Tax Avoidance and Evasion

David Gauke addresses the issue of secrecy within the financial services sector and tax jurisdictions and calls for more transparency and greater exchange of information - especially as avoidance activity is likely to increase when tax rates increase. Mr. David Gauke (South-West Hertfordshire) (Con): It is a pleasure to serve under your chairmanship for the second time today, Mr. Hancock. I congratulate the hon. Member for North-West Leicestershire (David Taylor) on securing this debate. It is, as others have said, timely and topical, indeed fashionable, although to be fair to the hon. Gentleman, I do not think that anyone would describe him as a slavish follower of fashion, intellectual or otherwise. None the less, it is helpful for us to debate the issue. I know that he has pursued it for some time.

There is a clear consensus that secrecy within the financial services sector and various tax jurisdictions is creating great problems. The public mood has shifted, partly because at a time when most people's tax burden is increasing, it is essentially unfair that a wealthy minority can avoid their tax obligations. Also, as the hon. Member for Leeds, East (Mr. Mudie) pointed out, the Government are desperately searching for revenue, we are borrowing a huge amount and debt is increasing.

I share the focus of the comments made by the hon. Member for North-West Leicestershire and Christian Aid in its campaign. Secrecy is key. We must find practical ways to improve the exchange of information. In the Crown dependencies and overseas territories, the picture is not all bad. Progress has clearly been made in our offshore financial centres, according to the interim Foot report commissioned by the Prime Minister, on a test of compliance with the Basel Committee on Banking Supervision, the International Organization of Securities Commissions, the International Association of Insurance Supervisors and the anti-money laundering standards published by the Financial Action Task Force. The International Monetary Fund assesses those financial centres as broadly comparable to other jurisdictions and, in some cases, better. It is also worth noting that the G20 assessment for the Crown dependencies suggested that they are substantially implementing the international standards for exchange of information. The overseas territories are committed to doing so, but they have not substantially implemented them yet.

We must not be complacent, of course, and there is clearly a great deal of progress to be made, but as the hon. Member for Twickenham (Dr. Cable) rightly pointed out, terminology is important. What do we mean by a tax haven? I would argue that a tax haven is not simply a jurisdiction with low tax rates. That is a sovereign right. The Republic of Ireland, for instance, was sometimes accused of being a tax haven for having a corporation tax rate of 12.5 per cent. I think that the focus should be secrecy.

Another point of terminology that the hon. Gentleman rightly raised is that there is a spectrum that runs from tax evasion, which is clearly illegal and unacceptable and must be addressed, through tax avoidance to tax planning. I quote:

"It's perfectly legitimate for people to tax plan. They are only obliged to render unto Caesar what is due to Caesar."

That comment was made by the Chancellor of the Exchequer to the Treasury Committee in his evidence; I suspect that the hon. Member for Leeds, East will recall it.

We must be careful about what we are addressing. There is a danger of confusion in some of the criticisms made about the level of tax avoidance. A number of hon. Members have mentioned the Trades Union Congress report that refers to a tax gap. The work was undertaken by Mr. Richard Murphy, who identifies a £25 billion tax gap caused by tax avoidance. Essentially, he looked at headline tax rates and then at the total tax rate, measured the gap and said that it was caused by tax avoidance, but that fails to take into account that we as a Parliament deliberately introduced measures that mean that entities, individuals and companies are not necessarily paying the headline rate.

It appears that half of the £25 billion gap is due to a combination of independent taxation in the UK between spouses and civil partners and the fact that companies can defer taxation through capital allowances. Bill Dodwell of Deloitte put it well when he said:

"The TUC's report doesn't inform the tax avoidance debate: it seems to be challenging policy choices (independent taxation; the taxation of the self-employed; capital allowance rates) by labelling them as tax avoidance."

We must be careful not to devalue the terminology. There is such a thing as tax avoidance, which should be addressed, but let us not become confused.

Christian Aid has led the argument on the international development element of the issue. I know that it is in frequent communication and contact with my hon. Friend the Member for Sutton Coldfield (Mr. Mitchell), our spokesman on international development. Christian Aid makes the point made by the hon. Member for North-West Leicestershire: it is better that countries should be self-sufficient and rely on their own tax revenue rather than aid. That is an interesting point for the Minister to answer. How much are the Government doing to assist in that?

On a note of caution, my party and I believe that globalisation has many positive effects and that it is good for countries to trade with each other and for multinationals to be active in developing countries. As my hon. Friend the Member for Banbury (Tony Baldry) pointed out, multinationals go to developing countries and create jobs, which benefits those countries. One reason why they may do so is the lower tax burden. It might be a combination of accident and design-my hon. Friend referred to tax holidays, for example- but if the lower tax burden is no longer available, it is legitimate to question whether multinationals would invest in the same way and create the same number of jobs.

To what extent do the numbers in the Christian Aid report incorporate a dynamic model? If not for what it describes as the tax leakage from developing countries to developed countries, would there be as much economic activity? I question whether that is the case.

Nia Griffith: Will the hon. Gentleman give way?

Mr. Gauke: I have only one minute, so I apologise to the hon. Lady for not giving way.

To conclude, in order to allow the Minister his full time, there should be more transparency and greater exchange of information, and it is right that we should debate the practical ways of developing them, but I have two questions about the UK and anti-avoidance. To follow the comments made by the hon. Member for Twickenham, how much is HMRC investing in enforcement and tackling tax avoidance? There were reports that the amount being spent on those matters increased to £1 billion, although we do not have comparable figures for previous years. Will the Minister put that £1 billion figure into context?

Secondly, avoidance activity is likely to increase when tax rates increase. A new 50p income tax rate has just been announced. It was reported that Treasury modelling said that 69 per cent. of those affected by the 50p rate will avoid or evade paying at least some of the tax. Will the Minister confirm whether those reports are accurate?

In conclusion, it is right that we tackle this issue in a practical way. We must address secrecy so that those who have to pay a fair amount pay it.

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