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Taxation: Offshore Financial Centres

Volume 709: debated on Thursday 26 March 2009

Debate

Moved By

To call attention to any role of offshore financial centres under the British Crown in enabling British citizens and residents, and British-based companies, to avoid or evade taxation; and to move for Papers.

My Lords, this debate is taking place in a very different framework from what it would have been six to 12 months ago. When I first raised the issue of tax avoidance and tax evasion in the Crown dependencies and British Overseas Territories more than 10 years ago, I was struck by the hostile response to discussing an almost taboo subject. Senior officials from Jersey came to see me the next week to explain that Jersey has always been a low-tax jurisdiction, since 1204, as if whatever promises the King of England in his capacity as the Duke of Normandy may have made in 1204—I checked and there is no reliable contemporary record of what he is claimed to have promised—still contained its relevance to the world of global finance 800 years later.

The London representative of the Cayman Islands once sent me a sharp message demanding to know why I had put down a Question on the relationship between Enron’s fraudulent practices and the special purpose vehicles that it had established on the islands, without consulting her first. One noble Lord attacked me for not distinguishing more clearly between tax avoidance, and honourable and legal activity, and tax evasion, a practice on the other side of the law. A small number in both Houses have nevertheless continued to pursue this issue. I welcome the contribution that the noble Baroness, Lady Hooper, will make to this debate as one of those who has done so for many years.

Now we are in a different world and the massive scale of revenue due to national Treasuries lost through the manipulation of financial transactions through offshore financial centres has become a matter of concern to heads of Governments across the world and a major item on the agenda of the forthcoming G20 summit. There is now a far wider awareness of the thin line between avoidance and evasion, policed by highly paid bankers, accountants and lawyers, who earn their money by devising evermore complex schemes to hide profits and generate artificial losses through setting up trusts and companies in tax havens and moving money between the onshore and offshore worlds until its origins, ownership and tax liabilities are effectively obscured. We now have a term to cover this hazy area: aggressive tax avoidance, which describes deliberate efforts to get around whatever tax regulations there are, operating as close to the edge of what is legal as is possible.

The revelation that Barclays Bank had an entire department devoted to aggressive tax avoidance, setting up huge transactions for the sole purpose of generating artificial tax losses, and that its head was the highest paid executive in the entire bank, managing transactions that were just—but only just—within the law, sums up how far British clearing banks have moved from their respectable origins. I declare an interest here. My father worked for Barclays for 40 years. The bank paid for my secondary education and I grew up with a strong sense of a bank that had not lost touch with its Quaker origins. The current chief executive is married to a descendant of one of the founding Quaker families, but I fear that he has no sense of the principles that they embodied.

In recent months, the British Government have been leading calls for tighter international regulation of offshore financial centres. The Prime Minister has singled out Liechtenstein. The Chancellor, according to the Observer on 22 February, has launched a “blistering attack” on Switzerland. I sympathise with the Swiss response, as reported in Tuesday’s Financial Times, accusing Gordon Brown and Alistair Darling of double standards about the lack of transparency in their own back yard. A dozen of the OFCs listed in the US tax evasion Bill are under the British Crown: the Crown dependencies of Jersey, Guernsey, Sark, the Isle of Man and several of Britain’s remaining overseas territories, which have boomed as global financial markets have mushroomed over the last 20 to 30 years—Bermuda, the British Virgin Islands and the Turks and Caicos Islands have been the most successful. Gibraltar hangs between the two categories with funds flowing between Europe and Africa, and beyond.

Offshore finance has made these British territories rich. Bermuda is the fourth richest country in the world, according to CIA figures, after Liechtenstein, Qatar and Luxembourg. Jersey is the seventh and Guernsey, the Cayman Islands and the BVI are close behind, well ahead of the United Kingdom itself. The scale of the funds that they manage is enormous. According to the Tax Justice Network, an immensely valuable source of information, in 2007 Jersey had £466 billion in cash deposits and investment funds. That is to say, it had £5.2 million per head of population. Guernsey had a further £207 billion and the Isle of Man a modest £155 billion. Getting on for a tenth of assets held in the Isle of Man come from developing countries, which lack the clout or administrative capacity to chase tax fraud or laundered money, let alone to negotiate and enforce tax information exchange arrangements.

The Cayman Islands are home to a high proportion of the world’s major hedge funds. Of course, they are not really home to them; they are managed, effectively, from New York and London, but for tax reasons are domiciled in the Cayman Islands, along with a massive number of shell companies, special purpose vehicles and trusts. Many of them are registered in the offices of Maples and Calder, the largest offshore legal firm in the world. One of the founders of Maples and Calder is now a vice-chairman of the Conservative Party, although he tells me that—sadly for him—he no longer has a stake in the firm.

For all of these territories and dependencies, New Labour, like its Conservative predecessor, has preferred a system of light-touch regulation. The FCO and DfID encouraged the overseas territories to develop financial services as a way of lessening their dependence on British subsidies. On coming into office, the Labour Government set up an inquiry into the financial regulation of the Crown dependencies, which led to the Edwards report, which recommended an increase in regulatory staff to counter fraudulent activities and money laundering. I recall that two experienced officials were sent from London to the Channel Islands to raise standards; one was Mr Crook and the other was Mr Pratt. The small regulating staff—in contrast to the vast scale of funds moving in and out of the islands—has not been able to distinguish between clean money and dirty, or between the legitimate tax planning of multinational companies and the evasion of national taxation through offshore accounts.

On the British mainland, our Government scarcely trust any local authority smaller than 500,000 people to administer its own affairs, and then only under careful oversight from central government. For the Crown dependencies and overseas territories, the opposite is true. They are entities with fewer than 100,000 inhabitants, most with fewer than 50,000, and they are largely left to govern their own affairs. I defy anyone to define precisely the constitutional relationship between the Crown dependencies and the UK. Indeed, the Ministry of Justice acknowledged in a memorandum to a Commons committee last December that,

“the constitutional relationship between the UK and the Crown Dependencies is complex and … contains areas of uncertainty”.

The noble Lord, Lord Bach, gave oral evidence to this inquiry in the light of the collapse of the subsidiaries of Icelandic banks in the Isle of Man and the Channel Islands, which gave rise to the delicate issue of whether British citizens who had deposited money there, in most cases to avoid tax on the mainland, would be entitled to claim compensation from the British Exchequer. He said:

“It is not our job to nanny the Isle of Man in any sense”,

and an official with him helpfully added:

“I think that it is to put it too strongly to say that we have abdicated all responsibility for them”.

That is wonderful obfuscation.

The quality of governance in some of the overseas territories has been sufficiently questionable to force greater attention from Britain. I welcome the inquiries by Commons committees last year and the year before, and I hope that they will press further. Concern about the impact of far too much money on far too few people in the Turks and Caicos Islands has now led to an inquiry under Sir Robin Auld. His interim report, which was presented on 28 February 2009, refers to,

“possible systemic corruption ... Coupled also with clear signs of political amorality and immaturity and of general administrative incompetence”.

It also notes,

“the declared ignorance of some Ministers and other Members of the House of Assembly of what is required of them as public servants”.

