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Taxation: Avoidance

Volume 739: debated on Wednesday 25 July 2012


Asked By

To ask Her Majesty’s Government on how many occasions since 2010 officials of HM Treasury received reports and recommended action on the operation of the K2 offshore loan tax avoidance scheme, and on tax avoidance generally.

My Lords, HM Revenue and Customs was investigating the K2 scheme prior to recent press articles. HMRC does not report operational details on the specific schemes to HM Treasury but advises if a change in the law is needed. Since 2010, action has been taken on 26 occasions to close down avoidance schemes by legislation. The Government are consulting on a general anti-abuse rule and on extending the disclosure of tax avoidance schemes rules.

I thank the noble Lord for that Answer, and I am sure that we will be returning to this issue later in the Session. On the second part of my Question, is it not true that tax evasion through the failure of United Kingdom citizens and foreign nationals to pay tax on rental income from private residential property held within the United Kingdom is costing the country millions if not billions of pounds annually? Is there not an argument for local authorities to be required to register all private rented property in their area, with declarations of ownership accessible by HMRC?

My Lords, the important broad picture here is that on the latest annual figures, those for 2010-11, HMRC collects approximately £469 billion a year. The estimated tax gap is 7.9%, a percentage that compares favourably with, for example, the USA at 14% and Sweden at 10%. Nevertheless, there is a gap of £35 billion and it is very important that HMRC does all that it can to close it, which is why it is prioritising this area in many respects. I hear what the noble Lord says about a specific issue and I will take his suggestion away, but I can assure the House that HMRC is prioritising it right across the board.

My Lords, does my noble friend agree that if Treasury Ministers wish to minimise avoidance and maximise revenue they should leave delivering moral guidance to the church and concentrate on delivering simpler, lower, flatter taxes as our manifesto promised?

My Lords, the lowering of the top rate of tax, for example, makes my noble friend’s point very clearly. By putting the top rate of tax at 50%, the previous Government, as the analysis has now shown, delivered absolutely nothing—or very little at best—in terms of revenue, and made this country uncompetitive. So we need wherever possible lower and broader taxes. I agree with my noble friend on that.

Could the Minister just remind the House, further to the question from the noble Lord, Lord Forsyth, that tax avoidance is not illegal—that it is legal to avoid taxes—and that when individuals see the Government wasting a lot of their hard-earned money, they have a duty to avoid those taxes?

I can certainly confirm that tax avoidance is not illegal. I can also say, building on the figures that I gave before, that of the £35 billion tax gap, £30 billion is estimated to be evasion and a relatively small part, £5 billion, to be avoidance.

My Lords, could my noble friend tell the House what the annual cost is to the Exchequer of the tax breaks that this country gives to non-doms? Which other countries are so generous to their rich foreign residents?

I suspect that it would be very difficult to estimate the benefits of the non-dom tax regime. The principal benefit is that we derive an enormous amount of business and employment from the fact that this country is relatively open to non-doms, and those benefits we must retain while at the same time making the non-doms pay their fair share. That is why the annual charge of £50,000 has been introduced by this Government and why we are clamping down on areas such as avoidance of stamp duty. We need to strike the right balance.

My Lords, the House will have noted that the noble Lord who supports UKIP is in favour of rich people not paying taxes against a background of the nation expecting the Government to pursue a vigorous drive to ensure that those liable for tax pay tax. The Minister indicated somewhat complacently that at 7.9% the deficit is lower than in some other advanced countries. But would he indicate whether that figure has been going down since this Government came into office and whether he anticipates a better figure two years from now?

My Lords, the estimate of the tax gap in 2004-05 was 8.5% and it is now 7.9%. It still means that there is a tax gap of £35 billion, which HMRC will vigorously pursue. That is why only this week we made further announcements and consultations to make sure that aggressive tax schemes and the people who market them are targeted more effectively and why HMRC has reinvested £900 million of its spending in this spending round to target this area.

My Lords, is it not seriously damaging to social cohesion—and demoralising in the literal sense of that word—when some of the highly paid and some would say highly overpaid public company directors are paying a much lower rate of tax on their grotesque earnings than the lowest paid employees in their companies?

My Lords, what is important is that we have a tax system that is fair and which means that those with the broadest shoulders pay the most, which is exactly what the most recent Budget did, and that we have a tax system whereby in all parts of the earning scale people are incentivised to work. That is why raising the tax threshold on the way to our target of £10,000 is one component of making a real, radical change to the tax system in this country.

Can the Minister tell us how much revenue is forgone in consequence of higher-rate pension tax relief? Does he consider that either fair or useful?

My Lords, this is another area where we need to strike a fair balance. We need to encourage savings in this country; we need to get the savings rate up; and we need to make sure that people are incentivised to save for all eventualities, including their pensions. The noble Lord would be right to say that we and the previous Government have taken measures to ensure that there is a fair balance.