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House of Commons Hansard
05 September 2016
Volume 614

    [1st Allocated Day]

    Consideration of Bill, as amended in the Committee and the Public Bill Committee.

    New Clause 5

    Corporation tax treatment of the oil and gas industry

    The Chancellor of the Exchequer shall, within six months of the passing of this Act, commission a comprehensive review of the corporation tax rates and investment allowances applicable to companies producing oil and gas in the UK or on the UK continental shelf, and publish the report of the review.—(Kirsty Blackman.)

    Brought up, and read the First time.

  • I beg to move, That the clause be read a Second time.

  • With this it will be convenient to discuss the following:

    New clause 10—Review of the operation of the Patent Box

    “(1) The Chancellor of the Exchequer shall, within six months of the passing of this Act, lay an independent report of the value for money provided by, and the efficacy of, the Patent Box legislation before both Houses of Parliament.

    (2) The report shall—

    (a) assess the size and nature of the companies taking advantage of the Patent Box legislation;

    (b) assess the impact of the Patent Box legislation on research and innovation in the UK, including supporting evidence; and

    (c) assess the cost effectiveness of the Patent Box legislation in incentivising research and development compared to other policy options.”

    New clause 11—Assessment of taxation regime for securitisation companies

    “The Chancellor of the Exchequer shall, within six months of the passing of this Act, commission an independent assessment of the efficacy of the taxation regime to which securitisation companies are subject and lay the assessment before both Houses of Parliament.”

    Amendment 177, page 87, line 6, leave out clause 44.

    Amendment 162, page 87, line 8, ‘leave out clause 45.

    Government amendments 152, 153, 1 to 29, 154, 31, 155, 33 to 59, 156, 61 to 113, 157, 115 to 117, 158, 159, 119 to 128, 160, 129 to 131.

  • I rise to speak to new clause 5, which is in my name and the names of my hon. Friends, but I wish briefly to mention amendment 162, which has been proposed by the Labour party. I look forward to hearing from its Front-Bench Members. If they intend to push the amendment to a vote, we will join them in the Lobby.

    New clause 5 is about the corporation tax treatment of the oil and gas industry. You will not be surprised, Madam Deputy Speaker, to hear me speaking on this subject as I have done so a number of times. What we want is a comprehensive review of the corporation tax rates and investment tax allowances applicable to companies producing oil and gas in the UK, or on the UK continental shelf. This is a timeous ask from us for a number of reasons. For a start, this Bill implements measures that were put in place and discussed first in February and March, before the EU vote, and there have not been any substantive changes by the Government to the Bill as a result of the Brexit vote.

    Substantive changes to the Bill are needed because we find ourselves in a completely different situation as a result of the fall-out from Brexit. It is unfortunate that changes have not been made and that there have not been more announcements from the Government about how they intend to manage the financial situation going forward. We want to know about the impact on Aberdeen, which I represent, and on the UK’s tax take and the Treasury. It is important that we seriously consider making changes to the Bill.

    We have repeatedly asked for changes to the tax rates and for a comprehensive strategic review. We appreciate that the Government made changes earlier this year, but we do not think they go far enough. Alex Kemp, a renowned petroleum economist, and his long-term research partner, Linda Stephen, are both at Aberdeen University, where they have been working on sophisticated modelling tools. If the Minister has not read the article that appears in Energy Voice today, it is worth reading, together with the report that accompanies it. The work that they have done suggests that corporation tax of 30% is too high, and it is far above the non-North sea rate. They said:

    “From the analysis of the economics of new field investments and exploration in current circumstances in the UKCS it is clear that, at $50 and $60 prices, there are many ‘marginal project investment situations’.”

    That is key. It is what we have been arguing, and now it is backed up by renowned experts.

    The position in which the industry finds itself bears repeating. Estimates vary, but we have lost around 125,000 jobs—from 425,000 we are down to about 300,000. That implies a huge reduction in the tax take for the Treasury and it is a massive hit for the local area, particularly Aberdeen and across Scotland and other oil and gas-producing areas. Because of the reduction in the oil price, we have seen changes in the behaviour of companies. As well as making people redundant, they have changed shift patterns and terms and conditions. They have also managed to reduce production costs, which is a good thing.

  • Brexit casts further uncertainty over the oil and gas industry, which under this Conservative Government has seen the legislative goalposts moved almost continuously, thereby hindering vital investment. Does my hon. Friend agree that given that the Bill implements measures devised prior to the EU vote and, as such, fails to provide for an economy that is facing the harsh reality of Brexit, more must be done to mitigate investor uncertainty in the oil and gas sector?

  • Indeed. Brexit compounds the issues that we have seen in the oil and gas industry, particularly in the North sea, and affects investment. This year we are expecting less than £1 billion worth of new capital projects to be agreed. In each of the past five years we have seen an average spend of £8 billion. There has been a massive drop-off. Much of that is linked to the global oil price, but the Government have not done enough to increase investor confidence, especially in the light of Brexit. New projects are not being sanctioned because of companies’ negative cash flow. Jobs are consequently being lost all the way along the supply chain. We are losing contracts, expertise and people working in the industry in and around Aberdeen, Scotland and the UK.

    Exploration and development activity is at an all-time low. Oil and Gas UK produced a report in February this year which predicted that if the current trajectory of low investment and new projects not being approved continues, we will see a fall in production in 2020. We are not ready for that. Our strategy has been to maximise income and recovery, and the Oil and Gas Authority’s main aim is to ensure that we get as much out of the North sea as we can. Because of the lack of investor confidence and the inability to sanction new capital projects, that is becoming increasingly difficult.

    I have asked various Ministers about the Government’s intentions. We are not seeing investor confidence. We are seeing a major drop-off in investment, as the figures show. I welcome some of the changes that the Oil and Gas Authority has made. It is working on making it easier to transfer assets that have reached the end of their life. We do not want decommissioning to take place now. I understand entirely that if there is sufficient UK spend, there will be a financial benefit to UK companies from decommissioning, as long as we can ensure that the supply chain for decommissioning is based in the UK.

    However, some of the assets that have been in the North sea for 30 years are at the end of their useful life and need to be decommissioned. I welcome the OGA’s push to ensure that as much of that spend as possible is in the UK, and I welcome its efforts to ensure that assets can be transferred so that as much oil as possible can be recovered from each of those fields. The OGA has been focusing on enhanced oil recovery, but the Government have not done enough in that respect. Changes are necessary to the tax regime to encourage companies to undertake enhanced oil recovery.

  • I hear the hon. Lady standing up doughtily for her constituency and for the oil and gas industry in Scotland. What bemuses me is that if the independence vote had gone through, in spring 2016, Scotland would have had income of £100 billion and expenditure of £120 billion— a structural deficit of 20%. Now the hon. Lady is advocating increasing that black hole. How would she bridge that gap?

  • We are under a Westminster Government; we do not have full control of our own economy. That is a damning indictment of the way that the Westminster Government are running the economy of Scotland. It is incredibly important that we get independence and that we are therefore able to make decisions, particularly in the oil and gas industry, where the Government have not moved quickly enough or been flexible enough in the changes they have made. It is important that we make the decisions and grow our economy, because the Westminster Government are failing to do so.

    On the future for energy and for the North sea, Statoil produced a report entitled “Energy Perspectives”. It is important to consider the future for the North sea and the UK continental shelf in that context. Statoil predicts that up to 2040, total primary energy demand will grow between 5% and 35%. That is a wide range because a number of different scenarios have been analysed. In all scenarios there is an increase in total energy demand. Statoil predicts that energy demand in 2040 will be between 78 million barrels a day and 116 million barrels a day. We currently use over 90 million barrels a day. It is important to note that, as we think about the move towards renewables and different forms of energy generation, but by 2040, even if we have a huge number of renewables, we will still see a massive demand for oil and gas across the world. Oil and gas will still need to be produced in order to support the economies of the world. It is vital that we ensure that the UK continues to be involved in that and to benefit financially from it.

  • On that point, is my hon. Friend aware that more than half of the oil supply and support companies in the UK are located in England, and that the amendment affects all oil companies across the UK, not just in Scotland?

  • I appreciate that point. I was not aware of the numbers. However, from talking to colleagues across the House who have been very supportive of companies and industries in their constituencies, it is clear that the number of companies is substantial. We are discussing UK spend and, whether we like it or not, we are part of the UK, and the tax changes will help all the companies in the oil and gas industry throughout the UK, whether they are in Aberdeen, Wales or the south of England.

    The Oil and Gas Authority has been very good at talking positively about UK supply chain spend, which is one of the most vital aspects. Although I have talked about energy demand and oil and gas demand out to 2040, we will see, at some point, a reduction in the amount of oil and gas being produced by the UK. It is key to note that we are world leaders in terms of our oil and gas expertise. We are very good at what we do, and we are respected across the world. In sub-sea technology, for example, we are 20 years ahead of America. America has not done very much when it comes to Gulf of Mexico extraction. We will be there teaching the Americans how to use sub-sea technology and exporting that technology to them. Even when the oil and gas in the UK eventually run out, we will see that our expertise is able to be exported. It is really important that the Government act now to ensure that we keep that expertise base and do not lose it in the current downturn.

  • Is the hon. Lady saying to the House, then, that the Scottish National party’s position is to export the expertise of the Scottish hydrocarbon industry so that we can have more and more carbon dioxide going into the environment from fossil fuels because, for example, the Gulf of Mexico is producing more with Scottish expertise? If so, she is running counter to the direction of the world in the Paris talks.

  • The hon. Gentleman should listen to what I said. Statoil’s “Energy Perspectives” report reckons that even if we have a huge push towards renewable technologies and towards reducing carbon emissions, we will still need between 78 million and 116 million barrels of oil a day—and that is while taking on board, and increasing, the very best of these technologies. We will still continue to need, for example, road surfaces that are made from heavy oil. We will still continue to need these things, so we will always need oil, or at least for a long way into the future until we come up with credible alternatives. It is not just about energy or about electricity generation; it is about all the different things that we use oil for, including plastics.

    It is very important to make sure that we have a great future in exporting. I have never been to Houston, but I am told that one cannot go there without hearing an Aberdeen accent. That is because we have the links and we send our experts over there, and those experts are making money for companies here by whom they are still employed. They are devising the technology that is being spent on and used in America and in other places across the world. In the North sea, we are operating in a super-mature field. This is one of the first fields in the world that is reaching that super-mature status. We have a proud history of exporting, getting incredibly good at what we do and teaching the rest of the world how to do it.

    We also have a proud history of being respected around the world. Our oil and gas industry is respected throughout the world. If you say to somebody in an oil company in a different country, “This technology is used in the UKCS in the North sea”, it is automatically seen as a gold standard that is recognised around the world. In order for us to continue to generate tax revenues from this and to sustain jobs, we need to make sure that our companies have enough cash to innovate. Although the Government have been vaguely supportive in what they have done, they have not been supportive enough. Companies are still struggling to get venture capital and assistance from banks. I am aware that Ministers have spoken to banks, but it is still not enough. The confidence is still not there to the degree that we need it to be.

    As I said, we are one of the first countries operating in this super-mature situation. What we really need now is a review of the taxes across the oil and gas industry. The system was devised many years ago in a totally different situation. It has had bits lumped on and bits lopped off, but it has never been looked at as a whole, and that is what we need to do now. I strongly urge the Minister to have a look at the entire tax regime for the oil and gas industry so that it can have a better future.

  • The hon. Member for Aberdeen North (Kirsty Blackman) will be glad to know that she can also come to my constituency and hear a few Aberdonian accents from time to time, without having to go out to the middle of Texas.

    I have a lot of sympathy for the situation that the hon. Lady finds herself in. Inevitably, there has been a lot of tinkering with tax rates in oil and gas. In my 15 years in the House, it has seemed that barely a year goes by without many paragraphs of any Finance Bill being part and parcel of this. Clearly, we are not yet to know whether the gas price and oil price will be stabilised at $50 to $60 a barrel or will go in different directions. I am sure that the Treasury has this whole issue under constant review.

  • Many believe that the oil and gas industry has been adversely affected by Brexit. Earlier this year, I asked this Chancellor, in his first Treasury questions, when the people of the UK could get an insight into the scale of capital flight following Brexit. He replied:

    “a series of data publications during the late summer and autumn will inform a proper response at the autumn statement.”—[Official Report, 19 July 2016; Vol. 613, c. 664.]

    Many other hon. Members in this House asked similar questions to which the Chancellor gave a similar answer—that all will be revealed in the autumn statement. Does the right hon. Gentleman agree that the Chancellor, having now had a few months to think about it, should at least furnish us with the date of the coming autumn statement?

  • I suspect we all know that the autumn statement will be coming up at some point in late November or early December, if precedent is anything to go by. As someone who was also very firmly in favour of Britain remaining in the European Union, I say to the hon. Gentleman that we have to make Brexit work, and this will take time. I understand the frustration of many who would like to see the Government put forward a template on these matters today, but I think they are right to recognise that we have to play our cards close to our chest. This is a diplomatic process that will take some considerable time. One of the great strengths that we have had as the United Kingdom in diplomatic affairs, going back many centuries, is the sense of being able to make something work for the interests of this country. We have to recognise what is going on in world affairs, whether in the oil and gas price or in prices in other areas. This is an incredibly volatile time, politically and economically, and the notion that we can have any direct template in place now, or indeed at any point during the course of this year, is wholly misleading.

  • The hon. Gentleman is being most gracious and I thank him for his time. The right hon. Member for Broxtowe (Anna Soubry) has mentioned real concerns expressed by the Japanese Government re investment in the UK. This concern was echoed when President Obama confirmed, post-EU referendum, that the EU is a much greater priority for US trade relations than the UK outside of the EU. Given US investment in oil and gas in the UK, does the right hon. Gentleman agree that this Government have had more than enough time to give the British people a definitive definition of “Brexit” and should be informing the public of urgent action they are taking now to support important industries such as the oil and gas sector?

  • A huge number of actions are taking place now. It is far, far too early to have any definitive approach as to exactly what Brexit will entail. We have to ensure, to an extent, that we get as much of the benefit of being in the single market—I see that, obviously, in the context of the City of London and its passporting rights—as is compatible with the public’s clear view about free movement of people. I hope that in the months ahead we will begin to work on that. However, it is far too early, and it would be doing a disservice to all industries—oil and gas and others—that are so dependent on exports and on being global industries, with the expertise that they have across the globe, to be definitive about precisely what role Brexit has to play.

    I wanted only to make a few brief comments on new clause 10 with regard to the patent box. I am sorry if I am moving slightly ahead of the observations of the hon. Member for Hayes and Harlington (John McDonnell) on this matter. There has perhaps been a danger that Governments of all political colours over the past decade or so have been rather too much in thrall to certain industries, whether financial services or the global internet technology industries. It is worth pointing out that the benefit—the very significant benefit—of the whole patent box plan that was put in place by the former Chancellor some years ago is that it has begun to enable intellectual property value to be quantified and used as collateral in many of the fast-growth companies in the technology sphere. It strikes me that the Treasury, any Treasury, will now need new sources of revenue to swell our collective coffers at a time when the deficits remain dangerously high. Indeed, in what might be regarded as normal peacetime conditions we have an unprecedentedly high rate of deficit.

    I also think that it would be wise not to ignore the level of public anger at the wilful tax avoidance of a number of the digital disruptors that are potentially the beneficiaries of this patent box plan, and the influence of that on the western economies has at times been somewhat pernicious. The sobering truth is that the global technology and communications service providers’ stratospheric growth over the past two decades has been aided by their ability to avoid taxation. Whether it is Google, Uber, Facebook or Apple, to name but four, they have been able to squirrel away their profits in the most tax advantageous manner, and I hope that the Treasury will consider that, as well as issues around the patent box, not just in the next six months but in the years to come to ensure that we have a more equitable situation that will be accepted by the public at large.

    I accept also that as regards creative industries and global technology players it would be wise to reflect that perhaps elements of this advantageous tax treatment, not just by the UK Government but by other Governments in the western world, have been the price that taxpayers have had to pay to secure the essential co-operation in the sphere of internet surveillance that western Governments believe—rightly, in my view—to be so vital to national security.

    I do believe, however, that it is time to recognise that corporation tax as we know it is probably past its sell-by date as an appropriate means of capturing value in a modern globalised economy. A levy on turnover, rather than profits, might in time be the best way forward—[Hon. Members: “Hear, hear.”] I appreciate that the Floor of the House is perhaps not the place to be making policy, but I hope that the Treasury will at least give it some serious thought, particularly for these sort of industries. I always worry when “Hear, hear” comes from the wrong quarter, and I only wish there were a few colleagues on the Benches behind me to agree—but it came from the hon. Member for Wolverhampton South West (Rob Marris) and from elsewhere.

    At the beginning of the year, Google made the headlines when it was revealed that despite employing some 2,400 people in the UK and harvesting a national estimated profit in excess of £1 billion—we obviously do not know exactly what that profit level was—it was able to pay corporation tax at a level of just 3%. Even before its recent travails, last year Apple declared foreign pre-tax profits of some $47.5 billion, on which it paid only $4.7 billion—some 9.9%—of tax, compared with group-wide income taxes of some $17.7 billion. That suggests that taxes on profits will not be the right way forward, particularly in these global industries where there is a risk that money can be squirreled aside. That said, it is important to say that the patent box, while purportedly and in some ways giving preferential treatment in this area at which we should look closely, has none the less brought some significant benefits.

    One of the biggest problems that faces many internet businesses as they grow is the ability to quantify the value of their intellectual property rights. In many ways, failure to do that means that they do not get the opportunity to collateralise their book value to be able to borrow for the future. The patent box has made some successes in this regard.

    I apologise for jumping the gun, as I know that we are slightly more interested in hearing the justification from the Opposition for their new clause 10. I do not feel that it would be the right way forward at the moment, but there are some important debates we need to have not just on the workings of the patent box-type legislation but on ensuring that we have a level playing field and a system that—more importantly—is understood and supported by the general public. Nothing has been more damaging for many of the big internet and technology service providers than the slew of bad headlines over the past few years about their avoidance of tax. In these difficult economic times, in particular, that is something that we can ill afford in this country.

  • I can worry the right hon. Member for Cities of London and Westminster (Mark Field) a little more by telling him that there was a “Hear, hear” from these Benches as well—[Interruption.] Members will be surprised at how loud we can be, and they will see that in the coming months and years.

    It is absolutely time to have the debate about the best way to tax our businesses and to do what the Government claim they are doing—but are actually insufficiently doing through the changes to corporation tax—and support business in this country better through taxation that works but that also recognises and incentivises business.

    Amendment 177 is a probing amendment that would sweep away corporation tax altogether and is intended to try to trigger that debate, which we should be having as a country. The reality is that the Government will continue to argue that a cut in corporation tax will somehow boost growth, but the evidence for a cut below 20% is simply not there. The Government are failing to ask whether corporation tax actually works. As the right hon. Member for Cities of London and Westminster has said, it is only a matter of time before we hear the next scandal of a company managing to avoid paying corporation tax. Last week, it was Apple’s deal with Ireland, a few months before it was Google, before that it was Facebook and before that it was Amazon. Even the Labour party got into hot water for having managed to offset profits to reduce their corporation tax bill, so surely Government Members will recognise that there is an issue.

    We have endless arguments about the morality of some of these large multinational corporations and how they operate. There is often outrage—sometimes faux outrage—in this place, but that is not good enough and it will not deal with the problem. We must also accept that while the Government are making unnecessary and damaging cuts to HMRC, it makes it harder to challenge these companies that are testing the limits of the law.

    There is an underlying unwillingness to address corporation tax and its fitness for purpose regarding the reality of multinational corporations in the 21st century. As Martin Sorrell, the chief executive of WPP, said in 2013 during the Starbucks corporation tax scandal, for many multinational companies whether to pay corporation tax is simply a “question of judgment”, something to be decided according to PR perception and perhaps their own corporate social responsibility policies but not something decided by Her Majesty’s Revenue and Customs as it surely should be.