I look forward immensely to what he says in his final report.

Our prime concern as British politicians, and as Liberal Democrats, is with the massive loss of tax revenue to this country which the displacement of corporate and personal income to tax havens involves. A fair tax system requires loopholes to be closed: and tax havens provide massive loopholes. However, not only British taxpayers lose from this offshore network. Christian Aid estimated last year that the loss of corporate taxes to developing countries through tax havens, many of which are British-dependent tax havens, is around $l60 billion a year: 50 per cent more than the entire flow of official aid from OECD countries.

Part of the attraction of tax havens under the British Crown is their British system of law, with its underpinning of inquiry and redress if things go badly wrong. The banks, law firms and accountancy firms with offices in these havens are mostly British, not locally owned, using the islands as warehouses for the transactions that they nod through them and paying useful fees for the convenience of doing so. KPMG, Freshfields, Barclays and the Royal Bank of Scotland all work with, and usually have subsidiaries in, these offshore centres. They are also linked to others; Union Bank of Switzerland, which is now under heavy attack from the US authorities for encouraging tax evasion, manages offshore accounts for some 28,000 British citizens through its Jersey subsidiary.

The classic excuse for not tightening up procedures has been that we would lose out because others would be less tight. Now that we are in a multilateral situation in which all Governments are attempting to tighten up procedures, we need to know what Her Majesty’s Government are doing in response. In mid-December, the Government announced an independent review into British offshore financial centres, to be chaired by Michael Foot, formerly of the Bank of England and the Central Bank of the Bahamas. I hope that the Minister will update us on the progress of this inquiry in his reply, and tell us how the Government intend to engage Parliament when the report is published. Its establishment has been welcomed by the Crown dependencies that it will investigate, so I hope the Minister will assure us that it will not, like the Edwards report, be a friendly review that is intended to disturb established practices as little as possible, as some have suggested to me it might be.

On 11 March, the noble Lord, Lord Myners, told us in a Written Statement that Jersey has now signed a tax information exchange agreement, following the patterns of a number of foreign offshore financial centres. He called it,

“a crucial step in the right direction”,—[Official Report, 11/3/09; col. WS 91.]

but it is only a step. Jersey now promises to provide information in response to requests from HMRC, and in the seven years since Jersey signed a tax information exchange agreement with the United States its authorities, I am told, have provided information to Washington in six cases. This all comes down to the level of the British citizen when they contemplate the origins of the current financial crisis. Northern Rock’s charitable trusts were in the Channel Islands. When my wife and I discussed tax planning with advisers from Barclays Bank—I have not yet got around to moving my account—their first suggestion was to set up a family trust in the Isle of Man so that we could avoid inheritance tax.

One small example of defrauding the tax authorities through offshore manoeuvres is provided by the mysterious case of Leeds United Football Club, the beneficial ownership of which is being contested in a court case in Jersey. The club, largely owned by Ken Bates, who is resident in Monaco, went bankrupt owing the revenue nearly £8 million, among other creditors. It was bought out of insolvency by Forward Sports Fund, a company registered in the Cayman Islands and administered in Switzerland; that, in turn, was owned by Astor Investments, a trust fund based in Guernsey and administered from the British Virgin Islands—a merry-go-round of tax havens created to disguise who owns what. It is being argued in court that the ultimate owner of these shell companies is Mr Bates himself, who has thus avoided a large tax bill and retained effective ownership. The noble Baroness, Lady Noakes, may care to note that the role of KPMG, as administrator in this case, has been sharply criticised.

The Government have repeatedly refused to give Parliament any estimate of the scale of lost revenue, but it recovered from one amnesty two years ago £400 million from 45,000 disclosures, which suggests that the overall figure is in the tens of billions and that a large number of individuals as well as companies are involved.

Fair taxation is a basic principle of a liberal democracy—I refer to progressive taxation, in which the rich contribute proportionately to the costs of national security services and welfare. We therefore want some reassurance from the Government that they will be as vigorous in dispelling the secrecy of British offshore financial centres as of foreign ones; that they will now clarify the constitutional and oversight relationship we have with these semi-autonomous entities; and that they will ensure appropriate contributions to the UK Exchequer in return for the services received. I note, for example, that Tax Research estimates that the UK gives an effective subsidy to the Isle of Man of £270 million a year. The party should now be over for aggressive taxation avoidance and tax evasion under British sovereignty.

My Lords, as one who follows as closely as possible events concerning the overseas territories—I declare an interest as vice-chairman of the Overseas Territories All-Party Parliamentary Group—I was intrigued by the wording of the Motion before us today, although I was perhaps to some extent informed by comments made by the noble Lord, Lord Wallace of Saltaire, in the money laundering debate concerning the overseas territories last year. I therefore thank the noble Lord for giving us the opportunity to review the activities of offshore financial centres in the light of the current financial crisis.

I shall concentrate on the overseas territories rather than the Crown dependencies, about which I am less informed and on which I understand others will focus. As a starting point, and as the noble Lord, Lord Wallace, has already said, I agree that there must be clear international standards based on openness and transparency and with appropriate supervision. I add to that by saying that any such regulatory approach should be based on objective criteria, that there should be a level playing field, and that each case should be looked at on its own merits.

There is no doubt that successive governments have encouraged the overseas territories to be self-sufficient. A number of them have developed highly efficient and successful financial services, based on international best practice, and, as small jurisdictions, they can be simpler, cheaper and highly specialised. There is also no doubt that in this global commercial world, professional advisers and clients alike look to find the most favourable structure for their investments and projects. We all know that Ireland attracted a lot of writers and artists because of its intellectual property rules and the abolition of inheritance tax. We know that Bermuda specialises in shipping and insurance and that in the state of Delaware in the United States a company can be incorporated rapidly with the minimum of fuss and cost. Therefore, if choice is to be available I believe that this diversity is to be encouraged.

My final general point is to emphasise, as did the noble Lord, Lord Wallace, the distinction between tax avoidance and tax evasion. The former is legal, the latter a crime. Since this has already been mentioned and the issue was raised on Tuesday at Question Time, it is not necessary to dwell on it. In his reply at Question Time, the Minister referred to the Chancellor’s code of practice that has just been issued. I should like to hear more about that, including whether it covers banking operations in overseas territories and Crown dependencies.

The Turner review of global banking regulation, which has just emerged, says that,

“it is important to recognise that the role of offshore financial centres was not central in the origins of the current crisis … And many of the problems arose from the inadequate regulation of the trading activities of banks operating through onshore legal entities in major financial centres such as London or New York”.

Professor Avinash Persaud, a member of the United Nations high-level task force on international financial reform, was quoted recently in the Financial Times as saying:

“The attack on offshore centres is a politically seductive distraction from the thorny task of making regulation better in large developed countries and will end up being a discriminatory attack on small developing countries with little voice”.

Today I am trying to redress the balance. I will refer to the British Virgin Islands as a case study, to make my point that each case should be looked at on its merits. I could equally well talk about Bermuda, with its well developed services, or Gibraltar, the only overseas territory in Europe.

