Tackling Corporate Tax Avoidance: EAC Report

Lord Browne of Ladyton Excerpts

Wednesday 30th October 2013 Lords Chamber

[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 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 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.

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.