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Taxation: Avoidance

Volume 759: debated on Monday 9 February 2015


My Lords, with the leave of the House, I shall now repeat in the form of a Statement the Answer given by my honourable friend the Financial Secretary to the Treasury to an Urgent Question in another place on tax avoidance by HSBC. The Statement is as follows:

“HMRC has a long-standing approach to tax evasion, which is based on collecting the tax and interest due, changing taxpayer behaviour to discourage them from evading in future, and enforcing the most appropriate and effective penalties. Overwhelmingly, this means providing disclosure facilities to encourage tax evaders to sort out their tax affairs, backed by civil penalties to fine them for the offence.

This Government have supported HMRC’s approach by increasing investment in HMRC’s enforcement capacity and by strengthening HMRC’s powers, including increasing the maximum civil fines for hiding money in tax havens to 200% of the tax evaded. There was no evidence for the possibility of prosecution of HSBC from the data provided to HMRC. However, if further evidence comes to light through the evidence published today, HMRC will of course respond appropriately.

This approach has been very successful in tackling tax evasion—whether from plumbers, barristers and medics in the UK or from the wealthy hiding money in offshore accounts. HMRC has collected more than £1.6 billion from 57,000 disclosures as a result of a wide range of UK and international initiatives. Internationally, since 2010, HMRC has brought in around £2 billion in previously unpaid tax as a result of the UK’s agreement with Switzerland on a withholding tax on Swiss bank accounts and the international Liechtenstein disclosure facility.

In a small number of cases, HMRC will institute criminal investigations into serial tax evaders and those who deliberately conceal information from us. But in most cases, disclosure and civil fines are the most appropriate and effective intervention, and that is how HMRC has approached the receipt of data from leaks and whistleblowers, including the Swiss HSBC data that were shared with the department in May 2010.

Using the civil disclosure approach, HMRC has systematically worked through all the HSBC data that it has received, and has brought in more than £135 million in tax, interest and penalties from tax evaders who hid their assets in Swiss HSBC accounts. HMRC received data about 6,800 entities, which, after removing duplication, resulted in information on 3,600 businesses and individuals. Of these, more than 1,000 were challenged and the cases were settled. HMRC believes the remainder are compliant but continues to monitor their activities. HMRC is examining whether we have all the same data that the ICIJ has, and will be asking the ICIJ for any data that we have not already been given.

HMRC received the HSBC data under very strict conditions, which limited the department’s use of the data to pursuing offshore tax evasion and prevented HMRC from sharing the data with other law enforcement authorities. Under these restrictions, HMRC has not been able to seek prosecution for other potential offences, such as money laundering. The French authorities have today confirmed that they will provide all assistance necessary to allow HMRC to exploit the data to the fullest.

HMRC’s powers to crack down on international evasion are being further strengthened by the new international common reporting standards, which more than 90 countries have agreed to as an extra tool for closing down the options for tax cheats to pursue this increasingly high-risk practice”.

My Lords, I fear the House and the country are going to regard that as a fairly lame Statement in the light of the disclosures today. The Minister has not made any attempt at all to answer the questions that are being asked about past actions. We and the country want to know: why did the Prime Minister, first, appoint Stephen Green to this House when the information was already in the Government’s hands and, secondly, make him Trade Minister? Did they not address the issue of due diligence at all with regard to Mr Green’s past actions and responsibilities at HSBC, as chairman and before that as chief executive? When the information was received by the Government, why was it not acted on?

Why is it that we are now hearing from the Government that we have had one successful prosecution, but the French are talking about the very many successful prosecutions that they have carried out? Why are the Government now boasting about the fact that they have been able to persuade the French to release their information and be helpful to the British Government? That looks as if the French have set about the issue with the due seriousness and urgency that were required, and our Government have not.

Finally, despite what the Minister says about the actions being carried out, the amount of uncollected tax has risen year on year on this Government’s watch, from £31 billion in 2009-10 to £34 billion in 2012-13. When will this Government take real, meaningful action to tackle this tax gap?

My Lords, as I explained at Questions earlier, before the noble Lord, Lord Green, was appointed to your Lordships’ House, he went through the normal rigorous vetting procedure that is undertaken by the House of Lords Appointment Commission, and the Cabinet Office went through its normal procedure. As for prosecutions, my colleague’s Statement in another place explained that HMRC received the HSBC data under very strict conditions which limited our use of them to pursuing offshore tax evasion, and prevented us from sharing the data with other law enforcement authorities. Under these restrictions, we have not been able to seek a prosecution for other potential offences such as money laundering. However, by pursuing the civil route, we have been able to recover some £135 million from people who were involved in this activity. The noble Lord is right in saying that, in monetary terms, the tax gap has increased very slightly but I think he will find that in real terms the tax gap has fallen.