The financial services sector of the British Virgin Islands is founded on five pillars: robust regulation, intergovernmental collaboration, effective enforcement, transparency and high levels of expertise. I emphasise in addition that there are no secrecy laws. The industry has developed and diversified, particularly over the past 20 years, to include specialist sectors such as mutual funds, insurance—both risk and captive—professional services provided by fiduciary and insolvency practitioners, and legal and accountancy services provided by globally recognised firms established in the jurisdiction. These services have been further enhanced by the award of category one status to the BVI shipping registry, and by the creation of an aircraft registry. As a result, financial services now account for more than half the GDP of the BVI, immeasurably raising the standard of living for all inhabitants and, together with the development of a successful tourism industry, enabling the territory to establish financial independence. Reputation is everything in financial services. The BVI has long recognised this and I maintain that the same goes for most of the overseas territories. There is the sad exception of the Turks and Caicos, which has already been referred to.

The noble Lord, Lord Wallace, also referred to the Foot review. I will quote a statement made the day before yesterday by Michael Foot from the BVI. I believe that his report covers the Cayman Islands, Bermuda and the BVI, and has been very positive. He said:

“The United Kingdom needs to remember that it gets a great deal of value and advantage out of jurisdictions such as the BVI. Funds and business flow from the UK here, they flow from here back to the UK. The value of having a clear English legal status, a creditor-friendly certain legal system, having political stability, of being able to bring together in a suitable context international investors around the world to form companies and operate elsewhere in the world, actually plays a critical role in benefiting the global economy, and I am hoping that in that the United Kingdom and the United States … make increasing efforts to remedy the problems in their own economies …and will be reminded again of the valuable role that offshore centres like this play in facilitating the operation of the global capital markets, flows of banking finance and other things”.

He also talked about the level playing field and stated that the jurisdictions he has been examining have met international standards effectively and on average score considerably higher than many much larger ones. He goes on to say that he is,

“confident that the findings of my review will reflect the fact that jurisdictions like the BVI are well regulated, the regulator is well resourced and is resourceful and that that is a very sound basis on which to build your international standing”.

While the concerns voiced by the noble Lord, Lord Wallace, must be considered, I believe that there is a real danger in targeting a specific group of countries, especially as financial centres no longer operate on a geographic basis; nor do such territories operate in isolation. Apart from anything else, it would drive the business to other, possibly less well regulated and open centres. The financial system must be viewed as a whole, and the focus must be on encouraging greater international co-operation and ensuring that all countries and jurisdictions build a capacity for adequate regulation and supervision, whatever the size and scale of their financial services industry.

The overseas territories used to be known as the dependent territories. In my opinion it would be very wrong if, in a knee-jerk reaction to the current financial crisis, those overseas territories that operate financial services were to be deprived of the independence that they have now earned.

My Lords, I declare my interest as a pension fund manager since I first joined Warburg’s in 1976; these days I manage British commercial property for pension funds, charities and investment trusts. When I buy a warehouse from Sainsbury’s, neither of us pretends that Tamworth is in the Cayman Islands to dodge stamp duty land tax. Tax havens are sunny places for shady people. No one sends their money to Monaco or the Cayman Islands because they are centres of excellence for fund management. I was going to add the British Virgin Islands, but in deference to the noble Baroness, Lady Hooper, I shall leave them out. From Antigua to Belize, you use a tax haven because you have something to hide, be it from the taxman, the authorities where you live or even your family. “Low tax and low disclosure” is the polite way in which the apologists for tax havens put it, but if you are Mobutu or Mugabe, Imelda Marcos or a Colombian with a big briefcase, a brass-plate company in an anonymous office block means that your millions leave no trace and tell no tales.

Gordon Brown is strutting the world’s stage as Mr Clean-up, the man to make tax havens and tax dodgers quake in their boots. Oh yeah? Why then did the Treasury say only yesterday that the asset protection scheme for banks to dump their bad debts on the taxpayer and the code of practice covering tax avoidance for the banking sector due next month are “separate issues”? That is the most unjoined-up government imaginable. Why has the budget of HMRC’s hard-pressed tax avoidance team, led by Mr Tailby, been cut by 5 per cent from 6 April? Barclays will be laughing all the way to the Cayman Islands. Our taxmen are like fat policemen running after a speeding Ferrari; they need all the help that they can get.

We all rejoice at the sinner who repenteth, but this is the same Gordon Brown who as Chancellor cuddled up to the bankers so hard that it hurt and who showed no interest in taxing or regulating hedge funds registered in the Cayman Islands and run by non-doms in Mayfair, or the private equity millionaires with their absurdly generous special tax breaks.

My Lords, I have only 10 minutes and I want to make my speech in my own way.

Why will the Prime Minister and the Treasury not use their power over the banks to stamp out tax abuse right under their nose in London? You do not have to take a Caribbean cruise; all you have to do is get on a boat down the Thames to Canary Wharf. The superb tax gap series in the Guardian shows how big British businesses, both publicly quoted and private, twist and turn to dodge tax in this country. Their glossy corporate governance reports say nothing about paying your fair share of tax to meet your obligations to the society where you operate. Being a good corporate citizen must mean more than putting on green lipstick and ticking the boxes on diversity.

Nearly nationalised RBS claims to have closed down its tax avoidance operations at head office but still actively promotes its operations in offshore tax havens and its private bank in Switzerland. Barclays has developed tax avoidance into a massive profit centre in its own right, with vast sums of the bank’s money touring tax havens on what in one case amounts almost to a three-day super saver return ticket from Canary Wharf, saving Barclays, not the taxpayer, mountains of tax.

Documents leaked to the Liberal Democrats, which appear to detail systematic tax avoidance on a grand scale by Barclays, were injuncted last week. The Sunday Times and the Guardian had already made them front-page news and these documents are widely available on the internet from sites such as Twitter, wikileaks.org, docstoc.com and gabbr.com. Yet the Guardian had to remove them from its website and cannot tell its readers where to find them. These documents describe deals worth billions of pounds set up by the bank in order to make money out of depriving the UK and foreign exchequers of revenue. Barclays would not last for one minute without the British taxpayer standing behind it, yet it is holding out one hand for taxpayers’ money while it picks taxpayers’ pockets with tax avoidance activities on the other.

Unlike Barclays, HMRC cannot match the best tax and legal brains that money can buy and unpick these deals. It is a sad day for democracy if a judge sitting in secret can stifle this essential public debate. Louis Blom-Cooper and three distinguished colleagues wrote to the Guardian:

“Barclays may properly be regarded as an operator in the private sector, but its corporate status, carrying with it all the advantages that incorporation confers on the bank, and performing a function so vital to the country’s economy, was such that Mr Justice Blake should have concluded that Barclays Bank was akin to that of a public authority and susceptible to the precepts of public sector activity. Perhaps the Court of Appeal will exhibit rather more boldness in supporting the Guardian’s valuable crusade against tax avoidance”.

Vince Cable has done his duty and sent all these documents to HMRC and the Financial Services Authority. I believe that it is mine today to tell—as I just have—Parliament about Barclays’ tax avoidance machine with its aggressive exploitation of tax havens and to tell the public, in their interest, where they can get chapter and verse and judge for themselves.

