and others. That is the whole point. I hope that the Minister will accept that all those engaged in those proxy wars should be invited to the talks, and Iran has already declared its willingness to attend. Meanwhile, as the noble Baroness, Lady Symons, said, Jordan is under severe pressure to look after a huge refugee population, which may now be equivalent to more than 20% of its own population. One can compare that situation to that of UNWRA with the Palestinian refugees in 1948 and 1967. Although Palestinians now have their own services through the United Nations, in Jordan, 90% of the Syrian refugees are not in camps but have had to be absorbed into already stretched urban areas. As has been said, that makes increasing demands on education, health and, especially, water resources.

One could suggest that a comprehensive agency like UNRWA be set up for Syrian refugees, but that would be a public admission that this could be a very long-term issue. Something has to be done. The enormous strain on limited resources is causing stress and increasing resentment among Jordanians. Those refugees must be helped, if only to save Jordanian society from stress and possible friction.

In these conflicts, it is of course the dead and the wounded who claim attention from aid workers and the media. The figure of 100,000 dead, which includes many civilians, is bad enough, but the media can rarely show the number of displaced. To the total number of refugees of 2.2 million must be added the number of people displaced or trapped in conflict areas—up to 7 million or 8 million. Those are the figures that really bring home the scale of the crisis. They are victims such as those described by the noble Baroness, Lady Jenkin. They tell a desperate tale of a vicious civil war which we cannot imagine here and have not known since the time of Cromwell.

As a long-standing supporter of Christian Aid and Save the Children, I have a particular interest in the role of NGOs in conflict and peacemaking. Like others, I must mention the Red Cross and Red Crescent workers, who have been constantly on the front line in Syria—many as volunteers—and without whom there would be many more casualties. Another NGO is less well known: the Mines Advisory Group, or MAG. It is helping thousands of Syrians flocking into areas of northern Iraq, potentially riddled with landmines and unexploded ordnance. Christian Aid’s partner, called REACH, helped to respond to a sudden arrival of more than 46,000 refugees in northern Iraq in August over a period of only 11 days.

Can the Minister confirm not only that civil society and faith leaders will be invited to Geneva but that their voices will be heard? In the aid community, there are some very experienced NGOs with expertise in peace-building and conflict resolution. Sometimes, as

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the right reverend Prelate said, and as we saw on the news yesterday, there is a need for a local ceasefire, or at least an interval to allow humanitarian access or trapped communities to escape. These ceasefires are almost always brokered by NGOs and the community leaders who are able to contact commanders on the ground. They need to happen more regularly.

I know of NGOs providing this added value in conflict resolution in South Sudan, Nepal, Mozambique and elsewhere, ensuring that civilian leaders are always capable of sitting down with those who are still carrying weapons. We can be sure that although we are not told their names, some of our own NGOs and churches, Christian Aid among them, are already engaged with partners like the Orthodox Churches inside Syria, helping every day to ensure proper access and to negotiate free passage for humanitarian assistance. It is on these organisations that soldiers, politicians and diplomats should in the end be able to build a lasting peace.

Finally, there is the issue of cross-border assistance. Save the Children is asking whether UNOCHA, the UN agency responsible for humanitarian access, can do any more to reduce the obstacles to cross-border aid delivery when and where it is appropriate. The right reverend Prelate mentioned this, too. Will Her Majesty’s Government or DfID encourage OCHA, if possible with new resources, to develop a plan to monitor the border more effectively to ensure that people are more easily reached from neighbouring countries?

This is not a new problem. The Institute of Mechanical Engineers recently published a good report recommending greater preparedness and prepositioning in disasters and conflict. I can remember these arguments 30 years ago and as a world leader in this field, we still have to take them more seriously.

