(Clauses 1 to 5; Clauses 6 to 14 and Schedule 1; Clauses 24 to 26; Clause 28; Clause 30 and Schedule 6; Clauses 31 to 33; Clause 36 and Schedule 7; Clause 40; Clause 41; Clause 86; Clauses 87 to 89 and Schedules 16 and 17; Clauses 90 and 91; Clauses 92 to 96 and Schedule 18; Clause 97 and Schedule 19; Clauses 109 to 111 and Schedules 21 and 22; Clause 115 and Schedule 27; Clauses 117 to 121 and Schedules 29 to 32; Clauses 128 to 130; any new Clauses or new Schedules relating to: the impact of any provision on the financial resources of families or to the subject matter of Clauses 1 to 5, 24 to 26, 28, 31 to 33, 40 and 86; the subject matter of Clauses 6 to 14 and Schedule 1; the impact of any provision on regional economic development; tax avoidance or evasion; the subject matter of Clauses 87 to 89 and Schedules 16 and 17 and Clauses 90 and 91; the subject matter of Clauses 92 to 96 and Schedule 18, Clause 97 and Schedule 19 and Clauses 128 to 130)
I should explain that, in these exceptional circumstances, although the Chair of the Committee would normally sit in the Clerk’s chair during Committee stage, in order to comply with social distancing requirements, I will remain in the Speaker’s Chair, and I will be carrying out the role not of Deputy Speaker but of Chairman of the Committee. We should be addressed as Chairs of the Committee, rather than as Deputy Speakers.
Clause 30
Construction industry scheme
Question proposed, That the clause stand part of the Bill.
With this it will be convenient to discuss the following:
Amendment 70, in schedule 6, page 121, line 1, leave out “ceases to be” and insert “is not”.
This amendment would allow that a de minimis amount of minor works can be disregarded.
Amendment 71, page 121, line 2, after “time” insert
“, but the body or person expects it to be met at any time,”.
See the explanatory statement for Amendment 70.
Amendment 72, page 121, line 3, leave out “continuing to be” and insert “being”.
See the explanatory statement for Amendment 70.
Amendment 84, page 121, line 4, leave out “any further”.
See the explanatory statement for Amendment 70.
Amendment 85, page 121, line 5, at end insert “exceeding £3,000,000”.
See the explanatory statement for Amendment 70.
Amendment 73, page 121, line 8, leave out paragraph 3.
This amendment would remove the provision making businesses who fall within the current definition, but who would not fall under the new definition of “deemed contractor”, to be drawn into the new regime for CIS from 6 April 2021.
Amendment 74, page 121, line 20, leave out paragraph 4.
This amendment would remove the provision requiring that, when a contractor is deducting the relevant percentage from a contract payment made to a sub-contractor, they should first deduct only the cost of material purchased by the sub-contractor from the figure to which the relevant percentage deduction is applied.
The Government remain committed to tackling tax avoidance, evasion and other forms of non-compliance. Since 2010, we have introduced over 150 new measures and invested over £2 billion in additional funding to ensure that the right tax is paid at the right time. These efforts have helped to secure and protect over £250 billion for the UK’s public services that would otherwise have gone unpaid, and they have helped to bring down the tax gap to 4.7% in 2018-19—its lowest recorded rate.
But there is still work to do. Clauses in this Bill build on our previous reforms in order to clamp down on deliberate non-compliance and make sure that everyone pays their fair share. They include measures to tighten the anti-avoidance rules aimed at those who promote and enable tax avoidance schemes. They also close a loophole in the existing anti-avoidance rule aimed at preventing non-UK resident individuals from claiming relief when they gift business assets to a company controlled overseas.
The clauses support HMRC’s strategy on promoting good tax compliance. As an example of that approach, the Government are amending the follower notices regime, which penalises taxpayers who have used avoidance schemes that have been shown to be ineffective, in order to make it fairer for those who comply, while ensuring that the regime remains just as effective at combating avoidance. The Bill also seeks to bring parts of the hidden economy out of the shadows by making some licence approvals conditional on tax registration and compliance. The clauses in the Bill are necessarily technical, which is in part down to the complex rules that are currently in place. Given the number of issues that we are covering and the number of speakers in the debate, I will keep my remarks fairly brief.
