- Question for Short Debate
- 6:16 pm
- Asked by
- To ask Her Majesty’s Government what assessment they have made of the reports by Church Action for Tax Justice (1) Tax for the Common Good, published in February 2019, and (2) Fair Tax Now, published on 4 January 2021.
- My Lords, I thank all those speaking in this evening’s debate. I am no expert on tax, but it does not take an expert to see that there are some deeply entrenched tax inequalities. This 2019 report by Church Action for Tax Justice, and its 2021 report, Fair Tax Now, are more relevant than ever, not least with the financial impacts of the Covid-19 pandemic being felt in all parts of society, and with Her Majesty’s Government’s commitment to “levelling up”.The proposals laid out by Church Action for Tax Justice seek not to harm wealth generation, but to level the playing field and facilitate a fairer tax system that ensures that those with the deepest pockets do their duty to the societies that provided the context in which they were able to amass their wealth. This is a vast topic, so I will make a couple of preliminary comments and then suggest four of the most important areas that must be addressed.Democracies rely on the population accepting that taxes are broadly equitable, yet there is now a consensus that, for example, many international online companies are not paying their fair share of taxes in this country. At the same time, there is a delicate balance between encouraging the generation of wealth and ensuring that the burden of social costs is shared as equitably as possible.Of the four most important areas to be addressed, the first is tax havens. For the United Kingdom, tax avoidance remains a major problem, with the annual tax gap estimated at £31 billion per annum. However, even more damaging is the infrastructure enabled by the UK that allows tax avoidance on a global scale. The presence of tax havens, whether they be British Overseas Territories or Crown dependencies, combined with their close connection to the financial might of the City of London, facilitates an international network that syphons money out of nations and into these jurisdictions, with their low tax, weak legislation and easily exploitable loopholes. Noble Lords may recall that the British Virgin Islands was the most popular tax haven mentioned in the Panama papers.While I am pleased that the British Overseas Territories and Crown dependencies have all committed to publish public registers of beneficial ownership by 2023, these territories will remain lucrative places to those seeking to avoid paying tax. According to the 2019 corporate tax haven index, four of the top 10 havens globally were UK associated territories: the British Virgin Islands, Bermuda, the Cayman Islands and Jersey. The 2023 changes may go some way towards reducing their use, but the reality is that the City of London and the UK’s associated territories will continue to be at the centre of a network for international tax avoidance. Furthermore, should the Government choose to move ahead with free ports, and essentially create onshore tax havens within the UK, a corporate tax rate race to the bottom may be unleashed.
- I call the next speaker, the noble Lord, Lord McKenzie of Luton. Lord McKenzie? No? We will move on to the next speaker, and if we can reconnect with the noble Lord, Lord McKenzie, we will bring him back in after the right reverend Prelate the Bishop of Portsmouth. I call the noble Lord, Lord Holmes of Richmond.
- 6:25 pm
- My Lords, tax, a temporary aberration, has proven more than somewhat sticky. Of itself, this is neither positive nor negative. I welcome the opportunity to take part in this debate, congratulate the right reverend Prelate on securing it, and welcome the two reports from Church Action for Tax Justice. Indeed, tax for the common good has to be what we are aiming at.The Covid crisis has affected the relationship between citizen and state—taxpayer and tax collector—as with so much else in society and our economy, with HMRC being an effective means of financial support for many people. There is a real opportunity here to reimagine tax: real time, data-based, embedded far more in our daily experience, rather than something mysterious and distant, with the constant fear of the crown-embossed envelope landing on the doormat.Many of us are used to dealing and interacting with our banks and grocers digitally, often via apps—why not similarly deal with the tax man? In saying this, I am in no sense undermining the significance of the pernicious forces of digital and financial exclusion, which need to be urgently addressed. But imagine a trader coming out of Covid. If HMRC reverses too quickly from financial support to debt collector, what should she do when faced with her VAT and other bills or paying the electric? As with any other debt, it should start with an effective relationship and connection, maybe via an app, with understanding and flexibility on both sides.All the data already exists in our current banking and payment system to be able to operate a taxation system in real time for the benefit of all. It is encouraging that the Chancellor of Exchequer has nodded his support towards stablecoins and, indeed, central bank digital currency. Imagine central bank digital currency which could carry with it its taxation status, effortlessly operating an efficient, effective tax system for the whole UK. We could potentially have an effortless domestic and international, cross-border taxation system. When added to smart ledgers and DLT, the opportunity is extraordinary. Would my noble friend the Minister agree that, when it comes to tax transformation and tax for the common good, we not only have the technology but that tax in this new, transformed, technology-driven world does not need to be taxing?