9.06 pm

Lord Empey (UUP): My Lords, like other speakers I congratulate the right reverend Prelate on securing this debate. Unlike many speakers, I do not have a particular expertise in this area, but I was motivated to speak by my frustration at what I see as a long-term policy of western Governments towards the Middle East which has been failing for many years. At the time of the Arab spring, and when the trouble began in Syria, we had leaders saying Assad was finished and that he would be going within a few weeks. The implication, and the encouragement that this was giving, led many of the opposition to believe that if they took up arms against the Government of Syria at that time, that Government could be overthrown. That reminded me of the rhetoric directed at the Marsh Arabs in Iraq. They were encouraged to stand up and fight for their freedom against Saddam Hussein. They were led to believe that the first Bush Administration would ride to the rescue. No such thing occurred and the Marsh Arabs were slaughtered.

The West does not do the Middle East well. We do not understand it. We arrogantly assume that our particular model of governance is the sort of governance that they should have. It is not; it just does not fit.

Secondly, if Governments were prepared to act militarily in that conflict, the time to have done it was 18 months ago. At that stage, anti-aircraft capability

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could have been provided to the rebels. It has largely been the air force that has allowed Assad to prosecute the war. However, did we do anything? No. Therefore, I do not understand the point of the rhetoric that encourages the opposition but is then not followed through, and we wonder why people are being slaughtered. If we are not prepared to put up, we should shut up.

I echo the concerns that other speakers have raised about Jordan, which is almost a refugee country and has been for many years. It is being overwhelmed, and indeed Lebanon is being destabilised, having just begun to get settled. If anyone thinks that people are going to leave these camps and walk back to some kind of Valhalla in Syria, they are gravely mistaken. I think that these refugees will be there for years; I deeply regret that, but I feel that they will.

The right reverend Prelate raised the issue of a right of return. We have been talking about a right of return in the Middle East for years but it has not happened. Indeed, for some people there is not even any physical opportunity to return, as their dwellings and properties have been concreted over and taken by others, so I fear that. I also fear the long-term traumatic consequences for individuals. Coming from a minor conflict zone by comparison, I know that 20 or 30 years down the road there will be vast numbers of people who will have been traumatised. What is happening to the children in this conflict is on such a scale that it is almost unimaginable.

While I am very pleased at the contribution that our Government are making, the fact is that vast amounts of money were about to be committed militarily. I wonder if the same people who have been supplying and were prepared to supply the materials for that war are prepared to sit at the table and put their hands in their pockets.

What are the Russians doing? They were quite happy to supply materials to the Assad regime, but are they prepared to do anything either to secure humanitarian aid or to influence the Assad regime by insisting that it has corridors so that people can get aid through securely? Let us face it, there is no more influential Government on the Syrian regime than the Russians. They have large resources of their own, and they ought to deploy some of those resources to help these people, who are facing a second winter under canvas while many parts of their country have been bombed back to the Stone Age.

When we started out by taking a particular side in this conflict, which was perfectly understandable, if we were not prepared to follow that through to its logical conclusion, we would have done better to stay out of it altogether. The debate that we held here in August, when there were 60 or 70 speakers, showed that the ghosts of Iraq were still walking these corridors. The question that I pose is: have we learnt our lesson? I think the jury remains out.

9.13 pm

Baroness Berridge (Con): My Lords, a polio outbreak in north-east Syria was the latest headline this morning on the “Today” programme. I am sure that your Lordships, like me, long for the day when nothing newsworthy is happening in that country. I, too, thank the right reverend Prelate the Bishop of Coventry for

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securing this debate, and of course, with Coventry’s long association with peace and reconciliation, it was apt for him to do so.

I pay tribute to the Governments of surrounding nations such as Turkey, Iraq, Jordan and Lebanon, who have kept their borders open and welcomed unprecedented numbers of refugees. I hope that if this country were ever in a similar situation, it would have the same response. On the figures that I have seen, the UN has now registered nearly 700,000 refugees in Lebanon and nearly 550,000 in Jordan. The level of the crisis is heartbreaking and the finances needed for the humanitarian response of £3 billion are eye-watering.