    As the right hon. Member for Cities of London and Westminster made clear, this is not and should not be seen in any way as a left or right issue. It is an issue of practicality. Last week in the Telegraph, Allister Heath published a piece entitled “The Apple fiasco shows why corporation tax is an outdated anachronism”. As the right hon. Gentleman has already said, Lord Lawson famously called for corporation tax to be a tax on revenue rather than profit. There are flaws with that but at least he was seeking to challenge the status quo, which is surely outdated. On the other side of the spectrum, The Guardian, Oxfam and the excellent Tax Justice Network have all rightly highlighted the ease with which multinationals can avoid corporation tax altogether.

    There are ways in which we could better support business and could have a tax system that works. Businesses of all sizes are crying out for changes in the tax system. I know many businesses that say that the first thing they would like to see reformed is business rates and the second is VAT. There are industries that provide a huge amount to the British economy and pay a significant amount of tax that are not being listened to because they are not large corporations. For example, a change to VAT would have a much greater impact on the tourism and hospitality industries than tinkering with corporation tax in an attempt to grab headlines for being supposedly supporting business.

    As the right hon. Gentleman has said, there is no obvious solution, but surely it is time to find a solution to properly, fairly and sensibly tax businesses in the 21st century. My hon. Friend the Member for Westmorland and Lonsdale (Tim Farron) has already appointed Sir Vince Cable, the former distinguished Business Secretary, to lead a review of corporation tax and business rates for my party. That will make a contribution to the debate. Instead of claiming that the Government are standing up for business, surely it is time to acknowledge that yet more cuts to corporation tax over the next year will not truly deliver that and will not deal with the reality, which is that we are not collecting tax efficiently from companies that are now run in a very different way.

  • I rise to speak to amendment 162 and new clauses 10 and 11, which stand in my name and those of my hon. Friends the Members for Hayes and Harlington (John McDonnell) and for Bootle (Peter Dowd). I also support new clause 5, which has been explained articulately by the hon. Member for Aberdeen North (Kirsty Blackman), and confirm the Opposition’s support for amendment 177, which has just been spoken to articulately by the hon. Member for Leeds North West (Greg Mulholland).

    Amendment 162 would remove clause 45 from the Bill, thereby halting the Government’s cut to the rate of corporation tax to 17% by 2020. The Government claim that cutting the corporation tax rate would make Britain even more attractive to inward investors and more competitive, and that it would support growth and investment. I would be grateful if the Minister elaborated on the evidential basis for those claims.

    We all know the theory that states that if we cut tax on profits there is more cash for companies to invest in expansion, research and development and labour, and, theoretically, we become more attractive to foreign businesses. The problem is that, somewhere in the development of that theory, the Chancellor forgot to check the reality, as the figures do not support that age-old Conservative mantra.

    Figures provided by the House of Commons Library show that in 1998 business investment as a percentage of GDP was 10.8%, and that in 2000 it was 10.6%. The rate of corporation tax in those years was 31% and 30% respectively. In 2015, business investment as a percentage of GDP was 9.7% and the rate of corporation tax was considerably lower than that in 2000, at 20%. Why, therefore, were businesses not in a state of investment frenzy in 2015, if, indeed, slashing corporation tax is a golden ticket to investment? Of course, I appreciate that there are many factors that affect the level of business investment in the economy, but a comparison of the figures seems to suggest that a lower rate of corporation tax does not correlate with a higher level of business investment.

    Let us look at a different variable, namely foreign direct investment. The level of FDI in the UK has been steadily falling since 2005; there have been a few anomalies along the way, but the trend is most definitely downwards. That has coincided with a steady reduction in the rate of corporation tax. In 2005 the level of FDI flows into the UK was £96.8 billion and corporation tax was 30%. In 2014 FDI was £27.8 billion and corporation tax was 21%. Again, there could be many factors at play, but the figures demonstrate that there is no strong correlation between low rates of corporation tax and higher rates of investment and FDI.

    I appreciate that, to a degree, low corporation tax rates may attract some companies to locate here, because they will want to pay less tax, but attracting them to truly invest in the development of industry here, as well as encouraging our UK companies to flourish, is another matter entirely, and that requires much more than just a tax break.

    According to the Government’s own analysis, this cut is expected to cost the Exchequer almost £1 billion in 2020-21, in addition to the £2.5 billion cost in the same financial year of cutting corporation tax to 19% from 2017. The Institute for Fiscal Studies has also calculated that the Government’s cuts to corporation tax have cost £10.8 billion a year. That gives rise to the question of whether the money could be better spent to incentivise much-needed investment in the UK. The Minister will not be surprised to hear that the Opposition most definitely think it could.

    Many businesses already have cash. The House of Commons Library has provided figures showing that the total amount of currency and deposits, or cash reserves, held by non-financial companies in the private sector is currently at a 20-year high, at £581 billion. The problem, then, is not that businesses need more cash, but that other factors in our economy need improvement, including skills, infrastructure, innovation and productivity.

    The £10.8 billion estimated by the IFS is a large sum that would be better invested in filling the gaps in our economy that are failing business. We should not be engaging in a race to the bottom to become the world’s next big immoral tax haven, but providing the building blocks to make business actually succeed, and with that comes more revenue in taxes as businesses flourish and well-paid jobs are created.

    The Minster would do well to take notes at this point, because Labour has committed to such investment, through a national investment bank and the bank of the north, to address specifically those areas left behind after decades of regional decline. Our national and regional development banks would help unlock £500 billion of investment and lending to small and medium-sized enterprises, including £250 billion of capital investment in the infrastructure that we urgently need and to help prevent economic slowdown. The regional focus of development banks would enable the Government to make sure that investment and lending is spread around the country, not just siphoned into the south, and that it benefits from local knowledge and expertise, thus ensuring that no area in Britain is left behind. Our bank of the north would also unlock the potential of the north of England, with a push to deliver the sort of infrastructure and investment that it has been deprived of for far too long.

    We have also committed to ensuring that our workforce have the skills that business needs in a modern economy, through reinstating the education maintenance allowance and maintenance grants for poorer students, which would be funded by a corporation tax rate of 21%. That is the kind of intervention businesses are looking for—policies with a substantive impact on a company’s ability to do and develop business, not simply cuts to the headline rate of corporation tax.

    The cut to corporation tax brought about by clause 45 is not the best use of public money to support businesses in the UK. I urge hon. Members on both sides of the House to join us in the Lobby to vote in favour of amendment 162.

    The right hon. Member for Cities of London and Westminster (Mark Field) made some fantastic comments earlier on new clause 10, which relates to the patent box. The new clause would require the Chancellor to publish an independent review of the efficacy and value for money of the patent box legislation. The report would have to make an assessment of, first, the size and nature of the companies taking advantage of the patent box legislation; secondly, the impact of the patent box legislation on research and innovation in the UK, including supporting evidence; and, thirdly, the cost-effectiveness of the patent box legislation in incentivising research and development compared with other policy options. My hon. Friends and I are, of course, supportive of Government action to incentivise R and D, but we are not convinced that the patent box legislation has been efficient thus far in achieving that. We are not alone. Many commentators criticised the patent box, even before its introduction in 2012. The IFS has stated that the

    “Patent Box is poorly targeted at research as the policy targets the income which results from patented technology, not the research itself…to the extent that a Patent Box reduces the tax rate for activity that would have occurred in the absence of government intervention, the policy includes a large deadweight cost.”

  • Furthermore, respected economist Mariana Mazzucato, who strongly believes in Government intervention to support R and D, made the rather damning assessment that the patent box is a

    “scam with no effect on innovation”.

    Let me be very clear. The Labour party wants to incentivise research and development—indeed, my hon. Friend the shadow Chancellor has repeatedly called for more intervention in this area—but we are not convinced that the patent box is the most effective way of doing so. The patent box costs the Exchequer approximately £1 billion a year, and there has been no evidence from the Government that I am aware of to demonstrate its effectiveness. If the Minister were able to provide details of any such evidence, I would be most grateful.

    Interestingly, a new study from King’s College London and the Medical Research Council shows that for every £1 extra spent on public medical research, long-run private research increases by 99p. So an increase in public medical funding by £500 million—half the cost of the patent box—would boost private medical research by another £499 million. That compares quite staggeringly to the so called dead-weight loss of the patent box. That is interesting research; I am sure the Minister will agree.

    I will not divide the House on new clause 10 today, but I hope that the Minister will agree that an independent assessment of the efficacy of the patent box with an examination of other policy options would clarify, for both the Government and the Opposition, the best way to achieve our shared goal.

    I move on to new clause 11, which would require the Government to review the regulation of the taxation of securitisation companies in the UK. We do not oppose the Government’s proposals in the Bill in relation to the power to make regulations about the taxation of securitisation companies. However, we do think it timely for the Government to conduct a review in relation to current regulation present in the industry, so that any loopholes and destructive practices can be eradicated.

    I am sure hon. Members know that the non-existent regulation of securitisation structures magnified a medium-sized crisis in the US real estate market into a fully-fledged banking crisis by 2008. There is real worry, in all parts of the House, that it has been a case of back to business as usual for our banking sector, and that the lessons learned from the 2008 crash—if indeed any were learned at all—have long been forgotten.

    We heard earlier this year of a surge in the credit default swaps market, where there has been large-scale repackaging and rebranding of the potentially toxic securitisation products that arguably caused the crisis—a crisis, I must add, that was not truly paid for by the banking sector and financial operators who caused it. No, it was shored up on the backs of the people of this country, and, worst of all, on the backs of the poor and vulnerable. Furthermore, it was used as an excuse by this Government to slash and burn our public services.

    Securitisation structures operate by transferring assets—sub-prime mortgages, credit card receivables or similar cash flows—into off-balance-sheet special purpose vehicles. Usually, the profits or cash flows received from those assets pass through the special purpose vehicle to the investors who have acquired bonds in that special purpose vehicle. The residual amounts that are left in the special purpose vehicle are small compared with the sums that are paid through to the investors. However, as with all such artificial financial structures, it is possible to manipulate those amounts for tax purposes. Indeed, credit default swaps, which are the most famous of the securitisation family, are deliberately flexible so as to manipulate the tax outcome. If we do not regulate the sector carefully now, we will quite simply become the drain through which the world will launder its dirty transactions. Especially in view of our exit from the EU, we must ensure that our financial our regulations are gold-plated.

    New clause 11 deals with a review of the regulation of taxation on securitisation companies specifically, because we are limited by the scope of the Finance Bill. However, we would like the Minister to go much further and provide for an assessment of all aspects of the regulation of securitisation companies, thereby showing unequivocally that the Government are committed to ensuring that the tax arrangements of securitisation structures are adequately regulated. We will not divide the House on new clause 11, but I hope that the Minister will make a commitment in relation to those points.

    To conclude my remarks, Labour cannot support the cut to corporation tax that we have debated today and we will, therefore, divide the House on amendment 162.

  • Thank you for your indulgence, Madam Deputy Speaker. I will seek to be brief. On new clause 10, I am in favour of evidence-based policy making. The right hon. Member for Cities of London and Westminster (Mark Field) says that the patent box legislation and tax break have been helpful. That may be true, but we do not know. What we do know is that the National Audit Office looked at something like 1,200 tax reliefs and found that the Treasury was only monitoring the efficaciousness of fewer than 300 of them. I do not think that the patent box was part of that, so I support new clause 10 because it might tease out the evidence.

  • I think there has been some misunderstanding about exactly what the patent box was designed to do. It was not designed solely to promote research and development, as many similar incentives that come through, year on year, in Budgets are designed to do. It was very much an attempt to incentivise companies at the second stage—in other words, companies that already had some intellectual property that was difficult to quantify—as opposed to directly at the research and development side. I think it is slightly unfair to suggest that there is no evidence that that has worked, and I think that the patent box is being looked at in a different light to that which was intended by those who put it into play.

  • I agree that it is designed to help some companies in their early stages, but with the effluxion of time, those companies should pass through the pipeline and we should see the fruit of their endeavours, helped indirectly by taxpayer support. The evidence should be coming through now. We could not have looked after one year to see whether it had been effective, but now that it has been around for a few years, we can.

    I move on to amendment 177. I was amazed to hear the right hon. Gentleman say that he would be prepared to examine the question of having a turnover tax instead of corporation tax. The hon. Member for Leeds North West (Greg Mulholland) said the same thing. I absolutely agree, and I have long advocated looking at that, precisely because of tax avoidance. If it turns out to be the case that Apple has been avoiding tax in the United Kingdom, it would not have been able to do that so successfully if we had had a turnover tax rather than a corporation tax.

    I have to say to the hon. Member for Leeds North West that I am a bit bemused. He said tonight that the leader of his party had set up a review of corporation tax, but the leader of his party has also tabled amendment 177 —supported, as far as I can tell, by the hon. Gentleman—which would abolish corporation tax completely for the financial year 2017, without bringing in a turnover tax instead. It seems a very strange amendment to table.

  • As I think I made clear, amendment 177 is a probing amendment, which is designed entirely to make that point. We share the view that the reduction of corporation tax is flawed, but through this amendment we are saying that it needs to be done in a better way. It is a probing amendment and we will not be voting on it, but it is time that we had that debate and put something better in place.

  • It is a strange way to do a probing amendment. I am not saying that it is wrong; that is not for me to say. However, it is common for the Opposition to table new clauses or amendments—as with those that we are considering tonight, such as new clause 10—that are designed to produce evidence. Presumably, the hon. Gentleman’s party will be looking at such evidence in its review. If the House could produce that evidence, it would speed up the process and help all of us towards evidence-based policy making.

    On new clause 5, interestingly, I think that the Scottish National party reveals its hand; it is not much concerned about greenhouse gas emissions from oil production, let alone from burning oil. We saw the same thing last year in the debate on air passenger duty, when the SNP was all in favour of loads more people flying, despite what it does to the environment. The tenor of the remarks made by the hon. Member for Aberdeen North (Kirsty Blackman) was that she wants the taxation of oil and gas cut. Essentially, she is advocating indirectly, yet again, for another bung for Scotland from English taxpayers. The SNP Government have the power to put up taxes in Scotland and fail to do so, but they want English taxpayers to give them a bigger bung.

  • The hon. Gentleman may have heard my hon. Friend the Member for East Lothian (George Kerevan) say that 50% of the supply chain companies that would be affected are actually based south of the border. This would benefit companies across the UK. The Scottish Government have been incredibly good at reaching their climate change targets. They have worked very hard on renewable electricity. The only problem is that the Conservative Government are getting in our way.

  • I did hear the hon. Gentleman say that, and I also heard the hon. Lady say, when she was moving new clause 5, that she did not even realise that that was the case. Paradoxically for them, I support the new clause and I hope it is agreed to. It looks attractive to me because such a review could lead to a situation in which taxation on oil and gas is increased appropriately. We will not know until we have the evidence, so let us have the review.

  • I will start by responding to the Opposition’s amendments and new clauses, before I turn briefly to those tabled by the Government.

    Amendment 162 would require the Government to remove clause 45 from the Bill. That would stop the cut in corporation tax going ahead, because the clause will cut the rate of corporation tax to 17% with effect from 1 April 2020. Lower corporation tax rates enable businesses to increase investment. We cannot agree with the hon. Member for Salford and Eccles (Rebecca Long Bailey), who speaks for the Opposition on this matter. Lower rates enable businesses to take on new staff, increase wages or reduce prices. That is borne out by receipts data. The House may be interested to know that onshore corporation tax receipts have risen by more than 20% since 2010, despite the lowering of corporation tax rates. The Treasury and HMRC have modelled the economic impact of the corporation tax cuts delivered since 2010 and those announced at Budget 2016. The modelling suggests that the cuts could increase long-run GDP by more than 1%, or almost £24 billion in today’s prices.

    The hon. Lady asked whether business investment has grown. It has increased by 30% since 2010. She mentioned foreign direct investment. In fact, only last week, the Department for International Trade reported a record number of inward investment projects in 2015-16, with over 80,000 new jobs created by more than 2,000 FDI projects. Again, we cannot agree with her criticism.

  • The Minister mentions that the Treasury has modelled the impact of tax cuts. Is this the same Treasury model that predicted the collapse of the UK economy in the hours after Brexit?

  • Given the SNP’s track record on predicting the oil price, the hon. Gentleman should think carefully before digging—

  • Will the Minister give way?

  • No, I will continue because I want to move on to the points made by the hon. Member for Salford and Eccles.

    On amendment 177, I note the comments made by the hon. Member for Wolverhampton South West (Rob Marris). He was quite correct in his analysis of what the amendment would do. I accept the point made by the hon. Member for Leeds North West (Greg Mulholland) that it is a probing amendment, but it would indeed cancel the charge for corporation tax in the 2017-18 financial year, depriving the Government of over £45 billion of corporation tax receipts in that year alone. I of course take the point that he wants support for small business and so on, but we are doing a great deal—for example, the business rates package, which will come into effect next spring. For fairly obvious reasons, we cannot support such a loss to the Exchequer.

    New clause 5 was tabled by the hon. Member for Kirkcaldy and Cowdenbeath (Roger Mullin), but moved by the hon. Member for Aberdeen North (Kirsty Blackman). It calls on the Government to publish a review of corporation tax rates and investment allowances applicable to oil and gas-producing companies in the UK. The UK Government remain 100% behind the oil and gas sector and the thousands of workers and families it supports, but a further review into oil and gas taxes would not serve any useful purpose at this time because the Government have recently carried out such an exercise. In 2014, the Government published “Driving investment: a plan to reform the oil and gas fiscal regime”. It set out the Government’s long-term plan to ensure that the fiscal regime continues to support the objective of maximising the economic recovery of oil and gas, while ensuring a fair return on those resources for the nation. The Government have remained consistent in their approach.

  • One of the things to support the oil and gas industry that the Government have talked about is offering loan guarantees to companies experiencing financial stress. Will the Minister tell the House how that process is going and how many companies have received loan guarantees?

  • That issue was explored in some detail in Committee, so I will not respond on it now.

    I want to make the important point that the changes introduced by the Finance Bill will provide the right conditions to maximise the economic recovery of the UK’s oil and gas resources by lowering sector-specific tax rates, updating the current system of allowances and expanding the types of activity that can generate financial relief. Another important point often stated—indeed, it has been made by many people who work in the sector and by investors in it—is that stability and certainty in the tax regime are major factors in making investment decisions. For that reason, we do not think it is right to have another review. Such a review could create further uncertainty at a time when it is not right for the industry, and it could delay investment. I therefore urge Members to reject new clause 5.

  • Will the Minister give way?

  • No. I am sorry, but I want to move on to new clause 11, tabled by the hon. Member for Salford and Eccles. It proposes an independent review into the efficacy of the taxation of securitisation companies. The Government do not consider that necessary. Regulations introduced under a Labour Government in 2006 applied specific corporation tax rules to the profits of securitisation companies. The regulations contain several anti-avoidance tests. As announced in the Budget, HMRC is reviewing these regulations to reflect recent changes to accounting standards and market developments. A consultative working group, made up of independent professional advisers specialising in securitisations, HM Treasury officials and HMRC technical specialists, has met four times since September 2015 and is looking carefully at a range of issues. Revised regulations developed with the group are expected to be published in draft for public consultation later this year or early next year. As this review is already under way, a further assessment is not required.

    On Government amendments 152 and 153, clause 63 and schedule 9 make changes to ensure that the patent box operates in line with the newly agreed international framework resulting from the OECD’s base erosion and profit shifting action plan. As currently drafted, the changes in the Bill could result in different definitions of the term “qualifying residual profit” applying to the same parts of the patent box legislation. The amendments address that problem by providing a coherent and consistent definition for that phrase.

    I will comment briefly on Opposition new clause 10. The new clause would require the Chancellor of the Exchequer to publish within six months of the passing of the Bill an independent report giving an assessment of the value for money and efficacy of the patent box. The Government do not support the new clause. We only now have full data for the first year of the patent box, and as such the report required by the new clause would not take into account the revisions to the regime made by the Bill. The proposed one-off publication would also fall short of the plans the Government already have in place to publish annual official statistics on the patent box.