- I will try the noble Lord, Lord McKenzie of Luton, again. Lord McKenzie?
- 6:28 pm
- My Lords, we are asked to join a big conversation on tax, focusing on the unfairness of much of our current system. We have heard about some of that, including some of the international dimensions. Our starting point at this juncture is that taxation is, or should be, about a common good—not a necessary evil. Judgments about fairness are not just about tax rates; they are about accessibility of the benefits in the tax system and for whom they were designed. The Low Incomes Tax Reform Group has just published its practical steps, which note that tax and associated social security systems could be made to work better for those on low incomes.The church reports are right to identify as unfair the benefits for those who can, depending on the circumstances, organise their income in such a way as to take advantage of a capital gains regime or, indeed, a more favourable income regime, with deferral in appropriate circumstances. In introducing this debate, the right reverend Prelate focused on council tax, and I agree entirely about the nature of its unfairness. I wonder whether the hangover from the poll tax is an inhibiting factor in addressing it more rigorously.Inheritance tax has become virtually voluntary. At a time when the national finances have been laid bare by the pandemic, with an expected deficit of something like £400 billion, surely it is time to consider a wealth tax, about which we have now heard from the Wealth Tax Commission, the governing body.The Tax Justice Network Briefing describes circumstances in which, through technicalities, taxpayers are able to minimise and lower taxation charges that operate internationally and in overseas jurisdictions. It is suggested that the benefits of doing so could amount to something like $500 billion, although that seems a somewhat simplistic figure. This can involve the use, as described, of tax haven jurisdictions, taking advantage of financial secrecy and helping to mask the true ownership of funds. We are told—we have heard it again this evening—that the Crown dependencies and overseas territories are up to their necks in these activities and are central to tax avoidance and evasion. I think that the Minister has committed to making some changes—
- I am sorry but perhaps I may remind the noble Lord of the three-minute speaking limit.
- I am sorry. I will leave it there.
- 6:32 pm
- My Lords, I am immensely grateful to the right reverend Prelate for securing this debate—it could not be better timed—and for the work that Church Action for Tax Justice has done and for the way it is establishing a new agenda here. However, to be reminded that we have three minutes rather puts me in mind of Dr Johnson—I mean Dr Johnson and not our current Prime Minister—saying that to be hung in the morning concentrates the mind wonderfully.I have three points to make, besides endorsing all the comments, bar one, of the right reverend Prelate. Might I please caution not to easily roll up national insurance with income tax? National insurance needs to be reformed. It needs to be made progressive, along the lines that the right reverend Prelate spoke of, but it is a means by which people can feel that they contribute to their welfare state. It gives them a sense of ownership, which crediting people does not.I turn to the three issues that I would like to raise. One reinforces the point that I have already made: it could not be a better time for this debate. At the last election, where I fought to be returned again in Birkenhead, I quietly said to myself—and rejoiced—that the Government’s main driving force would be the levelling-up programme. But that cannot be taken seriously unless we look at all, or practically all, of the Government’s domestic programme. I think that the job of the Government—and if not them, then us—is to bring together a comprehensive programme of reform for levelling up, but that cannot be done without considering taxation, both direct and indirect.Secondly, I make a plea for gaining flexibility to vary tax rates. When I was part of the Blair Government —for that short but happy period of time—the Government took powers to allow them to experiment with welfare reforms. They did not have to be national; they could be regional or local. I say that merely to remind the Government that that might well be an approach that they would wish to see in the areas that they are most anxious to level up.