Barclays has a whole department, the structured capital markets division, inside Barclays Capital, dedicated to dodging the taxman, and has been reported as paying Mr Roger Jenkins, who runs it, £40 million a year. Vince Cable and I are now being told of more, even murkier, deals. About a third of a billion pounds has been added to Barclays Bank’s bottom line by the following six “projects”, from what we can see. Barclays’ Project Knight, set up in 2007, with capital of more than $16 billion, involved making loans to American banks which now need federal funding: Wachovia, WaMu, Bank of America and BB&T. This allowed Barclays to benefit from “double-dip” tax credits, as they are called, and made the bank £100 million or more.

Project Faber, also in 2007, involved capital of £1.5 billion and made Barclays £29 million in tax profits. That involved using tax havens in the Isle of Man and the Caymans for subsidiaries to channel loans to Luxembourg banks. Project Brontos in 2007 was a scheme between Barclays and Italian banks to save Italian tax; it made Barclays £15 million in profits at a conservative estimate. Project Valiha, with capital of nearly £400 million, involved an elaborate trade with interest rate swaps that could be transferred to an American counterparty, alleged to be AIG, which gained Barclays £69 million in tax-free profits. Project Brazil, set up in 2005-06, made Barclays £30 million in tax profits from currency trades and, in Project Berry, a Barclays subsidiary buys index-linked gilts and lends them back to Barclays so that it can collect tax reliefs worth £134 million. How many more of those morbid mutants are on the books of Barclays’ structured capital markets group? Before the Treasury takes on any of the toxic assets of Barclays, we must know how much tax it has avoided, how and with whom, and what has passed through or is still hidden in tax havens.

The international jet-setters at the top of Barclays, grasping their multimillion pound bonuses, will not know what I am on about at all in what I shall talk about now. My noble friend Lord Wallace, however, rightly pointed to Barclays’ international roots. It is high time that the bank remembered its Quaker founders in East Anglia. They did not gamble or dodge tax; they saw themselves as stewards of people’s savings, which they lent prudently for productive purposes so that their fellow citizens could work and prosper. The Quaker motto is “Live simply”. Tax havens are a moral as well as an economic affront to Britain and to the whole civilised world—the unacceptable underside of capitalism. Our Prime Minister is a moral man, but he must now turn his words into deeds.

My Lords, on the subject of morality and moral behaviour, could the noble Lord, Lord Oakeshott, tell us why the Liberal Party has not paid back the £2.4 million that it got from Michael Brown, a fugitive from justice? His money was paid, although apparently through a London company, from a Swiss subsidiary.

If that is not clear, my Lords, this debate is about tax havens and our country, not about any particular political party. I do not propose to get into that. Those who live in glass houses should not throw stones. That was a cheap and unnecessary intervention by the noble Lord, who has had plenty of time to make that sort of intervention when we have been discussing my Bill or other matters. It is quite inappropriate here today.

My Lords, I shall turn back a little from the exchanges involving my noble friend, with whom I agree. I was involved in setting up the Saïd Business School in Oxford and in developing its curriculum. At the outset, we included in the curriculum short but important areas about the environment and ethics. After a couple of years, they were conveniently dropped from the syllabus, because the students were not interested in the environment or ethics; they just wanted to know how they could make the most money.

It occurred to me that company directors feel that they have a responsibility to their shareholders rather than the public at large; that accountants are concerned about the profits of those who employ them, not the general good; and that it appears that bankers—certainly, from the examples given by my noble friend—are mainly concerned with financial manipulation in the interests of the bank. They are the people who benefit from the very large sums of money that were referred to just now. I am also afraid that lawyers often act, not in the interests of truth, but in the interests of whoever employs them.

There was an interesting article in the Times yesterday, by Daniel Finkelstein—not someone whom I read often—which accused the Conservative Party of existing mainly on the interests of those who are “rich and secure”.

A huge number of people in this country, the overseas territories, the third world and developing countries are completely left out of the strata of society that we have had so graphically described to us. We all know that large amounts of aid that pass to developing countries find their way into the pockets of the people who lead those countries. We have had many debates about Zimbabwe, for example, which we hear about almost every month when the noble Lord, Lord Blaker, asks a Question. The money that has gone there has gone to tax havens, outside the country.

It ill behoves us to moralise about Robert Mugabe when this country and people here do business with the tax havens concerned. I am not trying to preach a Sunday sermon, but I am saying that moral behaviour starts at home. We cannot even excuse ourselves, as I thought the noble Baroness, Lady Hooper, did, by saying that a lot of other people do it; that is not really an excuse, if people who operate here operate under the mottos quoted just now. Of course the financial situation must be viewed as a whole, but we want to see this country taking a prominent position in campaigning and planning against these sorts of abuses which, in the end, are paid for out of the pockets of the people who pay honest tax. Many of them find that honest tax to be quite a burden on them, because they are the poorer people, both in this country and around the world, on whom this whole shaking edifice is built.

My Lords, I congratulate my noble friend Lord Wallace of Saltaire on securing this debate at such an opportune time. I declare an interest, in that I am a lawyer and I do quite a lot of tax work.

On 22 April last year, I was fortunate enough to secure a debate on inheritance tax and capital gains tax. Before that debate, I advised the participants that I would say a few words about international tax evasion and avoidance. I stated in that debate:

“There is reason to be reasonably confident that major economies in the world are becoming more enthusiastic about dealing with international, corporate and individual tax avoidance”.

I pointed out that some of the tax avoidance schemes that were being used were on the cusp of evasion, if not outright evasion. I said then and state again now:

“I believe in international tax competition as long as international conglomerates and individuals pay their fair proportion of tax in the countries in which they operate”.—[Official Report, 22/4/08; col. 1457.]

In this country, we have made some sensible attempts to tackle these problems, with control of foreign companies legislation, other anti-avoidance legislation and legislation to deal with abuses such as transfer pricing. Nevertheless, with growing financial deficits in the major world economies, especially the USA and Britain, and with a major financial crisis bearing down on the world, it is imperative that far more compelling efforts are brought to bear to eliminate tax fraud and tax avoidance.

I wholeheartedly agree with the Minister’s comment the day before yesterday in reply to a question asked by the noble Lord, Lord Barnett. The Minister stated:

“There needs to be international co-ordination”.—[Official Report, 24/3/09; col. 555.]

I would add to that: we also need international co-operation. Too frequently, the fraudsters and money launderers can conceal their ill-gotten gains and proceeds of crime by the use of complex nomineeships, trusts and companies with special tax status, all in obscure and opaque jurisdictions, often using a number of these jurisdictions further to conceal their activities.

In a debate last year, I reminded the House that in the United States in, I believe, 2007, three senators introduced the Stop Tax Haven Abuse Bill. I do not believe that the Bill became law. Of the three senators who sponsored the Bill, one was a Republican and two were Democrats. One of the Democrats is now the President of the United States. One of the thrusts of the Bill was to impose restrictions on foreign jurisdictions, financial institutions and international transactions which raised money-laundering concerns or—this is a very important addition—impeded United States tax enforcement.

