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Tax Avoidance and Evasion

It is a pleasure to serve under your chairmanship this afternoon, Mr. Hancock. The debate has been excellent with well-informed and interesting contributions from the hon. Member for Banbury (Tony Baldry) and my hon. Friends the Members for Llanelli (Nia Griffith), for Great Grimsby (Mr. Mitchell) and for Leeds, East (Mr. Mudie), as well as from the Opposition spokesmen, the hon. Members for Twickenham (Dr. Cable) and for South-West Hertfordshire (Mr. Gauke). In particular, I congratulate my hon. Friend the Member for North-West Leicestershire (David Taylor) on securing this timely debate on tax avoidance and evasion. The Government believe that for any tax system to be effective, everyone must pay their fair share. Tax evasion and avoidance damage the ability of the tax system to deliver its objective of paying for services that we all use and need. It is important to say that the vast majority of people in Britain pay the right amount of tax. It is unsurprising that those who pay are angered by reports of the small minority of people and companies who seek deliberately to evade or avoid paying their fair share. The Government have been consistent in challenging avoidance and evasion through legislation and litigation, and by working closely with other countries, which is increasingly important in the global economy. It is said that businesses that operate internationally can most readily reduce the amount of tax they pay and that globalisation opens opportunities to avoid tax. From the UK point of view, we must keep our rules under review and work with international partners to support our competitive position and protect our tax base. We must also ensure that our partners' systems are not open to abuse. I will shortly say more about the important international agenda that we are pursuing in response to the points made by my hon. Friend the Member for North-West Leicestershire. The Government are also taking strong domestic action to counter tax evasion and avoidance. The Budget set out a further package of measures to tackle tax evasion and avoidance. In addition to closing down a number of abusive and artificial tax avoidance schemes, we announced measures to tackle cross-border tax evasion, including an opportunity for holders of offshore bank accounts to come forward and pay what they owe. The Chancellor announced steps to ensure that large taxpayers take responsibility and accountability for paying tax, including a duty on the senior accounting officers of the largest companies to sign off on tax returns. As hon. Members noted, we are also introducing legislation that will allow HMRC to publish the names of serious tax defaulters. That package of measures will raise more than £1 billion in the next three years and, by 2010, will protect a further £3 billion of tax receipts from evasion and avoidance each year. I mentioned that this problem is international. We are not the only country acting domestically to tackle tax evasion. Earlier this week the US Government released proposals to tackle the problem, which we will watch with interest. The need for international collaboration on taxation has never been clearer. The global financial downturn and the shocks that precipitated it highlight the extent to which our economies are intimately interconnected. The ability of large firms to move large flows of money around the world with ease provides greater opportunity for tax arbitrage through structures designed to minimise tax, as we have heard from hon. Members. As well as leading to a loss of tax revenues at home and in the developing world, such structures add capacity to the financial system and increase uncertainty about the location of risk and value. The Government have long been committed to supporting developing economies. As well as providing aid to the poorest developing countries, we have been clear about the role that tax can play in the development process. I assure my hon. Friend the Member for Leeds, East that that is not a new conversion—it has been a consistent policy over many years. In effect, we have led G20 discussions on taking action in this area. It was among the key issues discussed in London, where a great deal of progress was made. The G20 leaders agreed to take action against tax havens and noted the published OECD list of jurisdictions that do not meet international standards for exchanging tax information. They are ready to deploy sanctions, if necessary, and I will say more about that in a moment. Tax information exchange agreements play a key role in combating evasion and avoidance by enabling tax authorities to obtain information on the foreign income and assets of their taxpayers for tax assessment and compliance purposes. That makes it more difficult for people to hide income in foreign accounts and to avoid paying tax to their own authorities. Perhaps more so than developed countries, developing countries suffer from flows of capital to tax havens. Tax information exchange agreements provide greater transparency and make it possible to ensure that tax is paid where it is due, meaning that illicit flows of ill-gotten gains are more easily discovered. Transparency has been a key theme of our debate. The Government's priority is to ensure that momentum in this area does not falter and that our G20 commitments are delivered. We are looking to countries that do not meet international standards on exchanging tax information to make swift progress. As the hon. Member for Twickenham mentioned, the Prime Minister has written to all our overseas territories to remind them of their commitments. The hon. Gentleman also asked about G20 sanctions. The G20 is certainly prepared to take counter-measures, and I refer him to the communication annexe of the G20 report, which outlines them. We are talking to countries such as Switzerland and Lichtenstein, which were mentioned, about the implementation of their commitments to exchange tax information with the UK through bilateral treaties. Those steps will not only bring benefits for tax collection in the UK, but help developing nations to improve their tax systems. Rising revenues and sustainable economic growth are important for the strategies of developing countries to move out of aid dependency. With that in mind, we were able to secure the support of our G20 colleagues on ensuring that developing countries benefit from new measures to enhance co-operation on tax. The Prime Minister has written to the OECD to ask it to look at ways to enable developing countries to participate in and benefit from the exchange of tax information. He wrote specifically about extending global forum membership to developing countries. We will continue to explore mechanisms to support developing countries. Transparency is the key to tackling tax evasion. Tax authorities need the capacity to collect the taxes that are due, but they also need to be able to assess the full extent of tax liabilities. The hon. Member for Banbury commented on the measures that we have taken in Sudan. In addition to those, we are exploring the OECD's model multilateral tax information exchange agreement—perhaps that addresses the 192 squared point that my hon. Friend the Member for North-West Leicestershire made about bilateral agreements. That agreement could be a significant step towards allowing developing countries access to relevant tax information without requiring time-consuming and resource-intensive bilateral negotiations.