Clause 30 and schedule 6 introduce changes to tackle abuse of the construction industry scheme. The construction industry scheme is a revenue protection scheme designed to tackle evasion in the construction sector. The scheme protects approximately £7.1 billion in tax every year by requiring contractors to make deductions from the payments they make to subcontractors that they engage. Those payments count as advance payments towards those subcontractors’ tax and national insurance. The changes made by clause 30 will allow HMRC to correct employers’ CIS deductions when they are false or incorrect. Clause 30 will clarify the rules on deductions for the cost of materials and change the rules for determining which businesses will need to operate the CIS. It will also expand the scope of the current penalty for providing false information to HMRC.
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However, cheating the public revenue is the most serious tax offence, carrying a potential sentence of life imprisonment. It is therefore right that the prosecution should have to prove its case beyond a reasonable doubt—the usual standard of proof in a criminal case—and to demonstrate that the person has been dishonest in order to secure a conviction of cheating the public revenue. We all want fraudulent operators to be brought to book, but shifting the burden of proof for such a serious crime on to the defendant to prove their innocence is at odds with the principles of our criminal justice system and would undermine the right of a defendant to remain silent. The burden should be on the prosecution to prove dishonesty to the criminal standard of proof. That is fundamental to the rule of law.
I therefore recommend that amendments 17 to 42 are made to clause 36, and that clauses 30, 36, 41, 115 and 117 to 121, as well as schedules 6, 7, 27 and 29 to 32, stand part of the Bill.
I will speak to new clause 29, tabled in my name and the names of the Leader of the Opposition and other right hon. and hon. Friends. It is timely to consider what the Government are doing to tackle tax avoidance and tax evasion today, with this month marking five years since the publication of the Panama papers. Those papers revealed the true global scale of tax avoidance and tax evasion and the need for comprehensive and effective action to tackle them. Of course, the clauses we are considering are far more limited in scope.
The Minister set out that clause 30 relates to the abuse of the construction industry scheme rules, clause 36 makes amendments to the corporation tax rules for hybrids and other mismatches and clause 41 amends the anti-avoidance rule when claiming relief for gifts of business assets. More widely, clauses 115 and 117 to 121 relate to other measures, including penalties for the promoters of tax avoidance and giving HMRC new powers to obtain information. We will not oppose those measures today.
However, our concern about the Government’s approach is centred not so much on what those clauses cover but what the Bill, and the Government’s approach more widely, fail to do. Our concern is that, faced with the challenges of tax avoidance and tax evasion, and with the public clearly wanting to see definitive action from the Government, Ministers have presented a Bill of measures that are relatively minor and technical. Indeed, as the House of Commons Library analysis of the Bill concluded, it would seem that the Exchequer impact of these changes will be minimal as they are not included in the Budget report costings.
The truth is that three Conservative Prime Ministers and five Conservative Chancellors have failed to tackle tax evasion and aggressive tax avoidance. The Government have repeatedly promised to act, but their proposals in the Bill fall far short of the change we need. That is why our new clause would require the Government to review the impact of provisions in the Bill relating to the levels of tax avoidance and tax evasion and the size of the tax gap, and to publish regular reports setting out their findings. The Government must not be allowed to hide behind warm words on this matter. They need to be transparent about the impact, or lack thereof, that their proposals will have.
My hon. Friend is making a great speech. Does he agree that it seems disproportionate that more people, in an adjusted sense, tackle benefit fraud than tackle big business or dodgy individuals who are taking money from the public purse?
I very much agree. My hon. Friend makes an important point about the Government’s priorities, and about the lack of priority they give to going after the promoters of tax avoidance schemes and those who evade paying tax, in comparison to other actions in Government. We are seeking to put pressure on them today to address that imbalance.
HMRC’s criminal investigation policy states:
“Criminal investigation will be reserved for cases where HMRC needs to send a strong deterrent message”.
However, we know that fraud through the promotion of tax avoidance continues at scale, involving at least an estimated £20 billion in 2018-19, so it is hard to imagine why Ministers would not support a stronger deterrent message being sent by the greater use of criminal prosecutions.