    The hon. Lady mentioned that she wished to see more evidence of the impact of the patent box. It is worth noting that, for example, GSK recently attributed a £275 million investment to the UK’s competitive tax regime and specifically mentioned the patent box as a reason to invest.

    A number of Government amendments have been tabled to clause 65 and schedule 10, which legislate to counteract avoidance involving hybrid mismatches. The amendments make changes to the legislation to ensure that it works as intended and does not create unintended impacts in terms of its interaction with other areas of the UK tax system. The amendments are necessary to secure the forecast yield from the measures.

    My right hon. Friend the Member for Cities of London and Westminster (Mark Field) made a typically thoughtful intervention. He mentioned turnover tax versus profits tax—I suspect that is a theme to which he might return. It is worth noting that a turnover tax can produce unfair outcomes, such as penalising businesses that make a loss and those in competitive markets. As I say, I am sure it is an issue to which he may well return.

    The Government are committed to making our tax system fundamentally fair, ensuring that people and businesses pay what they owe and contribute to our nation’s success. I therefore once again urge the House to reject the amendments and new clauses tabled by the Opposition.

  • I will press new clause 5 to a vote.

    Question put, That the clause be read a Second time.

  • Division 53

    5 September 2016

    The House divided:

    Ayes: 249
    Noes: 304

    Question accordingly negatived.

    View Details

    Clause 45

    Rate of Corporation Tax for Financial Year 2020

    Amendment proposed: 162, page 87, line 8, leave out clause 45.—(Rebecca Long Bailey.)

    Division 54

    5 September 2016

    The House divided:

    Ayes: 252
    Noes: 309

    Question accordingly negatived.

    View Details

    Schedule 9

    Profits from the exploitation of patents etc: consequential

    Amendments made: 152, page 391, leave out lines 20 to 22 and insert—

    23 (1) Section 357GE (other interpretation) is amended as follows.

    (2) In subsection (1)—

    (a) at the appropriate place insert—

    ““payment” includes payment in money’s worth.”, and

    (b) omit the definition of “qualifying residual profit”.

    (3) After subsection (1) insert—

    (1A) In Chapters 3 and 4 of this Part “qualifying residual profit” of a trade, in relation to any accounting period, is the amount obtained by the application of Steps 1 to 4 in section 357C or (as the case may be) section 357DA in relation to the trade for the accounting period.””

    Amendment 153, page 391, line 27, after “357A(11)”,” insert—

    ( ) in the entry for “qualifying residual profit of a trade (in Part 8A)”, in the left hand column, after “in” insert “Chapters 3 and 4 of”,”.—(Jane Ellison.)

    Schedule 10

    Hybrid and other Mismatches

    Amendments made: 1, page 393, line 26, leave out

    “permanent establishment of a multinational company” and insert “multinational company’s permanent establishment in the United Kingdom”.

    Amendment 2, page 402, line 24, at end insert—

    ‘( ) Section 259CBA contains definitions of certain terms used in section 259CB.”

    Amendment 3, page 404, line 12, at end insert—

    ‘(2A) So far as the excess arises by reason of a relevant debt relief provision, it is to be taken not to arise by reason of the terms, or any other feature, of the financial instrument (whether or not it would have arisen by reason of the terms, or any other feature, of the financial instrument regardless of the relevant debt relief provision).”

    Amendment 4, page 404, line 13, leave out “For” and insert

    “Subject to that and subsection (6A), for”.

    Amendment 5, page 404, line 15, after “well” insert

    “as the terms, or any other feature, of the financial instrument”.

    Amendment 6, page 404, line 22, leave out “subsection (4)” insert “subsections (4) and (4A)”.

    Amendment 7, page 404, line 48, at end insert—

    ‘(4A) Where the relevant assumption in subsection (4)(c) applies in relation to a payee the following provisions are to be disregarded in relation to that payee for the purposes of subsection (3)(b)—

    (a) section 441 of CTA 2009 (loan relationships for unallowable purposes);

    (b) section 690 of that Act (derivative contracts for unallowable purposes);

    (c) Part 4 (transfer pricing);

    (d) this Part;

    (e) Part 7 (tax treatment of financing costs and income).”

    Amendment 8, page 405, line 5, leave out “For” and insert

    “Subject to subsection (6A), for”.

    Amendment 9, page 405, line 6, at end insert

    “as the terms, or any other feature, of the financial instrument”.

    Amendment 10, page 405, line 9, at end insert—

    ‘(6A) For the purposes of this section disregard—

    (a) any excess or part of an excess mentioned in subsection (2), and

    (b) any under-taxed amount,

    that arises as a result of a payee being a relevant investment fund (see section 259NZA).”

    Amendment 11, page 405, leave out lines 10 to 35.

    Amendment 12, page 406, line 7, at end insert—

    ‘( ) See section 259CBA for the meaning of “permitted taxable period”, “relevant debt relief provision” and “under taxed”.”

    Amendment 13, page 406, line 7, at end insert—

    “259CBA Interpretation of section 259CB

    (1) This section has effect for the purposes of section 259CB.

    (2) A taxable period of a payee is “permitted” in relation to an amount of ordinary income that arises as a result of the payment or quasi-payment if—

    (a) the period begins before the end of 12 months after the end of the payment period, or

    (b) where the period begins after that—

    (i) a claim has been made for the period to be a permitted period in relation to the amount of ordinary income, and

    (ii) it is just and reasonable for the amount of ordinary income to arise for that taxable period rather than an earlier period.

    (3) Each of these is a “relevant debt relief provision”—

    (a) section 322 of CTA 2009 (release of debts: cases where credits not required to be brought into account),

    (b) section 357 of that Act (insolvent creditors),

    (c) section 358 of that Act (exclusion of credits on release of connected companies’ debts: general),

    (d) section 359 of that Act (exclusion of credits on release of connected companies’ debts during creditor’s insolvency),

    (e) section 361C of that Act (the equity-for-debt exception),

    (f) section 361D of that Act (corporate rescue: debt released shortly after acquisition), and

    (g) section 362A of that Act (corporate rescue: debt released shortly after connection arises).

    (4) An amount of ordinary income of a payee, for a permitted taxable period, is “under taxed” if the highest rate at which tax is charged on the taxable profits of the payee in which the amount is included, taking into account on a just and reasonable basis the effect of any credit for underlying tax, is less than the payee’s full marginal rate for that period.

    (5) The payee’s “full marginal rate” means the highest rate at which the tax that is chargeable on the taxable profits mentioned in subsection (4) could be charged on taxable profits, of the payee for the permitted taxable period, which include ordinary income that arises from, or in connection with, a financial instrument.

    (6) A “credit for underlying tax” means a credit or relief given to reflect tax charged on profits that are wholly or partly used to fund (directly or indirectly) the payment or quasi-payment.”

    Amendment 14, page 407, line 42, at end insert—

    ‘( ) Section 259DCA contains definitions of certain terms used in section 259DC.”

    Amendment 15, page 410, line 31, leave out “For” and insert

    “Subject to subsection (8), for”.

    Amendment 16, page 410, line 40, leave out “subsection (4)” and insert “subsections (4) and (4A)”.

    Amendment 17, page 411, line 16, at end insert—

    ‘(4A) Where the relevant assumption in subsection (4)(c) applies in relation to a payee the following provisions are to be disregarded in relation to that payee for the purposes of subsection (3)(b)—

    (a) section 441 of CTA 2009 (loan relationships for unallowable purposes);

    (b) Part 4 (transfer pricing);

    (c) this Part;

    (d) Part 7 (tax treatment of financing costs and income).”

    Amendment 18, page 411, line 22, leave out “For” and insert

    “Subject to subsection (8), for”.

    Amendment 19, page 411, line 32, after “any” insert “excess or”

    Amendment 20, page 411, line 35, at end insert

    “or that arises as a result of a payee being a relevant investment fund (see section 259NZA)”.

    Amendment 21, page 411, line 36, leave out from beginning to end of line 12 on page 412.

    Amendment 22, page 412, line 31, at end insert—

    ‘( ) See section 259DCA for the meaning of “permitted taxable period” and “under taxed”.”

    Amendment 23, page 412, line 31, at end insert—

    “259DCA Interpretation of section 259DC

    (1) This section has effect for the purposes of section 259DC.

    (2) A taxable period of a payee is “permitted” in relation to an amount of ordinary income that arises as a result of the payment or quasi-payment if—

    (a) the period begins before the end of 12 months after the end of the payment period, or

    (b) where the period begins after that—

    (i) a claim has been made for the period to be a permitted period in relation to the amount of ordinary income, and

    (ii) it is just and reasonable for the amount of ordinary income to arise for that taxable period rather than an earlier period.

    (3) An amount of ordinary income of a payee, for a permitted taxable period, is “under taxed” if the highest rate at which tax is charged on the taxable profits of the payee in which the amount is included, taking into account on a just and reasonable basis the effect of any credit for underlying tax, is less than the payee’s full marginal rate for that period.

    (4) The payee’s “full marginal rate” means the highest rate at which the tax that is chargeable on the taxable profits mentioned in subsection (3) could be charged on taxable profits, of the payee for the permitted taxable period, which include ordinary income that arises from, or in connection with, a financial instrument.

    (5) A “credit for underlying tax” means a credit or relief given to reflect tax charged on profits that are wholly or partly used to fund (directly or indirectly) the payment or quasi-payment.”

    Amendment 24, page 412, line 43, leave out “not so treated for the purposes of tax charged on” and insert “brought into account by”.

    Amendment 25, page 412, line 44, leave out

    “because that person brings the substitute payment into account”.

    Amendment 26, page 417, leave out lines 21 to 32

    Amendment 27, page 418, line 15, after “income”” insert

    “of the payer for an accounting period”.

    Amendment 28, page 418, line 18, after “payer” insert “for that period”.

    Amendment 29, page 418, line 20, after “payer” insert

    “for a permitted taxable period”.

    Amendment 154, page 418, line 21, at end insert—

    ‘( ) A taxable period of an investor is “permitted” for the purposes of paragraph (b) of subsection (4) if—

    (a) the period begins before the end of 12 months after the end of the accounting period mentioned in paragraph (a) of that subsection, or

    (b) where the period begins after that—

    (i) a claim has been made for the period to be a permitted period in relation to the amount of ordinary income, and

    (ii) it is just and reasonable for the amount of ordinary income to arise for that taxable period rather than an earlier period.”

    Amendment 31, page 419, line 45, after “payer” insert

    “for a permitted taxable period”.

    Amendment 155, page 419, line 47, at end insert—

    ‘( ) A taxable period of an investor is “permitted” for the purposes of subsection (9) if—

    (a) the period begins before the end of 12 months after the end of the payment period, or

    (b) where the period begins after that—

    (i) a claim has been made for the period to be a permitted period in relation to the amount of ordinary income, and

    (ii) it is just and reasonable for the amount of ordinary income to arise for that taxable period rather than an earlier period.’

    Amendment 33, page 420, line 8, leave out

    “permanent establishment of a multinational company”

    and insert

    “multinational company’s permanent establishment in the United Kingdom”.

    Amendment 34, page 420, line 10, leave out from “counteracts” to “by” in line 11 and insert “such deductions”.

    Amendment 35, page 420, line 15, leave out “, “the parent jurisdiction” and “the PE jurisdiction”” and insert “and “the parent jurisdiction””.

    Amendment 36, page 420, line 19, leave out from “deduction” to end of line 23.

    Amendment 37, page 420, line 28, leave out “D” and insert “C”.

    Amendment 38, page 420, line 32, after “territory” insert “outside the United Kingdom”.

    Amendment 39, page 420, leave out lines 34 to 37 and insert—

    “(b) it is within the charge to corporation tax because it carries on a business in the United Kingdom through a permanent establishment in the United Kingdom.”

    Amendment 40, page 420, line 39, leave out

    “under the law of the PE jurisdiction,”

    Amendment 41, page 421, line 3, leave out “a taxable period” and insert “an accounting period”.

    Amendment 42, page 421, line 3, after “period”)” insert “for corporation tax purposes”.

    Amendment 43, page 421, line 5, leave out “PE jurisdiction” and insert “United Kingdom”.

    Amendment 44, page 421, line 8, after “for” insert “corporation”.

    Amendment 45, page 421, leave out lines 14 to 22.

    Amendment 46, page 421, line 23, leave out “D” and insert “C”.

    Amendment 47, page 421, leave out lines 25 to 33 and insert—

    “(a) the circumstances giving rise to the PE deduction will not result in—

    (i) an increase in the taxable profits of the company for any permitted taxable period, or

    (ii) a reduction of a loss made by the company for any permitted taxable period, for the purposes of a tax charged under the law of the parent jurisdiction, or

    (b) those circumstances will result in such an increase or reduction for one or more permitted taxable periods, but the PE deduction exceeds the aggregate effect on taxable profits.

    ‘(7A) “The aggregate effect on taxable profits” is the sum of—

    (a) any increases, resulting from the circumstances giving rise to the PE deduction, in the taxable profits of the company, for a permitted taxable period, for the purposes of a tax charged under the law of the parent jurisdiction, and

    (b) any amounts by which a loss made by the company, for a permitted taxable period, for the purposes of a tax charged under the law of the parent jurisdiction, is reduced as a result of the circumstances giving rise to the PE deduction.”

    Amendment 48, page 421, leave out line 39 and insert

    “the aggregate effect on taxable profits.”

    Amendment 49, page 421, line 40, leave out “subsection (7)” and insert “subsections (7) and (7A)”.

    Amendment 50, page 421, line 46, leave out from beginning to end of line 3 on page 422 and insert—

    (i) a claim has been made for the period to be a permitted period for the purposes of subsections (7) and (7A), and

    (ii) it is just and reasonable for the circumstances giving rise to the PE deduction to affect the profits or loss made for that period rather than an earlier period.”

    Amendment 51, page 422, leave out lines 4 to 7 and insert—

    ‘(10) Section 259FB contains provision for counteracting the excessive PE deduction.”

    Amendment 52, page 422, line 9, leave out from

    “where the United Kingdom is the PE jurisdiction”

    and insert

    “of the excessive PE deduction”.

    Amendment 53, page 422, leave out lines 10 and 11.

    Amendment 54, page 422, line 24, after “income”” insert

    “of the company for an accounting period”.

    Amendment 55, page 422, line 26, after “company” insert “for that period”

    Amendment 56, page 422, line 28, after “company” insert

    “for a permitted taxable period”.

    Amendment 57, page 422, line 29, at end insert—

    ‘( ) A taxable period of the company is “permitted” for the purposes of paragraph (b) of subsection (4) if—

    (a) the period begins before the end of 12 months after the end of the accounting period mentioned in paragraph (a) of that subsection, or

    (b) where the period begins after that—

    (i) a claim has been made for the period to be a permitted period in relation to the amount of ordinary income, and

    (ii) it is just and reasonable for the amount of ordinary income to arise for that taxable period rather than an earlier period.”

    Amendment 58, page 422, line 30, leave out from beginning to end of line 31 on page 423.

    Amendment 59, page 425, line 42, leave out from beginning to end of line 30 on page 426.

    Amendment 156, page 426, line 30, at end insert—

    ‘(4A) A relevant amount of the excess is to be taken (so far as would not otherwise be the case) to arise as mentioned in subsection (1)(b) where—

    (a) a payee is a hybrid entity,

    (b) there is no territory—

    (i) where that payee is resident for the purposes of a tax charged under the law of that territory, or

    (ii) under the law of which ordinary income arises to that payee, by reason of the payment or quasi-payment, for the purposes of a tax that is charged on that payee by virtue of that payee having a permanent establishment in that territory, and

    (c) no income arising to that payee, by reason of the payment or quasi-payment, is brought into account in calculating chargeable profits for the purposes of the CFC charge or a foreign CFC charge.

    (4B) For the purposes of subsection (4A), the “relevant amount” of the excess is the lesser of—

    (a) the amount of the excess, and

    (b) an amount equal to the amount of ordinary income that it is reasonable to suppose would, by reason of the payment or quasi-payment, arise to the payee for corporation tax purposes, if—

    (i) the payee were a company, and

    (ii) the payment or quasi-payment were made in connection with a trade carried on by the payee in the United Kingdom through a permanent establishment in the United Kingdom.

    (4C) In subsection (4A)(c) “chargeable profits”—

    (a) in relation to the CFC charge, has the same meaning as in Part 9A (see section 371VA), and

    (b) in relation to a foreign CFC charge, means the concept (by whatever name known) corresponding to chargeable profits within the meaning of that Part.”

    Amendment 61, page 430, line 7, after “quasi-payments” insert

    “, where the payer is within the charge to corporation tax,”.

    Amendment 62, page 430, line 10, leave out “or a payee”.

    Amendment 63, page 430, leave out lines 19 to 25.

    Amendment 64, page 431, line 7, leave out from “period” to end of line 10.

    Amendment 65, page 431, leave out lines 38 to 43 and insert—

    ‘(11) Section 259HC contains provision for the counteraction of the multinational payee deduction/non-inclusion mismatch.”

    Amendment 66, page 432, line 10, after “subsection (1)(b)” insert “—

    (a) where the law of a PE jurisdiction in relation to a payee that is a multinational company makes no provision for charging tax on any companies, so much of the excess as arises as a result is to be taken not to arise by reason of that payee being a multinational company, but

    (b) subject to that,”

    Amendment 67, page 432, line 11, after “well” insert

    “as one or more payees being multinational companies”.

    Amendment 68, page 432, line 27, leave out from “Counteraction” to end of line 28 and insert

    “of the multinational payee deduction/non-inclusion mismatch”.

    Amendment 69, page 432, leave out lines 29 and 30.

    Amendment 70, page 432, line 35, leave out from beginning to end of line 48 on page 433.

    Amendment 71, page 436, line 27, after “is” insert “(in substance)”,

    Amendment 72, page 436, line 30, after “income” insert

    “of the investor for an accounting period”.

    Amendment 73, page 436, line 38, after “income”” insert

    “of the investor for an accounting period”.

    Amendment 74, page 436, line 40, leave out “in the hybrid entity” and insert “for that period”.

    Amendment 75, page 436, line 42, after “entity” insert

    “for a permitted taxable period”.

    Amendment 76, page 436, line 43, at end insert—

    ‘( ) A taxable period of the hybrid entity is “permitted” for the purposes of paragraph (b) of subsection (8) if—

    (a) the period begins before the end of 12 months after the end of the accounting period of the investor mentioned in paragraph (a) of that subsection, or

    (b) where the period begins after that—

    (i) a claim has been made for the period to be a permitted period in relation to the amount of ordinary income, and

    (ii) it is just and reasonable for the amount of ordinary income to arise for that taxable period rather than an earlier period.”

    Amendment 77, page 437, line 7, after “income” insert

    “of the hybrid entity for the hybrid entity deduction period”.

    Amendment 78, page 437, line 25, after “income” insert

    “of the hybrid entity for the hybrid entity deduction period”.

    Amendment 79, page 438, line 10, after “is” insert “(in substance)”

    Amendment 80, page 438, line 13, after “income” insert

    “of the hybrid entity for an accounting period”.

    Amendment 81, page 438, line 21, after “income”” insert

    “of the hybrid entity for an accounting period”,

    Amendment 82, page 438, line 23, after “entity” insert “for that period”.

    Amendment 83, page 438, line 25, after “entity” insert

    “for a permitted taxable period”.

    Amendment 84, page 438, line 27, at end insert—

    ‘( ) A taxable period of an investor is “permitted” for the purposes of paragraph (b) of subsection (10) if—

    (a) the period begins before the end of 12 months after the end of the accounting period mentioned in paragraph (a) of that subsection, or

    (b) where the period begins after that—

    (i) a claim has been made for the period to be a permitted period in relation to the amount of ordinary income, and

    (ii) it is just and reasonable for the amount of ordinary income to arise for that taxable period rather than an earlier period.”