- 6:36 pm
- The Lord Bishop of Portsmouth [V]My Lords, I am delighted that my good friend and close colleague the right reverend Prelate the Bishop of St Albans secured this debate. I congratulate him on bringing these reports from Church Action for Tax Justice to wider attention. I urge the Government to assess and act on them.I particularly endorse the right reverend Prelate’s drawing attention to the often pernicious interaction of income tax and national insurance so-called contributions. The reality is that such “contributions” are no such thing. These are two direct tax systems working alongside each other, but crucially not together, and often unfairly. This is exacerbated when the impact of other taxes, such as council tax, is factored in.I cannot claim now, as my time as an economist is long past, anything other than an amateur understanding of the economic impact of direct taxation. However, it is abundantly clear that, whatever the very modest merits claimed by the noble Lord, Lord Field, the interaction of these taxes—some progressive and others regressive, with varying conditions—causes a confusing and inequitable impact on the take-home earnings of those on low and modest incomes. This is an impact on those who can least afford it and are least able to absorb it.The report Fair Tax Now illustrates this by powerfully comparing how the average tax on income borne by an NHS nurse and a person earning £10 million a year favours the multi-millionaire. However, there is also very significant unfairness in the tax treatment of those on low and very modest incomes, particularly in the marginal tax rates they face. No payments of national insurance and income taxes are paid on earnings up to £9,500 a year, so then a 12% national insurance rate kicks in. Income tax at the basic rate of 20% is added above £12,500 a year, giving a marginal tax rate of 32%. If you are fortunate enough to earn more than £50,000 then income tax rises to 40%, but the national insurance component of direct tax on income falls to 2%. The marginal tax rate on income of 50% and above is not an extra 20% as popularly claimed, but only an extra 10%. There are many other injustices and there is not nearly enough clarity. We need less inequality and injustice. I urge the Government to address this urgently.
- 6:39 pm
- I congratulate the right reverend Prelate the Bishop of St Albans on securing this debate. I wholeheartedly endorse the reports Tax for the Common Good and Fair Tax Now. If we are to rebuild a sustainable and just economy and end the blight of inequality, the evil of tax-dodging by powerful corporations, facilitated by accountants and lawyers, must be ended. For the reasons set out in those reports and by other noble Members in this debate, we need to make taxes of all kinds less regressive and to tax wealth, property and inherited income properly. We need to work internationally to prevent national competition on low taxation and end the blight of tax havens.One thing that Covid-19 has shown those of us who, unlike the right reverend Prelate the Bishop of Portsmouth, are not economists is that Governments are not dependent on tax income to balance public expenditure in a notional account book. It is now clear that they have other sources of spending for the public good, especially in times of low inflation. But tax has functions beyond simply raising revenue for the Government. Most particularly, it is a means to reduce inequality—the most appalling blight on our society, as the reports make clear. The consequences of economic inequality on every aspect of life were drawn to our attention a decade ago in the work of Wilkinson and Pickett, and are strikingly reiterated in the latest of the reviews by Sir Michael Marmot and his team, Build Back Fairer: The COVID-19 Marmot Review. The adverse impact of inequality on the economies of the world has been pointed out time and again by the OECD and the International Labour Organization.In the UK, the share of national income going to workers has been relentlessly declining for 40 years, as company profits and dividends to shareholders increase at the expense of wages and salaries. In 1976, 65.1% of gross domestic product went to wage earners; by 2019, wage share had slumped to 49.2%. After a year of lockdown, we can be sure that the scales have tipped yet further against—[Inaudible.]
- I think we had some interference on the noble Lord, Lord Hendy.