I, too, am proud of the generosity of Her Majesty’s Government on behalf of the UK taxpayer with their contribution of half a billion pounds worth of aid. I believe this is the largest ever UK response to a single humanitarian crisis. Of course, in addition to the DfID funds, funds have been raised by many UK charities. Again, I was impressed by the generosity of support for the Tearfund appeal for Syria, which raised more than £1 million. The UK has not been found wanting with the depth of its response. However, there have been disappointing responses from fellow G20 members, notably France, South Korea, Japan, China and, as already mentioned, Russia. I hope my noble friend the Minister can update the House on the progress in ensuring that the UN response is properly financed and can perhaps explain the reasons for the reluctance from other nations.

As the noble Baroness, Lady Symons, outlined, there are more than 2 million refugees—75% are women and children, and half of them are children. They are traumatised and already very vulnerable and can be easy prey for trafficking gangs. We should not underestimate the tactics of those who run the second largest illegal trade in the world, that of people. There are already anecdotal reports of girls being sold and of labour exploitation. Can my noble friend confirm that, although this can be a chaotic situation, there are now proper child protection and security measures in place in the refugee camps? Has my noble friend any independent confirmation of the reports that men who are looking to purchase young women are seeking out Syrian refugees and that criminal gangs are being paid to traffic people including, apparently, to the UK? As the Syrian uprising and conflict has been going on now for two and a half years one can understand the desperation of people trying to escape this intractable situation, but we need to try to protect them from making dangerous crisis-driven decisions.

The difficulties in ensuring that aid is reaching those still in Syria was discussed in your Lordships’ House only last week. I was particularly struck by the comments of the noble Baroness, Lady Kinnock, that the UN inspectors looking for chemical weapons are gaining access to areas of Syria that aid convoys are not allowed to get to. In the past 24 hours, Reuters has been reporting that starvation of the civilian population is being used as a weapon of war. The UN states that 1 million people in Syria still cannot access aid. Can my noble friend the Minister outline whether the trajectory of aid reaching those in need is improving or deteriorating? Only a political solution will end this war but are Her

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Majesty’s Government looking at proposing at Geneva II a temporary ceasefire to allow humanitarian aid into these areas of Syria?

Only an hour ago, it was covered on Al-Jazeera Twitter that a temporary ceasefire had been brokered by the Red Cross in one of the suburbs of Damascus, which allowed a number of people to flee. Is there not perhaps an appropriate Muslim holiday such as the Day of Ashura on 24 November which, if honoured by the Syrian Government and opposition, would bring some brief respite to the fighting?

Although matters are obviously still desperate for so many refugees I want to look forward to peace in Syria for a moment when a political settlement has been achieved. Whether all its communities can return will depend on what that new Syria looks like. In this vein, on 15 October Margaret Ritchie MP asked whether Her Majesty’s Government will be establishing a resettlement programme in the UK for Syrian refugees. In response, Her Majesty’s Government said they have no plans to do so, but there are reports in the Lebanese press that Germany, through the International Organization for Migration, has accepted 5,000 refugees. Can my noble friend please outline what discussions we are having with our EU partners about responses to this refugee crisis and why the UK is not able to accommodate some refugees as Germany has?

I had the pleasure of hearing the Melkite Greek Catholic Patriarch Gregorios III on his recent trip to the UK when he was appealing for reconciliation. He estimates that about 450,000 of the pre-war Syrian population of 1.75 million Christians have either fled Syria or are internally displaced. The patriarch was resolute in his view that the church in Syria would survive but the plight of religious minorities in any future Syria is uncertain. It is clear from the comments of the noble Baroness, Lady Symons, that the region may not be able to accommodate all of these people. Are discussions being held at EU and UN level about an appropriate response if, at the end of the war, it is not safe for some communities—whether Shia, Alawite, Muslim or Christian—to return home? Surely it is better to be prepared for this eventuality than being caught on the hop and seeing people fleeing into boats across the Mediterranean Sea or being vulnerable prey for the people-traffickers I have already mentioned.

