Corporate Tax Avoidance – 7th January 2013
Nigel Mills MP: Does the hon. Gentleman agree that one thing we could do is require large companies to file their corporation tax returns with their accounts at Companies House? Then, from their accounts, we could all see their taxable profits and how they got them.
Ian Swales MP (Redcar, Liberal Democrat): I appreciate that intervention, because I know that the hon. Gentleman has great experience in this area. He goes further than I was proposing, but it is certainly a good idea.
Transparency and honesty are important. As we have seen recently with Starbucks, transparency can lead to consumer power influencing company behaviour. I hope that we will see more of that. Retail, business or government consumers who do not like the ethics or practices of a company do not have to deal with them, except perhaps in cases involving utilities.
HMRC must also be more transparent. Although it steadfastly claims that it does not do deals, Vodafone’s finance director told the City that its deal was worth £500 million a year. One lesson from that and other cases is that no high-level discussions with companies should take place without being minuted, and those minutes must be freely available to tax commissioners and the National Audit Office. The transparency must work both ways; we cannot go on operating through tinted windows.
Nigel Mills MP: It is a pleasure to speak in yet another tax debate—we seem to be having more and more of them as the months of this Parliament go by. This is an important issue, and the debate is about corporate tax avoidance, not just corporation tax avoidance. We can sometimes drift into focusing on tax on profits and miss out on the avoidance of VAT or payroll tax, which we could more readily do something about.
The publicity on the issue has had some positive impact, because it has probably discouraged a lot of businesses from entering into aggressive or artificial avoidance schemes. That has to be welcomed on one level, but we do not want to go so far that we start to do damage. The last thing that we want to do is deter international investment in this country. After all, the Government have set out to make ours the most attractive corporate tax regime in the G20. There has been great progress on that through rate reductions, and I believe that after the latest reduction we are about fifth in the G20. However, when we consider the effective rates that people actually pay, we are down to about 15th because of the complexities of our system. There is still a lot of work to do to make our system an attractive one that encourages investment both internationally and domestically.
We have to be careful that we do not drift towards having a tax regime that ceases to be based on a clearly advanced and published rule of law and is instead based on arbitrary decisions, with the Revenue having the power to ignore the law completely or rewrite it retrospectively, or if that fails, to bully people into paying a bit more tax until we think it is about right. After all, corporation tax is on profits for tax purposes, not on profits for accounts purposes, and certainly not on sales for accounts purposes. It is worrying that people seem deliberately to confuse the matter, talking about a company with a turnover of £1 billion paying only £500,000 of corporation tax and saying that that is a low percentage. That percentage could be completely irrelevant, because if it has made no profit, it will pay no corporation tax. We need to be accurate and focus on a different issue.
There are some aggressive avoidance schemes that are intended to exploit UK domestic law that we can tackle. The Government are tackling them, and I believe they have announced some more rules today to do so. We need to be as proactive as we can on those schemes, and that is where the general anti-abuse rule has a role to play. I am a sceptic about that. I am not sure I like the idea of giving any government bodies the power to implement something that is not law, but which they think ought to be. We are here to make laws; they are there to implement the laws we make. If we get the laws wrong, we should sort that out and improve our processes, not expect those bodies to find a way of fixing the problem retrospectively.
However, a lot of the avoidance we have been talking about involves transfer pricing. We are an international economy and we want to remain one. One of the things we are focused on is trying to encourage exports—we want people to invent and design things here, and then export and license them and get royalties and sales back. However, we will not win if we start an international war to see who can clobber royalties the most or put up the biggest barriers to trade. That would be a suicidally stupid thing to do.
Paul Farrelly (Newcastle-under-Lyme, Labour): One example of where the Government have quite sensibly changed the taxation regime is their approach towards remote gambling, where they are moving towards a “point of consumption” basis. We might argue about what profits should be taxed, but the principle is that the bet is taxed where it is “consumed”—that is, where the good or service is consumed—not where the business is accounted for. Does the hon. Gentleman agree that that is a model we might follow in order to repatriate other tax revenues?
Nigel Mills MP: Yes, I do. Indeed, I think we will end up travelling in that direction, because corporation tax rates will be in some kind of global race to the bottom—as we reduce ours, people will follow suit, which will lead to revenues falling. However, it is right to say that if something is sold to a UK customer, the VAT on it should be accounted for in the UK—in fact, what we are talking about is like a trading activity. To be fair, if I rang a random business in Botswana tomorrow and said, “Can you send me a widget you’ve made?”, and that business did not regularly sell anything to the UK, I suspect we would not be too worried, but sales of
things regularly marketed into the UK should be accounted for here and VAT should be paid. I think we are moving towards that system, which is absolutely right.
To return to my thread, it is not in our interests to encourage some kind of global race towards tax barriers, withholding taxes or whatever else. Mr Field was talking about some strange tariff for international companies to come and trade here, which would be crazy—certainly illegal and probably economically suicidal. We do not want to end up in that sort of mess.
We should not vilify the payment of royalties, management fees, design fees or even interest. What we need to do is ensure that those payments are not excessive, either individually or collectively. One of the things I fear, having worked in the industry, is this. At times, it is easy to say, “That fee’s okay, that fee’s okay and that fee’s okay,” but then we forget to look at the overall situation in the UK and reflect on the fact that no one would operate a business if the most they could ever make was a 1% margin on turnover in a very good year, while regularly making a loss in an average or bad year. That is not how to trade: these things have to be looked at as a whole, to try to ensure that the profit expected in an average year is reasonable enough for a business to want to operate in that territory.
