Tax Avoidance and Evasion

Bambos Charalambous Excerpts

Tuesday 14th November 2017 Commons Chamber

[Sir Vince Cable]

I think I was in political exile at that time so I cannot testify one way or the other, but I was in government when we introduced much stronger anti-corruption measures in 2011.

As far as the register is concerned, the argument that the overseas territories and Crown dependencies advanced was that they had to keep information secret because of privacy concerns, but precisely those same privacy concerns applied to the UK. Where there was a genuine concern about privacy—for example, when people were worried about being pursued by animal rights terrorists—that has been protected, so that was a transparent and weak defence. Many things that the overseas territories do are, in fact, perfectly reasonable. There is no reason why people should pay double taxation, but serious anti-avoidance activity should be pursued.

I hope that the Government will now be much more aggressive in pursuing the issue of the open register. They could give the overseas territories a deadline for the introduction of an open register. If the overseas territories do not comply, a series of sanctions could be introduced—for example, initially stopping companies registered there bidding for public contracts. Of course, the ultimate sanction is what happened in the Turks and Caicos Islands in 2009, when there was direct rule. If overseas territories egregiously avoid taxation in a way that seriously damages the UK, that is the kind of measure that should be introduced.

Much of the discussion we have had—the right hon. Member for Barking said this in her introduction—is not about individuals but about companies, because the scale of avoidance is much greater.

[Bambos Charalambous (Enfield, Southgate) (Lab)]

Will the right hon. Gentleman give way?

[Sir Vince Cable]

I have limited time.

We are all familiar with the way in which some of the big internet platforms avoid large amounts of taxation simply by manipulating prices and by the way they account for intellectual property liabilities. The Government’s response has, frankly, been very weak, and it is significant, in the light of the current Brexit debate, that the one institution that is seriously going after those companies is the European Commission. Margrethe Vestager’s actions in the Competition Commission are highly competent and effective, and many of us worry that, if Brexit happens, all that energy will disappear.

I have one practical suggestion—a very simple thing the Government could do—to deal with corporate tax avoidance. It is a simple regulation that would require large companies registered here to declare, first, their total UK revenues and then their total UK expenses. It would then be immediately apparent whether there was a tax liability that had not been met, and a simple levy in lieu of tax payment would bring some of those companies to book in a reasonable way.

Let me make one final point. The reason there is so much indignation about this question is not simply that tax is being avoided, but that many of our constituents are being aggressively pursued for tax avoidance at a much pettier level. At present, a big crackdown is taking place on what are called IR35 companies. These are contractors for the health service, and they are often software specialists. There is undoubtedly a certain amount of tax avoidance in relation to national insurance, but these companies are being pursued in a highly aggressive way that the Government do not use in pursuing much bigger fish. We are now being told that the VAT tax threshold could be considerably lowered in the Budget to stop tax avoidance, but that would effectively draw a large number of small companies into the tax net. It is the pettiness of such measures, contrasted with what happens on large-scale avoidance, that attracts so much ire and anger from the public.

--- Later in debate ---

[Stella Creasy]

I will not give way at this point, because I have only two minutes left.

Nine offshore infrastructure companies own between 50% and 100% of the equity in 335 PFI companies, which account for 45% of all projects. Twelve companies have equity in 74% of all current projects. At this point, we do not know what tax is being held overseas as a result—tax that was part of the PFI value-for-money assessment. These papers reveal how that happens. Secondly, on avoidance of capital gains tax, these papers reveal that Blackstone avoided stamp duty and capital gains tax on UK commercial property to a value of around £66 billion.

These are all choices. At the end of the day, we know that the lawyers involved are like water moving towards the sea—they will follow the easiest route. The problem here is politicians, not lawyers.

[Bambos Charalambous]

Does my hon. Friend support country-by-country reporting, which will help some of the most deprived parts of the world?

[Stella Creasy]

Absolutely, and I concur with all those who have raised that.

We can take action in this House. Specifically, new clause 2 to the Finance Bill—as my right hon. Friend the Member for Don Valley (Caroline Flint) said, many of us brought forward proposals—looked at the tax loophole relating to capital gains tax on commercial property. I will take no lectures from Conservative Members about how wonderfully this Government are doing on tax avoidance, when, just two weeks ago, they voted down a measure that would have brought in £6 billion a year to our Exchequer and given British businesses a level playing field. The Paradise papers show exactly why there is a problem, and I have mentioned £66 billion of capital gains tax and stamp duty that we are not getting because companies are registered overseas.

Nor will I take lectures from the Minister about loans, given that he passed in the Finance Bill a measure to reduce the share relief that PFI companies can claim on their loans. Those companies own millions of pounds’-worth of our public sector, and are able to trade off the interest that they pay on those loans in overseas companies, but the Minister has just passed an amendment that will make sure they do not even have to pay any tax on that. Those companies can comfortably be held overseas so that we will not even see what is happening.

In the minute I have left, therefore, I want to make some simple proposals. As my hon. Friend the Member for Enfield, Southgate (Bambos Charalambous) said, we absolutely need a public register. However, we also need a moratorium on all public investment in these companies until we know precisely what tax we are missing, and until we can be confident that these offshore companies are not milking the British taxpayer twice—by not paying their taxes and by getting us to pay them through PFI and public infrastructure investments. We must also close the loophole on capital gains tax on commercial properties as a matter of urgency. Nobody who faces cuts in their public services can allow that to continue for a second longer.

Finally, we need to rethink the decision to give PFI companies the tax relief that the Government have just given them. I hope the Minister regrets his actions, because, frankly, this is not about the Paradise papers; it is about parasites bleeding money from our public sector.