In any event, there will need to be a huge process of reconciliation, akin to that which was undertaken in Rwanda. Just under a tenth of Syria’s pre-war population are in neighbouring countries and many, of course, are accommodated by the UNHCR. I have never visited a refugee camp, but I have looked closely at the images on the internet. One can see that there are satellite dishes and TV aerials on some of the tents and containers in which people are living. Arab culture is oral, which is one reason why TV is so popular even when people have barely enough to live on. Is this small opportunity being taken by the UN to ensure that the programming into these camps includes messages on reconciliation, on remembering the Syria where Sunni, Alawite and Christians lived side by side, and on how to forgive your neighbour? I know that some will consider this a premature drop in the ocean. However, it is never too soon to try to bring about reconciliation.

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9.21 pm

Lord Judd (Lab): My Lords, I declare an interest as a former director of Oxfam. I warmly thank the right reverend Prelate for giving the House a further opportunity to review the huge humanitarian challenge that faces us. I also pay tribute—and am sure that other noble Lords would like to do so—to the humanitarian workers from across the world who are serving in this situation. Their courage and resilience has been of a special order.

I acknowledge that, in preparing for this debate, the briefs from the UK NGOs actively engaged in the front-line activities have been impressive and most helpful; I am thinking particularly of Christian Aid, Save the Children and Oxfam. HMG have won the support of all these NGOs and, I believe, of all parts of this House, for the good lead they are giving on behalf of the people of the United Kingdom.

It is important to recognise that, as we have been reminded, the UN estimates that 6.8 million Syrians are trapped in conflict areas and are in immediate need of assistance. A joint NGO assessment carried out in May 2013 found that, in fact, the need may be much greater, with 10.5 million people not getting enough essential supplies and seven northern governorates alone in special need. Moreover, at least 4 million Syrians, half of them children, are in need of emergency food assistance. Save the Children’s latest report, Hunger in a War Zone, shows how food is getting dangerously scarce, expensive and risky to access in Syria, and how efforts to address this are falling dangerously short.

The Syrian Government have permitted assistance provided from Damascus across conflict lines, but administrative, logistical and security constraints continue to prevent this being provided on anything like the scale required. The UN and its partners have faced major difficulties providing aid in this way. Between January and July 2013 only 21 UN convoys crossed the conflict lines.

Many parts of Syria can only, or can more easily, be reached by cross-border operations from neighbouring countries. Agencies have not been permitted by the Syrian authorities to do this; nor have neighbouring countries given their formal approval. The fast-changing dynamics of the conflict, coupled with frequent shelling and the multiplicity of armed groups also threaten the security of agencies delivering cross-border aid.

As we have been reminded, on 2 October, the UN Security Council adopted a presidential statement on humanitarian access to Syria. This called on the Syrian Government to allow cross-border aid deliveries where appropriate and called on all parties to the conflict to agree on humanitarian pauses in the fighting, including along key routes for relief convoys. It called on Damascus to take immediate steps to facilitate the expansion of humanitarian regional relief operations and to lift bureaucratic impediments and other obstacles. Obviously, the UN presidential statement must be urgently implemented. Four weeks after it was adopted, it would be helpful if the Minister could tell us just how much progress has really been made.

What are the Government able to do to urge states with influence over the parties to the conflict to implement the presidential statement? What are they able to do to

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encourage the UN Office for the Co-ordination of Humanitarian Affairs, the Security Council itself and all donors, both bilateral and multilateral, to expand relief operations and to vigorously pursue the removal of obstacles to cross-border aid delivery? The figure of more than 100,000 deaths is terrible enough, but there are also wider human costs about which we have been hearing in this debate.

Seven million men, women and children have been compelled to leave home. Two million have sought refuge in neighbouring countries such as Turkey, Iraq, Jordan and Lebanon. One million have gone to Lebanon alone and, as we have been reminded, others to Jordan, added to the Palestinian refugees already there. The number of refugees has now reached more than a quarter of the total population. Goodness knows what it will become in the future. We have to face up to the incredible hospitality being provided by neighbouring countries, which puts a huge moral responsibility on us to respond and to ensure that those countries get the support they deserve in infrastructure, education and all that is being done. If the Minister can reassure us of this, it would be very helpful.