    Amendment 85, page 439, line 5, leave out from second “company” to end of line 7.

    Amendment 86, page 439, line 7, at end insert—

    ‘( ) Section 259JBA contains provision that counteracts the mismatch where the company is a multinational company and the United Kingdom is the parent jurisdiction.”

    Amendment 87, page 439, line 10, leave out “fully”.

    Amendment 88, page 439, line 12, leave out “section 259JB” and insert “section 259JBA”.

    Amendment 89, page 440, leave out lines 10 to 15 and insert—

    “(6) The following provisions provide for the counteraction of the dual territory double deduction amount—

    (a) section 259JB (cases where a company is dual resident),

    (b) section 259JBA (cases where a company is a relevant multinational and the United Kingdom is the parent jurisdiction), and

    (c) section 259JC (cases where a company is a relevant multinational, the United Kingdom is the PE jurisdiction and the amount is not counteracted in the parent jurisdiction).”

    Amendment 90, page 440, line 18, leave out

    “or the UK is the parent jurisdiction”.

    Amendment 91, page 440, line 20, leave out “as a result” and insert “by reason”.

    Amendment 92, page 440, line 21, leave out from second “company” to end of line 24.

    Amendment 93, page 440, line 39, leave out “or relevant multinational company”.

    Amendment 94, page 440, line 45, leave out “or relevant multinational company”.

    Amendment 95, page 441, line 2, leave out “or relevant multinational company”.

    Amendment 96, page 441, line 8, after “is” insert “(in substance)”.

    Amendment 97, page 441, line 11, after “company” insert “for an accounting period”.

    Amendment 98, page 441, line 19, after “income” insert

    “of the company for an accounting period”.

    Amendment 99, page 441, line 2, after “company” insert “for that period”.

    Amendment 100, page 441, line 23, after “company” insert—

    “for a permitted taxable period”.

    Amendment 101, page 441, line 25, at end insert—

    “( ) A taxable period of the company is “permitted” for the purposes of paragraph (b) of subsection (8) if—

    (a) the period begins before the end of 12 months after the end of the accounting period mentioned in paragraph (a) of that subsection, or

    (b) where the period begins after that—

    (i) a claim has been made for the period to be a permitted period in relation to the amount of ordinary income, and

    (ii) it is just and reasonable for the amount of ordinary income to arise for that taxable period rather than an earlier period.”

    Amendment 102, page 441, line 25, at end insert—

    “259JBA Counteraction where mismatch arises because of a relevant multinational and the UK is the parent jurisdiction

    (1) This section applies where—

    (a) the dual territory double deduction amount arises by reason of the company being a relevant multinational company, and

    (b) the United Kingdom is the parent jurisdiction.

    (2) If some or all of the dual territory double deduction amount is (in substance) deducted (“the impermissible overseas deduction”), for the purposes of a tax under the law of a territory outside the United Kingdom, from the income of any person, for any taxable period, that is not dual inclusion income of the company—

    (a) the dual territory double deduction amount that may be deducted, for corporation tax purposes, from the company’s income for the deduction period is reduced by the amount of the impermissible overseas deduction, and

    (b) such just and reasonable adjustments (if any) as are required to give effect to that reduction, for corporation tax purposes, are to be made.

    (3) Any adjustment required to be made under subsection (2) may be made (whether or not by an officer of Revenue and Customs)—

    (a) by way of an assessment, the modification of an assessment, amendment or disallowance of a claim, or otherwise, and

    (b) despite any time limit imposed by or under any enactment.

    (4) In this section “dual inclusion income” of the company means an amount that is both—

    (a) ordinary income of the company for an accounting period for corporation tax purposes, and

    (b) ordinary income of the company for a permitted taxable period for the purposes of a tax charged under the law of a territory outside the United Kingdom.

    (5) A taxable period is “permitted” for the purposes of paragraph (b) of subsection (4) if—

    (a) the period begins before the end of 12 months after the end of the accounting period of the company mentioned in paragraph (a) of that subsection, or

    (b) where the period begins after that—

    (i) a claim has been made for the period to be a permitted period in relation to the amount of ordinary income, and

    (ii) it is just and reasonable for the amount of ordinary income to arise for that taxable period rather than an earlier period.”

    Amendment 103, page 441, line 26, leave out from “of” to end of line 27 and insert—

    “a relevant multinational and is not counteracted in the parent jurisdiction”.

    Amendment 104, page 441, leave out lines 32 to 48 and insert—

    “(c) it is reasonable to suppose that no provision of the law of the parent jurisdiction that is equivalent to section 259JBA applies.”

    Amendment 105, page 442, line 1, leave out “restricted deduction” and insert—

    “dual territory double deduction amount”.

    Amendment 106, page 442, line 5, leave out “restricted deduction” and insert—

    “dual territory double deduction amount”.

    Amendment 107, page 442, line 15, leave out “restricted deduction” and insert—

    “dual territory double deduction amount”.

    Amendment 108, page 442, line 31, after “is” insert “(in substance)”.

    Amendment 109, page 442, line 34, at end insert—

    “of the company for an accounting period”.

    Amendment 110, page 442, line 42, after “income” insert—

    “of the company for an accounting period”.

    Amendment 111, page 442, line 44, after “company” insert “for that period”.

    Amendment112, page 442, line 46, after “company” insert—

    “for a permitted taxable period”.

    Amendment 113, page 442, line 48, at end insert—

    “( ) A taxable period of the company is “permitted” for the purposes of paragraph (b) of subsection (9) if—

    (a) the period begins before the end of 12 months after the end of the accounting period mentioned in paragraph (a) of that subsection, or

    (b) where the period begins after that—

    (i) a claim has been made for the period to be a permitted period in relation to the amount of ordinary income, and

    (ii) it is just and reasonable for the amount of ordinary income to arise for that taxable period rather than an earlier period.”

    Amendment 157, page 443, line 11, at end insert—

    ‘( ) Section 259KAA defines “dual territory double deduction”, “excessive PE deduction” and “PE jurisdiction”.’

    Amendment 115, page 444, line 7, leave out “subsection (7)” and insert “section 259KAA”.

    Amendment 116, page 444, line 11, leave out “section 259FA(8)” and insert “section 259KAA”.

    Amendment 117, page 444, leave out lines 14 to 19.

    Amendment 158, page 444, leave out lines 20 to 42 and insert—

    “(8) Condition E is that it is reasonable to suppose—

    (a) where subsection (6)(a) applies, that no provision of any of Chapters 3 to 5 or 7 to 10 nor any equivalent provision under the law of a territory outside the United Kingdom applies, or will apply, in relation to the tax treatment of any person in respect of the mismatch payment, or

    (b) where subsection (6)(b) applies, that no provision of Chapter 6 nor any equivalent provision under the law of a territory outside the United Kingdom applies, or will apply, in relation to the tax treatment of the company in relation to which the excessive PE deduction arises.

    (9) Condition F is that—

    (a) subsection (6)(a) applies and it is reasonable to suppose that a provision of any of Chapters 3 to 5 or 7 to 10, or an equivalent provision under the law of a territory outside the United Kingdom, would apply in relation to the tax treatment of P if—

    (i) P were the payer in relation to the mismatch payment,

    (ii) P were a payee in relation to the mismatch payment, or

    (iii) where the relevant mismatch is a hybrid payee deduction/non-inclusion mismatch or a hybrid entity double deduction amount, P were an investor in the hybrid entity concerned, or

    (b) the relevant mismatch is an excessive PE deduction.”

    Amendment 159, page 445, line 20, at end insert—

    “259KAA Meaning of “dual territory double deduction”, “excessive PE deduction” and “PE jurisdiction”

    (1) This section has effect for the purposes of this Chapter.

    (2) A “dual territory double deduction” means an amount that can be deducted by a company both—

    (a) from income for the purposes of a tax charged under the law of one territory, and

    (b) from income for the purposes of a tax charged under the law of another territory.

    (3) A “PE deduction” is an amount that—

    (a) may (in substance) be deducted from a company’s income for the purposes of calculating the company’s taxable profits, for a taxable period, for the purposes of a tax that is charged on the company, under the law of a territory (“the PE jurisdiction”), by virtue of the company having a permanent establishment in that territory, and

    (b) is in respect of a transfer of money or money’s worth, from the company in the PE jurisdiction to the company in another territory (“the parent jurisdiction”) in which it is resident for the purposes of a tax, that—

    (i) is actually made, or

    (ii) is (in substance) treated as being made for tax purposes.

    (4) A PE deduction is “excessive” so far as it exceeds the sum of—

    (a) any increases, resulting from the circumstances giving rise to the PE deduction, in the taxable profits of the company, for a permitted taxable period, for the purposes of a tax charged under the law of the parent jurisdiction, and

    (b) any amounts by which a loss made by the company, for a permitted taxable period, for the purposes of a tax charged under the law of the parent jurisdiction, is reduced as a result of the circumstances giving rise to the PE deduction.

    (5) A taxable period of the company is “permitted” for the purposes of subsection (4) if—

    (a) the period begins before the end of 12 months after the end of the taxable period mentioned in subsection (3)(a), or

    (b) where the period begins after that—

    (i) a claim has been made for the period to be a permitted period for the purposes of subsection (4), and

    (ii) it is just and reasonable for the circumstances giving rise to the PE deduction to affect the profits or loss made for that period rather than an earlier period.”

    Amendment 119, page 445, line 45, leave out “section 259FA(4)(b)” and insert “section 259KAA(3)(b)”.

    Amendment 120, page 446, line 4, leave out “section 259FA(4)(b)” and insert “section 259KAA(3)(b)”.

    Amendment 121, page 446, line 28, , leave out “section 259FA(4)(b)” and insert “section 259KAA(3)(b)”.

    Amendment 122, page 446, line 32, leave out “section 259FA(4)(b)” and insert “section 259KAA(3)(b)”.

    Amendment 123, page 450, line 19, at end insert—

    “Relevant investment funds

    259NZA Meaning of “relevant investment fund”.

    ‘(1) “Relevant investment fund” means—

    (a) an open-ended investment company within the meaning of section 613 of CTA 2010,

    (b) an authorised unit trust within the meaning of section 616 of that Act, or

    (c) an offshore fund within the meaning of section 354 of this Act (see section 355),

    which meets the genuine diversity of ownership condition (whether or not a clearance has been given to that effect).

    (2) “The genuine diversity of ownership condition” means—

    (a) in the case of an offshore fund, the genuine diversity of ownership condition in regulation 75 of the Offshore Funds (Tax) Regulations 2009 (S.I. 2009/3001), and

    (b) in the case of an open-ended investment company or an authorised unit trust, the genuine diversity of ownership condition in regulation 9A of the Authorised Investment Funds (Tax) Regulations 2006 (S.I. 2006/964).”

    Amendment 124, page 452, leave out lines 19 to 22 and insert—

    “(b) for the purposes of influencing the conduct of U’s affairs—

    (i) P is able to secure that T acts in accordance with P’s wishes,

    (ii) T can reasonably be expected to act, or typically acts, in accordance with P’s wishes,

    (iii) T is able to secure that P acts in accordance with T’s wishes, or

    (iv) P can reasonably be expected to act, or typically acts, in accordance with T’s wishes,”.

    Amendment 125, page 454, line 16, at end insert—

    ‘“relevant investment fund” has the meaning given by section 259NZA;’

    Amendment 126, page 456, line 14, at end insert—

    “dual territory double deduction (in Chapter 11 of Part 6A)

    section 259KAA.”

    Amendment 127, page 456, line 16, at end insert—

    “excessive PE deduction (in Chapter 11 of Part 6A)

    section 59KAA.”

    Amendment 128, page 458, leave out lines 3 and 4.

    Amendment 160, page 458, line 8, at end insert—

    “PE jurisdiction (in Chapter 11 of Part 6A)

    section 259KAA(3)(a)”

    Amendment 129, page 458, line 13, at end insert—

    “relevant investment fund (in Part 6A)

    section 259NZA”

    Amendment130, page 459, leave out lines 31 to 42.

    Amendment 131, page 459, line 43, after “paragraphs” insert “19,”.

    New Clause 7

    Review of tax treatment of Scottish Limited Partnerships

    ‘(1) The Chancellor of the Exchequer must undertake a review of the impact of the tax regime which applies to Scottish Limited Partnerships on levels of tax avoidance and evasion by such partnerships, and lay the report of the review before both Houses of Parliament within six months of the passing of this Act.

    (2) The review must take into account the views of the Scottish Government, HMRC and interested charities.”—(Roger Mullin.)

    Brought up, and read the First time.

  • I beg to move, That the clause be read a Second time.

  • With this it will be convenient to discuss the following:

    New clause 12—Report on the impact of the criminal offences relating to offshore income, assets and activities

    ‘(1) The Chancellor of the Exchequer shall, within one year of the coming into force of the provisions in TMA 1970 relating to criminal offences relating to offshore income, assets and activities introduced by section 165 of this Act publish a report on the impact of the introduction of these offences.

    (2) The report must include, but need not be limited to, information about—

    (a) the number of persons who have been charged with offences under each of sections 106B, 106C and 106D of TMA 1970;

    (b) the number of persons who have been convicted of any such offence;

    (c) the average fine imposed; and

    (d) the number of people upon whom a custodial sentence has been imposed for any such offence.

    New clause 13—Report into the UK Tax Gap

    ‘(1) The Chancellor of the Exchequer shall, within one year of the passing of this Act, prepare and publish a report, in consultation with stakeholders, on the UK Tax Gap.

    (2) The report must include the following—

    (a) details of the UK Tax Gap (including individual breakdowns for figures relating to tax avoidance and tax evasion) for the financial years—

    (i) 2015-16;

    (ii) 2014-15;

    (iii) 2013-14;

    (iv) 2012-13; and

    (v) 2011-12;

    (b) a detailed summary of the model used by HMRC for estimating the UK Tax Gap;

    (c) an assessment of the efficacy of HMRC’s performance in relation dealing with the UK Tax Gap, including—

    (i) a breakdown of specific HMRC departments or units dealing with investigation and enforcement matters in relation to the UK Tax Gap;

    (ii) details of the numbers of staff in each of the years listed in paragraph (a) who are located within departments or units dealing with investigation and enforcement matters in relation to the UK Tax Gap;

    (iii) details of the budgets allocated to departments or units dealing with investigation above; and

    (iv) details of the numbers of prosecutions or the amount of tax recovered in each financial year listed in paragraph (a) as a result of the work of HMRC departments or units dealing with investigation and enforcement matters in relation to the UK Tax Gap in those financial years.

    (d) a review of the impact on tax revenues of requiring non-public organisations involved in public procurement processes to—

    (i) be registered in the UK for tax purposes;

    (ii) have paid UK tax for a period of at least five years prior to the date the relevant contract is awarded;

    (iii) publish full details of beneficial ownership for the period of five years prior to the date the relevant contract is awarded; and

    (iv) provide company accounts (including those of any beneficial owners) for the period of five years prior to the date the relevant contract is awarded.

    (e) a comprehensive assessment of the efficacy of the General Anti Abuse Rule in discouraging tax avoidance;

    (f) an assessment of the impact on tax revenues of introducing a set of minimum standards in relation to tax transparency for all British crown dependencies and overseas territories including (but not limited to)—

    (i) placing a statutory duty on British crown dependencies and overseas territories to observe a system of good governance and practice in relation to tax enforcement; and

    (ii) requiring British crown dependencies and overseas territories to maintain a public register of owners, directors, major shareholders and beneficial owners;

    (g) an assessment of the impact on tax revenues of establishing a public register of all trusts located within the UK, British Crown Dependencies and overseas territories, including but not limited to—

    (i) details of the names of beneficiaries to such trusts;

    (ii) details of the addresses of beneficiaries to such trusts;

    (iii) details of assets held by such trusts;

    (iv) details of any trustees registered within the UK who have transferred that main residence to non-UK jurisdictions;

    (v) details of tax avoidance schemes involving trusts which are currently disclosed to the HMRC.

    (3) For the purposes of this section, the “UK Tax Gap” means the difference in any financial year between the amount of tax HMRC should be entitled to collect and the tax actually collected in that financial year which derives from tax avoidance and tax evasion.

    Government amendments 136 and 137.

    Amendment 167, in clause 163, page 293, line 25, leave out “may” and insert ”must”.

    Amendment 168, in page 293, line 41, leave out “may” and insert ”must”.

    Amendment 171, in clause 165, page 295, line 9, at end insert

    “and that the person had an honest belief that all of the information included was true and accurate”.

    Amendment 172, in page 295, line 26, at end insert

    “and that the person had an honest belief that all of the information included was true and accurate”.

    Amendment 173, in page 295, line 40, at end insert

    “and that the person had an honest belief that all of the information included was true and accurate”.

    Amendment 145, in schedule 19, page 589, line 29, at end insert—

    ‘(6) The Treasury may by regulations require the group tax strategy to include a country-by-country report.

    (7) In this paragraph “country-by-country report” has the meaning given by the Taxes (Base Erosion and Profit Shifting) (Country-by-Country Reporting) Regulations 2016.”

    Amendment 163, in schedule 20, page 609, line 34, at end insert

    “or 100% of any fee paid by Q to P in respect of enabling Q to carry out offshore tax evasion or non-compliance”.

    Amendment 164, in page 609, line 40, at end insert

    “or 100% of any fee paid by Q to P in respect of enabling Q to carry out offshore tax evasion or non-compliance”.

    Amendment 165, in schedule 21, page 618, leave out lines 27 to 34 and insert—

    70%

    50%

    35%

    87.5%

    58.75%

    40%

    100%

    60%

    40%

    105%

    62.5%

    40%

    125%

    77.5%

    55%

    140%

    85%

    55%

    150%

    90%

    60%

    200%

    115%

    75%

    Amendment 166, in page 621, leave out lines 8 to 15 and insert—

    70%

    50%

    35%

    87.5%

    58.75%

    40%

    100%

    60%

    40%

    105%

    62.5%

    40%

    125%

    77.5%

    55%

    140%

    85%

    55%

    150%

    90%

    60%

    200%

    115%

    75%

    Amendment 170, in schedule 22, page 627, line 5, leave out “10%” and insert “15%”

  • To those with little knowledge of Scottish limited partnerships, it may seem strange that I rise in this House to move new clause 7 in my name and those of my colleagues, but, despite what the name suggests, Scottish limited partnerships have limited connection to Scotland, and none to the Scottish Parliament. They were introduced in 1907 by the Chancellor of day, Herbert Asquith; despite rumours to the contrary, I was not present at the debates at the time, but the regulation, operation and dissolution of SLPs remain the exclusive preserve of Westminster, hence our moving this new clause.

    Scottish limited partnerships have their own distinct legal personality. As a result, SLPs can, for example, hold assets, borrow money and enter into contracts. However, Asquith could never have foreseen that they would become a financial vehicle abused by international criminals and tax dodgers.

    Great credit must go to the journalists of The Herald newspaper, particularly David Leask, for doggedly uncovering the truth about SLPs—and isn’t it good that for once we can praise journalism of the highest order delving into important matters, rather than merely dealing in tittle-tattle? Although some users of SLPs no doubt operate appropriately and responsibly, it is claimed that up to 95% of SLPs are mere tax evasion vehicles, including for criminal assets.

    While SLPs may be registered in Scotland, they are often owned by partners based in the Caribbean or other jurisdictions that ensure ownership secrecy and low, or no, tax regimes. People operating outside the UK are exploiting opaque ownership structures to hide their true ownership. As Oxfam, too, has recently pointed out, brokers in countries such as Ukraine and Belarus are specifically marketing SLPs as “Scottish zero per cent. tax firms.”

    The number of SLPs is growing apace. Data from Companies House revealed by The Herald show 25,000 were in place by the autumn of 2015 and new registrations have been increasing by 40% year-on-year since 2008.

    To give an example of what can happen, in 2014 allegations emerged that SLPs had been used to funnel $1 billion out of banks in the former Soviet Republic of Moldova. The use of an SLP and a bank account in an EU country allows dodgy groups, for example from the ex-Soviet Union, to move their ill-gotten gains to tax havens under the cloak of respectability.