That point can easily be lost, so what the Government can do to try to improve the situation is this. First, we need global rule changes to try to make internet-based business fit our tax systems. What we are trying to do, not just in the UK but globally, is make a tax system from the 1940s and 1950s—or even earlier—work for a different model of business. I remember that even when I started work a lot of my clients were inbound investors who actually made stuff in the UK and sold it just in the UK. That is not how things work now: people make stuff in low-cost territories, market it globally and administer that regionally. I do not think our system can be made to work in the current situation, where we have Amazon. There is a global need for reform.
However, we can do more on transparency. As I said earlier, we ought to require large corporates to file their tax returns with their annual accounts. People might say, “We have taxpayer confidentiality,” and yes, for individuals we do have that. However, we make companies file accounts and show what their profits are. What is the harm in making them show how they got to their taxable profit and the tax they paid? That would add transparency and show that the vast majority of corporates are not avoiding tax at all, but trying to do the right thing and making use of the different calculations that exist for tax. I have moved amendments in this place proposing to move our corporate system much closer to one based on accounting profit. We do not need all the different tax schedules—we probably do not even need a capital versus revenue divide. We can get our tax system much closer to one based on accounting profit, which would stop all these fears that some people are avoiding tax when they are perhaps not doing so. It would be much harder to implement complex transactions if that were in the accounts published. Indeed, we are talking about the profit that a business is judged on by lenders and the markets.
We could go so far as to say that all multinationals had to disclose all their cross-border transactions with related parties. A lot of companies used to do that in
their accounts. They would list the royalties that they had paid to the US, for example, and the management fees that they had paid to Japan. We could get back to that. It would not be too difficult for a company to say that it had paid a royalty of 6% on sales to the United States. That would aid disclosure. There are practical measures that we could take to improve the situation without ending up with some kind of awful taxation baseball-bat regime that would put people off investing here at all.
State Pension Reform – Oral Answers – 14th January 2013
Nigel Mills MP: I warmly welcome this announcement, and I think we will get to the right place. How long does the Minister expect that the current complex system will have to remain in place? Will we have to keep paying people pension credits for 40 years or more, or will there be a taper so that everybody will eventually receive the new pension?
Steve Webb MP (Minister of State (Pensions), Work and Pensions; Thornbury and Yate, Liberal Democrat): I am afraid that the taper is sometimes called the grim reaper. The process is that everybody who has already reached pension age by 2017 will have their rights under the current rules. I have every anticipation that those rights will be honoured for as long as people are in a position to draw them.
High Speed Rail – Oral Answers – 28th January 2013
Nigel Mills MP: I warmly welcome the announcement and especially the fact that the route will miss my constituency off to the east. Will the Secretary of State confirm that there will be good links not only to Nottingham and Derby, but to smaller local stations, such as the three in my constituency?
Patrick McLoughlin MP (Secretary of State for Transport; Derbyshire Dales, Conservative): I am grateful to my hon. Friend and constituency neighbour. As I have said, capacity is one of the key reasons for building the new route. It will be the first railway line to be built north of London in 120 years. We need extra capacity. By freeing up capacity, the line will enable there to be better services elsewhere.
HGV Road User Levy – 29th January 2013
Nigel Mills MP: It is a pleasure to join the voices welcoming this Bill. I remember that when I was elected, the very first oral question I was selected to ask about was on this very topic. Sadly, it was too far down the Order Paper to get heard that day, but we are now three years on and we have finally tackled this problem. It is a big issue when haulage businesses small and large feel that there is unfair competition whereby overseas hauliers can use our roads without paying anything. As we heard earlier, they sometimes do not even buy fuel over here, while our hauliers pay a large amount of money. I think this Bill takes us towards the fairness whereby those who use our services and our roads should pay for them. The Government could do further work in different areas to get to the same place, but that is not for today’s debate.
My view is that vehicle excise duty has had its day, and that its long-established purpose is now usurped by different ways of enforcement. We could move to a
stage where we do not need the duty and have a separate charge for all hauliers to use our roads. That would probably be a lot easier to administer than the scheme we are going to end up with, but I guess that the Minister will say that it is a Treasury decision so we cannot get into it today, but I think that is the direction in which we should travel.
I have never been a fan of hypothecation, but I see logic in using this revenue to address some of the issues affecting our main trunk roads. If someone happens to live near them and is blighted by the noise and the pollution, that presents a real problem, and there has been a lack of money to deal with it. I have two sites on the A38 in Amber Valley, which are down as priority sites for noise remediation work. Unfortunately, that means that it will not actually happen until something like 2020, so this money could be used to accelerate that sort of work. The Minister is more than welcome to come and hear how much noise is created. I think it would be a positive step to say, “It is lorries that cause that noise; here is some extra revenue taken from lorries; let us tackle that issue.” That could take away the blight from which nearby residents suffer.
Overall, I give this measure a warm welcome. It is long overdue. I look forward to April 2014 when we will start to see it in place. I wish the Minister all the best for getting in place everything that he needs to progress the Bill.