Other countries, such as India and Germany, are deeply concerned about leakage of tax from their jurisdictions. The German Chancellor, Angela Merkel, visited both Monaco and Liechtenstein in early 2008 and made it abundantly clear that Germany expected co-operation from both jurisdictions. The British Government started to act some time ago and, in 2005, produced information exchange agreements with Guernsey, Jersey and the Isle of Man.

Before I discuss those efforts, which I strongly support, I should add that I would like to hear from the Minister exactly what the Government aim to achieve. Is the Government's aim to have full information-sharing arrangements with every jurisdiction in the world and, if so, to what extent? That appears to me to be one of the ideals. Presumably it would mean that all jurisdictions worldwide which are involved in this co-operation should refuse to take any deposits or securities in any of the banks, law firms or other organisations in their jurisdictions unless and until they have full and proven beneficial ownership details with money tracing. That jurisdiction would then have to report back to the country or countries of origin, domicile, residence and ordinary residence of that beneficial owner, or beneficial owners, be they individuals, companies, partnerships, limited liability partnerships or whatever. As the Minister knows from his previous experience, that is a very tall order indeed. I am anxious to know the level of international co-ordination and co-operation that the Government and leading economies seek to achieve. Will the Minister also spell out—this is an important point—what sanctions will apply to jurisdictions and states which fail to co-operate?

Adverting to the 2005 orders, I have the following questions. What has been the outcome of those orders? Would the Minister let us know how frequently the orders have been invoked and used? What level of co-operation has there been from Guernsey, Jersey and the Isle of Man? Is there any estimate of any tax saving as a result of those orders? Have the Government measured the success of the orders and what is their measure? The orders were approved under powers introduced in 2000 to enable the United Kingdom to enter into agreements that concerned the exchange of tax information. They are bilateral agreements relating to the European Union savings directive. Will the Minister spell out what agreements have been signed with other dependent and overseas territories? The genesis of the agreements was the 1999 Helsinki European Council, which agreed that,

“all citizens resident in a Member State of the European Union should pay the tax due on all their savings income”.

To their credit, the United Kingdom Government have done some admirable work in this sphere, although they found it difficult to reach agreement that exchange of information is the right way to counter tax evasion.

The day before yesterday, as reported at col. 556 of Hansard, my noble friend Lord Maclennan of Rogart asked the Minister the relevant question whether he believed that the European Union would speak with one voice on this subject. My more specific question to the Minister is this: exceptionally, the European Union accepted that three member states, Austria, Belgium and Luxembourg, may levy a withholding tax for a transitional period before moving to the automatic exchange of information. Has that transitional period now expired? Is there now full co-operation with all European Union countries in relation to these matters? Obviously, the weakness in this system is that this agreement deals primarily with savings. The object of the exercise is to have a far wider exchange of information between revenue authorities. It would be interesting to hear from the Minister what progress on information sharing and other matters is being made with Switzerland, Liechtenstein, Andorra, Monaco and San Marino.

It would be wrong to have a debate of this nature without saying a few words about tax avoidance and the possible introduction of a purposive rule in our tax affairs. In an excellent article in the Times on 21 March this year, Matthew Parris described the appallingly complex nature of our tax system and the convoluted and extremely expensive efforts that taxpayers and HMRC expend to deal with these matters. He referred to “loophole-seekers”. I do not entirely agree with his solution; nevertheless, it is surely time that HMRC introduced a consultative document on these matters and a full public discussion, including debates in both Houses of Parliament, on the effectiveness or otherwise of taking these steps and pursuing a purposive rule in taxation.

There is much more to be said on these matters, but there is insufficient time to deal with further details. Nevertheless, I conclude my speech by making one further point. It was hinted at by the noble Lord, Lord Baker of Dorking, in his question to the Minister the day before yesterday, reported at col. 555 of Hansard. It was also hinted at by my noble friend Lord Oakeshott. The Minister said that he had been assured by Her Majesty's Revenue and Customs that it was confident that it had resources in terms of number of staff and skills to deal with these matters. I am not sure that that is the case, especially in terms of tax fraud. Now would be a good time to recruit some very able specialists into HMRC, the Security Service and other agencies, including the Serious Organised Crime Agency, to get to the bottom of what are very complex and convoluted steps taken by fraudsters on an international scale and to bring them to justice.

I hope noble Lords will forgive me for quoting from a leading article taken from yesterday’s Financial Times:

“Either government makes use of the expertise that former bankers and other financiers can bring to bear, or it draws only on professional politicians and paragons”.

It concludes:

“Hiring poachers to become gamekeepers means picking candidates with rabbits and pheasants in their past—otherwise there is no point in employing them. But they must then be defended if and when their previous careers cause controversy”.

I believe that the Minister comes from Cornwall, so he has quite a bit going for him.

My Lords, let no one say that debates in your Lordships' House have no impact outside it. Since my noble friend Lord Wallace put this debate down on the Order Paper, the whole edifice of global tax havens has started to crumble. It now looks likely that the G20 will take action that was inconceivable until relatively recently. Indeed, the G20 Finance Ministers meeting a couple of weeks ago urged the G20 as a whole to develop a toolbox of effective countermeasures against such havens.

It is ironic, however, to hear the Prime Minister talk about UK leadership on the issue when his role has been one of studied followership. Two key developments have spurred him into action. The first was when the German Chancellor and Government discovered the degree of tax avoidance and evasion happening via Liechtenstein and took action there and followed it up by action, or certainly pressure, on Monaco and Switzerland. The second was, as my noble friend Lord Burnett mentioned, the fact that the new American President, while still a senator, introduced the wonderfully entitled Stop Tax Haven Abuse Act to the Senate, and has made it clear that he intends the principles embodied in it to be implemented by his Administration. I commend it to the Minister; it is a splendid document. The US estimate that if it were implemented fully, they might save as much as £50 billion of tax revenue, which gives some idea of the scale of the problem. I commend it to the Treasury and to the Minister as essential reading.

It was those examples of leadership that resulted in the Prime Minister springing into action. Despite a record of almost total inactivity as Chancellor, he is now setting himself up as the global scourge of tax havens. He has done that because he can now see an opportunity to have an impact. We hope that his fellow G20 leaders take a collective leap forward on tax havens when they meet next week.

Today's debate is concentrating on those tax havens that, in one way or another, fall under the British Crown. Although many features of tax havens are common across the world, we bear especial responsibility because so many of them are, to a greater or lesser extent, under UK jurisdiction. In the case of some of the most notorious tax havens, especially in the Caribbean, the UK has allowed or even encouraged territories to develop their offshore financial services sector to reduce the likelihood of the UK having to give them financial assistance.

At one level, that has been extremely successful. Mention has already been made of the Cayman Islands, where per capita income is now higher than that in the UK. The Cayman Islands are the largest offshore banking centre in the world. That is not absolutely surprising when you look at their tax policies. There are no corporate, capital gains, VAT, profits or other taxes on Cayman companies, and there are no withholding taxes on dividends or payments of principal or interest. It is hardly surprising that that is an attractive place to set up a company.