Part of the answer may be the understaffing of HMRC. In a response on 11 January this year to a parliamentary question, the Financial Secretary admitted that the number of full-time equivalent employees at HMRC had fallen since 2010 from 67,553 to 58,467. That is a reduction of more than one in seven. The question of capacity in HMRC and the impact that that may have on its ability to tackle tax abuse must not be ignored. The Tax Justice Network refers to the fact that a member of staff in the compliance business stream at HMRC brings in on average over £900,000 a year on a £30,000 salary. It has pointed out that the Chancellor’s additional investment in HMRC staffing is directed towards tackling fraud related to covid spending, while previous funding increases have supported HMRC’s Brexit capacity. Its view is that the Chancellor must invest further in HMRC’s core compliance capacity.
Furthermore, beyond the questions around tackling the promoters of tax avoidance, the Bill is also silent on other important areas that need to be pursued, such as efforts to set up a register of overseas entities. Legislation is needed to establish a register that would show exactly who owns the foreign companies buying up British property. This would serve as a key part of any clampdown on money laundering.
I want to make a few points, principally on amendment 77. Perhaps I can start by saying that I do not agree with the Opposition spokesman, who has just addressed the House so eloquently, that the Government have been slow to tackle tax abuse and tax fraud. I should, at the outset, draw the House’s attention to my entry in the Register of Members’ Financial Interests. I think the Government have been very good at tackling tax fraud, starting in 2010 when this Conservative Government first came into office. The reforms that were introduced by George Osborne, the Chancellor of the Exchequer, deliberately targeted tax abuse and set up a number of measures to try to ensure that we clamp down on it, as it is common cause on both sides of the House for us to do.
Where I do agree with the Opposition spokesman is in his reference to the Panama and paradise papers. That excellent work by journalists from, I think, The Guardian and the BBC exposed the fact that money laundering, dirty money and abuse in that sector were far more rampant than we realised. That is one of the reasons why the right hon. Member for Barking (Dame Margaret Hodge) and I have made so much of an effort in this House, along with colleagues on both sides of the House, to try to clamp down on money laundering and dirty money and ensure that we have sunlight as the best disinfectant on all of this. That is why we introduced the open public registers of beneficial ownership for the British overseas territories, and why we strove so hard to persuade the Crown dependencies—successfully, now—to introduce those same open registers. That is the way in which we stop kleptocrats, bent politicians, warlords and corrupt businesspeople from stealing from the Exchequer but also, of course, from Africa and Africans. That was the great benefit of the paradise and Panama papers: they showed so clearly the extent of what was going on.
I thought that the Financial Secretary made some very good points about amendment 77. In general, I do think that the Revenue has enough power over the private citizen in the laws of the land as they stand at the moment. However, the point I would make to the Financial Secretary—he has been most receptive in listening to the right hon. Member for Barking and me about this—is that eternal vigilance is required. As we have seen, and as amendment 77 draws attention to, there is an inequality of arms in this matter. Advisers who set up these schemes often have an aura of authority, because they are lawyers, accountants and professional people, which those whom they advise may not be.
It is a pleasure to follow the right hon. Member for Sutton Coldfield (Mr Mitchell), with whom I work very closely on this issue; it demonstrates the best of Parliament that we are able to do so across the House.
I rise to speak in support of amendment 77, which stands in my name and that of members of the all-party group on anti-corruption and responsible tax. Our proposals command support across the House, and I know the Minister will therefore address this issue thoroughly and seriously, not just in his response today but in the work that I know he is doing to bear down on those who enable and support tax avoidance and financial crime. I simply say this to the Minister: he may have reservations about the technicalities of our proposals, but he should at the very least accept the principle that underpins them and say so today.
Big corporations and high net-worth individuals who engage in tax avoidance schemes and financial crime do not dream up these schemes on their own; they are invented and developed by the huge army of tax professionals—accountants, lawyers, banks and advisers—who spend their working life trying to identify loopholes and wheezes. The schemes they devise do not just help but actively encourage people not to pay their rightful contribution through tax to the common purse for the common good.
At present, HMRC may slowly and belatedly catch up, and may deem such schemes unlawful. If it does so, the individuals have to pay up and sometimes face enormous tax demands, but the enablers of tax avoidance mostly get away scot-free; at worst they may lose the fees they earned from setting up the scheme for their clients. Our amendment would hold these enablers to proper account. If advisers and promoters involved in a scheme know that the scheme does not work, they are committing the criminal offence—mentioned by the Minister—of cheating the public revenue. They are breaking the law, so they should be pursued, charged and convicted with a criminal charge.