I want to say a word about the children. The trauma and the disruption of their education will have long-term effects right into the future, hindering development and the rest. Then there are the horrific experiences of too many women and girls. Women and girls face a nightmare. The needs and opportunities of women must be a priority in all aspects of the response. Clinical care and counselling for victims of sexual assault and gender-based violence is another priority. Physical security, adequate water and sanitation, adequate cultural and gender-specific hygiene and dignity kits, adequate access to healthcare, facilities in camps and host communities—all these should be receiving our focused attention. We cannot neglect equal access for women to income-generating projects and to relief supplies in general. Can the Minister tell us that enough is being done?

We all yearn for peace, but I remind the House, in conclusion, of the wise words of Christian Aid:

“A key concern is that an over-reaching and hasty push for peace without a clearly planned process of moving towards ceasefires could generate an intensification of the conflict as the sides seek to establish facts on the grounds and gain territorial advantage. Initial areas of focus should concentrate on creating openings for looking at reinforcing locally defined ceasefires (of which there are several) into creating opportunities for wider ceasefires and humanitarian pauses. Geneva II should seek to establish a process of negotiation and efforts towards building the foundations of peace through … inclusive talks; civil society engagement, and establishing conditions for ceasefire”—

of which, as I say, there are already a number of examples.

9.29 pm

Lord Williams of Baglan (CB): My Lords, I, too, welcome this debate and commend the right reverend Prelate the Bishop of Coventry for raising this critical issue.

Yesterday was the 150th anniversary of the establishment of the International Red Cross. I take this opportunity to salute the work of the Red Cross, whose efforts are as indispensible today in Syria as they were on the battlefields of Europe in the 19th and

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20th centuries. As other noble Lords have noted, no fewer than 22 of its Syrian volunteers have died in the course of their work. However, not just the ICRC is involved; the whole international humanitarian community has been mobilised by the crisis in Syria, and increasingly in the region. Alongside the Red Cross, the United Nations High Commissioner for Refugees and UNICEF, many British NGOs such as Oxfam, Save the Children and others have risen to meet the horrors of the Syrian situation, just as they did in earlier humanitarian emergencies. I also pay tribute to the work of the Government and of DfID in particular for the immense contribution that they are making in so many ways. I am especially pleased that the department is doing its best to help vulnerable groups such as children and women, as well as the many victims of trauma.

It is becoming increasingly difficult to contain the Syrian conflict and the humanitarian crisis. Neighbours such as Turkey and Jordan have long been affected, but above all Lebanon, a tiny country where I was in charge of UN operations at the onset of this crisis in 2010, is in grave danger. Last week alone—in one week —13,000 new Syrian refugees were registered by the United Nations High Commissioner for Refugees in Lebanon, bringing the total number there to over 800,000. That is more than two and a half times the population of the city of Coventry and more than the population of some of our largest cities such as Liverpool or Newcastle. The noble Baroness, Lady Symons, referred to the terrible burdens on Jordan, but those on Lebanon are even greater. By way of comparison, the equivalent of Lebanon’s acceptance of 800,000 refugees would be equivalent to the UK taking more than 10 million refugees over a period of less than three years. The conflict in Syria, a country linked by historical, economic and social ties with Lebanon, is severely and negatively impacting that country.

Inevitably, this puts great strains on Lebanon, its people and its economy. Lebanese schools, hospitals and homes have been opened to refugees in the spirit of generosity for which that country is renowned. However, given the country’s weak public finances the inevitably large costs are unsustainable. Furthermore, the Syrian conflict has challenged the already delicate balance between Lebanon’s myriad communities of Christians, Sunni and Shia Muslims. In order to help Syria in its hour of deep crisis more must be done to stabilise Lebanon lest the Levant as a whole is drawn into a vortex of deep sectarian violence. Already in recent weeks the situation in Lebanon’s second city, Tripoli, has deteriorated markedly, with sectarian violence between Sunni and Alawite communities. In Syria itself the situation continues to deteriorate. On the BBC’s “Today” programme this morning its intrepid foreign correspondent Lyse Doucet reported that thousands of civilians are trapped in three besieged suburbs of Damascus, especially the suburb of Muadhamiya.