    I am aware that the Scottish Government’s Finance Secretary, Derek Mackay, has recently written to the UK Government about SLPs. He sensibly pointed out in his letter that

    “it is critical that due diligence checks are able to be made when SLPs are initially registered and when there are changes in partners, and that penalties are imposed on partners where the SLP does not comply with the relevant legislation”.

    He went on to point out:

    “The threat of serious organised crime does not respect borders and with the significant increase in cyber crime, it is essential that we take every step open to us to reduce this threat as much as possible”.

    To that end, our new clause seeks an urgent review of SLPs that would, importantly, include taking evidence from the Scottish Government, from HMRC and from interested charities. We have crafted the new clause in the hope it will attract cross-party support, and I see no reason why anyone, other than those interested in encouraging criminality and tax evasion, would wish to oppose a review of this nature. I therefore urge the Minster to accept our new clause.

  • I hope that the hon. Gentleman will forgive me if I missed him saying this, but I do not think I did. Subsection 2 of his new clause states:

    “The review must take into account the views of the Scottish Government, HMRC and interested charities.”

    Is it because of the nature of SLPs that the new clause does not make reference to the Government of Wales and the Government of Northern Ireland?

  • I thank the hon. Gentleman for his intervention. Technically, the SLPs are registered in Scotland, but they have ownership in tax havens all over the world and will therefore operate differently, given the way in which they were set up in 1907. As far as I am aware, the arrangements have not been reviewed in any significant detail since then.

  • The hon. Gentleman is making the powerful case that some SLPs are being used for criminal or money-laundering purposes. Those are serious crimes and they should be reported. Has he reported them? Is not this an enforcement issue?

  • It is certainly a very important issue, but I think it would be better if we could get the Government to carry out the kind of detailed scrutiny that would enable them to enact the necessary legislation. Their voice would be far more powerful than mine in this regard.

    I should also like to pass comment on amendment 145, tabled in the name of the right hon. Member for Don Valley (Caroline Flint), which we will certainly be supporting. I am sure that she will have much more to say about it in a moment. It is a modest amendment to encourage much-needed country-by-country reporting for corporations, and I look forward to hearing her remarks. She can be assured that her actions have the full support of Members on these Benches. Similarly, we hope that the Opposition will press new clause 13 to a vote. We also intend to support that proposal.

    This whole section dealing with tax evasion is very important, and it is vital that the UK as a whole lives up to its responsibility to ensure that we do not get a name for encouraging tax dodgers. I want to mention the remarkable and brave journalist Roberto Saviano, who has been admired for exposing the murderous criminal underworld of the Italian mafia. In a recent article in The Daily Telegraph, he warned that the UK financial world was effectively allowing what he called “criminal capitalism” to thrive. Surely we must take steps today to ensure that that is not the case.

  • In speaking to amendment 145 today, I am grateful for the chance once again to put the case that large multinationals should co-operate with public country-by-country reporting in the UK so that we can all gain greater insight into the trading activities that determine the amount of corporation tax being paid.

    As a new member of the Public Accounts Committee in February, I heard first hand Google and Her Majesty’s Revenue and Customs try to explain how £130 million represented a good deal after a decade’s-worth of unpaid taxes and reasons to justify non-payment. This cross-party Committee of the House felt that the way in which global multinationals play the system denies a fair take for HMRC, having an impact on our public services, and is unfair to British taxpayers and businesses, for whom such a complicated organisation of tax affairs is not an option.

  • Does the issue not go further than that? Our constituents’ money generates the revenues and therefore the profits of such companies. It is not just unfair to them because they pay their taxes; their money funds the profits that generates the taxation that ought to be paid to the Revenue.

  • I congratulate the hon. and learned Gentleman, who is a former colleague on the PAC, on his promotion.

  • He’s still on it.

  • The Chair of the PAC has corrected me. The hon. and learned Gentleman is absolutely right; it is almost a double whammy. Customers of such companies pay for their services in good faith and expect, as both taxpayers and consumers, big companies to play fair by them and by the country in which they operate.

    The PAC is not alone in worrying about how such companies organise themselves. Around the world, people and their Governments are questioning the loopholes and convoluted legal arrangements that create inaccurate descriptions of multinationals’ trading activities in individual countries. The problem is not confined to tech firms such as Google, but their massive global presence has exposed the fault lines of an old-fashioned tax structure that has not kept up with today’s online business world. Many of today’s high-tech household names were not always so big or so profitable. The investigation into Google began under the previous Labour Government, and the coalition Government continued the work to get on top of these relatively new business models, both nationally and internationally. Tax policy is not easy. Once one tax loophole is closed, another one opens up.

  • I commend my right hon. Friend’s work on this issue over a long period of time. Does she share my concern that even when the Government have tried to take the initiative, such as through the diverted profits tax—the so-called Google tax—that has not delivered the expected revenues? Indeed, Google does not pay a great deal through that tax. A measure such as that proposed by my right hon. Friend would clearly help to make companies do the right thing.

  • I hope so, because transparency is an important ingredient in ensuring that the rules we apply have some bite. It sometimes seems as though we are trying to catch jelly.

    The whole debate has brought into question the legal and moral difference between tax evasion and tax avoidance. Companies often rightly defend themselves on grounds of working within the rules, but politicians and civil servants are often caught out by clever manipulation of those rules. That is not illegal but cannot be said to be in the spirit of what was expected.

    I have no illusions about having a perfect tax system. Keeping one step ahead is a never-ending task for modern tax authorities. I welcome the Government’s introduction at HMRC of country-by-country tax reporting, which is now up and running, and I agree with the Minister’s summer announcement that those who advise individuals and companies on their tax affairs will be subject to greater accountability for their actions when wrongdoing is exposed.

    However, public transparency can make a real difference in ensuring fair taxation and fair play. That is why, with the support of PAC colleagues and cross-party support from across the House, I introduced my ten-minute rule Bill in March to legislate for public country-by-country reporting. The backing I received spurred me on to try to amend the Finance Bill in June, gaining the support of eight parliamentary parties: Labour—I thank Front-Bench spokespeople past and present, including my hon. Friend the Member for Wolverhampton South West (Rob Marris), for their support—the SNP, the Liberal Democrats, Plaid Cymru, the Social Democratic and Labour party, the Ulster Unionist party, the United Kingdom Independence party, the Green party, the independent hon. Member for North Down (Lady Hermon), and a number of Conservative MPs, too. Oxfam, Christian Aid, Save the Children, ActionAid, the ONE campaign and the Catholic Agency for Overseas Development joined our efforts, adding an important and necessary dimension to the argument for public country-by-country reporting.

  • I, too, congratulate my right hon. Friend on her sterling work in raising this issue up the agenda. Does she agree that if the Government were to adopt this amendment, they would be setting a tone for other parts of the world? We have had a lot of interest from around Europe and elsewhere about the work being done in Parliament and by our Government, and adopting this would really set the example.

  • I agree with my hon. Friend on that. I commend her work as the Chair of our Committee and the work she has done with other public accounts committees in other countries, because there is an appetite for doing more in this area and we are leading the way. We can do that from our House of Commons Committees, but we hope today that we can give some added muscle to the Government to lead the way in this important area, too.

    I talked about the charities and organisations working in the development sphere, because I am seeking tax justice not only here, but for those developing countries that lose out too. I have said it before but it is worth saying again: if developing countries got their fair share of tax, it would vastly outstrip what is currently available through aid. The lack of tax transparency is one of the major stumbling blocks to their self-sufficiency. My thanks also go to the Tax Justice Network, Global Witness and the business-led Fair Tax Mark, as well as to tax experts Richard Murphy and Jolyon Maugham, QC, who have helped me to make the case and to get the wording right to amend legislation. This proposal demonstrates the widespread view that bolder measures to hold multinationals to account are necessary.

  • Is not the bigger issue: where should the profit be fairly struck? Where was the value added? Where did the work take place? Where is the intellectual property residing? Getting transparency is one thing, but we could still get transparency for an answer that we do not like.

  • There is a debate about where best to recoup the money from those who trade and the profits they make. Different options are available, but perhaps that is a wider debate for another day. The BEPS—Base Erosion and Profit Shifting—debate was partly about addressing that, but transparency has to be at the heart of all this, whatever system we set up to identify what is a fair contribution for business. I hope that my amendment will be supported and will be one small step forward.

  • My right hon. Friend knows that I support this amendment and the wonderful work she does. Does she remember all the difficulties we had with the banking sector and the people who were supposed to be the auditors—these great companies that are specialising in obscurity, hiding ownership and moving ownership? Surely this must go in tandem with taking on those big people who did not audit the banks properly. They are the same people who allow these big companies to evade taxation.

  • My hon. friend is right about that. As the Parliament that represents the people of this country, we have a duty not to allow markets to be unfettered, but to provide a framework in which they should operate, work, be successful and do the right thing. I must say that there are companies doing the right thing. Increasingly, companies are volunteering to do the right thing by publishing the sort of information that I am asking to be made more public today.

  • Will my right hon. Friend give way?

  • I will give way once more, but I am conscious that other people wish to speak.

  • Can my right hon. Friend confirm my understanding, or correct me if I am wrong, that what she is seeking in this amendment would not cause any burden to business because the information is already being gathered and reported but is not then being published? Her amendment seeks merely to get that which is already gathered and reported to be published.

  • That is correct.

    I was hopeful for my June amendment, because since the 2015 general election, the Government had, on a number of occasions indicated their support for public country-by-country reporting, and I welcome that. I am grateful to the former Financial Secretary, now Chief Secretary to the Treasury, as his approach was always constructive as we sought the best way to proceed.

    At the debate in June, four days after the EU referendum, the Minister and others were concerned that introducing my amendment at that time might put UK multinationals at a competitive disadvantage for reputational reasons. I have no doubt that a number of the businesses to which my amendment would apply have already suffered reputational damage and more transparency could actually enhance their standing. To the Government’s credit, the UK was the first to introduce public registers of beneficial ownership, and others followed. Backing public country-by country reporting is an opportunity to show leadership again. Indeed, it is a pro-business measure. This kind of reporting already exists within the extractive sector and in financial services. Some companies are ahead of the curve and have started to publish this information. I am talking about companies such as SSE, the energy supplier, and the cosmetics retailer Lush, which operates in 49 different countries. The Government also said that, although they supported the principle, they would prefer to move ahead with others rather than alone.

    As the Government make plans to leave the European Union, which may not be all smooth sailing, I do appreciate Ministers’ caution. I am grateful to the new Financial Secretary, the hon. Member for Battersea (Jane Ellison), for the constructive dialogue that we have had over the past two months. I am grateful, too, to my colleagues from the Public Accounts Committee—my hon. Friend the Member for Hackney South and Shoreditch (Meg Hillier), and the hon. Members for Berwick-upon-Tweed (Mrs Trevelyan), and for Amber Valley (Nigel Mills)— for their advice and support during the recess, and I thank all those who have signed Amendment 145.

    I hope that the Government will regard this amendment as a friendly proposal. If it is passed today, the Commons will enshrine in law support for the principle of public country-by-country reporting with the power for the Government to introduce when the time is most appropriate. That sends a very powerful message, confirming the UK’s leading role in addressing tax evasion and avoidance and providing the Government with the tools to move quickly, when the time is right, without the need for primary legislation.

    Last week, the European Commission served a €13 billion tax bill on tech giant Apple. Although the rate of corporation tax in Ireland is low at 12.5%, the Commission concluded that Apple had, in effect, paid 1% corporation tax from 2003 and a tiny 0.005% in corporation tax since 2014. I am afraid that that implies that even low corporation tax rates are no guarantee that a country will collect its rightful share. In this case, €13 billion is equivalent to paying £50 of tax on every £1 million of profits. Apple is entitled to defend its position, but the case highlights the need for more transparency in multinational business affairs.

    Finally, having listened to the Government’s concerns and shared with them my arguments for today’s amendment, I hope that the House can come together and make UK public country-by-country reporting a matter not of if, but when.

  • I do not intend to detain the House for an unduly lengthy period of time, because I know that everyone wants to get to bed before midnight. I want to set out why country-by-country reporting is so very important, and why the whole culture of tax avoidance by big business and multinationals is something that we cannot condone or tolerate.

    People ask what is wrong with an organisation such as Apple organising its tax affairs to its best possible advantage. After all, is that not the principle of taxation—that there is no equity in taxation and that only the literal taxation rules should apply? However, my concern is that the conduct of Apple is unacceptable for three key reasons. If a big business organises its tax affairs so that it basically pays no tax whatsoever, then it is inevitably warping the free market, because it is getting an unfair tax advantage, or a tax advantage that gives it a competitive advantage over other enterprises that are paying tax on their profit. For me, that is a really serious issue.

    The other issue with Apple in Ireland is that to have a special deal for one business that does not apply to everyone else is counter to the fundamental principle of the rule of law, which is that everyone should be treated the same—be they a cleaner at Apple or Apple itself. What is offensive is if a cleaner in the office is paying more in tax than the massive, profitable enterprise whose offices they are cleaning.

    Let me continue with the case of Apple. My right hon. Friend the Member for Wokingham (John Redwood) made a powerful point. If it has created all this intellectual property, he asked what was wrong with its not being caught in the UK tax net. My answer is that that intellectual property was in fact created in Silicon Valley, but is the organisation paying tax in Silicon Valley? Is it paying tax in America? No, it is not. It has set up a clever structure. Early in its evolution as a business—some 10 or 20 years ago—it sold its outside American intellectual property rights for $1, or some other small sum, to a Bermuda company, which would then have a conduit through Ireland to invest across the rest of Europe.

    The company then checks the box for US tax purposes in respect of everything below Bermuda so that, from the Internal Revenue Service’s point of view, it looks as though the Bermuda company is the trading company, and because it is a trading company and the only enterprise that there is for US tax purposes, it is not caught by subpart F of the controlled foreign companies regulations, meaning that no tax can be deemed to have to be repatriated to the United States. As a result, the Bermuda enterprise becomes a cash box for reinvestment across the European theatre. Therein lies the unfair competitive advantage.

  • I remind my hon. Friend that I did not mention the word “Apple” and I expressed no view on Apple’s tax affairs, one way or the other. I asked a question about how we as legislators globally can produce a system that is fair and sensible so that people know what companies should be paying. I have not studied Apple’s tax affairs in details so I would not presume to lecture either for or against what that company does.

  • I stand corrected by my right hon. Friend. It is not a question of Apple; it is a question of general US outbound tax planning. That is why country-by-country reporting matters.

  • I agree with the points that the hon. Gentleman makes, but can he confirm my understanding that if the amendment tabled by my right hon. Friend the Member for Don Valley (Caroline Flint) had applied in Ireland in the case of Apple, we would have known that very, very large profits were being made by the company, which seems to have existed only on paper, and we would also have known that it was paying a tiny amount of tax? Would not that have been a valuable step forward in understanding what was going on?

  • The key issue is that we did know. As I recall, Apple had to report the situation in some investigation by the Senate in the United States. The Senate was wondering why very little tax had been paid by Apple in the United States. If my recollection is not correct, I am sure a fellow Member of this House will correct me. The issue is one of transparency. These things come to light because the US Senate holds an investigation, or some other enterprise or organisation, such as the Public Accounts Committee, carries out an investigation and starts asking questions.

    In the previous Parliament, I myself went through the accounts of Google, Amazon and Starbucks and looked at what they were paying as a proportion of profits. That is why I think country-by-country reporting ought to be considered, and on an international basis. It is important that countries act together to make sure that the international tax system is suitably robust for the internet age.

    The reason that that matters is that when large enterprises, big businesses and the elites do not pay tax, it affects small businesses. It is the small business rooted in our soil which employs our neighbours and pays its dues that suffers when the competitive advantage, the level playing field and the rule of law are warped in that way. That is my prime concern. Small businesses in my constituency in Dover and Deal are the lifeblood of my local economy and I want them to have a fair crack. I want the towns and regions of this great nation, England, that I represent, and Wales and Scotland to have a fair crack and to be able to come to the fore. Particularly in Brexit Britain, it is important that they are able to come to the fore, to be galvanised and to be part of the leadership of this nation. That is why we need a Britain that works for the 90%, which is the towns and regions of our nations, rather than for big business and the elite 10%. That is important and it is why we need a tax system that works for everyone.

    I have been deeply concerned recently when looking at accounts in the car rental industry. Colleagues may recall that Avis was accused of imposing a Brexit tax on people renting its cars. I looked at its accounts and saw that Avis had paid no tax itself. It taxed its British customers but did not seem to pay any British corporation tax on its profits.

  • The hon. Gentleman is making an incredibly powerful speech about the reasons for tax transparency, but in the case of companies such as Avis, which he mentions, should we not have transparency for one simple reason only—so that consumers can vote with their feet? If they believe that they are purchasing products from companies that are not paying tax in this country or in other countries, they can go and buy those products from other companies that are paying tax.

  • That is a very powerful point. This is why transparency matters. If people know that they are being taken for a ride, they do not have to use an organisation that uses a Luxembourg structure, which is a common kind of intermediate structure for pan-European tax planning to organise things so that no tax need be paid.

    This is not just about Avis. I had a look at the accounts of Hertz, another large US car rental company that also does not seem to have paid any tax in the past few years. It is hard to tell how it is doing that, and I had to look at the accounts in very great detail. It has some let-out whereby the company does not have to report related-party transactions. One would think that it may well be renting its car fleets through the Luxembourg company or the Netherlands BV that it uses. Hertz uses a Netherlands BV and Avis uses a Luxembourg company to get money out of the UK tax net so that it is not subject to tax on any profit. However, I cannot tell, because we do not have that level of reporting. That is why country-by-country reporting is important, not just as a tax concept but as an accounting concept, so that one can see where the money has gone. Similarly, inter-company loans and borrowings are often at the much higher rate. That is certainly the case with Avis, which was paying more in its inter-company loans than in its borrowings to the bank. That, too, caused me a level of concern. There seemed perhaps to be some trademark royalties in there, or some royalties to do with its internal IT and computer systems, but it was hard to tell because we do not have that granularity in the accounts.

    We ought to have a greater level of knowledge, a greater level of reporting, and a greater level of understanding of how money is being paid, the taxes that are due, and the nature of the planning that is being undertaken so that our laws are more robust and we can make sure that everyone in this nation pays a fair share of tax, be they the cleaner or the largest enterprise that is trading. It matters for the rule of law, for a fair and open market, and for a level competitive playing field that all businesses and enterprises are treated the same.

  • As a Conservative, I believe that taxes, whether direct or indirect, need to be kept as low as possible, consistent with the need to raise finances for our vital public services and for our national security. Unnecessarily high taxation not only strangles growth and development but means Government taking from those who have earned money, whether through labour, innovation, or capital.

    However, the flipside of keeping tax levels low is that everybody must pay their fair share. Aggressive tax avoidance, bending the rules of the tax system to gain an advantage that Parliament never intended, means that a heavier burden falls on others, who are able to keep less of the money that they have earned. This Government are rightly committed to supporting businesses through low taxes—that is why corporation tax is being cut again to 17%—but those taxes do have to be paid.

    This Bill therefore addresses many of the ways that companies use to avoid paying their fair level of tax. That includes the amendments that we are debating, tabled by the Government, to reform hybrid mismatches. The amendments will reduce aggressive tax planning, typically involving a multinational group. The introduction of these rules will, in essence, remove the tax advantage arising from the use of hybrid entities and instruments, and ought to encourage more businesses to adopt less complicated, more transparent cross-border investment structures. I look forward to similar rules being introduced by other jurisdictions. However, in line with OECD regulations, the Bill contains provisions for counteraction in the UK where the other country does not counteract the mismatch within its own hybrid mismatch rules. The Bill introduces the new penalty of 60% of tax due that was announced in the Budget, to be charged in all cases successfully tackled by the general anti-avoidance rule.