I am pleased to speak in this debate and to speak to the amendments and new clauses to which I have added my name and which were detailed earlier.
All the SNP amendments relate to schedule 6, under clause 30. Amendments 70 to 72 and 84 and 85 seek to amend subparagraph (3A) of paragraph 2. Taken together, the paragraph would read:
“Where the condition in subsection (1)(l) or (2) is not met in relation to a body or person at any time, but the body or person expects it to be met at any time, the body or person may allow for the condition to be treated as being met until the body or person is not expected to make expenditure on construction operations exceeding £3 million.”
On the face of it, it does not look like a major change, but the amended wording is more in keeping with the spirit of the existing construction industry scheme. It allows, for example, for a de minimis amount of minor works to be disregarded in the operation of the scheme.
Amendment 73 seeks to remove paragraph 3 from schedule 6. I know that the Minister has spoken against this amendment and amendment 74, but we have seen no convincing argument that this change is necessary just now, and we believe that it would be much better for industry to be allowed to continue with the existing scheme for the current year rather than asking it to change the way of doing things. Let us face it, with its being a major part of our recovery from the covid recession, industry has far more important things to concentrate on.
A similar reasoning applies to amendment 74, which seeks to leave out paragraph 4 from schedule 6. That paragraph relates to the way in which the costs of materials purchased for a construction contract are taken into account for tax purposes. The construction industry has had to meet a number of challenges this year. We do not see how changing the way in which it has to account for tax on purchases by a subcontractor for another subcontractor, for example, during this current year will help. We do not see why it needs to be done just now.
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Amendment 75, page 123, line 17, leave out “2021-22” and insert “2022-23”.
This amendment would delay commencement until April 2022.
Amendment 76, page 123, line 20, leave out “2021” and insert “2022”.
See the explanatory statement for Amendment 75.
That schedule 6 be the Sixth schedule to the Bill.
Clause 36 stand part.
Government amendments 17 to 42.
That schedule 7 be the Seventh schedule to the Bill.
Clause 41 stand part.
Clause 115 stand part.
That schedule 27 be the Twenty-seventh schedule to the Bill.
Clauses 117 to 121 stand part.
Amendment 77, in schedule 29, page 319, line 23, at end insert—
“32 After section 280 of Finance Act 2014 insert—
‘280A Treatment of promoters of abusive tax avoidance schemes
(1) In any proceedings for the offence of cheating the public revenue, where—
(a) the person charged acted as a promoter in relation to relevant arrangements within the meaning of section 235, or the person charged gave in the course of business affirmative advice on the viability of relevant arrangements within the meaning of section 234, and
(b) the relevant arrangements were abusive tax arrangements within the meaning of sub-paragraph 3(2) of Schedule 16 of Finance (No. 2) Act 2017,
subsection (2) shall apply, subject to subsection (3).
(2) If, at any time that the person charged acted so as to fall within subsection (1)(a), that person was aware of the course of action or intended course of action having the consequence that the relevant arrangements were abusive tax arrangements within the meaning of sub-paragraph 3(2) of Schedule 16 of Finance (No. 2) Act 2017, the actions of that person in respect of the relevant arrangements shall be deemed to have been dishonest.
(3) Subsection (2) shall not apply if the person charged proves that they held in good faith the belief that the course of action or intended course of action was reasonable in the circumstances.’”
This amendment would cause promoters of tax avoidance schemes which are abusive (defined in existing legislation to mean schemes where it is not reasonable to regard the scheme as a reasonable course of action) to be treated as acting dishonestly for the purposes of criminal prosecution of tax offences, without dishonesty having to be separately proved by the prosecution.
That schedules 29 to 32 be the Twenty-ninth to Thirty-second schedules to the Bill.
New clause 14—Review of changes to construction industry scheme—
“(1) The Chancellor of the Exchequer must review the impact on investment in parts of the United Kingdom and regions of England of the changes made to the construction industry scheme by section 30 and schedule 6 of this Act and lay a report of that review before the House of Commons within six months of the passing of this Act.