In other territories, such as those in home waters, we have let things drift, either because of lack of interest or because there were always enough powerful individuals and companies that benefited from using those tax havens to make it politically too controversial for Governments to act. Fortunately, that now seems to be changing. Of course, not all tax havens are the same, as the noble Baroness, Lady Hooper, pointed out, and not all the financial activity that takes place there is equally reprehensible.

Of course, there is a distinction to be made between avoidance and evasion. On evasion, either by companies or individuals, the key is transparency and the UK’s ability to get the information it needs about UK residents or companies to track them down. Progress has obviously been made in recent weeks on that. My noble friend Lord Wallace mentioned the case of Jersey, where a new agreement on exchange of information was signed earlier this month. That is pathetic. This month? As my noble friend Lord Wallace pointed out, Jersey has had an association with the British Crown way back into the mists of history, but it has taken until this month to get a tax exchange agreement sorted out. Dear, dear, surely we can do better than that.

The Government have at least taken, or may be about to take, decisive action in the case of the Turks and Caicos Islands, where the Auld report pointed out that there were systematic corruption and serious dishonesty by the Government there. I hope that in taking action there, the Government will not be put off by some of the bleats by some of the offenders in the Turks and Caicos, who claim that any action we take is a colonialist venture. Robert Mugabe tries that, and we know how much logic there is in that.

Even if we conclude acceptable tax information exchange agreements with all our tax havens and they do the same with all other countries whose nationals use their financial services, we will have gone only part of the way, because tax avoidance using tax havens is almost as pernicious, if not more so, as tax evasion. There was nothing illegal about Tesco using a Cayman Islands subsidiary to avoid paying tens of millions of pounds of stamp duty on some of its property transfers. There was nothing illegal about at least some of the schemes referred to by my noble friend Lord Oakeshott which Barclays Capital dreamt up and made such a lot of money on, just as there is nothing illegal about individuals who have made their wealth in the UK retiring to the Channel Islands to reduce their tax liability.

However, we feel a sense of moral outrage and a justifiable sense that something should be done to stop such behaviour, because its purpose is to allow the wealthy and the powerful—companies and individuals alike—to avoid their responsibilities as citizens and to take the benefits of living and operating in a well ordered society without paying their share of the costs that the state needs to incur to enable society to function. My noble friend Lord Burnett referred eloquently to that.

If the conclusion one draws is that more needs to be done, what might that programme consist of? One thing that is clearly not possible, even if we wanted to do it, is to require those countries to set tax rates at levels which are more nearly those in the UK, but there is a raft of things that we can do either on our own or in co-operation with our international partners. I strongly agree with my noble friend Lord Burnett’s proposal of a purposive rule for tax avoidance schemes. Over the past decade, we have seen a huge volume of legislation introduced in Finance Bills to try to deal with schemes on a case-by-case basis. One is always one step, if not more, behind the avoiders, so a purposive rule has a lot to recommend it. I am curious why the Government do not take a tougher line with the banks that they now effectively own or that are seeking or may seek government support, requiring them to stop running tax avoidance schemes.

One would like to see shareholders asking more questions of the companies in which they invest. I was interested to see the initiative taken by Aviva Investors earlier this year, which said that it will be a much more active shareholder across a whole raft of corporate governance issues. I hope that that is followed.

There should be a requirement that all non-doms who choose to remain in the UK for more than a set period should pay UK tax on all their global earnings, thus not just generating more tax income but closing another gigantic loophole. Noble Lords have referred to the Foot review on tax havens. Like others, I would welcome an update from the Minister on where that is going and when we may expect something back from it.

Finally, I return to the broad principle that my noble friend Lord Burnett discussed. We want to push for full information exchange agreements not just with our tax havens, as it were, but with those elsewhere in the world. We hope that that will be one of the outcomes of the G20 discussions.

There was a very effective summary of the situation in tax havens in this weekend’s Financial Times in an article by John Kay, who wrote:

“If you operate in the penumbra of legality, as havens do, it is easy to slip outside the bonds of legality altogether. Where there is legal avoidance of tax and regulation, illegal avoidance of tax and regulation is rarely far behind, and often hard to distinguish: where there is secrecy the motive is frequently impropriety; where there is impropriety, criminality is rarely far behind”.

We agree. We now want the Government to take action.

My Lords, I congratulate the noble Lord, Lord Wallace of Saltaire, on securing this debate. Despite the additional focus that tax havens have attracted from the G20 and, indeed, from President Obama, this is not the most important issue facing our country. Indeed, I have not even put it in the top 10. As my noble friend Lady Hooper pointed out, the report last week of the Lord, Lord Turner, found that offshore financial centres were not a cause of this financial crisis.

The Prime Minister has jumped on to the tax haven bandwagon precisely because it is a good way of diverting attention from the real problems that our economy faces and from his own role in creating them. To use the words of Mr Martin Broughton, the President of the CBI, this is a “red herring”. The Motion refers to tax avoidance and tax evasion, but as has already been pointed out, only tax evasion is illegal. As Lord Clyde said in the 1929 Ayrshire Pullman Motor Services case:

“No man in this country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or to his property as to enable the Inland Revenue to put the largest possible shovel into his stores”.

I look forward to hearing whether the Minister regards that as continuing to be good law.

We condemn tax evasion, and we have absolutely no desire to encourage tax avoidance. It reduces tax revenues and penalises other taxpayers. But we equally respect the right of taxpayers to arrange their affairs within the law so as to minimise the taxes that they pay. On the other hand, the Government of the day have a clear obligation to create a tax system which results in tax being paid fairly across the population and which deals severely with those who evade tax. It is beyond the scope of today’s debate to say how our tax system should develop to reduce the scope for tax avoidance, but I commend to the House the report of the tax commission chaired by my noble friend Lord Forsyth, which sets out the principles that should guide Governments in this area. It includes massive simplification and lower rates of tax. That is what will contribute to an environment in which tax avoidance will be reduced. We do not expect the current Government to deliver on that agenda.

Offshore financial centres are only one aspect of the problem of tax avoidance and tax evasion. The Motion refers only to those under the British Crown, but the issues that the noble Lord has raised are relevant to financial centres, whether offshore or onshore and whatever their constitutional arrangements and allegiances. We see nothing wrong with a territory having low or zero tax rates. The OECD recognises that it is for each individual country—not the global community—to determine how it raises the revenues that it needs. We do not condemn tax competition between nations. We support the autonomy of the nation state in tax matters, which includes defending our own tax system against constant attempts by the EU to interfere in direct tax matters for which it has no competence.

We are also aware of good reasons for the use of offshore financial centres. I have received some briefing from CDC group, formerly the Commonwealth Development Corporation. Noble Lords will be aware that CDC channels development money into businesses in emerging markets, particularly in Africa and the Indian sub-continent.

CDC often uses offshore financial centres for the vehicles that it sets up to create this worthwhile investment. It has a number of reasons for that, including the availability of a legal infrastructure, which does not exist in all developing countries, and access to financial markets that are not open to developing countries. In addition, offshore financial centres offer tax neutrality so that no additional taxes are borne by the vehicle set up to pool investment funds. My noble friend Lady Hooper also set out how centres such as the BVI are beneficial not dens of iniquity.