    Government amendments 136 and 137 help to ensure that the changes announced in the Budget work as intended, cracking down further on unscrupulous and aggressive tax avoidance. I agree with the comments made by my hon. Friend the Member for Dover (Charlie Elphicke) on country-by-country reporting, as well as those raised so regularly by the right hon. Member for Don Valley (Caroline Flint). There is widespread and growing agreement that there is a need to move to country-by-country reporting so that the information is out there and available both to national tax authorities and to the wider public. That brings us back to the question of whether the best way to achieve that is for individual countries to act unilaterally or for the UK to move in partnership with our international allies and through a range of international organisations both within and beyond Europe.

  • Of course, the Opposition want international action, we want international co-operation and we want our international friends to copy the amendment tabled by my right hon. Friend the Member for Don Valley (Caroline Flint), which we hope will be successful tonight. However, we also need to bear it in mind that half the tax havens in the world are British overseas territories. We have a particular responsibility in this regard worldwide. It is not about some sort of moral responsibility—to use the old-fashioned phrase, the white man’s burden—or any of that nonsense. It is to do with the fact that British overseas territories are responsible for half of these shenanigans.

  • The hon. Gentleman makes a valid point, but we should also recognise, as I am sure he will, the progress that has been made in recent years to insist on those overseas territories moving into the 21st century so that their tax arrangements comply with what we would expect for international standards. In a globalised world, we must be clear that concerted international effort is needed to stop continued cross-border tax avoidance, evasion or plain old-fashioned aggressive but unscrupulous planning.

    The UK Government have done more than any previous Government and more than most of our international allies and competitors to eradicate these practices, and they continue to do so, but of course more must be done and I welcome the reassurances we have heard from the Government that this remains a priority. I am pleased that the Government are now pursuing country-by-country reporting and that it will be discussed at the forthcoming G20 Finance Ministers meeting. This measure will by itself help to increase transparency across multinationals, supporting not only our tax authorities but, perhaps more importantly, those of the developing countries of which we have heard, which are almost literally being robbed of vital sources of income.

    In conclusion, the Finance Bill and the amendments tabled to it include both pioneering and bold measures. It will ensure that taxes are paid and that everybody pays their fair share, and I look forward to supporting it this evening.

  • I remind the House that I have declared in the register of interests that I am a registered investment adviser, but obviously I am not speaking on their behalf in this debate.

    It seems to me that there is common ground among all parties in this House that we need to collect a decent amount of tax revenue and that we want to ensure that those who are rich, particularly companies that seem to generate a lot of turnover and possibly profit, pay their fair share. We recognise, I think, that we have to operate in a global market. We are talking about what are usually large corporations that genuinely make different levels of profit and generate different amounts of turnover in different jurisdictions, and that have genuinely complicated arrangements when they switch components, technology, ideas and work between different centres. Even in a service business that does that through electronic communication and digital activity, there may be different people in different centres around the world who contribute to servicing the client and to dealing with the particular product. There are, therefore, genuine issues for the honest company in trying to define and measure precisely where work is done, where added value is greatest and what is a fair attribution.

    We as legislators have to understand that complexity and try to come up with a good judgment, collectively and globally between the main jurisdictions, on what is a fair way to instruct those global companies to report in our different jurisdictions so that sensible amounts of tax are captured.

  • We also need to remember that we as legislators often help create the very problem that offends quite a lot of MPs, because we speak with forked tongue when it comes to tax matters. When discussing tax, this House often wants to offer tax breaks. The House will say, “We would like companies to do more R and D or invest more in plant and equipment,” or, “We would like individuals to save for their retirement, save generally or be entrepreneurial, set up a business and then sell it in few years at a good profit.” We collectively decide that we should encourage more of that conduct by letting people off income tax, capital gains tax, corporation tax or a combination of general taxes as an incentive for them to behave in the way we would like. We must, therefore, take some responsibility for tax avoidance—obviously not for law-breaking—by those who use the tax breaks we provide.

    We are now trying to define something that is not strictly law-breaking, which we all condemn and is an enforcement matter, or a friendly tax incentive, which we probably still agree on. I suspect that every MP in this House thinks that something should be encouraged by tax incentive, but we are trying to define something in the middle, which has come to be called aggressive avoidance, where there are elements of doubt. That is where legislators need to do a better job, because we need to be able to say to people and companies, “This is illegal conduct and you will be prosecuted for it, and everything else is legal conduct and meets your obligations.” If we find that we are not collecting enough tax, perhaps the problem lies with us and perhaps we have to review the whole range of incentives and tax breaks that we offer, because that may be the origin of the problem of our not collecting as much tax as we need or would like to meet the requirements of our public services and other needs.

    I will keep my remarks suitably brief. We need a certain amount of humility as legislators. It is very easy to get on a high horse about rich individuals and rich companies. Some of them do break the law—a minority, I trust—and they need to be pursued and prosecuted. Many others are honestly trying to report their tax affairs, complicated as they are, in multiple jurisdictions. This evening we are debating a 644-page addition to our tax code. Given that we are just one medium-sized country and that a multinational company may have to report to 30, 40 or 50 different countries, all of which are generating tax codes on that monumental scale, we should pause a little and ask ourselves whether we are getting in the way of levying fair tax by the very complexity of the rules we are establishing.

  • I will speak to a number of amendments in my name and those of my hon. Friends. New clause 12 would require the Government to report within one year on the impact of the criminal offences relating to offshore income assets and activities created by clause 165. Amendments 167 and 168 would make it compulsory, rather than just possible, for HMRC to publish the names of those who hide behind entities such as companies and trusts when committing offshore tax evasion. Amendments 171 to 173 would expand the definition of “reasonable” referred to in clause 165 to include

    “an honest belief that all of the information included was true and accurate”,

    because the Opposition are concerned that the category of reasonableness is, on its own, far too subjective. Amendments 163 and 164 would strengthen the penalty for enablers of offshore tax evasion to include 100% of the fees received by the enabler of the service—for the lawyers in the Chamber, the principle of just enrichment, as it were. The aim of that is to neutralise somewhat the commercial aspect of the tax avoidance industry.

    Amendments 165 and 166 would increase the minimum penalties for inaccuracy, failure to notify a charge to tax or failure to deliver a return, in relation to offshore matters and transfers, by 15% rather than the Government’s suggested 10%. In their consultation “Strengthening civil deterrents for offshore evaders” the Government considered increasing the minimum penalties by 15% rather than 10%. These are probing amendments to find out why the Government opted for a smaller increase than the one that they initially considered.

    Up next we have amendment 170, which would increase from 10% to 15% the asset-based penalty introduced by schedule 22. The Government’s consultation on this penalty cited different rates for such asset-based penalties across the world, including in Italy where the penalty is up to 15%. As I will expand on in a moment, the Opposition think that we must be world leaders on stamping out tax avoidance, so I think our penalty should be, at the very least, on a par with precedents across the world. Those penalties are a start, but I would add that in the light of the latest Government consultation on tackling offshore tax evasion, which would introduce a separate offence not covered by the Bill, there appears to be a clear move by stakeholders to suggest that even higher penalties are required. I urge the Government to consider those suggestions carefully.

    I confirm Labour’s support of cross-party amendment 145 on public country-by-country reporting, which was tabled by my right hon. Friend the Member for Don Valley (Caroline Flint). I place on record my thanks to her for the hard work that she has put into pursuing this important issue. It is testimony to that hard work that many Members across the House—including members of the Public Accounts Committee and more than 60 MPs from eight political parties, as my right hon. Friend illustrated—and organisations outside this House have supported this amendment. I will not go over the ground that she has covered, because she has put her case articulately. The enabling power contained in the amendment would give the UK scope to strengthen its influence on international tax transparency negotiations, and it would build greater consensus.

    Finally, new clause 13 would require a comprehensive report into the UK tax gap, which is defined as the difference in any financial year between the amount of tax HMRC should be entitled to collect and the tax that it collects. Such difference derives from tax avoidance and evasion. The contents of the report would be as set out in the new clause, and it would have to be carried out in consultation with stakeholders. It would examine a number of areas relating to tax avoidance in the hope that the Government might review their policy and tailor it to deal adequately with such issues.

  • Does not new clause 13 expose the idiocy of closing HMRC offices, as the Government are planning to do to 90% of them? Would it not also allow Members to look at the number of staff in HMRC dealing with tax avoidance and set that against the 3,765 staff in the Department for Work and Pensions who deal with £1.2 billion of so-called social security fraud?

  • The hon. Gentleman makes a very good point. The report is intended to highlight any deficiencies that might be found in HMRC’s resources or structures that affect its ability to tackle tax avoidance.

    As Members who read new clause 13 will see, the part relating to HMRC goes into a lot of detail. Briefly, however, the report would be required to cover figures for the UK tax gap for the past five financial years; details of the model used by HMRC for estimating the UK tax gap; an assessment of HMRC’s efficacy in dealing with the UK tax gap; details of the tax revenue benefits for companies engaged in public procurement that are registered in the UK only for tax purposes; an assessment of the efficacy of the general anti-abuse rule in discouraging tax avoidance; consideration of the benefits for tax revenue of introducing a set of minimum standards in tax transparency for all British Crown dependencies and overseas territories; and, finally, an assessment of the impact on tax revenues of establishing a public register of all trusts located within the UK, British Crown dependencies and overseas territories.

    The new clauses and amendments we have tabled are necessary now more than ever. I appreciate that we have limited time today, so we will push to a vote only new clause 13. As I have said, we will support my right hon. Friend the Member for Don Valley should she wish to press her amendment 145. We also support new clause 7, which has been articulately outlined by the hon. Member for Kirkcaldy and Cowdenbeath (Roger Mullin).

    On the other amendments, I hope that the Minister will listen very carefully to the comments throughout my speech. The Government have ample opportunity outside the scope of the Bill—if, indeed, there is the will—to implement many of my requests. I will explain the rationale behind our various amendment.

    The law on tax avoidance has been greatly influenced by the words of Lord Tomlin in the case of the Inland Revenue Commissioners v. the Duke of Westminster in 1935. Lord Tomlin decided that it was the right of every Englishman to organise his affairs so as to minimise his liability for tax. Sadly, that idea fuels the tax avoidance industry even today. In this age of so-called austerity, with pressure on the NHS, the armed forces, our teachers and our young people—the list goes on—quite frankly it is not acceptable for people to seek to avoid their taxes.

    Hon. Members on both sides of the House have come to agree that tax avoidance should be fought. The trouble is that this Government have failed to tackle the problem head-on, but simply tinkered here and there with piecemeal bits of legislation, and this Finance Bill is no different. We need a real commitment from this Government to an overarching strategy that provides genuine legal teeth to tackle the millionaire tax dodgers and the advisers surrounding them.

    To take hon. Members on a little historical, magical mystery tour, in the 1980s judges, not Parliament, developed a principle that put a dent in the tax avoidance industry—the Ramsay doctrine. The principle provided that artificial tax avoidance schemes should be analysed as a whole, not analysed by each piece separately. That meant that clever tax schemes could be dismantled by taking out all the artificial elements, with what was left being taxed as though the artificial elements had never existed. The effect on tackling tax avoidance schemes was huge.

    Unfortunately, case law has moved on over the years, and we have now returned to a world in which tax law is considered to be entirely a matter of statutory interpretation. There are no general principles at work that can be used when interpreting legislation to combat tax avoidance in practice. In addition, our tax statutes are extraordinarily long and very detailed. That is meat and drink to tax specialists. Any Member of the House my age or above may remember the “Peanuts” cartoons. In one episode, Linus says, “Now I know the rules, I know how to get round them.” Linus could have been a tax lawyer.

    Tax lawyers love playing with the rules, and we should not underestimate the expertise and determination of the tax avoidance community. In fact, one tax law specialist recently told me something really harrowing about a firm of accountants in the 1990s. A specific piece of legislation had been drafted to tax any trust that shifted offshore. An exception to that rule arose if one of the trustees died and the trust shifted offshore as a consequence. Those accountants canvassed a cancer ward to see whether the relatives of people dying of cancer would be prepared to have their dying family member signed up to act as a trustee of their clients’ trusts. They sought reassurances that the patient would die soon and promised to pay a small fee. That is an extreme case, but is an example of the depths to which people will sink to avoid paying their taxes and of how loopholes can be found in the depths of legislation.

  • A complete reorganisation of our tax avoidance laws is therefore needed. We need a general anti-avoidance principle that is broadly drawn, so that it empowers courts to interpret all tax laws purposefully. That is something that many of us on the Opposition Benches have been calling for, as has the TUC, but Government attempts thus far have been piecemeal at best.

    To continue my history tour of a general anti-avoidance principle, we first had the narrow rule, in the Finance Act 2013, that focused only on abusive arrangements. Those arrangements had to be considered to be unreasonable by a panel of industry tax experts before HMRC could act. That is an obvious example of poachers, in the form of a panel of industry tax experts, being established to advise on how to catch poachers, essentially; alternatively, we might think of them as turkeys being asked to advise about the menu for Christmas lunch.

    Secondly in the Government’s timid tax avoidance legislation, there was a slight broadening out of the rule to impose penalties on avoiders. Thirdly, we gained the power to name evaders. Fourthly, we had provisions to catch those who enable tax evaders. Now there is a consultation on whether those who enable tax avoiders should be treated similarly. It is all far too slow, and far too little. As the Minister will be able to note from the number of amendments we have tabled today and on previous occasions in this House, the legislation does not have the strength or clarity it deserves. We can continue to tinker about in successive Finance Bills, trying to stick plasters over our deficient tax legislation, or we can develop a comprehensive tax avoidance strategy with heavyweight legislation to match.

    As I mentioned earlier, the Labour party has tabled new clause 13 to encourage the Government to carry out a wide-ranging report on the UK tax gap. It is hoped that that report will help the Government to assess carefully the pressure points and areas of weakness in their current tax avoidance policy. We are limited by the scope of the Bill to calling for a report specifically; but Labour is committed to a full public inquiry on the matter, and I would welcome the Minister’s support for that.

    This whole sorry mess—from the exposure of offshore tax havens with the Panama papers through to the largest corporations in the world paying next to nothing in tax, investment banks using financial instruments to avoid tax and clever tax advisers designing off-the-peg avoidance schemes—needs to be exposed to the disinfectant properties of daylight. It needs disinfectant because quite frankly it stinks. We need transparency in our tax system, and a full inquiry to help us design a system that will really challenge the tax avoidance industry. We need to change fundamentally the way in which we organise our tax laws so that they are based on broad principles that make it difficult to avoid them. We must then fund and equip HMRC so that it can actually take the fight to the tax dodgers, by arming it with better tax statutes and staffing it with more highly qualified staff. We must provide it with real support in combating tax avoidance.

    The Panama papers are a symptom of another well known disease. Many of the world’s most appalling tax havens are British overseas territories or protectorates. We have to recognise that we have allowed that to happen. Essentially, new clause 13 asks the Government to explore the creation of a set of minimum standards on tax transparency for all British Crown dependencies and overseas territories. Further to that, it is imperative for the Foreign and Commonwealth Office to work seriously with Crown dependencies and the British overseas territories to establish genuine information sharing, so that they are transparent about the ownership of trusts and companies in their territories, and stop enabling the tax avoidance industry to flourish on their shores.

    By allowing the super-wealthy tax dodgers of the world to moor their superyachts and their money in such places, we ensure that billions of pounds, dollars and euros are lost to the public finances of the world. As a result, hospitals are not built, schools are not refurbished and jobs are lost. Misery and deprivation in our communities here in the UK is caused by tax avoidance, so it is time to stop taking piecemeal action in fighting it. It is time the Government dealt with the problem head-on. If the Government wanted to do anything about the tax avoidance industry, they would lift their heads up from fiddling about with the detail of successive Finance Bills and agree to the proposals the Opposition have tabled.

    The Labour party is calling for the new Britain, which will soon be making its way out of the EU, to take a central role in the OECD initiative to fight corporate tax avoidance such as the base expansion scheme to fight transfer pricing and other corporation tax dodges. We are calling for support for the EU’s recent initiative to confront the fact that billions of dollars in tax are being avoided by the world’s largest corporations.

    We must stop the game that the tax dodgers and their well paid advisers play with HMRC. We must stop the warped and dysfunctional dance between them, in which sweetheart deals are done with companies such as Vodafone, Google and Goldman Sachs. We must invest in HMRC, simplify our tax codes and build our laws on the simple principle that being a part of our society means paying a fair share towards its upkeep.

    If Members of the House agree with those basic principles, I urge them to support the Opposition proposals as a small step towards that goal. Ultimately, however, I hope the Minister has listened carefully, because we deserve much more than the few tax avoidance provisions in the Bill. I should like to press new clause 13 to a Division.

  • It has been a wide-ranging and at times passionate debate. I shall address the Government amendments before addressing the amendments and new clauses tabled by the Opposition.

    Clause 155 makes an administrative change to strengthen the procedural efficiency of the GAAR. Amendments 136 and 137 make small technical changes to the clause, which incorporate the new terms introduced by clause 156. The new terms provide a new way of counteracting under the GAAR procedure to enable the same advisory panel opinion to apply to multiple users of marketed tax avoidance schemes. We believe that the changes will streamline the procedure without altering the fundamental test to which taxpayers are subject under the GAAR. They will ensure that a provisional GAAR counteraction will apply equally to all counteraction procedures, and enable tax to be protected for the cases that we intend to address.

    Amendment 145, to which the right hon. Member for Don Valley (Caroline Flint) spoke, would give the Treasury the power to require groups to publish a country-by-country report showing their profits, taxes paid and other financial information for the countries in which they operate. As she and others acknowledged in the debate, the UK has led international efforts, although the hon. Member for Salford and Eccles (Rebecca Long Bailey), who spoke for the Opposition, was, to say the least, miserable about the leadership that the UK has shown. I did not recognise the description she applied, but others were more generous, noting the fact that the UK has rightly led those international efforts to tackle tax avoidance by multinational enterprises, for all the reasons so brilliantly articulated by colleagues such as my hon. Friend the Member for Dover (Charlie Elphicke). We all support what he said. The Government have been a firm supporter of greater tax transparency and greater public disclosure of the tax affairs of large businesses. For those reasons, we fully support the intentions of amendment 145 and will support its inclusion in the Bill.

    The Government have consistently pushed for a multilateral solution for country-by-country reporting. For example, the Chancellor made the case for looking at this at the G20 in July. Amendment 145 is very much in keeping with that aim and provides the Government with the power to implement when appropriate. It is none the less important that the power is used to deliver a comprehensive and effective model—as was acknowledged by the right hon. Lady—of public country-by-country reporting that is agreed on a multilateral basis. I am sure we will return to this issue and the basis on which we can go forward. It means a model that requires all groups, both UK headquartered and non-UK headquartered, to report accessible information for the full range of countries in which they operate. It is vital for ensuring that the policy intention of greater transparency is delivered. It is also important for ensuring that UK headquartered groups are not put at a competitive disadvantage. Again, I pay tribute to the right hon. Lady for recognising that concern, as expressed earlier in the year in a previous stage of the Bill, and that disclosure requirements cannot be avoided through group restructuring—another issue that we want to ensure we are on top of.

    The Government remain focused on getting international agreement for such a model, as part of their continued efforts to ensure that taxes are paid and paid in jurisdictions where economic activities take place. The right hon. Lady and the House have my assurance that the Government will continue to take every opportunity to champion this agenda at an international level. It is increasingly clear that we move forward with a welcome degree of agreement across this House.

  • I thank the Minister for the Treasury’s decision to support my amendment. I hope we can work together to consider how we can make the journey to introducing this in this country, with others, a real possibility in the future.

  • Indeed. We have seen, in other areas where we have shown leadership, how much can happen in a very short space of time, so we are optimistic that we can make progress with a welcome degree of consensus across the House.