In looking to the future we must be mindful that winter is fast approaching in the Levant, and especially in the mountains that will be particularly harsh. The noble Lord, Lord Judd, and other noble Lords referred to the recent Security Council meeting on 2 October, when a presidential statement was issued. A presidential statement is the lowest level of action that the Security

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Council can take. The Government, with partners, should strive to urge the council to adopt a resolution on the humanitarian situation itself.

Thirdly, more countries need to support the emergency humanitarian appeal of the UN High Commissioner for Refugees. Britain and European countries have done so generously. So have the United States and Canada, and also Russia. Only two Asian countries, Japan and South Korea, have responded, and only one Arab country, Kuwait, has so far answered this appeal. That may be because some Arab countries are taking action unilaterally, but they should be encouraged to do more within the context of the UN appeal than they are doing now.

Finally, next month my friend and former colleague Lakhdar Brahimi will chair a reconvened Geneva conference. The obstacles and difficulties are immense for perhaps the most skilled negotiator in the Arab world. The United Kingdom must do its best to support his efforts, and a conference as inclusive as possible in its representation. Given the problems that lie ahead, thought should be given to establishing a durable mechanism, such as a standing conference, to avoid the threat of early failure in Geneva. Tragically, there will be no easy or straightforward end to this conflict.

9.36 pm

Lord Collins of Highbury (Lab): My Lords, I, too, thank the right reverend Prelate for initiating the debate. The scale and horror of this crisis are difficult to comprehend, but as the noble Baroness, Lady Jenkin, said, it is vital that we keep reminding people of precisely what is going on. Almost one third of the population have fled their homes due to violence, insecurity or a lack of basic services. It is extremely difficult to access water, food, medical and other supplies; 60% of all hospitals are affected by the conflict, with nearly 40% completely out of service. A further 2.1 million people have fled to neighbouring countries—an eightfold increase from 12 months ago, when there were 230,000 refugees. Over 100,000 people have been killed.

The noble Baroness, Lady Amos, in her UN capacity, said last month:

“Inside Syria, protecting civilians is paramount ... The rise in the level of sectarian and sexual violence and ongoing human rights abuses are a major concern”.

Families are being torn apart, and mothers and young children are being separated. Justin Forsyth of Save the Children, who recently returned from Lebanon and Jordan, described his shock at the,

“targeted and systematic violence against children”.

He said that the children he met had been,

“shot at, tortured, detained and separated from their families”.

Oxfam recently produced a report called Shifting Sands, which highlights the fact that many refugee women and girls no longer have access to the resources and services they used to have in Syria before the conflict began, which enabled them to fulfil their traditional gender roles. What assessment and action are the Government undertaking to understand and tailor policies to the impact of the crisis on the women affected, including, as the noble Baroness, Lady Jenkin, reminded us, by the increasing violence against women and girl refugees?

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Syria’s neighbours have stepped up to the plate to provide support to refugees fleeing conflict, but as we have heard tonight, they cannot cope with the scale of the challenge. Approximately 1 million people have fled to Lebanon, and now represent a quarter of the population. As my noble friend Lady Symons said, officials in Jordan have estimated that the country needs a $6 billion investment in infrastructure as it struggles to cope with such a huge increase in its population—11% or even, as we have heard tonight, more—owing to the influx of Syrian refugees.

As the noble Earl, Lord Sandwich, said, in Lebanon and Jordan the majority of refugees are living in towns and cities rather than camps, and basic services such as health, education, water and sanitation have reached their capacity. Will the Minister tell the House what the Government are doing to help the host communities not just to address the needs of the refugee population but to mitigate the impact on public services and the local economy, as we were so ably reminded by the noble Baroness, Lady Symons? Like everyone who has spoken in the debate, I pay tribute to the Government for the generous assistance provided by the UK, but despite this the humanitarian appeal for Syria is still only some 40% funded.