(2) A review under this section must consider the effects of the provisions on—
(a) business investment,
(b) employment,
(c) productivity,
(d) GDP growth, and
(e) poverty.
(3) In this section—
‘parts of the United Kingdom’ means—
(a) England,
(b) Scotland,
(c) Wales, and
(d) Northern Ireland;
and ‘regions of England’ has the same meaning as that used by the Office for National Statistics.”
This new clause would require a report on the construction industry scheme provisions on various economic indicators.
New clause 15—Review of effect on tax revenues—
“(1) The Chancellor of the Exchequer must review the effects on tax revenues of section 115 and schedule 27, and sections 117 to 121 and schedules 29 to 32 of this Act, and lay a report of that review before the House of Commons within six months of the passing of this Act.
(2) A review under this section must consider—
(a) the expected change in corporation and income tax paid attributable to the provisions; and
(b) an estimate of any change, attributable to the provisions, in the difference between the amount of tax required to be paid to the Commissioners and the amount paid.
(3) The reference to tax required to be paid in subsection 2(b) includes taxes payable by the owners and employees of Scottish limited partnerships.”
This new clause would require a report on the impact of certain provisions of the Bill on narrowing the tax gap by comparing: (a) the expected change in corporation and income tax paid attributable to the provisions and (b) an estimate of any change, attributable to the provisions, in the difference between the amount of tax required to be paid to the Commissioners and the amount paid. In particular, this includes taxes payable by the owners and employees of Scottish limited partnerships.
New clause 29—Review of tax avoidance measures—
“(1) The Chancellor of the Exchequer must review the impact of sections 117 to 121 and Schedules 29 to 32 of this Act and lay a report of that review before the House of Commons within six months of the passing of this Act, and then annually for five further years.
(2) A review under this section must estimate the expected impact of sections 117 to 121 and Schedules 29 to 32 on—
(a) levels of tax avoidance,
(b) levels of tax evasion, and
(c) reducing the tax gap in each tax year from 2021-22 to 2025-26.”
This new clause would require the Government to review the impact of the provisions relating to tax avoidance and publish regular reports setting out their findings.
Scottish National party amendment 74 would remove paragraph 4 of schedule 6 to the Bill, which would have the effect of removing the proposed changes to rules for deductions for materials. However, there is a clear case in public policy for these changes. Some contractors and subcontractors are interpreting the rules incorrectly at present in a way that undermines the purpose of allowing materials deductions within the scheme, which allows some contractors and subcontractors an advantage over others. The proposed rule changes will ensure a clear and consistent approach, providing a level playing field for those involved. I therefore urge the House to reject amendment 74.
Amendment 73 proposes to remove paragraph 3 of schedule 6, which relates to the transitional arrangements between the old and new rules for qualifying as a deemed contractor. This would mean that many businesses would have to change their business arrangements overnight and go through the process of re-registering for the construction industry scheme under the new rules. As this could be more disruptive and confusing than the proposed transitional arrangements, I urge the House to reject the amendment.
Amendments 75 and 76 would delay the commencement of this measure to April 2022 rather than April 2021. Such a delay would not be appropriate, as industry has already been consulted on the changes and any impacts are expected to be limited. Again, I urge the House to reject these amendments.
Clause 36 and schedule 7 amend the corporation tax rules governing so-called hybrid mismatches. These rules are intended to tackle aggressive tax planning by multinational companies that seek to take advantage of differences in how countries view entities and financial instruments. Hybrid mismatches can lead to double deductions for the same expense or deductions for an expense without any corresponding receipt being taxable. The Government have consulted in this area and are amending the rules in several areas so that they remain proportionate and do not lead to economic double taxation. That includes introducing a limited grouping matching rule and a change to the type of income that counteractions under the rules can be set off against.
Government amendments 17 to 42 to clause 36 have been tabled to ensure that the changes provided under that clause work and reflect the underlying policy intent. They address various technical issues that have been raised by external commentators following the publication of the Bill, and mostly change small and technical details.
Clause 41 will close a loophole in the capital gains tax gift holdover relief rules by preventing non-UK residents from being able to claim the relief while transferring a business asset to a company controlled overseas that they personally own. By making this change, the Government are ensuring that the relief is used fairly and only for its intended purpose.