    Amendments 163 to 168, 170 to 173 and new clause 12 all concern penalties for offshore tax avoidance and evasion. Clause 161 and schedule 20 create new civil penalties for those who have deliberately assisted taxpayers to evade UK inheritance tax, capital gains tax or income tax via offshore means. They would introduce a penalty of up to 100% of the tax evaded and public naming for the most serious cases. Amendments 163 and 164 would include within the penalty provisions the option of charging a penalty of up to 100% of any fee paid by a taxpayer to the enabler for the enabling service received.

    Fees charged by organisations can take a vast array of different structures and formats. Without a clear definition of what constitutes fees, or how the fee relates to the services provided, we believe it would be disproportionately burdensome for HMRC to apply and use such a penalty. A penalty based on tax lost is a much clearer and more easily defined concept, which better meets the objective of sending a strong and clear deterrent.

    Amendments 165 and 166 would increase the minimum penalties chargeable for deliberate offshore tax evasion. Again, the Government have significantly increased sanctions that can be applied for offshore tax evasion. However, we have to balance that against the need to maintain the proportionality of our penalties and retain the incentive for taxpayers to comply voluntarily and co-operate with HMRC, an area in which we have seen considerable activity. We therefore believe that the ranges we have set out provide a good balance. However, as with all of our penalties, we keep the rates under review.

    Amendments 167 and 168 would make it compulsory for HMRC to publish details of those tax defaulters who meet the relevant criteria. Obviously, public naming incentivises evaders to come forward voluntarily and co-operate, but it allows the naming of those who refuse to co-operate with HMRC. In the vast majority of cases, we would expect HMRC to name those who meet the criteria. However, mandatory publication would be inappropriate in some particular exceptional circumstances, or perhaps when there are wider consequences, such as economic market impacts from the information becoming public.

    Clause 164 and schedule 22 introduce a new asset-based penalty for the most serious cases of deliberate onshore tax evasion, where the tax loss exceeds £25,000, and would levy a penalty of up to 10% of the value of the asset connected to the evasion in addition to any other tax-geared penalties and interest due.

  • Amendment 170 would apply a higher penalty of up to 15% of the underlying asset rather than the 10% set out in the Bill. This level of penalty was carefully considered when it was set, accounting for international comparisons. The Opposition referred to that and to the fact that this is a new approach to penalties for UK tax matters. The Government have also consulted and engaged with stakeholders, balancing the arguments that have been set out. We feel that the legislation as it stands allows for a substantial penalty for deliberate tax evasion and will provide a significant deterrent. It is not clear to us, however, that an arbitrary 5% increase in the maximum would significantly increase the impact of the penalty.

    Clause 165 introduces a new criminal offence of persistent offshore tax evasion. Crucially, though, the offence does not require the prosecutors to prove that the taxpayer intended to evade their UK tax responsibilities offshore, increasing our ability to prosecute. A successful conviction on this offence could result in a fine or a prison sentence of up to six months.

    New clause 12 introduces a requirement to publish a report on the impact of the new criminal offence within a year of the Act being passed. The new criminal offence is expected to come into effect from the 2017-18 tax year at the earliest, which is beyond the one-year deadline set out in the new clause. We feel that this therefore makes the provision redundant.

    Amendments 171 to 173 will introduce a further defence to this criminal offence where a person believed that the information supplied to HMRC was “true and accurate”. These amendments will not work in practice. The part of the clause to which they relate is the offence of failure to notify HMRC of chargeability and failure to make a return. In both those cases, no information would have been supplied to HMRC, so this defence could not be applied. While amendment 173 relates to inaccuracies in documents supplied to HMRC, we feel that the amendment is unnecessary because the offence already has a defence of having taken “reasonable care” to get one’s affairs right, which would imply that the taxpayer believed that they were “true and accurate”.

    New clause 7, tabled by the hon. Member for Kirkcaldy and Cowdenbeath (Roger Mullin), would legislate for a review of the impact of the tax regime for Scottish limited partnerships on the levels of tax avoidance and evasion. A Scottish limited partnership is treated for tax purposes as a tax transparent vehicle in the same way as a limited partnership established in England and/or Wales. As he set out in moving the new clause, a limited partnership established in Scotland has a separate legal personality, which means that the partnership itself can own assets and enter into contracts. The Government are committed effectively to tackling tax avoidance, evasion and aggressive tax planning, including where partnerships are involved. Indeed, this has secured an additional £130 billion in compliance yield since 2010.

    Last month, the Government launched a consultation to look at partnership taxation, including proposals to clarify the tax treatments of varied types of partnership. We will obviously welcome the SNP’s engagement in that exercise, and I would like to offer some reassurance regarding the recent allegations in the media about the use of SLPs by criminal organisations. The Government take extremely seriously the points raised and are working collaboratively across Departments and law enforcement agencies to tackle crime and fraud robustly.

  • It is not entirely clear. Will the Minister let us know whether she will support the inclusion of new clause 7 on the basis that, as she has just made clear, it would be a good idea and important to do so? If she is not willing to support it, will she justify why the Government are willing to leave the loophole undiscussed and in place?

  • As I have just laid out, consultation is under way, which provides an opportunity to look at those precise issues. As I said, I invite the SNP to engage with that consultation.

    Turning to deal with the lengthy speech and case made for Labour’s new clause 13, which provides for a report on the UK tax gap, the tax gap is an official statistic published each October and it is produced in accordance with a code of practice for official statistics, which assures objectivity and integrity. The methodology is judged by independent third parties to be robust, and it has been intensively reviewed and given a clean bill of health by both the International Monetary Fund and the National Audit Office. There is therefore no need for a report on the tax gap. Furthermore, HMRC publishes a methodological annexe alongside the tax gap publication, which provides details of the data and methodology used to produce estimates of the gap.

    I think it fair to say that, in speaking about new clause 13, the hon. Member for Salford and Eccles painted a picture which, on the Government of the House and, I suspect in other parts as well, could be regarded as at the very least ungenerous and in many ways inaccurate, unfair and, indeed, unrecognisable, given the way in which the she downplayed the efforts made by the Government. To call that tinkering at the edges is simply nonsense.

    Since 2010, the Government have given HMRC £1.8 billion to tackle evasion, avoidance and non-compliance, and, as I said earlier, over that period HMRC has secured £130 billion in additional tax revenues. We have shown considerable ambition, and, as other Opposition Members have been generous enough to acknowledge, international leadership. I therefore do not accept the criticisms that were voiced from the Opposition Front Bench. It is also worth noting that in the summer Budget of 2015, the Government invested a further £800 million to fund additional work to tackle tax evasion and non-compliance.

    No Government, particularly the last Labour Government, have come close to being as ambitious as we have been since 2010 in respect of this important agenda. The fact that there was considerable agreement across the House in the earlier part of the debate, and the fact that the Government have accepted the amendment tabled by the right hon. Member for Don Valley, gives some weight to our claim that we are beginning to strike a UK consensus about the need to tackle this problem, and we have a chance to continue to make progress. I know that there is an appetite to return to these issues. There is a real desire to see the Government continue to lead internationally on avoidance and evasion, and the House can be reassured that that is exactly what we intend to do.

  • Does the hon. Member for Kirkcaldy and Cowdenbeath (Roger Mullin) wish to respond, which he is permitted, but not required, to do?

  • A few words, Mr Speaker. I merely wish to say that I am incredibly disappointed that the Government have chosen to drag their feet on the issue of Scottish limited partnerships, and that, on the basis of their own arguments, we will press new clause 7 to a vote.

  • That was a commendably pithy speech from the hon. Gentleman, for which I think the House is almost audibly grateful, if I may put it that way.

    Question put, That the clause be read a Second time.

  • Division 55

    5 September 2016

    The House divided:

    Ayes: 248
    Noes: 304

    Question accordingly negatived.

    View Details

    New Clause 13

    Report into the UK Tax Gap

    ‘(1) The Chancellor of the Exchequer shall, within one year of the passing of this Act, prepare and publish a report, in consultation with stakeholders, on the UK Tax Gap.

    (2) The report must include the following—

    (a) details of the UK Tax Gap (including individual breakdowns for figures relating to tax avoidance and tax evasion) for the financial years—

    (i) 2015-16;

    (ii) 2014-15;

    (iii) 2013-14;

    (iv) 2012-13; and

    (v) 2011-12;

    (b) a detailed summary of the model used by HMRC for estimating the UK Tax Gap;

    (c) an assessment of the efficacy of HMRC’s performance in relation dealing with the UK Tax Gap, including—

    (i) a breakdown of specific HMRC departments or units dealing with investigation and enforcement matters in relation to the UK Tax Gap;

    (ii) details of the numbers of staff in each of the years listed in paragraph (a) who are located within departments or units dealing with investigation and enforcement matters in relation to the UK Tax Gap;

    (iii) details of the budgets allocated to departments or units dealing with investigation above; and

    (iv) details of the numbers of prosecutions or the amount of tax recovered in each financial year listed in paragraph (a) as a result of the work of HMRC departments or units dealing with investigation and enforcement matters in relation to the UK Tax Gap in those financial years.

    (d) a review of the impact on tax revenues of requiring non-public organisations involved in public procurement processes to—

    (i) be registered in the UK for tax purposes;

    (ii) have paid UK tax for a period of at least five years prior to the date the relevant contract is awarded;

    (iii) publish full details of beneficial ownership for the period of five years prior to the date the relevant contract is awarded; and

    (iv) provide company accounts (including those of any beneficial owners) for the period of five years prior to the date the relevant contract is awarded.

    (e) a comprehensive assessment of the efficacy of the General Anti Abuse Rule in discouraging tax avoidance;

    (f) an assessment of the impact on tax revenues of introducing a set of minimum standards in relation to tax transparency for all British crown dependencies and overseas territories including (but not limited to)—

    (i) placing a statutory duty on British crown dependencies and overseas territories to observe a system of good governance and practice in relation to tax enforcement; and

    (ii) requiring British crown dependencies and overseas territories to maintain a public register of owners, directors, major shareholders and beneficial owners;

    (g) an assessment of the impact on tax revenues of establishing a public register of all trusts located within the UK, British Crown Dependencies and overseas territories, including but not limited to—

    (i) details of the names of beneficiaries to such trusts;

    (ii) details of the addresses of beneficiaries to such trusts;

    (iii) details of assets held by such trusts;

    (iv) details of any trustees registered within the UK who have transferred that main residence to non-UK jurisdictions;

    (v) details of tax avoidance schemes involving trusts which are currently disclosed to the HMRC.

    (3) For the purposes of this section, the “UK Tax Gap” means the difference in any financial year between the amount of tax HMRC should be entitled to collect and the tax actually collected in that financial year which derives from tax avoidance and tax evasion.’—(Rebecca Long Bailey.)

    Brought up, and read the First time.

    Question put, That the clause be read a Second time.

    Division 56

    5 September 2016

    The House divided:

    Ayes: 245
    Noes: 304

    Question accordingly negatived.

    View Details

    Clause 155

    General anti-abuse rule: provisional counteractions

    Amendments made: 136, page 241, leave out lines 10 to 18 and insert—

    “(d) a designated HMRC officer giving the taxpayer a pooling notice or a notice of binding under Schedule 43A which—

    (i) specifies the arrangements and the tax advantage which are specified in the provisional counteraction notice, and

    (ii) specifies the notified adjustments (or lesser adjustments) as the counteraction that the officer considers ought to be taken;”.

    Amendment 137, page 241, line 29, after “the” insert “pooling notice or”.—(Jane Ellison.)

    Schedule 19

    Large businesses: tax strategies and sanctions

    Amendment made: 145, page 589, line 29, at end insert—

    “(6) The Treasury may by regulations require the group tax strategy to include a country-by-country report.

    (7) In this paragraph “country-by-country report” has the meaning given by the Taxes (Base Erosion and Profit Shifting) (Country-by-Country Reporting) Regulations 2016.”—(Caroline Flint.)

    New Clause 4

    Assessment of revenue from VAT on women’s sanitary products

    “(1) The Chancellor of the Exchequer must carry out an assessment of the revenue raised from VAT on women’s sanitary products since 1 January 2001, and lay before Parliament a report of that assessment within 12 months of this Act coming into force.

    (2) The report must include an estimate of the total revenue raised since January 2001 and provide information about government policy relating to this revenue.”—(Paula Sherriff.)

    Brought up, and read the First time.

  • I beg to move, That the clause be read a Second time.

  • With this it will be convenient to discuss the following:

    Amendment 140, in clause 125, page 205, line 32, leave out from “after” to end of subsection and insert “1 January 2017”.

    Amendment 142, page 205, line 32, leave out “such” and insert

    “1 April 2017, or on any prior”.

    Amendment 144, page 205, line 32, leave out “such” and insert

    “1 April 2018, or on any prior”.

    Government amendment 161.

  • It is a pleasure to open this debate by speaking to new clause 4 and amendments 140 and 144. I thank both Front-Bench teams for ensuring that we have time to debate the issue today. It is, perhaps, appropriate that a female Financial Secretary now sits on the Government Front Bench and has the chance to settle the matter.

    It has taken us quite some time to get here. It was in January 2001 that the lower rate of VAT on women’s sanitary products was applied. For that we owe thanks to many women MPs of that era, as well as to the then Minister, Dawn Primarolo, who now sits in the other place. During the passage of the Finance Bill last year, I was proud to lead a cross-party group of today’s women MPs, including many on the Labour Benches, and others such as the hon. Members for Glasgow Central (Alison Thewliss) and for Berwick-upon-Tweed (Mrs Trevelyan), in demanding that we finish the job, which led the Government finally to address the issue at European level. We should pay particular tribute to the many people outside this place who campaigned so hard on this very important issue, not least Laura Coryton, whose petition attracted hundreds of thousands of signatures.

    Following that pressure, the Government accepted another cross-party amendment, this time in the Budget resolutions, for what I understand was the first time in history, and the then Prime Minister persuaded the European Council to issue a communiqué on the matter. The European Commission VAT action plan has now been issued and the Commission intends to table a proposal by the end of this year, though of course the UK has since voted to leave the European Union—off the back of a promise by Vote Leave that such a result would allow us to abolish the tampon tax outside the EU. I gently suggest to Government Members, especially those who campaigned for Brexit, that voting for the amendment would honour that promise, and their constituents might reasonably question why they would oppose it.

    Whether we are in or out of the EU, there should be no barrier to ending the tax. There are promises both from this Government and from the winning referendum campaign to do so. The explanatory notes for clause 125, written before the referendum vote, state:

    “This clause reduces the VAT rate on the supply of women’s sanitary products from 5% to zero”.

    but I hope the Minister will acknowledge that that is not really the case as the Bill stands. The clause does not zero-rate women’s sanitary products; it just provides enabling powers for the Treasury to do so, if it chooses, and at a time of its choosing. That is why I originally tabled what is now amendment 142 in Committee, when my hon. Friend the Member for Salford and Eccles (Rebecca Long Bailey) spoke to it. The then Financial Secretary—now the Chief Secretary—responded that he was

    “confident that by 1 April there should be no reason why the measure is not in place.”––[Official Report, Finance Public Bill Committee, 7 July 2016; c. 146.]

    He said that the Government would therefore consider accepting the amendment. Since then, the hon. Member for Christchurch (Mr Chope) has tabled his own amendment, which would implement a zero rate from 1 January next year. It is fair to say that there is a cross-party desire to see the promise honoured as quickly as possible.

    I acknowledge, however, that the complications of negotiating our exit may make the next tax year, let alone calendar year, a tight deadline for the Government, despite the previous Minister’s confidence. For that reason, I have also tabled amendment 144, which provides for a later deadline of 1 April 2018—in other words, in time for the tax year 2018-19. I believe that this is a very reasonable deadline. By that point, our exit negotiations will be well under way, and the European Commission aims to have reformed its own laws to allow a zero rate by 2018. I reiterate the point made by the Minister in Committee when he said he was confident that by 1 April there should be no reason why this measure is not in place. Amendment 144 gives the Government a full additional year beyond a date that they were confident they could meet. However, should there be any delay, the timescale also allows the Government nearly two years to amend their legislation accordingly with the new dates. The Vote Leave alternative Queen’s Speech included an entire Bill specifically to abolish the tampon tax, but a whole Bill is not necessary given the amendments that we have today, which would allow the Chancellor simply to propose a later deadline in next year’s Finance Bill. The important point, however, is that Ministers should have to explain to this House why any delay was necessary, and we would need to vote to allow that.

    The Government have tabled an alternative amendment of their own—amendment 161. While that seems to set 1 April 2017 as a default deadline, it makes it subject to

    “the earliest date that may be appointed consistently with the United Kingdom’s EU obligations.”

    In short, 1 April next year is not really the deadline at all, and instead we are subject to the Government’s own interpretations of our EU obligations. I must also question the exact wording of the amendment. It does not refer to our obligations as a member of the EU, but just to our “EU obligations”. That seems to leave open the possibility that we might agree to keep a minimum rate of VAT as part of our exit negotiations. When I challenged the Secretary of State for Exiting the European Union on that earlier today, he certainly did not rule it out. Instead, he reflected that ability to set a zero rate was just one reason why people may have voted to leave, but did not actually pledge to deliver it. I am therefore not convinced that this amendment takes us much beyond the existing clause. Unless the Minister has some very strong arguments to address these points, I will press amendment 144, at least, to a vote.

    That brings me to new clause 4, which touches on another issue that it would be helpful if the Minister addressed—the women’s charities that have received funding from the tampon tax fund. This was quite understandably criticised by a lot of feminists, as it used a tax on women to pay for support that they often needed as a result of male violence. None the less, it was still better than nothing. Now it is set to be abolished. Can the Minister give us guarantees of stable future funding for these vital services? As she will have gathered from the wording of the new clause, I am making the point that the Treasury will have raised a considerable amount from women historically from the point in 2001 when the Government first made the decision in principle to apply the lowest rate available.

    I would like to press Ministers again on one last issue—that the benefit of zero rates is not always passed on in full by the companies that set the prices. When the Labour Government cut the rate to 5%, they committed to monitoring prices to ensure that the cut benefited women rather than just boosting the bottom lines of the businesses involved. I want to know whether this Government will take similar action. As the Minister may be aware, I have negotiated a deal with the leading retailers whereby they will pass on the cut in full. I hope that she will join me in urging these businesses to do that and to sign up to the agreement. Similarly, she will have heard the appalling reports of women turning up at food banks seeking sanitary protection products because they cannot afford them due to welfare cuts or poverty pay. I have reached an agreement with a major retailer that it will provide some free sanitary protection to food banks within my constituency. Can the Government offer any further such support to other constituencies?

    I hope that today we can meet the promises made by European leaders, this Government, and indeed the winning referendum campaign. Anything less is simply not good enough for women. I hope that the Minister will accept at least one of my amendments and make it clear that the days of the tampon tax are nearly over for good.

  • I thank the hon. Member for Dewsbury (Paula Sherriff) for tabling her amendments, for speaking to this issue today and for having campaigned on it so effectively for so many months, if not years.

    My amendment 140 would require the removal of VAT on women’s sanitary products to take effect by 1 January 2017. The background is that the former Prime Minister assured the House in March that he had succeeded in persuading the other 27 Heads of Government at the EU Council meeting on 17 and 18 March to allow the United Kingdom Government to respond to popular demand and extend the zero rate for VAT to women’s sanitary products. The former Prime Minister told the House:

    “This is an important breakthrough. Britain will be able to have a zero rate for sanitary products”.—[Official Report, 21 March 2016; Vol. 607, c. 1246.]

    On 24 March this Bill, then the Finance (No. 2) Bill, was published, and clause 125, as it now is—it was originally clause 115—was designed to implement the pledge on the abolition of VAT on women’s sanitary products and the introduction of a zero rate, but when the EU VAT action plan was published on 7 April it did not deliver on what the Prime Minister must have thought he had been promised at EU Council meeting in the previous month.

    I tabled a couple of parliamentary questions on the subject. The first was:

    “To ask Mr Chancellor of the Exchequer, what information his Department holds on the reasons why the EU Action Plan on VAT consultation document issued…on 7 April 2016 omits any reference to the decision of EU Heads of Government that the UK can remove VAT from women’s sanitary products”.