My Lords, in the course of his Statement my noble friend said twice, I think, that it is more appropriate to deal with these issues by way of civil proceedings. He mentioned that the amount recovered was a sum short of £200 million. My own experience—I must plead guilty to being a practising lawyer of 57 years’ standing—is very clear that one conviction of one major figure in one major bank for tax fraud, such as that which HSBC has been carrying out for many years, reverberates around the City and the world of business and the professions with infinitely more force and effectiveness than any amount of civil penalties, which none of those who are responsible for the malefactions actually pay from their own pocket.

My Lords, the noble Lord asked about civil as opposed to criminal penalties, and whether an exemplary hanging might not be a good idea. I explained the difficulties about prosecutions in this case, but we have successfully prosecuted people for LIBOR manipulation and we have extended the scope of the criminal law in respect of people in senior positions in banks. The noble Lord will probably have seen that the very threat of criminal action against directors of banks, even though pretty remote, has made a number of non-executive directors of banks extremely nervous.

My Lords, anybody who knows the noble Lord, Lord Green of Hurstpierpoint, as many of us in this House do, knows that he is a person of the utmost integrity and great ability. Do not these revelations about HSBC, profoundly shocking as they are, demonstrate two things, among others? The first is that enormous international conglomerates such as HSBC are impossible to manage as they need to be managed. Secondly, does not this revelation demonstrate the cultural change wrought by the neo-liberal orthodoxy which has been dominant during recent decades and under which personal material self-seeking has been elevated far too far above other values?

My Lords, if noble Lords have read the statement by HSBC in today’s Guardian—it may be in other newspapers, but that is where I read it—they will have seen that it is clear that, in 2005, HSBC was run as a very loose confederation and that the centre sought not to exercise very great control. That has changed very dramatically, and the new regulatory authorities are much more intrusive in ensuring that management at the centre has effective control throughout the organisation. It is clear that there was a wholly unacceptable culture in many of the banks. Both regulatory and legal change and activities by the banks in setting up their own body to monitor standards—as well as statements by senior management at the top of banks—are trying to reverse that culture towards the kind of culture that I suspect most people would expect their bankers to follow.

My Lords, I have listened to several attempts by the Opposition to tie the name of my noble friend Lord Green to whatever was going on in HSBC Switzerland, which I know in intention he would not dream of defending. Does the Minister nevertheless accept that my noble friend Lord Green is a man of the utmost probity who has done an enormously valuable job as a Trade Minister for this Government? I have the privilege of working with him. His activities bring great benefit to this nation. Would it not be a little wiser, if we want to maintain the quality and integrity of our political discussion in this House, to avoid premature innuendo of the kind that we have heard frequently from the opposition Benches?

My Lords, can I endorse what the noble Lord, Lord Howarth, said? I know my noble friend Lord Green, who I agree is a man of great integrity. I agree also that the acquisition by HSBC at the time of a great many companies, producing a loose federation, caused management stretch in terms of organising it—I think that it has learnt the lessons of that. It is important that people outside this Chamber understand the measures that this Government have taken to strengthen controls on banking behaviour.

My Lords, I agree with the noble Lord. It is important to stress that, as a result of initiatives led by this Government, there will be in place automatic information exchange agreements with more than 90 countries within a couple of years, including Switzerland, which means that the kind of egregious behaviour which today’s revelations have brought to light simply will not be possible in future.

My Lords, I could not help noticing that the noble Lord, Lord Foulkes, was not here at all for the Statement that my noble friend Lord Newby repeated at the beginning of this Urgent Question. It is our convention that it is appropriate for a noble Lord to be present in the Chamber if he wishes to ask a question about a Statement. As I have taken time in order to make this point, it is of course the turn of a Labour Peer to ask a question of my noble friend should they wish, but I think that the noble Lord, Lord Foulkes, would not be in line with the Companion if he was to ask that question himself.

My Lords, our convention suggests, as stated in the Companion, that noble Lords must be here in this Chamber to hear the Statement being repeated if they wish to ask a question of the Minister repeating that Statement. The noble Lord, Lord Foulkes, was not in the Chamber to hear my noble friend repeat the Statement.

My Lords, the noble Lord, Lord Green, as everyone has said, is a man of great integrity. Can the Minister tell us whether the noble Lord was aware of the wrongdoing of the bank of which he was chairman? If he was aware, was the Prime Minister aware of that when he appointed him as a Trade Minister? If he was not aware, what judgment did the Prime Minister make about how effective he was as chairman of HSBC?

My Lords, I have no idea what was in the head of the noble Lord, Lord Green, but I am aware that when he was appointed he was held in extremely high esteem by everybody who had ever had any dealings with him.