Clause 117 and schedule 29 make changes to the promoters of tax avoidance schemes regime, known as POTAS. The changes allow Her Majesty’s Revenue and Customs to issue stop notices to prevent the promotion of schemes that it suspects do not work and to obtain information from suspected promoters at an earlier stage of the process than at present. They also prevent promoters from sidestepping the rules by rearranging their corporate structure to carry out activities through different entities. There are a number of other technical amendments to ensure the continued effectiveness of the regime. There are also further measures in the Bill to enhance the operation of the disclosure of tax avoidance schemes—DOTAS—rules.
Clause 119 changes the penalties issued to enablers of tax avoidance schemes that have been defeated in court, at tribunal or otherwise counteracted. The changes will allow HMRC to obtain relevant information from potential enablers at the earliest possible moment so as to be able to consider whether they are liable for an enabler penalty.
Clause 120 and schedule 31 make changes to ensure that the general anti-abuse rule can be used as intended in respect of partnerships that have entered into abusive tax avoidance arrangements.
Finally I turn to clause 121, which from April 2022 makes the renewal of certain licences to trade conditional on licence applicants in England and Wales completing checks with HMRC. The checks will confirm whether applicants are registered for tax, and new licence applicants will be directed to HMRC guidance about their tax obligations.
I turn to the most substantive of the amendments before us today: amendment 77, which relates to the POTAS provisions that I outlined. The amendment seeks to amend schedule 29 so that anyone subject to the promoters of tax avoidance schemes regime, and promoting or enabling abusive tax arrangements, should be deemed to have been acting dishonestly unless they can show that they acted in good faith and believed the arrangements to be reasonable. This would mean, in respect of the criminal offence of cheating the public revenue, that a person would automatically be treated as dishonest where it had been demonstrated that they had promoted abusive tax arrangements as defined in the general anti-abuse rule. As such, there would be no requirement for any prosecution to prove dishonest conduct.
I fully agree that promoters who break the law should face the consequences of their actions. That is why the Government are putting so much emphasis on anti-avoidance measures and measures against promoters of tax avoidance in the Bill and elsewhere. We should be under no illusions about this. It is not honest to market tax schemes or arrangements that are known not to work and that at their heart feature false statements.
We also welcome the amendment in the name of my right hon. Friend the Member for Barking (Dame Margaret Hodge), which seeks to treat promoters of tax avoidance schemes which are abusive as acting dishonestly for the purposes of criminal prosecution of tax offences. This kind of change is crucial if we are to shift towards more criminal prosecutions for the promoters of tax avoidance schemes, and to shift the gear of the Government’s approach.
At the moment, where tax avoidance has occurred, the system lands liabilities on the tax payers, who are usually not tax experts and may have been falsely told that a tax avoidance scheme is lawful. In contrast, the promoters of tax avoidance schemes are allowed far too often to get away with it. We therefore welcome any efforts to strengthen penalties for the promoters of failed tax avoidance schemes. But we have seen nothing from the Government today to raise the stakes and to make greater use of the powers HMRC already has to bring criminal prosecutions against the promoters of fraudulent tax schemes.
We know that HMRC recognises its power to use criminal investigation approaches to tackle the promotion and enabling of tax avoidance schemes, but in a letter the Financial Secretary sent me in January this year, he admitted that, since the formation of HMRC’s fraud investigation service in 2016, only 20 individuals have been convicted for offences relating to arrangements that have been promoted as tax avoidance. An average of around four people a year does not feel like a concerted effort.
The then Prime Minister, David Cameron, first announced plans for this in 2015, yet more than five years later, the legislation is nowhere to be seen. I bet he has not been in touch with Ministers for action over that. I would welcome the Minister using his speech at the end of this debate as an opportunity to explain whether the promised deadline of introducing legislation to set up a register of overseas entities by 2021 will be missed. If he is silent on this matter, we will take that as a yes.
I would like to use the opportunity of a discussion on tax avoidance to ask the Treasury ministerial team again to confirm whether the Chancellor backs plans for a global minimum corporate tax rate, as proposed by the US President. When I asked the Minister’s colleague, the Exchequer Secretary, to address this point during the Bill’s Second Reading last Tuesday, she did not respond, which I am sure was an oversight. I would therefore welcome the Financial Secretary addressing this question directly in his closing speech, to avoid any misperception that he and his colleagues are deliberately avoiding the question.