We certainly do not support the secrecy that is often associated with offshore financial centres, though not, as my noble friend pointed out, the BVI. We do not believe that secrecy should be allowed to be a competitive advantage. Secrecy has much wider implications than tax. Transparency makes ill gotten gains from corruption more difficult to conceal and hampers those who gain from organised crime or who wish to finance terrorist activities. These are the most important reasons for putting pressure on all countries to abandon secrecy.

Today’s debate is particularly important as it allows us to ask the Minister some questions about the Government’s position on offshore financial centres. We have learnt over the last week that the Minister has been intimately involved in business in tax havens. I am quite sure that he knew—and operated within—the distinction between tax avoidance and tax evasion. Does he agree with what the Prime Minister said to Congress earlier this month? He asked:

“But how much safer would everybody’s savings be if the whole world finally came together to outlaw shadow banking systems and offshore tax havens?”.

Does the Minister join in the Prime Minister’s condemnation of the use of offshore tax havens? Should people who use them now be regarded as outlaws? During Oral Questions earlier this week, the Minister seemed rather proud of his involvement with a business based in the tax haven of Bermuda. He told the House that,

“since inception it has paid $360 million in tax, the majority of which has been paid in the UK at an effective tax rate of 24 per cent compared with UK tax rates of 28 per cent”.—[Official Report, 24/3/09; col. 556.]

That of course leaves open the question of how the group shaved 4 per cent off its tax rate—or indeed 6 per cent—before our corporation tax rate came down from 30 per cent last year. On the Minister’s figures, that is between $60 million and $90 million less tax paid to the UK than we would have expected.

I have also had a quick look at the financial statements for the company concerned, Aspen Insurance Holdings Limited. They show an overall current tax rate—that is the cash tax rate—of less than 20 per cent, so another 4 per cent or so is not actually being paid in taxes. There must have been some impressive tax planning going on somewhere, presumably using the tax holiday from which the group benefits by being based in Bermuda. Can the Minister say whether the UK Government think that it is justifiable to use tax havens like Bermuda to avoid UK tax?

When the Prime Minister addressed Congress, was he referring to arrangements like those in which the Minister has been involved? I repeat, does the Minister endorse the Prime Minister’s condemnation of the use of tax havens? He did not appear to do so on Tuesday. Put simply, will the Minister in his response to this debate give a simple answer—yes or no—to one very basic question? Is it justifiable to avoid UK tax by using tax havens such as Bermuda? These questions must be answered when the Minister responds, in view of the Prime Minister’s clear declaration to Congress that offshore tax havens must be outlawed.

My Lords, this is a timely debate. I thank the noble Lord, Lord Wallace, for bringing this issue to the attention of the House and, if the noble Lord, Lord Newby, is to be believed, the world.

I want to set out the Government’s actions in addressing the issues that have been raised. My right honourable friend the Prime Minster said to the European Parliament earlier this week that,

“we can for the first time agree the big changes necessary for co-ordinated action that will signal the beginning of the end for offshore tax havens and offshore centres”.

The UK has been leading the development for this international consensus. As the noble Lord, Lord Newby, noted, there has been a marked change of attitude globally towards this issue, no doubt in significant part related to the very strong position that President Obama has taken on it.

Tax evasion is illegal, and those who engage in it risk prosecution. It is also distortionary, meaning that investment decisions are made in order to evade taxes rather than for reasons of economic efficiency. Secrecy contributes to tax evasion. Improving transparency and the exchange of information by tax authorities is the key to tackling secrecy. It is a global problem, and the UK’s response to it needs to reflect that. We have been using our presidency of the G20 this year to focus on tax havens and to ensure that they do not have a harmful effect on tax revenues and the financial system. The UK wants to see all jurisdictions signing up to international standards on transparency and the exchange of information in tax matters. I agree with the noble Lord, Lord Burnett, that this will require co-ordination and co-operation. It is a tall order but it is achievable. The noble Lord, Lord Burnett, asked a number of questions about the outcome of existing agreements for the exchange of information and I will investigate whether that is a matter on which I might be able to provide him with some further assistance in writing.

In the days leading up to the G20 Finance Ministers’ meeting, there was a flurry of announcements from countries such as Switzerland, Liechtenstein and others who have upheld banking secrecy in the past. They have made commitments to meet the international standards. The key now is to ensure the swift implementation of these commitments. Leaders will review progress at the London summit on 2 April. One of the issues they will no doubt review at that time will be the sanctions that may be required should this voluntary process not deliver the expected results.

In addition to promoting exchange of information through the G20, for a number of years we have been taking similar action in the European Union through the savings directive, which has improved the flow of information between member states. This framework also extends to third countries such as Switzerland. We have also taken action closer to home. As the noble Lord, Lord Wallace, noted, HMRC’s offshore disclosure facility shows that HMRC is tackling evasion through the use of offshore accounts. Set up in 2007 to encourage UK residents with unpaid tax connected to offshore accounts to make full disclosures, it has so far recovered £400 million. HMRC has also been successful in reducing losses in VAT and excise fraud in recent years by about £4 billion. The Government also recognise the wider effects of tax evasion on developing countries. That is why, with the Department for International Development, we are looking at ways to improve developing countries’ tax systems, and why DfID and HMRC provide capacity-building assistance to those countries.

In response to a Question from the noble Lord, Lord Higgins, earlier this week, I spoke about the distinction between tax evasion and tax avoidance. Tax avoidance is not illegal but, like evasion, it can undermine tax revenues and investment in public services.

Last week, my right honourable friend the Chancellor of the Exchequer announced that HMRC will be publishing a draft code of practice on taxation for the banking sector to ensure that banks comply with not just the letter but also the spirit of the law. Our intention is to produce a draft code, probably at the time of the Budget, and then to consult publicly with a view to getting it right so that the code of practice works and is introduced as soon as possible thereafter. The noble Baroness, Lady Hooper, asked whether this would apply to offshore banks. I will certainly draw this to the attention of Mr Michael Foot. In addition to UK banks, it will cover the UK branches of overseas banks, and I hope it might prove to be a model which others will see as having merit. We can no longer hide behind the excuse that there is no acceptable definition of avoidance. In the end this becomes a moral issue and to some extent answers the point raised by the noble Baroness, Lady Noakes, about whether the legal judgment to which she refers continues to be applicable. There is a new sense that complying with the spirit of the law and the intention of Parliament is important and we have ample evidence of codes of practice, particularly in the financial sector, providing guidance as to behaviours. I am optimistic that the steps we are taking here around a code of practice to include an independent audited element will help take us forward.