    The answer I received was typically helpful from my right hon. Friend the Chief Secretary, then the Financial Secretary, and said:

    “The content of the EU VAT Action Plan is a matter for the European Commission. European Council Conclusions welcomed ‘the intention of the Commission to include proposals for increased flexibility for Member States with respect to reduced rates of VAT, which would provide the option to Member States of VAT zero rating? for sanitary products’.”

    I then asked my right hon. Friend the Chief Secretary on what date he expected the removal of VAT from women’s sanitary products to take effect, and he replied on 18 April:

    “The zero rate of VAT for sanitary products will take effect as soon as possible after Royal Assent.”

    There was no mention of any constraint in EU law that would prevent the early implementation of the pledge that the Prime Minister was able to deliver following that European Council meeting.

  • I thank the hon. Gentleman for the support he has given to the campaign and for his research, in addition to the work done by my honourable colleagues on the SNP Benches. Does he agree that it does not feel like progress or much like a victory if I still have to pay tax on the tampons I am using today?

  • I fully accept what the hon. Lady says. This whole saga illustrates the frustration that many of us have felt in this House for a long time that the European Union works extremely slowly and very deviously. That was what the referendum was all about: it was about taking back control of these decisions to this House and being able to implement decisions quickly, effectively and in accordance with the wishes of the British people. Unfortunately, we have not got an instant departure from the European Union. We have to negotiate our departure and serve article 50 and so on, but in the meantime there is a lot of frustration, I accept. That has been exacerbated by the way the previous Government played down—let us be generous to them—the EU impact in this regard before the referendum. They did not want people to think that there was another reason to vote to leave, so that we could remove VAT from women’s sanitary products.

    On Second Reading of the Finance (No. 2) Bill, my right hon. Friend the then Financial Secretary, who is now the Chief Secretary, said:

    “The Government are committed to making that change…I am proud that in the Finance Bill we are legislating to enable zero VAT rates for women’s sanitary products.”

    I then intervened and said:

    “I congratulate my hon. Friend on the progress he has made. Why does clause 115 say that the measure will not come into effect when the Bill receives Royal Assent, but is subject to the Treasury introducing a provision at some later stage? Why can we not legislate on this in the Bill without any qualification?”

    My right hon. Friend replied:

    “It is customary, with changes in VAT rates, to give retailers notice. It is not usual for VAT changes to be put in place on the date of Royal Assent, as notice is usually provided. I reassure my hon. Friend that the intention is to provide a short period of time, following Royal Assent, in which retailers will have an opportunity to adjust prices. This is no desire by the Treasury to kick this into the long grass—we want to make progress on the matter.”—[Official Report, 11 April 2016; Vol. 608, c. 102.]

    I think that that was a very disingenuous remark, because there was no reference to any EU constraint. The impression given was that it was all being sorted out with the European Union and that it would be delivered through clause 115, as it then was, very quickly. Somebody in the Treasury must have known or suspected that it would not be delivered in the time envisaged or, perhaps, at all, but nobody wanted to disclose that to the British people in the run-up to the referendum. I have heard that an agreement was made between remainers in the then Government and in the Opposition to try to prevent the issue from being raised on the Floor of the House, in the Finance Bill, close to the time of the vote.

    Is it not fantastic that we now have the freedom to do these things ourselves, in our own sovereign Parliament, in accordance with the wishes of the people? I hope that the new Treasury team will be much more open and transparent in the way they deal with such issues. If there is an EU constraint, let us say so.

    I welcome Government amendment 161, because it says that the measure will take effect after the later of 1 April 2017 or

    “the earliest date that may be appointed consistently with the United Kingdom’s EU obligations”,

    whatever that might mean. Why, however, was that not included in the Bill to start with? It was never going to be possible for the measure to be implemented at an earlier date than was consistent with our EU obligations. People were led up the garden path: they were led to believe that there was going to be an instant delivery, but we now know that that is not going to happen. I hope that when we come to look at the wider issues of VAT, we will get on with, for example, removing the 5% VAT on domestic fuel, which we in the leave campaign made an issue during the referendum.

    It was a long time ago, but it was on 1 April 1973 that VAT was introduced in our country as a requirement of our decision to join the European Union. At that time, the rate was 10% and the yield was £1.5 billion a year. The standard rate was increased in January 2011 and it has been 20% since then, and that raises £100 billion a year. After leaving the European Union, we will be free to set our rates of VAT at whatever level we wish.

  • Did my hon. Friend note that in the consultation document that the EU issued, not only did it not honour the pledge to our Prime Minister, but it made it very clear that it deeply dislikes discounted rates and zero bands, and so it wanted to take it in the other direction because it thought that countries presuming to give tax relief on products that they considered essential was an obstacle to a genuine single market?

  • My right hon. Friend is absolutely right. It sounds wonderful, does it not, Mr Speaker: an EU VAT action plan? We were led to believe that the action would provide more flexibility, but when one looked at the small print in the action plan, one could see that the whole thing was steered towards more rigidity, harmonisation and uniformity, exactly as my right hon. Friend has pointed out. Again, is it not fantastic that we will now be able to take responsibility for these things ourselves? I hope that my hon. Friend the Financial Secretary, who will be responding to the debate, will take the opportunity to state that from now on the Treasury will be a lot more open in the way it does its business, both with this House and with the people, and that it will not use disingenuous statements to create an impression that is inconsistent with reality.

    It does not seem to me that we will be able to make this change lawfully unless and until we have negotiated our exit. I wish that we could, but as somebody who believes in the rule of law, I think that that is the position we are in. But how different it is from the position that we were led to believe we were in prior to the referendum. I wonder why that is!

  • I promise that I will speak only briefly, because I know that everybody is keen to get away.

    I thank the Government for their movement on this issue already. In my short time as an MP, there has been a major change in VAT on sanitary products, and I appreciate the Government taking that on. We owe huge thanks to the women who have campaigned about this, not only those in the House—such as my hon. Friend the Member for Glasgow Central (Alison Thewliss), the hon. Member for Dewsbury (Paula Sherriff) and other Members from across the House—but all the other women who have put their time and effort into campaigning.

    I would like to highlight briefly some of the anomalies that continue in relation to sanitary products and VAT. VAT is still levied on incontinence products. Unless someone fits a very narrow definition of “disabled” under the law, they pay VAT on incontinence products. In the UK, between 3 million and 6 million people suffer from incontinence, and the UK Government receive the VAT from the sale of those products. I do not think that that is right; I think that those individuals should be able to get incontinence products VAT-free, because they are a necessity for those 3 million to 6 million people.

    The other anomaly in the system concerns breast pads. If someone who is breastfeeding has an excess supply of milk and is therefore leaking milk, they require breast pads. There are no two ways about it. They absolutely require those pads, or they will be covered in milk. Having done that a number of times myself, I am well aware of the pitfalls.

  • Having breastfed my children, I well know that circumstance and how it can arise. This points to the need for a wider review of VAT—perhaps at the point of Brexit, or even starting now—on items that have emerged into the market. Breast pumps, for example, are still liable for VAT, whereas formula is not. That has a disproportionate effect on people who choose breastfeeding over formula feeding.

  • I absolutely agree with my colleague. If we are to encourage breastfeeding and to make it as accessible as possible for people, we need to ensure that the products they require to breastfeed well, and without making too much mess, are appropriately VAT-rated. The interesting thing is that the zero-rating guidance was written a long time ago, and it is not appropriate for today’s society. If the Government were, as my hon. Friend suggests, to commit to undertake a proper review and making sure that people are not unfairly penalised for buying essential, necessary products, I would very much appreciate it.

  • I rise to support amendments 142 and 144 and new clause 4, in the name of my hon. Friend the Member for Dewsbury (Paula Sherriff). I stress that no deals have been struck with the Government on this issue, although we are open to being flexible and to discussing the matter at length with Ministers. I specifically congratulate my hon. Friend and all hon. Members who have campaigned so fervently on the issue. I will keep my comments brief, as my hon. Friend has already made her case very well. I confirm that she has the full support of the Opposition.

    The amendments are designed to ensure that the Government’s pledge to abolish the so-called tampon tax has a clear deadline for implementation. My hon. Friend proposes 1 April 2017 or 1 April 2018. I must stress that Government amendment 161 does not address, and in fact suggests a degree of ambiguity, on this specific issue and the scope of our negotiations about VAT within the ambit of our EU membership. The job is not yet done, as the Minister knows. I know that she supports the idea generally and I welcome the comments she is likely to make, but more pressure is most certainly needed.

    The explanatory notes to clause 125 state:

    “This clause reduces the VAT rate on the supply of women’s sanitary products from 5 % to zero %.”

    The Minister will be well aware that that is not the case. The clause does not zero-rate women’s sanitary products; it just provides the Treasury with enabling powers to do so at a time of its choosing and leaves wide open the question of when it will do so. My hon. Friend’s amendments would rectify that by imposing deadlines by which the tampon tax must be a thing of the past— 1 April 2017 in amendment 142, or 1 April 2018 in amendment 144. I hope the Minister will accept one of those amendments. I see no real reason why the Government need to delay this further, especially in the light of the decision to leave the EU.

  • I am conscious that we are trying to make progress, so I am afraid that I will not take any interventions.

    As was said earlier, the Chief Secretary to the Treasury stated during the debate in the Public Bill Committee:

    “I am optimistic that we will have the measure in place by 1 April 2017; I am happy to put that on the record.”

    He also stated that

    “the Government have an open mind as to whether we would accept the amendment on Report, when we hope to have greater clarity. We are confident that by 1 April there should be no reason why the measure is not in place. It is possible that the Government will come forward with our own amendment, but we may well simply accept amendment 5.”––[Official Report, Finance Public Bill Committee, 7 July 2016; c. 146.]

    As has been noted, my hon. Friend has indeed tabled such an amendment again, and a second amendment that would allow the Government even more flexibility by providing an extra year. The hon. Member for Christchurch (Mr Chope) made some very important points, and tabled another amendment setting a deadline of the start of the next calendar year. The Minister therefore has a vast array of options—more than the Government did in Committee—so I hope she will not disappoint my hon. Friend and, for that matter, the rest of the House.

    A related issue has been raised a number of times with the Minister, but I am not convinced it has been fully addressed, so I would be grateful if she provided further clarification. There is concern that the full benefits of the zero-rating of sanitary products will not be passed on to women, and that some retailers will simply seek larger profit margins. When the rate of VAT was reduced to 5%, the Government said they would monitor whether the benefits were passed on to consumers. I asked the Minister in the Public Bill Committee to provide more information about whether this assessment ever occurred, and if so, what the data showed. Will she provide an answer? My hon. Friend has of course taken the initiative in negotiating directly with some retailers, who have committed to passing on the cut in full, but some smaller retailers may not do the same. What steps will the Government take to ensure that women will benefit from this change, not the pockets of retailers?

    Finally, my hon. Friend has also tabled new clause 4, which would require the Chancellor to carry out an assessment of the revenue raised from VAT on women’s sanitary products since 1 January 2001, when the then Labour Government introduced the lower rate of VAT, and to lay before Parliament a report of that assessment within 12 months of the Act coming in to force. It must include an estimate of the total revenue raised since January 2001, and provide information about government policy relating to this revenue. As my hon. Friend has explained, that would address future funding for women’s organisations that benefited from the tampon tax fund set up by the previous Chancellor when pressure was originally brought to bear over the issue. We hope that the Minister can give us some reassurances that those services will receive the secure long-term funding they deserve. Should my hon. Friend divide the House, we will support the new clause.

    I urge the Minister to accept at least one of my hon. Friend’s amendments and to bring to a conclusion the campaign against the tampon tax, an outcome that will owe much to the hard and determined work of my hon. Friend, along with the women who have fought for it outside this place. Finally, I place on the record my support for the comments made by SNP Members on maternity products, another area that I urge the Minister to look into.

  • I rise in 2016 to resume a debate that I first started with some college friends in 1986; I did not think then that this subject would end up being debated across the Chamber of the House of Commons, but I am glad that we are doing so.

    The issue of VAT on women’s sanitary products—the tampon tax—has inspired a great deal of interest, as the speeches in this debate and the interest from our constituents have demonstrated. I will try to explain the Government’s approach and the amendment that we have tabled, and to give the Opposition some comfort on some of the questions they have asked, because there really is not very much between us on this issue and we want to try to make progress.

    The Bill as it stands includes provisions to apply a zero rate of VAT to women’s sanitary products, with the intention being to do so as soon as possible. The Government strongly support doing so. We agree with the argument put forward by many hon. Members, including the hon. Member for Dewsbury (Paula Sherriff), that VAT should not be applied at the current 5% reduced rate. We have a shared objective of achieving that goal as quickly as we can, in a manner that is legal and proper—I will come back to that—and that, in our new changed circumstances after the referendum vote, will not have a negative impact on our negotiations over the UK’s exit from the European Union.

    Achieving that shared goal in a legal manner before we leave the EU requires a change in EU legislation. That must follow a proposal from the Commission and the unanimous agreement of all member states. We have been actively pursuing that, and have made progress, which some Members have alluded to. The former Prime Minister secured the unanimous agreement of all EU Heads of State and Government that the rules must change at the Council in March. Prior to the referendum we received assurances from the Commission that it would publish a legislative proposal for us at the earliest opportunity and definitely before the end of this year. When the Government introduced the Finance Bill, they expected to be able to apply the zero rate soon after Royal Assent.

    The referendum result changes the circumstances—my right hon. Friend the Chief Secretary to the Treasury explained in Committee that the result affected the prospects for rapid implementation. However, I reassure those Members who have tabled amendments and all other hon. Members that we will not rest on the issue. The Government will continue to push for the proposal to be brought forward and agreed to as soon as possible. However, until we leave the EU we need the legislative change to introduce zero-rating; until we have it, fixing a date risks contravening EU law at a time when we are entering critical negotiations with the EU about our future.

    Turning to those negotiations, the Prime Minister has been very clear that our rights and obligations remain in place until we leave the European Union. That is important: at this time it would be against the UK’s interests and the interests of all our constituents and of the businesses and universities in our constituencies to go into conflict with our legal obligations. We would risk jeopardising our negotiating position by pre-empting EU legislation on sanitary products. We would also risk the UK’s rights in other areas where we expect other EU member states and the Commission to respect their obligations to us. As the Secretary of State for Exiting the EU said in his statement earlier, we must act in good faith towards our European partners. That is why the Government have proposed an alternative amendment that delivers on the intentions of the hon. Member for Dewsbury but ensures consistency with EU law. I hope that that reassures the House that we will give effect to the provisions in the Bill and commence zero-rating. We are pledging to continue to seek the powers to do so, but to put zero-rating into effect at the first moment when it is consistent with our legal duties.

    The shadow Financial Secretary is concerned about the vagueness of that phrase. The Interpretation Act 1978 and schedule 1 to the European Communities Act 1972—I am sure it is everyone’s bedside reading—give exact meaning to the phrase “EU obligation”, which is our obligations under EU law. We are clear about that and we want that commitment in the Bill. That is a major step forward for the hon. Member for Dewsbury and everyone who has campaigned for zero-rating. The amendment commits the Government to commence by 1 April 2017 unless it is unlawful to do so. If on that date it is unlawful, there is a duty on the Government to commence at the first point when we can do so legally. That is the strongest commitment we can give, and one that I am happy to give today. I urge all hon. Members to support it.

    On the amendments tabled by the hon. Member for Dewsbury and my hon. Friend the Member for Christchurch (Mr Chope), I have tried to offer them and other hon. Members reassurance that the Government and I want the tampon tax removed as soon as possible. We will keep up our engagement in Europe to secure that, but, equally, hon. Members will understand that the Government must act in accordance with the law. Until we leave the EU, that includes our obligations, as I have said. Those obligations prevent us from removing the tax at the moment. We are trying to change it, but we cannot be certain of the timetable, because such legislation has to be agreed by all 28 member states.

    For that reason, we must oppose the amendments—they would set in UK law a fixed latest date for zero-rating—but I stress again that there is no great difference between our intention and that of Opposition Members. We all want the tax ended as soon as possible. I hope that will happen by 1 April 2017 and I am even more hopeful that it will happen by 1 April 2018, but it cannot be guaranteed. The Government’s amendment will ensure that zero-rating starts domestically at the first opportunity consistent with our legal obligations.

    I ask Members to look at what we are saying and to realise how close together we are. I also urge them not to be irresponsible in supporting something that will bring us into breach of our obligations. The duty in the amendments proposed by the hon. Member for Dewsbury would impose a requirement on the Government to act illegally. We would be in breach of articles 1 and 110 of the principal VAT directive. Whatever Members’ views are of what the directive requires—we are making progress towards changing it—I would be surprised if members of Her Majesty’s official Opposition, or indeed any Member of the House, thought we could disregard it at such a crucial juncture, when the disregarding of the Commission’s and other nations’ obligations towards us could be significantly against the UK’s national interest. I again quote my right hon. Friend the Secretary of State for Exiting the European Union from earlier today, when he said:

    “Until we leave the European Union, we must respect the laws and the obligations”

    of membership. I agree with him.

    I have every sympathy with the hon. Member for Dewsbury—[Interruption.] I should say that I have every sympathy with the amendments. I think she hinted that, if we do not have the legal change we need by 2018, the Government might have to introduce other measures. Our amendment solves the problem of having to revisit a law we have passed that we know might be illegal by April 2018. I suggest that that is not the most sensible way to legislate. The Government’s amendment achieves the same thing but keeps us within our legal obligations.

    The other amendment tabled by the hon. Member for Dewsbury calls for a report on the revenue accrued from VAT on women’s sanitary products since 2001 and the tampon tax fund. I am very happy to reaffirm the Government’s commitment to the fund. As I have said, we are taking all actions available to stop charging this VAT as soon as possible, but until that can be achieved the revenue it raises will be put into the tampon tax fund and directed to women’s health and support charities. So far, the £15 million a year fund has supported 25 charities, including many that are well known to us in this House: The Eve Appeal, SafeLives, Women’s Aid and the Haven. I am sure many of us will be “wearing it pink” next week. We will think then of the wonderful charities—I am very familiar with them from my previous role as Public Health Minister—that are benefiting. Funding has also been allocated to Comic Relief and Rosa—again, a charity I know very well—to disburse over the coming year to a range of grassroots women’s organisations, many of which have been championed so ably by Members across the House, in particular by some Labour Members.

  • We are committed to the fund and respect greatly the work of those who have campaigned on this issue. I come back to the point, however, that at this moment we have to make it a priority of the House to focus on getting the necessary proposal from the Commission agreed in the shortest time possible. In the meantime, we will make use of the revenue to commit to the tampon tax fund to support women’s organisations in a way that will make a great difference. For that reason, I cannot support the amendment.

    The Government will introduce a zero rate of VAT for women’s sanitary products as soon as possible, but we cannot set a specific date because we are obliged by EU law. The hon. Member for Dewsbury can chalk up getting a commitment on the face of the Bill to do this at the first opportunity after April 2017, when we are legally able to do so, as a very significant victory. I therefore call on the whole House to support the Government’s amendment and to celebrate the great work being done through the money raised by the tampon tax fund and the wonderful organisations it supports.

  • I beg to ask leave to withdraw the motion.

    Clause, by leave, withdrawn.

    Clause 125

    VAT: Women’s Sanitary Products

    Amendment proposed: 144, page 205, line 32, leave out “such” and insert

    “1 April 2018, or on any prior”.—(Paula Sherriff.)

  • Division 57

    5 September 2016

    The House divided:

    Ayes: 235
    Noes: 291

    Question accordingly negatived.

    View Details

    Clause 125

    VAT: women’s sanitary products

    Amendment made: 161, page 205, line 33, at end insert—

    “( ) The date appointed under subsection (5) must not be after the later of—

    (a) 1 April 2017, and

    (b) the earliest date that may be appointed consistently with the United Kingdom’s EU obligations.”—(Jane Ellison.)

    Bill to be further considered tomorrow.