Our criticism of the Government in relation to tax avoidance and evasion centres not so much on what the measures in the Bill would achieve but rather on the ways in which the Bill and the Government’s wider approach fall short. The Government lack a tough and comprehensive approach to prosecuting the promoters of tax avoidance, to going after international money launderers and to pursuing those who seek to evade tax. We know that the impact of the measures in the Bill will be relatively minor and technical. The public deserve to have the Government present clearly and transparently what effect the measures in the Bill will have, and our new clause simply requires that their impact on tax avoidance, tax evasion and the size of the tax gap should be reviewed and laid in public before this House.
Throughout the Minister’s statements and comments, there is a clear pattern that the Government favour minor technical amendments to legislation on this matter, rather than upping their game and truly calling time on the practices that the public clearly want to see ended. Today they have an opportunity, by supporting our new clause, to show that they understand the need to be clear with the public, to recognise the need to strengthen their approach on this matter, and to commit to coming back with the resources and legislation that are needed to truly make a difference.
I want more to be done to ensure that, where these bad schemes of tax evasion are put together by professional advisers, they do not get off scot-free while the people they put into these devices, or talk into going into them, take the rap. It is not right that they should just lose the fees that they earn, which I think is currently the position: we should toughen the financial penalties. The Minister handles these matters very well, and I know that he wants this to be more than a senior common room debate. I know that he is conscious of the balance between the rights of the individual and making sure that people are not able to evade tax. I know that he does think seriously about that, so I would just urge him to always keep an open mind on this issue.
This is a familiar theme. In this year of Britain’s presidency of the G7, we should remember the work that was done by George Osborne for the last G8, at which he championed the open registers that were introduced in Britain in 2016. It is a proud achievement of this Conservative Government that, at the last G8, they moved the world towards focusing on these illicit flows of money, and this year with the G7, I hope that the Minister will consider it important as well. I completely accept that we are not going to divide the Committee on amendment 77. What the Minister said about the amendment was extremely constructive and I hope he will feel it right for the House to return to this matter on very regular occasions, in pursuit of what unites us all: that people should pay their fair levels of tax.
That does not happen now, and our amendment seeks to make it easier for the enforcement agencies to pursue criminal prosecutions. Not only would they hold the advisers to account, but I am completely convinced that the threat of a criminal prosecution would act as the most effective deterrent and bring to a halt many of the activities of these rogue advisers. It would be the most efficient way of tackling tax avoidance at source. It is a common-sense approach to the problem, and it would be welcomed by all taxpayers, who are so frustrated by paying their tax unquestioningly while seeing others avoid tax or break the law. It would restore confidence in the tax system. It is a good idea, and I hope that when the Minister responds he will say that he shares our view that we need to amend our legislation to make it easier to pursue and prosecute advisers who deliberately promote egregious schemes that are unlawful.
I know from my time chairing the Public Accounts Committee how embedded the culture of avoidance, evasion and financial crime has become in our financial services sector. We saw it plainly with the revelations from HSBC, with the Falciani leaks from its Swiss branch. It was there in the PricewaterhouseCoopers leaks keenly exposing that firm’s activities in Luxembourg. The Panama papers uncovered the shenanigans involving the law firm Mossack Fonseca, while the Paradise papers disclosed the nefarious activities of another law firm, Appleby. While it may no longer be seen as cool to be involved in tax avoidance, the latest leak of documents contained in the FinCEN papers spells out the complicity of major global banks in facilitating and enabling financial crime, from tax avoidance through to fraud and money laundering.
Normal working people, however, often suffer the most. The film tax relief that was exploited ruthlessly by the company Ingenious Media left many facing huge tax demands, though the chief executive, Patrick McKenna, is still lauded through public appointments in the creative sector. The loan charge scheme was promoted vigorously by enablers. They walked away scot-free, but left devastation in their wake. I understand from the all-party parliamentary loan charge group that seven suicides have been reported to the group—people driven to suicide because they were conned by enablers into participating in a scheme that later unravelled. That is truly shocking.