The UK has taken the EU lead in tackling some of the most aggressive tax avoidance schemes through the EU’s Code of Conduct for Business Taxation. The former Paymaster-General and the Financial Secretary chaired this code group for more than 10 years. During this period, the group identified 66 measures that were considered harmful in the UK’s Crown dependencies and overseas territories. All have now been repealed or are in the process of being abolished. We have also recently seen progress made by the UK’s Crown dependencies and overseas territories—particularly Jersey, Guernsey, the Isle of Man, Bermuda and the British Virgin Islands—in signing tax information exchange agreements. We welcome this, and it is important that this momentum continues. We expect offshore financial centres to go further and to commit to meeting international standards as they arise in the future. Recent financial events have highlighted the need to look at the role the UK’s Crown dependencies and overseas territories have played in encouraging non-transparency in the financial system, which has led to tax evasion and avoidance.

At the Pre-Budget Report last November, the Chancellor asked Michael Foot, a former director of the Bank of England and the FSA, to lead an independent inquiry into the long-term opportunities and challenges facing Crown dependencies and overseas territories as financial centres. The review will release interim findings at the Budget. The noble Lord, Lord Wallace, inquired whether this would be a friendly or an aggressive review. I would like to believe it will be an independent and objective review, which reflects the wisdom and experience of the reviewer, Mr Michael Foot. Tax is only one factor in the review but it is right that we should have an independent assessment of the sustainability of an economic model where one sector—financial services—dominates but which has been attracted there not by intrinsic skills or resources but by other factors, particularly low taxation. A financial services industry based solely or primarily on tax evasion or avoidance is no longer internationally acceptable.

The noble Baronesses, Lady Noakes and Lady Hooper, referred to the many skills and qualities offshore centres provide which go beyond tax issues. The noble Baroness, Lady Noakes, referred, in particular, to representations made to her by CDC, and I recognise the merits of those arguments. What I am establishing here is that an offshore financial centre which is solely or primarily dependent on tax evasion or tax avoidance is not acceptable. In the same way as we are having to wean the farmers of Afghanistan off the poppy and the farmers of Colombia off coca, we have to wean offshore financial centres off tax if that is the only source of competitive advantage that they offer.

The noble Lord, Lord Bradshaw, referred to the moral role for the UK Government. Proper governance is not incompatible with adopting a code of practice for tax aimed at complying with the spirit of the law. The Government have a role in setting standards. We can provide a policy, an institutional framework, which can stimulate companies to raise performance on tax compliance beyond the statutory minimum in order to benefit the wider community and the longer-term interests of shareholders.

The noble Lord, Lord Burnett, referred to whether we should have tax and information exchange agreements with all countries which involved the automatic exchange of information. Tax information and exchange agreements are effective at providing targeted and relevant information on request and are now widely used. Automatic exchange of information between all countries would probably be highly complex and costly to administer. The key is to ensure we have the relevant information required to achieve the purpose.

My Lords, I think that I understand what the Minister says. As he will know, what is important is tracing and finding out who the beneficial owner is. If he could deal with that a little, I would be grateful, unless he wants to write to me about it.

My Lords, I agree with the noble Lord’s representation. I may well add further comment in a letter, which I will of course copy to others who have participated in the debate.

The noble Lord also asked why we did not just stop avoidance. Avoidance is legal behaviour that goes beyond the spirit of the law; that is why it is so important that we recognise that the letter will not be sufficient here and that the spirit is critical. I have already answered his question about sanctions. The G20 summit on 2 April will no doubt take stock of latest progress. He also asked about withholding tax agreements with EU countries. Three EU countries—Austria, Luxembourg and Belgium—apply a withholding tax rather than exchanging information under a transitional framework, although Belgium recently committed to automatic exchange from next year. We are keen for all countries covered by the EU savings directive framework to move to exchange of information as soon as possible.

The noble Lords, Lord Newby and Lord Burnett, asked about the Stop Tax Haven Abuse Bill in the US. We are closely monitoring that Bill, which was introduced by Senator Levin, and have co-operated with the US Government on the issue through the G20. The noble Lord, Lord Newby, said that he was curious why the banks in which the British Government had a shareholding were not moving more rapidly on the issue. I and others in government welcome the steps taken already by the Royal Bank of Scotland to close down the unit primarily responsible. It is important to recognise that individual banks taking action will not stamp out behaviours that we find unacceptable, because there will simply be somewhere else to go. That is why this needs to be co-ordinated and to involve international co-operation. However, as one walks around places such as Jersey and Guernsey, it is striking how on every street and on every corner you see the logos of major international accounting firms such as KPMG and major international banks. It is important to recognise that, in this area, those centres rely for their effectiveness on the operations there of non-domestic banking and advisory institutions.

I will not be tactless and refer to Mr Michael Brown and the difficulties that the Liberal party might have in that respect. Nor will I express anything other than mild disappointment that the noble Lords, Lord Laidlaw and Lord Ashcroft, are not in the Chamber; no doubt they would have been able to give us some valuable insights into offshore centres and tax matters—as indeed, in the other House, would the shadow Business Secretary, who would have been able to tell us about his involvement with businesses based in offshore centres. In response to the noble Baroness, Lady Noakes, I say that we must accept that there are legitimate reasons for operating from other centres. No doubt the treasurer of the Conservative Party has good reasons for being involved in businesses that have activities in other financial centres. Frankly, it is a pointless route to go down to try to damage people’s reputations and integrity by implying in whatever cautious language one uses, as has been the case with the press at times, that there is something improper about being involved in other jurisdictions. I for one have no shame about my involvement with Aspen, a highly successful international reinsurance company based in Bermuda, one of the world’s important reinsurance centres—advised throughout on tax matters by the reputable firm of KPMG, with which I believe that the noble Baroness is familiar.

At times, I found the noble Baroness’s speech veering towards her being an apologist on matters that are clearly a great concern to the noble Lord, Lord Wallace, and others who spoke in support. I read in the Financial Times earlier this week that she said that this issue was just a distraction. I do not believe that; there is clear evidence that very large amounts of tax are not being paid, and it is important that we address that. I recommend that she read the recent speech by Mr David Cameron on capitalism with a conscience, which shows that there is a moral dimension to business—it is not all about making money or lining your pockets with as much money as possible, but is about being a responsible member of society.

The Government and other Governments are gripping the issue in a way that has not been done in the past. We are improving transparency. There is an international consensus around spirit in addition to letter, which will pay significant dividends in due course. I hope that I have answered most of the questions raised. If I have failed to answer any that were material, I will of course cover them in writing to the noble Lord.

My Lords, I thank the Minister for that useful and constructive reply, and thank all those who took part in the debate. Let me briefly make a few remarks. The sustainability of the offshore financial centre model is a large question. I was in Jersey some months ago talking precisely about how it survives if its offshore financial services go down; that is a real problem.

I am sorry that, in her short and uninformative speech, the noble Baroness, Lady Noakes, did not address many of the issues at stake. I was surprised that there were no speeches from the Labour Back Benches. The Labour Party used to be concerned with social justice and fairness. A number of Labour Members of this House are active members of the All-Party Cayman Islands Group, and I know that they go to the Cayman Islands with their partners on occasions.

This has been a useful debate. We need to continue to follow the issue. We wish the Government good luck in pursuing it further. They need to act now because, if we did have a change of government, clearly a new Government would not wish to take any action in this respect.

Motion withdrawn.