I welcome the consultation that the Government have launched on tackling the promoters of tax avoidance. The all-party parliamentary group will be preparing a response to that consultation. Most advisers, of course, work in an honest and straightforward way, and we do not want to pursue with criminal charges those who make an honest mistake, but there are still individuals, companies and organisations who deliberately and wilfully promote egregious schemes that they know do not work. Such enablers move quickly, they are well resourced and they are well capable of outmanoeuvring HMRC. As soon as one wheeze is uncovered, they move on to the next. Worst of all, they act with impunity, safe in the knowledge that they will escape any real punishment if they are ever caught.
Why do these rogue advisers not get prosecuted? The answer lies in what the Minister said: HMRC has to demonstrate dishonesty to proceed against them and it is virtually impossible to do so. The advisers can always claim that they honestly believed that the scheme would work. We therefore want a new test, which makes criminal prosecutions feasible and practical.
We suggest adopting the test that is in place for the work of the GAAR—the bar for prosecution for those ne’er-do-wells should be just as stringent. It would simply make it possible and practical to take action. HMRC would have to demonstrate not simply that the avoidance scheme was not reasonable; it would have to demonstrate that it was not reasonable for anybody to think that the avoidance was reasonable. Sorry for the complication, but that is a double reasonableness threshold. I assure the Minister that that double reasonableness test is in effect the same as the “beyond reasonable doubt” test that he mentioned in his opening remarks. Of course, it would be easy for enablers to avoid prosecution —they just need to stop promoting or recommending tax avoidance that is so aggressive that they know it will fail.
Our amendment tackles a gross injustice in the system. People are completely fed up with reading endless stories about scurrilous tax avoidance schemes promoted by those working in the financial services sector. The perceived difference in the way that hard-working taxpayers and rich individuals are treated breeds mistrust. We suggest a practical change in the law that would make it possible to pursue the enablers, not because we want to see the courts clogged up with prosecutions against bankers, accountants, lawyers and advisers, but because we think that that is the best way of making those advisers think twice before they promote unlawful schemes. It would deter most of them from trying to cheat the public revenue. I urge the Minister, please, to be bold on the issue, to state today that he will tighten up the law and to give us the assurance that, if he does not like our particular solution, he will come forward in a timely manner with his own proposal.
New clause 14 requires the Chancellor to report back to Parliament on the impact that the changes proposed in clause 30 and in schedule 6 have had on key economic indicators. One would think that it would be automatic that, when a Government make changes to the tax system, they would go back a wee while later to see whether the changes have had the desired effect. This Government are perennially hopeless at doing that. We seldom if ever see a published assessment of what impact the new legislation or changes to the tax system had. That makes it much more difficult for MPs and the public to hold the Government to account. Even more importantly, it means that, when mistakes are made—that is when, not if—there is no reliable process to identify that and to put things right.
For this Committee sitting alone the Government have had to table no fewer than 22 amendments in order to correct mistakes or to remove inconsistencies and ambiguity from their own Bill which they themselves commended to the House only last week. We can only hope that they have spotted all the mistakes by now, but surely with such an important piece of legislation it makes sense to ask the Chancellor to report back to us to tell us whether it is working, or whether there have been unintended consequences that need to be addressed sooner rather than later.
New clause 15 again requires the Chancellor to report back to Parliament, but this time on the effectiveness of various anti-tax avoidance measures in clauses 117 to 121, and the follower notice penalties in clause 115. I note that the Opposition have tabled something similar, although a bit more restricted in scope.
We welcome the further measures included in this Bill, but they still do not go nearly far enough. Time and again, it has been pressure from SNP MPs that has forced the Government to take any action at all on the scandalous levels of tax avoidance that they continue to tolerate. We still do not have an overarching and workable general anti-avoidance rule. We have an inadequate system of company registration and regulation that makes it far too easy for companies to hide the truth about who really benefits from the profits that they make on the hard work of citizens of these islands and who is really in control of the company. For example, the SNP has highlighted over and over again the need for legislation to combat the abuses of so-called Scottish Limited Partnerships by money launderers and organised crime. As things stand, almost anybody in the world can set up one or several Scottish Limited Partnerships and then use them to get round even the inadequate regulatory and transparency requirements that apply to other companies.